hedging in islamic finance high exposure, high impact: the

Hedging in Islamic Finance

High Exposure, High Impact: The Success of Uzbekistan’s IpakYuli Bank in Strengthening theSME Sector Through ICD Support

Establishing a Successful Role Model in Asia’sFrontier Markets:Spotlight on Maldives Islamic Bank

What Prevents Firms from Access to Finance?A Case Study of OIC Countries

Islamic Corporation for the Development of the Private Sector Bulletin I Q1 2016

TABLE OF CONTENTS

About the Islamic Corporation for the Development of thePrivate Sector (ICD).........................................................................................................................

Foreword by the CEO .........................................................................................................................

About the Islamic Development Bank.......................................................................................................................................

Hedging in Islamic Finance.........................................................................................................................

Global Economics Update: Recovery Continues.........................................................................................................................

Opportunities for Sovereign Wealth Funds and Pension Funds in Africa.........................................................................................................................

Case Study - “High Exposure, High Impact”: The Success of Uzbekistan’s Ipak Yuli Bank in Strengthening the SME Sector Through ICD Support.........................................................................................................................

ICD’s Asset Management Department Offers Diversification ofProducts for Investors.........................................................................................................................

What Prevents Firms from Access to Finance?A Case Study OF OIC Countries.........................................................................................................................

Establishing a Successful Role Model in Asia’s Frontier Markets:Spotlight on Maldives Islamic Bank.......................................................................................................................................

ICD’s Advisory Services Programs: Turning Strategy into Reality.........................................................................................................................

10 Things to Know About Evaluation and How They Are Applied in ICD Context.........................................................................................................................

Developing Human Resources: Walk the Talk .........................................................................................................................

Development Institution and Financing Department:Infrastructure Remains A Focus.........................................................................................................................

From the Marketing Perspective, Creating Awareness is Key .........................................................................................................................

ICD Member Development Database.........................................................................................................................

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From the Editor:Comments, suggestions and contributions are most welcome. Please contact Nur Aina Abdul Ghani at [email protected]

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About the Islamic Development Bank (IDB)Background

The Islamic Development Bank (IDB) is an international financial institution established in pursuance of the Declaration of Intent issued by the Conference of Finance Ministers of Muslim Countries held in Jeddah, KSA in December 1973. The Bank was formally opened on 20 October 1975 and is currently rated ‘AAA’ by three major rating agencies (Standard & Poor’s, Moody’s and Fitch). The Bank has been designated as a Zero-Risk Weighted Multilateral Development Bank (MDB) by the Basel Committee on Banking Supervision and the Commission of the European Communities.

Functions

The purpose of the Bank is to foster the economic development and social progress of member countries and Muslim communities individually as well as jointly in accordance with the principles of Sharia’a.

The functions of the Bank are to participate in equity capital and grant loans for productive projects and enterprises, in addition to providing financial assistance to member countries in a variety of forms which enhance economic and social development.

The Bank is also required to establish and operate special funds for specific purposes, including a fund for assistance to Muslim communities in non-member countries, as well as setting up trust funds.

About the Islamic Corporation for the Development of the Private Sector (ICD)

Background

The Islamic Corporation for the Development of the Private Sector (ICD) is a multilateral developmental organization affiliated with the Islamic Development Bank (IDB) Group. Established in 1999, ICD currently has an authorized capital of USD4.0 billion and its shareholders consist of the IDB, 52 member countries, and five public financial institutions. In 2014, Fitch rated ICD ‘AA/F1+’ with a stable outlook and in 2015, Moody’s assigned ‘Aa3/P-1’ rating to ICD with a stable outlook.

The mandate of the 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 Sharia’a.

Functions

The ICD finances projects that are specifically geared to creating employment opportunities and boosting exports of member countries. Furthermore, the ICD mobilizes additional resources for projects and encourages the development of Islamic finance and capital markets. It also attracts co-financiers for its projects and provides advisory services 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 the market economy.

The Bank is authorized to accept deposits and to mobilize financial resources through Sharia’a compliant modes of finance. It is also charged with the responsibility of assisting in:

• The promotion of foreign trade, especially in capital goods, among member countries • Providing technical assistance to member countries • Extending training facilities for personnel engaged in development activities in Muslim countries in line with the Sharia’a

Membership

The present membership of the Bank consists of 56 countries. The basic condition for membership is that the prospective member country should be a member of the Organization of the Islamic Cooperation (OIC), pay its contribution to the capital of the Bank and be willing to accept such terms and conditions as may be decided upon by the IDB Board of Governors.

