BL: If the economic situation with increasing inflation is affecting the repayment of loans, why don’t banks consider loan rescheduling before moving to courts of law?
Al-Aboodi: It should be noted that the levels of non-performing loans for most banks are decreasing as the financial sector emerges from the financial crisis and growth, especially across Asia and the Gulf countries, continues to progress well. Most banks look very closely at loan rescheduling, especially due to the often limited dispute resolution frameworks and legal redress opportunities in OIC countries. The issue of dispute resolution is an important one in both the Shariah compliant and wider overall financial industry, and certainly one that we will be seeing more of. ICD believes that rescheduling loans will help in resolving issues and strengthen the relationship between partners.
BL: Is it true, that as a result of bad economic times, lending rates are higher than they should in order to be attractive?
Al-Aboodi: In terms of Islamic finance, Riba is prohibited and therefore this is less applicable to Islamic banks. However on a general basis: the US Federal Reserve has since 2012 implemented the third round of Quantitative Easing (QE) which has deliberately kept rates extremely low in order to encourage borrowing; which has led to increased interest in emerging economies as global investors are keen to seek returns using cheap funds. However, the most recent Fed meeting agreed to tighten the policy and reduce QE, which has resulted in concern in the global financial markets especially the fixed income markets, and could see a flight of capital from emerging economies as market participants retrench their funds back into their own markets and borrowing levels fall. In addition, the new policy direction is likely to see the US dollar strengthen considerably, which will impact the global trade balance.
BL: Since Islamic banking is not interest-based, what other value addition does it bring to the market?
Al-Aboodi: The avoidance of interest is in fact exactly the value addition that Islamic banking brings to the market. The core principles of Islamic finance are, among others: to avoid Riba (interest), to adhere to ethical Shariah principles in terms of investment (i.e. to avoid Haram activities such as alcohol, non-Halal products, gambling, pornography, financials etc.) and to ensure that all transactions are based in the real economy and backed by real assets (i.e. avoid speculation and uncertainty). This means that as an alternative financial system, Islamic finance can be viewed as a more robust and realistic alternative to the conventional system. An example of this is that Shariah compliant banks overall performed much better through the financial crisis, as they were not exposed to the risky derivatives and securitizations that brought down the conventional system.
In fact, ICD established many Islamic banks and leasing companies in different member countries in order to ease the access to finance for SMEs which are the engine of growth for the emerging markets.
BL: What efforts are being taken by the ICD in Jeddah to teach staff and experts who would help in promoting the industry?
Al-Aboodi: ICD undertakes a wide range of training and teaching exercises to ensure that they contribute to the development of a deep and qualified talent pool for the industry. Most recently, the ICD enacted a partnership with the IE Business School in Spain under which the academic institution will design a targeted 15-month corporate MBA program specifically for employees of the ICD, IDB Group and private sector entities from member countries. We also work with government bodies and private sector institutions to provide expert training to encourage private sector development: for example, in our recent collaboration with the Bahrain Economic Development Board in July 2014 to promote SME growth in Bahrain through providing support, training and Shariah compliant products. We also have a longstanding agreement with the International Centre for Education in Islamic Finance (INCEIF) in which the ICD counterparts the INCEIF-implemented program Charted Islamic Finance Professional (CIFP) participants learning experience through its corporate attachments within ICD and its investee companies globally, with its reputable regional partners and within the IDB Group.
BL: What is the philosophy of ICD?
Al-Aboodi: The goal of ICD is to support the economic development of its member countries through the provision of finance to private sector projects in accordance with the principles of the Shariah law. We finance projects that are specifically geared to creating employment opportunities and boosting exports, as well as mobilizing additional resources for projects and encouraging the development of Islamic financing and capital markets. We also provide advice to governments and private sector groups on policies aimed at encouraging the establishment, expansion and modernization of private enterprises, development of capital markets, best management practices and enhancing the role of market economy.
BL: Are ICD’s facilities open to non-Muslims and non-member countries?
