The Islamic Corporation for the Development of the Private Sector (ICD) has long prided itself on its reputation as one of the most successful Islamic institution that contributed to the development of the private sector in its member countries.
Tatarstan is one of the most industrialized advanced republics within the Russian federation. It has good industries and great human resources in terms of research and development. Islamic Development Bank (IDB) has organized investment conference in Tatarstan in 2007. The idea is to market Tatarstan as an investment destination for its member countries. "That time, we mobilized one hundred twenty investors and they came to Tatarstan and spent three days. They were able to see the business opportunities over there and they also discussed the enabling environment for investment purposes. Their conclusion was that they want IDB group to support them to establish an investment company. From that time, we started the process by conducting a feasibility study," says Khaled Al-Aboodi, Chief Executive Officer of the Islamic Corporation for the Development of the Private Sector (ICD).
The feasibility study was completed and we were able to close the capital of the company which is 3 million dollars. "We believe that this company will be able to initiate projects in different sectors of the economy of Tatarstan. Despite his busy schedule, Khaled Al-Aboodi was able to squeeze his agenda and deliver a key-note speech at the recent World Islamic Banking Conference. His keynote speech focuses on the characteristics of Islamic banking.
"As I mentioned, people when they mention Islamic banking, they think of the liquidity in the system that needs to be freed or taped to investment projects around the world. My statement was that this is fine but we also need to look into Islamic finance more closely and see the features of Islamic finance. The issue is not just liquidity; the issue is that Islamic finance is a great way to develop countries. As you know, there are a lot of development finance institutions in the world. There are multilateral, regional and bilateral institutions, all of them with the mandate to develop their countries if they are coming from third-world developing countries, or developing other countries if they are coming from developed countries in the west. My message was to look into Islamic finance and the way that Islamic finance is functioning," he adds.
When it comes to development, it has been proven that Islamic finance is pro development. It enhances development. "That’s my message. Yes, the liquidity is there in the system and it could be freed to finance different projects. But it’s more than just liquidity; it’s the way by which Islamic finance is working" Al-Aboodi notes.
There is a close relationship with the development because of the sense of partnership between the financier and finance. While plenty of financiers in the world are looking closely at the present global financial meltdown, ICD’s CEO also believes that it will take some time to see a complete recovery.
"Of course, there are signs of recovery here and there but probably it will take 2-3 years to go back to the pre crisis phase especially that there are a lot companies from the private sector that were hit badly by the crisis, some of them went out of business. Now to bring them back to business it might need some time. With the high unemployment rates in most of the industrialized countries, one would expect that it would take time to redeploy and to go to pre crisis level. Of course, the G20 is working very hard and they are meeting biannually to try to address these issues, the G20 includes three countries, which are Saudi Arabia, Turkey and Indonesia that are members of IDB Group. Each member country has its own stimulus package. That package has helped a lot in terms of reducing the effects of the crisis and it’s expected also to play a bigger role going forward in restoring growth to these countries," he says.
Financially, the region is safe except there are slight financial problems in Dubai. But the kingdom of Saudi Arabia is doing fine. It has new universities, new cities and new projects.
"At least for Dubai, the issue was very clear which is the excessive investment in the property markets, which was huge enough not to be absorbed by the local demand, so it was initially directed to international investors. For the other countries, part of these big spending on the infrastructure, building universities and other projects is due to the stimulus program that they have. So this was meant to lift the spending and demand side, so that country’s economy does not get affected by the crisis. Some member countries had some bubbles before the crisis, so they are suffering more. Ironically, some member countries which were not integrate with the world economy before the crisis, are suffering less. So I hope this is not the message for countries not to be integrated into the world economy but the message is that if you have good economic policies and prudent measures in terms of what to promote in terms of investment then you are on a solid ground to avoid any bubbles because the consequence would be severe if you have a crisis like what we had, which is of global nature.," he comments.
"We see that the private sector in our member countries suffer because banks’ financing declined. A lot of banks in our member countries were depending on the line of financing coming from international banks. So once this crisis happened, international banks were not able to extend the line of financing as they used to do. As a result, these local banks were not able to finance projects of the private sectors at these respective countries so the private sector suffered. The message is: ‘as a country, try to be prudent as much as possible, be committed, and avoid bubbles that fuel some sectors in the economy. I hope that everyone will draw lessons from this crisis," Al-Aboodi details.
In June 2009, ICD has doubled its capital from five hundred million dollars to one billion; also the authorized capital was raised from one billion to two billion. "It was not also a normal situation, because the member countries have also obligations during this crisis but they understood our potential role, which is helping and providing support to their private sectors. Hence, we are very confident that we’ll close the whole capital increase. This will not only provide us with additional capital, but it will also strengthen our financials so that we will be able to leverage more from the market. Our strategy will be leveraging more from the market so that instead of only using our capital in projects we will be mobilizing three to four times that based on the quality of projects that we will be doing," he adds. So going forward, ICD is growing in size, growing also in focus to sectors.
"There has been a time when we were investing in all sectors, now we would like to see the comparative advantage in each country and try to be part of enhancing the competitive advantages of our member countries. I’m very optimistic about the future of ICD; countries have started to realize the benefits of having ICD. In fact, during the WIBC, we signed an investment company in Tatarstan which was sponsored by ICD and the government to allow investors to come and invest under the umbrella where we exist." ICD has a lot to offer in terms of giving the investors the confidence to go and invest in different countries. In fact, ICD’s objective is to support the cross border investments among its member countries as long as the project is feasible and the visibility study is sound.
ICD provides financing only to private sector and it does not finance governments. "We’re not competing with local banks. If the local banks are providing financing to their local projects or local businessmen then we are very happy. We compliment local bank. There are sectors that are not attracting the interest of financiers locally then we can finance them. We’re adding value by providing additional financing. Certain local banks sometimes are not keen to finance green fields and we do finance green fields. Furthermore, a number of businessmen also insist on having Shari’ah compliance financing. Again, we’re not financing any project," he says.
"Some projects are not adding value to the development of the country, we may not finance them. ICD makes sure that each time it finances projects there should be a development impact on the economy. We need to make sure of the capability of the company to repay and that is why we may have also to provide sometimes technical assistant and consultancy," he affirms. ICD tries to add value, not just financing.