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Award of Excellence for Outstanding Contribution to the Development of Islamic Finance in the Private Sector’ from the Sukuk Summit in London. Other awards under our belt include the ‘Africa Deal of the Year’ and ‘Cross-border Deal of the Year’ from IFN News, and the ‘Most Outstanding Institution for Contribution to Islamic Finance’ award from Kuala Lumpur Islamic Finance Forum (KLIFF), amongst others.

In 2014, ICD reached a key milestone in obtaining credit ratings of AA/ F1+ from Fitch Ratings. In April 2015, Moody’s Investors Service assigned a first-time long-term issuer rating of Aa3 to ICD, and a first-time short-term issuer rating of P-1. Moody’s considers the outlook for ICD’s rating to be stable, reflecting its expectation that ICD’s balance sheet expansion will be accompanied by continued capital increases and improving asset quality. Moving forward, future issues of the ICD Bulletin will continue to highlight ICD’s projects and accomplishments, covering a wide range of topics. My sincere gratitude is extended to all those who have kindly contributed to this issue and I hope you will all look forward to reading future issues.

Sincerely,

Khalid Mohammed Al AboodiChief Executive Officer Islamic Corporation for the Development of the Private Sector (ICD)

Since its inception in 1999, the Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the IDB Group, has dedicated itself to private sector development through Sharia’a compliant means in its 52-member countries to promote inclusive growth by reducing inequality and poverty. To this end, we have achieved remarkable results not only in financial terms, but most importantly, in our efforts to achieve sustainable development goals.

Against the challenging economic and political backdrop, ICD made remarkable progress in 2015, and we expect the trend to continue in 2016. To date, ICD’s accumulated gross approvals at the end of the first quarter of 2015 stood at approximately USD3.5 billion allocated to 288 projects across 30 countries.

In line with its core strategy, ICD has been focusing more resources in the financial sector with the objective of fast-tracking funds to the small-and medium-enterprises (SME) sector, a key engine of growth in most countries across the globe. In addition to providing lines of credit to local banks in its member countries for onward financing of SMEs, ICD, as part of its overall strategy, has been actively involved in the set-up of leasing companies, investment companies and Islamic banks to act as its channels to reach a greater multitude of beneficiaries. Some achievements include launching Ijarah companies in Malaysia in partnership with Pelaburan Mara Berhad, and in Palestine in partnership with the Palestine Investment Fund (PIF). ICD

Foreword by the CEO

Khalid Mohammed Al AboodiCEO, Islamic Corporation for the

Development of the Private Sector (ICD)

ووبرکاتهھ االسالممعليیكمووررحمةااهللا

It is my great pleasure to introduce the latest issue of the ICD Bulletin. The overall aim of the ICD Bulletin is to highlight the numerous development projects that ICD is currently undertaking.

was also involved in numerous financing deals in member countries such as in Kazakhstan, Tajikistan, Egypt, Morocco, and Indonesia, spanning across various economic sectors. More prominently, in November 2015, we successfully launched a sovereign sukuk for Cote D’ivoire, the first sukuk for the government.

Additionally, ICD accompanied its business accomplishments with the robust development of its support functions, including the signing of agreements and Memorandums of Understanding (MOUs) with member countries’ governments and institutions in support of private sector development and to enhance collaborations in Islamic finance. Recently, ICD signed an advisory services agreement with Trust Bank (TB) in Suriname in order to process and support its conversion into the first Sharia’a compliant bank in the country, and the whole of Caribbean and South America. ICD sees itself as a pioneer in many aspects of Islamic finance and believes that Islamic finance can play a key role in catalyzing long-term sustainable economic development, as it promotes risk-sharing, connects the financial sector with the real economy and emphasizes financial inclusion and social welfare.

The international financial community, through various awards, has recognized ICD’s efforts. Some awards that we have won include being named ‘Best Development Bank’ at the prestigious Islamic Business & Finance Awards 2015, run by leading global financial publisher and news provider CPI Financial. We also won the title of ‘The

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Six years and counting, global output growth has been steadily losing speed following the massive stimulus-induced bounce in 2010 from the depths of the global financial crisis of 2008-2009. The world is now witnessing divergent growth paths among advanced and developing economies, where the discrepancy in economic performances are more pronounced. Just recently, the International Monetary Fund (IMF) cut its global growth forecast to 3.1% from a previous forecast of 3.3%1, citing that a modest growth in the US and a meagre recovery in the eurozone have not been able to offset the slowdown in emerging markets.