Al-Aboodi: Absolutely, one of our core goals is to encourage the development of Islamic private sector participation in non-Muslim majority countries, and to enhance and develop cross-border links between member and non-member countries. This is one of our key targets going forward, which can be illustrated by the recent landmark agreement signed in September with Bank of Tokyo-Mitsubishi UFJ (Malaysia) (BTMU Malaysia) to provide ICD with a US$100 million financing facility, which illustrates our continuing efforts to create linkages with non-traditional markets. Our latest partnership with Japan International Corporation Agency (JICA). The partnership will work towards establishing a platform for international dialogue on Shariah compliant finance as a potential tool for inclusive and sustainable growth, aligned with our overarching goal of supporting the development of the Islamic finance money market and international capital market for the countries of common interest; starting with joint technical assistance on the issuance of Sukuk. We hope that this will assitst Japan in supporting the development of a robust Islamic money market and promoting its increased participation in the international Islamic capital markets.
BL: What are the business ventures that you pride yourself in?
Al-Aboodi: As a development institution, ICD takes a two-pronged approach to project financing in order to maximize the benefits to local economies.
ICD delivers direct investment and financing for larger scale projects, such as Alfareeda in Jeddah, Felix Airways in Yemen, Rahimafrooz Globatt in Bangladesh, and H & D Industries in Senegal, just to name a few.
Complementing the direct investment approach, ICD also reaches many more local SMEs through the chain of channel financing. ICD invests in local funds, Islamic banks, and leasing companies who then channel investment funds to SMEs in their respective markets.
ICD is committed in developing Islamic financial institutions, and it’s within the ICD 1440H (2020G) Strategy to establish at least one Islamic financial institution per member country. Until today since adopting the new strategy in 1430H(2010G), we have successfully established number of Ijara companies across the Member Countries and countries with Muslim minorities, specifically in Tatarstan (Russian Federation), Sudan, Kazakhstan, Tajikistan, Uzbekistan, Azerbaijan, Kyrgyzstan, Palestine, Malaysia and Albania. In addition, ICD has created the Ijara Management Company (IMC) - a company specialized in providing management, IT, operational support to the newly established Ijara companies. This is a specialized consulting company operating independently from Bahrain. Currently, ICD team working on the study and the establishment of leasing companies in the following countries: Egypt, Morocco, Algeria, Brunei, Turkey, Bangladesh, Saudi Arabia, Bahrain and Senegal.
BL: What is the difference between the Islamic money market and international capital market?
Al-Aboodi: I assume you mean the difference between the Islamic and conventional capital markets.
The Islamic capital market works on broadly similar principles to the conventional market; however it avoids the use of Gharar and Maysir (speculation and uncertainty) which means that it avoids the use of most speculative derivative products as well as futures and short selling. The Islamic debt markets are of course best known for the Sukuk market, which represents essentially a type of structured Islamic bond with a number of equity-type features and which is Shariah compliant.
In terms of the Islamic money market, this is one of the biggest challenges for the Islamic finance industry as there are a very limited number of liquidity management tools that can be used by the treasury departments of Islamic banks to park their surplus funds. Many countries do not offer enough or indeed any Shariah compliant sovereign instruments, while the Sukuk market is still relatively thin in terms of secondary trading. Most banks utilize commodity Murabahah to manage their interbank funds, although this contains an element of controversy regarding its permissibility by scholars.
Recently, ICD launched the ICD Money Market Fund (MMF). The MMF is a liquidity management fund that provides periodic income to its investors by investing in Shariah compliant placements, investments and financing products. The target fund size is USD200 million in which ICD had already seeded with USD50 million.
The ICD Money Market Fund is a Labuan Islamic Limited Liability Partnership. This unique structure enables investors to enter into a partnership agreement as limited partners with ICD as a designated partner who will be managing the fund as mudarib.
BL: What are the objectives of signing an MoU in Washington, USA between the Small Enterprise Assistance Funds (SEAF) and The Islamic Corporation for the Development of the Private Sector (ICD)?
Al-Aboodi: The agreement was formed to establish a range of country-focused SME funds in emerging and frontier markets of common interest, and to encourage and promote private sector growth. The first fund, which will have its own board of directors, is planned for Algeria; with both ICD and SEAF represented at investment committee level, and ICD acting as the fund’s advisor. The partnership will also see SEAF and the ICD providing further aid in terms of enhancing feasibility and bankability of SME projects as well as post-investment support for each portfolio investment.
BL: Did the recent political instability in Yemen and GCC impact ICD’s performance?