At present, downside risks to growth are still overshadowing the global outlook.

There is now a tale of two economies: the US economy appears more solid, propelled by domestic demand, while in contrast, China’s economy, along with much of the rest of the world’s economies, is gradually losing steam as a result of the reliance on external demand.

In the US, the economy is continuing its upward path, where a combination of robust job growth, rising income gains and suppressed demand is underpinning the consumer and housing sectors. Roughly 72% of the US economy comes from consumer spending and housing activity2, and they have been the engines of output growth over the past year. On the flip side, industrial activity and business investment have been slower

to turn, held back by the retrenchment in oil & gas drilling, and weak global demand coupled with the strong US dollar are exerting pressure on the external sector. Although the economy closed out the third-quarter on a weak note (an annualized 1.5% growth was a stark contrast to the previous quarter’s 3.9% gain)3, the primary growth driver in the patchy third-quarter performance is the relatively robust and apparently sustainable pace of consumer spending and housing activity. To this effect, most economists are confident that this set back is just a blip and that the US economy will maintain its powerhouse status.

1994

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2008

2009

2010

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2012

2013

2014

2015

E

2016

F

10

5

0

-5

% y

-0-y

World

Advancedeconomies

1998-1999 AsianFinancial Crisis

2008-2009 GlobalFinancial Crisis

EuropeanUnion

Global Economics Update: Recovery Continues

Source: IMF

Global Growth Trend: 2003 – 2016F

1IMF World Economic Outlook October 20152US Bureau of Economic Analysis (BEA)3US Bureau of Economic Analysis (BEA)

By: Nur Aina Abdul GhaniBusiness Development and Partnership Department

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Meanwhile, in China, latest third quarter data showed better-than-expected results, with growth clocking in at 6.9% y-o-y (2Q15: 7.0% y-o-y)4. However, both exports and imports declined during the quarter, and industrial production was weaker than expected. The only positive takeaway is that retail sales remained healthy in the quarter, and slowing growth in investment (fixed-asset investment decelerated in September) highlights the fact that China is gradually pivoting the economy away from investment-led growth toward private consumption. The apparent disconnect between the headline figure and the underlying data is drawing skepticism from economists over the accuracy of the 3Q15 growth figure.

Elsewhere in Asia, while growth has been somewhat tepid, the region is still on course to be the global growth leader for this year and the next. According to the IMF, Asia’s growth should benefit from the relatively strong labour markets and disposable income growth, underpinned by the ongoing gradual recovery in major advanced economies. Across most major Asian economies, softer energy prices should provide a silver lining for the outlook and fuel consumption. However, further broad-based currency depreciation, together with a sudden tightening of global financial conditions, weaker growth in Japan, and weaker regional potential growth calls for a perfect storm and could possibly dim Asia’s growth prospects. Negative risks to growth will continue to dominate the region’s outlook, and as in the previous months, economic dynamics in the region will mostly be determined by developments in China going forward.

Meanwhile, the eurozone’s recovery has been meagre. Recovering domestic spending in a number of countries continues to be offset by nervous undertones due to recurring debt strains as well as external headwinds. On a y-o-y basis, growth in the 19-nation slowed in the third quarter to 0.3%, from 0.4% in the previous quarter5. A stalling German economy, traditionally the region’s consistently strong

performer, is attributed to declining exports on the back of falling demand from slower-growing emerging market economies, especially China. Positively, in the near term, a pick-up in business investment, underpinned by improving sentiment, profitability, and capacity utilization amidst an ultra-loose monetary policy is expected to prop up growth, although efforts to reduce the eurozone’s elevated debt burden, high private sector debt, high unemployment, and structural rigidities will continue to weigh on the outlook.

Recent news headlines confirm the view that the main themes surrounding the Middle East and North Africa (MENA) region’s outlook are mostly geopolitical and oil price developments. Conflict-ridden countries such as Syria, Iraq, Libya, and Yemen are clouding the outlook and rising uncertainties are weighing on confidence. Meanwhile, the relatively peaceful oil exporters such as the GCC, Algeria and Iran are grappling with low oil prices which are denting fiscal balances. According to the World Bank, the Gulf countries could lose about USD215bln in oil revenues, equivalent to 14% of their combined GDP, in this year alone6. Although governments have assured that their country’s reserves are aplenty, public spending is set to decrease, underscoring the need for policies to support a diversified private sector.

% y

-0-y

5.5

4.5

3.5

2.5

1.5

0.5

-0.5

-1.5

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15 1Q

102Q

103Q

104Q

101Q

112Q

113Q

114Q

111Q

122Q

123Q

124Q

121Q

132Q

133Q

134Q

131Q

142Q

143Q

144Q

141Q

152Q

153Q

15

14

12

10

8

6

4

2

0%

y-0

-y

Source: Reuters, National Bureau of StatisticsSource: Reuters

US: Quarterly GDP Growth Trend (1Q010 – 3Q15) China: Quarterly GDP Growth Trend (1Q10 – 3Q15)

4National Bureau of Statistics, China5Eurostat6World Bank: MENA Regional Report, April 2015

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Against a backdrop of declining oil revenues, some governments in the region have already started to implement measures in response to their rapidly-deteriorating fiscal positions. For instance, the UAE removed politically-sensitive fuel subsidies in August, while it is being reported that Bahrain is planning on more subsidy cuts and intends to impose charges for government services starting next year in order to boost revenues hit by slumping oil prices. Meanwhile in Saudi Arabia, the situation is quite the opposite as oil minister Ali al-Naimi recently reiterated that the country does not need to reduce or adjust its substantial domestic energy subsidy program7. According to a working paper by the IMF8 , pre-tax energy subsidies in the UAE are estimated at USD12.6 billion in 2015, almost 3.0% of the country’s GDP, while this share was close to 4.6% of GDP for Bahrain and Saudi Arabia.

Jan-

13

Mar

-13

May

-13

Jul-

13

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-

14

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-

15

Sep-

15

Nov

-15

125U

SD p

er b

arre

l

105

85

68

45

25

WTI Brent

Kuwait 1.81%

2.87%

4.62%

1.64%

1.15%

4.62%

% of GDP

0.00% 1.00% 2.00% 3.00% 4.00% 5.00%

UAE

Saudi Arabia

Qatar

Oman

Bahrain

Kuwait

UAE

Saudi Arabia

Qatar

Oman

Bahrain

101.3

77.9

0 20 40 60 80 100 120

Amount of Years

62.7

33.6

15.9

5.6

Source: Reuters

Source: EIASource: IMF

GCC: Pre-tax Subsidies (% of GDP) 2015F

WTI vs Brent Crude Oil Price (January 2013 - 11 November 2015)

GCC: Number of Years Oil Reserves Will Last (At Current Production Levels)

7‘Saudi Arabia Doesn’t Need to Cut Energy-Subsidy, Says Oil Minister’ – Wall Street Journal, 4 November 20158Tax Policy in MENA Countries: Looking Back and Forward – IMF Working Paper WP/15/98

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Kuwait UAESaudi ArabiaWorld Qatar OmanBahrain

1.20

1.00

USD

0.80

0.60

0.40

0.20

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1.020.90

0.07

0.21

0.360.270.27 0.27

0.32 0.300.36

0.460.51

0.16

Petrol Diesel

On the flip side, oil importers in the MENA region are reaping in the benefits of lower oil prices, as well as economic reforms, progress toward political stability, and the slowly-reviving demand from Europe which in turn would support confidence, investment, exports and tourism. These gradual improvements, however, are unlikely to tackle chronic unemployment. In this challenging environment, stepping up the reform momentum is crucial. Especially in times of

substantially lower oil prices, there is a pressing need for oil exporters to adjust spending and explore alternative revenue generating streams to address the large fiscal challenge, and gradually rebuild space for policy maneuvering. Meanwhile, for oil importers, the policy space created by lower oil prices can help increase growth-enhancing spending such as public investment, which remains below the levels typical in other emerging markets and developing countries.

Source: IMF

Source: globalpetrolprices.com

GCC vs. World: Petrol and Diesel Prices (as of 23 November 2015)

IMF: Overview of the World Economic Outlook Projections

Region / Country REAL GDP Growth Inflation Trend Fiscal Balance (annual % change) (annual % change) (% of GDP)