Al-Aboodi: ICD’s mandate is to support private sector development; therefore, our own performance comes secondary to the performance of our member organizations and subsidiaries. While the recent unrest has certain added a geopolitical element of insecurity, the GCC region has recovered extremely well and growth is booming. However, our focus is also on developing new and emerging regions such as central Asia and Africa which hold significant potential but have yet to fully leverage these opportunities.
BL: How is the ICD is seeding hope for SMEs in Africa?
Al-Aboodi: We have a number of core activities in Africa and are seeking to increase our scope in the continent. We are developing Islamic finance channels including Islamic banks, Ijarah companies and Takaful firms and our subsidiary Tamweel Africa Holding has already established multiple Islamic banks in the region including across Senegal, Niger, Guinea and Mauritania, with others in the pipeline for Mali, Chad, Benin and more. We have a tie-up with Casablanca-based Al Ajial Funds, a unit of sovereign wealth fund Kuwait Investment Authority, to invest in Morocco's private sector and with Tunisian sovereign wealth fund, Caisse de Depot de Tunisie, to set up the US$30 million Themar fund to support local businesses. In early 2014, ICD approved a US$100 million line of financing for SMEs in Nigeria. On October 2014, we hosted a training seminar in Casablanca in collaboration with Tamweel Africa focusing on ways to better understand the mechanisms, methodologies and applications related to Islamic finance. ICD has also been active in various other sectors such as the industrial sector, oil and gas, energy projects, food and agri business, and real estate projects.
BL: What is the contribution of ICD in improving youth employment?
Al-Aboodi: A shortage of qualified human capital is one of the most serious challenges facing the Islamic finance industry today. The ICD, while embracing its developmental mandate, has developed, in 2011, the Islamic Finance Talent Development Program (IFTDP) as a means of addressing this shortfall.
The IFTDP has been designed for mid-career professionals who possess prodigious leadership competencies. Its sole objective is to build up a pool of highly talented Islamic finance executives who are capable of leading the industry in the future.
The ICD aspires that the IFTDP program will become the “gold standard” in developing the Islamic finance human capital.
While the IFTDP is the latest addition by ICD to develop world-class Islamic finance executives, the Young Professional Program (YPP), for more than two decades, has been the preeminent program preparing outstanding young graduates to become global development leaders.
The objective of the two programs is to offer, attract and retain world-class talents by offering luxurious benefits, comfortable perks, and superb professional development, while instilling a deep rooted sense of Ummah-centric community and responsibility. Upon successful program completion, the participant will gradually climb up the professional grades in the IDB Group.
BL: The World Bank is implementing integrated, holistic solutions across agriculture, environment, transport and more to end hunger and feed the world, what is your involvement in this regards?
Al-Aboodi: The food and agriculture sector in a number of countries, despite the availability of arable land and water resources, is characterized by poor infrastructure, inefficient supply chains and low use of technology across the value chain. With growing populations and demand for food, these countries need large-scale investment and modernization programs to bring their food and agricultural sectors in line with their potential.
The ICD Food & Agribusiness Fund is developed and positioned to take advantage of this widening structural (demand and supply) and investment gap in food and agriculture across OIC countries, with the mandate to promote food security and generate commercial returns for its clients.
The ICD F&A Fund is established as a closed-ended commitment-based limited partnership under an internationally reputable jurisdiction, offering a robust regulatory framework within the Target Region.
ICD will partner with an experienced Management Team that comprises a multinational group of well-qualified professionals with extensive relevant prior experience and a successful track record of investment and financing in the Target Region and the Target Sectors. The Management Team members’ experience, in general, encompass private equity investment, fund management, M&A, investment banking, infrastructure and social infrastructure, and food and agribusiness in the Target Region, and internationally.
ICD is the Principal Sponsor of the ICD F&A Fund with an anchor investment commitment of USD 35 million. ICD’s overall role includes:
• Providing premium branding – the “ICD Food & Agriculture Fund”;
• Active participation in fundraising through leveraging its wide network and investment partnerships with target investors of the ICD F&A Fund;
• Providing the ICD F&A Fund valuable access to its extensive network and relationships within ICD member countries for deal origination, due diligence, execution, monitoring and exits;
• Providing the protection of ICD’s influence on ICD member countries as a premier multilateral, thereby mitigating the political, and legal and regulatory risks inherent in investing in the Target Region;