2014 2015E 2016F 2014 2015E 2016F 2014 2015E 2016F

World 3.4 3.1 3.6 3.2 3.6 3.5 - - -

Advanced Economies 1.8 2.0 2.2 0.7 0.8 1.4 -3.4 -3.1 -2.6

US 2.4 2.6 2.8 0.6 0.9 1.4 -4.1 -3.8 -3.6

Euro Area 0.9 1.5 1.6 -0.2 0.7 1.1 -2.4 -2.0 -1.7

Emerging Market and 4.6 4.0 4.5 5.1 5.7 5.0 -2.6 -4.3 -4.0 Developing Economies

China 7.3 6.8 6.3 1.5 1.8 1.8 -1.2 -1.9 -2.3

Middle East and 2.6 2.3 3.8 6.4 6.1 5.2 -1.2 -11.10 -9.7 North Africa

Sub-Saharan Africa 5.0 3.8 4.3 6.3 7.8 7.1 -3.5 -4.2 -3.6

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In Central Asia, the steep decline in commodity prices and associated weakness in regional currencies coupled with Russia’s worst economic meltdown in six years, have slowed activity in the region, given the region’s heavy dependence on commodity exports and in view of its close trade, investment, and remittance linkages with Russia. Growth prospects are definitely faced with downside risks. According to the IMF, a further drop in oil prices will not only negatively impact oil exporters, it will also exert downward pressure on growth in oil importers, through spillovers from Russia, an oil exporter. Moderating growth in China and other emerging markets could further ease global commodity prices and adversely affect the commodity exporters in the region, leaving nothing to spare for Azerbaijan, Kazakhstan, Russia, Turkmenistan and Uzbekistan. Lower-than-expected growth in the other major trading partners such as Russia and Europe could also postpone the recovery.

Sub-Saharan Africa’s economy is poised to clock in another year of solid economic expansion, where economies still gain from their economic catch-up potential—an opportunity to deliver high growth from a lower development base. The risks ring a familiar tune: the region’s oil exporters, some of which are the region’s largest economies, will be impacted by the sharp decline in oil prices and the increasingly volatile external financing environment. Against a backdrop of large fiscal and current account deficits plaguing these countries, a significant fiscal adjustment exercise proves to be a mammoth task. Excluding oil-exporting countries, growth is projected to be healthy, even if the impact of the oil price decline is largely offset by that of the decrease in other commodity prices. Meanwhile, the dollar has appreciated substantially against the euro. This, in turn, has implications for the region, where many countries have formal pegs to the euro, while a few others peg informally to the dollar.

On the trade front, the volume of world trade is growing slowly, below even the moderate advance in global real GDP which is currently trending around 3.0%. This contrasts with the performance in 2000-2007 when the combined volume of exports and imports expanded faster than worldwide output growth, fed by the rise of China and other emerging markets. Now the tables have turned–flagging exports underpinned by the slowdown in large emerging economies, such as China, are to be blamed for the deteriorating world trade volumes.

Moving forward, world trade growth is forecast to remain modest, much like the trend of the past two years. The World Trade Organization (WTO) recently lowered its forecast for global trade this year to 2.8%, from 3.3% previously9.The roles have reserved – a stronger pick-up in trade is forecast for advanced economies compared to emerging markets. For emerging markets, import growth is projected to decline further, reflecting weakening domestic demand and depreciating exchange rates.

In any case, a more substantive economic rebound is not on the agenda any time soon. On the manufacturing front, aggregate new orders for durable goods are generally muted outside of a relatively few sectors such as transportation equipment which includes commercial airliners, rail stock, and motor vehicles. This is evidenced by data from monthly purchasing managers’ reports released by Markit Economics, which are registering generally lackluster economic conditions. Consequently, worldwide industrial activity remains sluggish, while a slump in global bulk shipping – a sector used by investors to gauge the health of the global economy – is set to worsen on the back of the meltdown in global commodities10. Meanwhile, an increasing number of companies across a variety of sectors are in the midst of streamlining their operations to enhance operational efficiencies and lower costs. The service sector activity, largely outside of China, appears to be slacking as well, since some of it is closely connected to underperforming manufacturing and commodity sectors.

25

% y

-o-y

Jan-

08

Jul-

08

Jan-

09

Jul-

09

Jan-

10

Jul-

10

Jan-

11

Jul-

11

Jan-

12

Jul-

12

Jan-

13

Jul-

13

Jan-

14

Jul-

14

Jan-

15

Jul-

15

20

15

10

5

0

-5

-10

-15

-20

-25

Source: CPB Netherlands Bureau for Economic Policy Analysis

Little Traction in Global Trade Volume(January 2008- July 2015)

Source: IMF

% y

-o-y

15

Advanced economies

Emerging market and developing economies

10

5

0

-5

-10

-15

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2013

Global Export Volumes(1983- 2014)

9World Trade Organization, Press Release PRESS/752 30 September 201510‘Dry bulk shipping record low a warning for flag for global economy’ Reuters, 20 November 2015

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The sub-standard performance of the global economy is fundamentally the by-product of the multiple structural imbalances that have yet to be addressed. Also to be blamed are the effects of sluggish growth due to geopolitical events and one-off events triggered by factors such as strikes and bad weather. Despite the significant deleveraging efforts on the part of some segments of the global economy including both the private and public sectors, aggregate levels of indebtedness have continued to rise and remain a headwind to stronger growth.

At present, there are still considerable downside risks to the outlook which could potentially weaken growth even further:

• Global growth could moderate even further, underpinned by a possibly weaker performance in China which would consequently dampen the softer outlook in many emerging market economies that rely on export markets throughout the Asia-Pacific region. As it is, growth has slowed in China in recent years, and there is a high chance of a further moderate slowdown, especially if the macroeconomic management of the end of the investment and credit era of 2009-2012 proves more challenging than expected.

• Prices of commodities have fallen sharply in recent months. Oil and other commodity exporters remain at risk of further fragility, as changes needed to fine-tune oversupplies in most resource sectors will lead to trimmed capital expenditures and output growth. On the flip side, lower prices for oil and other commodities could provide a hopeful prospect to commodity importers in terms of

increased demand, as the windfall gains from lower prices would lower costs and increase real incomes, which should boost spending and activity.

• The mediocre recovery in the eurozone is vulnerable to unforeseen developments which could weaken the economic progress to date. The region’s industrial activity will be challenged by the reduced demand for exports bound for China, with German auto production also affected by the scandal surrounding diesel engine emissions. Budgets will be stretched to deal with the escalating migrant issue taking shape in most of the continent.

• Escalating risk in financial markets, such as slumping equity prices, sharply increasing volatility metrics and widening credit spreads, can compound the uncertain outlook and present financial stability challenges in advanced economies, with important spillovers to emerging markets, including tighter financial conditions and a reversal in capital flows. Additionally, it has the potential to further undermine business confidence and investment.

• The US dollar has appreciated as a result of the relative outperformance of the US economy, the expected widening in short-term interest rate differentials between the US and other more inflation-prone economies, and safe-haven capital inflows from less financially-robust emerging market economies. A stronger US dollar could augment the drag on the US economy from a further erosion in net trade and US earnings derived from foreign sources.

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• At the same time, emerging markets also remain vulnerable in the short term, due to a continuing depreciation of their respective currencies on the back of the stronger dollar, which in turn could exacerbate strains on the corporate balance sheets in some countries.

• Sluggish global growth in addition to softer commodity prices heightens the possibility of a deflationary shock that will simultaneously erase the pick-up in the US and the UK, where wage pressures and capacity constraints are showing some signs of materializing.

• Increasing one-off event risk, as evidenced by the expanding list of weather-related issues, has the potential to aggravate confidence and defer spending even more.

• Geopolitical risks also remain a concern. On-going events in Ukraine, the Middle East, and parts of Africa could lead to escalation in tensions and increased disruptions in global trade and financial transactions. In general, an escalation of such tensions could take a toll on confidence.

Despite the outlined risks involved, there are some factors which could lead to a renewed strengthening in global activity:

• The US could stage an even stronger economic recovery, underpinned led by rising household expenditures in response to increasing job opportunities, strengthening income trends, and much improved balance sheets. The UK should also remain a healthy economic recovery, underpinned by continued capital inflows and construction activity.

• Comparatively low pump prices are a major boost to household and business spending power.

• The unprecedented levels of monetary easing in many countries and regions have the potential to boost economic momentum globally. Central banks across the globe are still lowering historically low borrowing costs, while currencies are going through a correction vis-à-vis the US dollar to help improve export competitiveness.

• Revitalized financial institutions, notably in the US and in Western Europe, have stronger balance sheets and can boost lending to households and businesses.

In any case, the global economic recovery appears to be heavily focused on the US, although there are still question marks lingering over the developing economies. Only time will tell if the recent easing initiatives on the part of the Chinese authorities will help to slow the economic deceleration underway.

To recap, on 23 October 2015, the People’s Bank of China delivered another jolt of stimulus in the form of cuts to both benchmark interest rates and the required reserve ratio. The one-year benchmark interest rate was cut for the sixth time in less than a year by 0.25 percentage points to 4.35%, while banks’ reserve requirement ratios were cut by a half percentage point. The move was in hopes that looser monetary policy, in the shape of cheaper money, will help it hit its growth target of 7.0% for the year. Lower interest rates tend to stimulate borrowing by consumers and businesses and therefore could contain the slowdown. However, there is a risk the move could lead to a build-up of debt.

Similarly, in the US, only time will reveal whether stiff headwinds for external trade will continue to build up together with the weaker growth trends and the volatile exchange rate movements versus the strong greenback. The long-awaited gradual normalization of borrowing costs in the US was just announced at the December Federal Reserve meeting, and there is increasing concern internationally that a sustained rise in both short- and long-term US interest rates, alongside an even stronger dollar, would adversely affect global growth and financial markets. These conditions would be particularly challenging for those countries that have less policy flexibility to deal with chronic underperformance.

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Hedging inIslamic Finance

Introduction

Rapid advances in technology allow businesses to expand their operations across borders. Trade transactions are no longer restricted to a confined territory but can reach far across the globe within a simple click of a mouse, thanks to the availability of technological gadgets such as smartphones, tablets and laptops.

Unlike companies operating within their business jurisdictions, companies engaging in international trade have an additional risk to manage, namely market risk. The definition of market risk in Investopedia is enlisted below:

The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called “systematic risk,” cannot be eliminated through diversification, though it can be hedged against. The risk that a major natural disaster will cause a decline in the market as a whole is an example of market risk. Other sources of market risk include recessions, political turmoil, changes in interest rates and terrorist attacks.

From the above, market risk is simply the risk of losses arising from adverse market movements. Companies engaging in international trade activities are therefore exposed to two types of market risk – foreign exchange risk and interest/profit rate risk – on a daily basis. Both risks could pose adverse effects on companies’ income statements and balance sheets if they are not managed properly.

So how do companies hedge their risk exposure in foreign exchange and profit rate? Who do they turn to do this? These questions can be a headache to a treasury manager of a company looking to expand its business overseas. This is where a financial intermediary can play a positive role in supporting economic activities.

The following two sections explore the risk from an Islamic perspective and also whether risk is permissible in Islamic finance. Sources from the Holy Quran and Hadith are referenced and mentioned as support to the permissibility of hedging. The fourth section discusses the available hedging instruments in the market with the fifth section succeeding to highlight the issues and challenges pertaining to existing Islamic hedging products.

By: Wan Zil Farlilah Wan IbrahimTreasury Division

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Risk from an Islamic Perspective

According to Dusuki11, the word ‘mukhatarah’ found in the Arabic Islamic Finance lexicon is commonly used to refer to risk. He went on to explain in his research that the root word ‘khatar’ implies several meanings such as ‘exposure and fear or destruct’ or ‘an exalted position’, and that amongst the technical meaning of mukhatarah by Islamic scholars include gharar (uncertainty) and maysir (gambling).

Although some scholars relate risk to gharar and maysir, not all risks are prohibited. Some risks are essential risks and must be borne as part of the intrinsic nature and requirements of a contract. To support this statement, Dusuki quoted the famous scholar Ibn Tamiyyah’s saying that there is no Sharia’a evidence prohibiting all forms of risk and that“... The type of risk which is prohibited concerns the consumption of property in an unjust or wrongful manner. The reason behind prohibition from the Sharia’a viewpoint is mainly concerning the unjust consumption of property even without the element of risk. Risk alone does not constitute prohibition… “

Dusuki shared that there are three categories of risk according to the jurists. They are namely permissible risk, non-permissible risk and tolerable risk to be avoided which are summarized below:

1. Permissible risk. Permissible risk is basically the risk that relates to real economic activities and must be borne to generate returns and hence the entitlement to profits derived from the transaction carried out. This is based on the hadith of ‘Al-kharaj bi al-daman’ which means the same12. A simple example is the sale of a house by a seller to a buyer. Prior to the buyer taking possession of the house, the seller bears all the risks associated with full ownership of the asset such as risk of loss, defects, value depreciation, and so on.

2. Non-permissible risk. Non-permissible risk relates to the unjust consumption of property and is closely linked to excessive gharar. Examples of excessive gharar transactions are sales or purchases of items that are not in existence, owned, quantified, specified in terms of quality and determined in terms of time for payment. This type of risk should be avoided all together.

3. Tolerable risk. Tolerable risk is the risk that may be absorbed but at the same time could be avoided. At times, it may become necessary to protect against this risk. For this purpose, there should be caution in terms of making sure that the instrument used to avoid and reduce this type of risk must not contravene with Sharia’a principles. It is to note that our hedging discussion revolves around this type of risk.

From an Islamic perspective, managing risk is encouraged. This is based on the fourth objective under necessity items for Maqasid As-Shari’ah which highlights the need for preservation of wealth, in addition to preservation of faith (deen), life (nafs), posterity (nasl) and reason (aqal). A frequently cited hadith regarding the need for preservation of wealth mentioned, “whoever dies in protecting his property, he dies as a martyr”13. Another hadith quoted in relation to managing risk is on the authority of Saad bin Malik Al-Khudar (RA) that the Messenger of Allah (saw) said: “There should be neither harming nor reciprocating harm”14. An important legal maxim – “Repelling harm takes priority over seeking benefit” – is derived by jurists from the said hadith which sets the ranking of avoiding harm over the pursuit of gain or profit.

11Dusuki, A. W. (2012). http://www.iefpedia.com/english/wp-content/uploads/2012/07/Asyraf.pdf12Ahmad, A. A., & Ab. Halim, M. A. (2014). The Concept of Hedging in Islamic Financial Transactions. Asian Social Science: Vol. 10, No. 8: p42-49. Canadian Center of Science and Education. 13Sahih Al-Bukhari. Vol. 3, p13614Imam Nawawi 40 Hadith, no. 32

12


Permissibility of Hedging in Islamic Finance

Before delving further into the permissibility of hedging, we should first look into the definition of hedging. The Oxford dictionary defines hedging as “a way of protecting oneself against financial loss or other adverse circumstances”. In Arabic language, the word tahawwut is frequently used to refer to hedging, and has a technical meaning in the field of finance which is the adoption of processes and arrangements and the selection of contractual formats that guarantee the reduction of risks to a minimum while maintaining good possibilities for return on investment15. Investopedia mentions that hedging transactions “...are employed by portfolio managers to reduce portfolio risk and volatility or lock in profits.”

So is hedging permissible? From the definition of hedging, we could deduce that hedging is a form of managing and reducing risk which corresponds to Islam’s call to repelling harm. An example from the Holy Quran on the encouragement for hedging is found in Surah Yusof, verses 47-49 where Prophet Yusof AS advised the Egyptians to cultivate their lands for seven fertile years and store some of the produce each year as a preparation for seven years of draught16. The verses provide clear example that hedging is permissible and encouraged in Islam.

The second important source of Sharia’a, the Hadith, also supports the permissibility of hedging. Narrated by Anas bin Malik, an Arab Bedouin asked Prophet Muhammad (PBUH), “Shall I leave my camel untied and seek Allah’s protection on it, or should I tie it?” The Holy Prophet replied, “Tie your camel and then depend upon Allah (SWT)”. (Imam Al-Tarmidzi and

Types of Derivative Products Available

Source: http://www.hedgefund-index.com/d_derivatives.asp

Al-Baihaqi)17. In this hadith, Rasulullah (saw) encourages us to take step to minimize risks and avoid losses and then only surrender to the will of Allah Ta’ala.

The concept of hedging is in line with Islam and therefore permissible as long as it does not violate Sharia’a law. Hedging transactions must be free from the elements of riba, gharar, maysir, injustice, deception, fraud, exploitation, monopoly and should not involve the usage of prohibited trading goods. These prohibitions provide the distinct difference between Islamic hedging applied by Islamic financial institutions and the conventional hedging practiced by non-Islamic financial institutions. Islamic hedging shall be used solely for hedging transactions that relate to real economic activities and not for speculative purposes.

Available Hedging Instruments in the Market

There is a wide variety of hedging instruments in the market. Conventional banks use derivatives as hedging instruments. A derivative, according to Investopedia, is a security whose value is derived from one or more underlying assets. Derivative products are available via an Exchange or Over-The-Counter (OTC). Unlike exchange-traded derivatives, OTC derivatives represent a greater proportion in the market and are unregulated. OTC derivatives are contracts which allow tailoring of amount, tenor, currency and terms according to preference agreed between two counterparties. Below table provide the types of derivative products available in the financial market.

15Mohd Razif, N.F., et.al. (2012). Permissibility of Hedging in Islamic Finance. Middle-East Journal of Scientific Research: 12(2), p155-159. IDOSI Publication. 16Syed Tajudeen, K. (2015). Conventional Futures: Major Issues from Islamic Law of Contract’s Perspective. INCEIF17Abdul Rahman, A., & Md Ramli, R. (2015). Islamic Cross Currency Swap (ICCS) hedging against currency fluctuations. Emerald Emerging Markets Case Studies: Vol. 5, No.4. Emerald Group Publishing Limited.

INSTRUMENT TYPE

Interest rate cap andfloor Swaption

Basis swap

Stock optionWarrant

Turbo warrant

FX option

Credit default swap

Bond option

Foward rateagreement

Repurchaseagreement

FX foward

n/a

Repurchaseagreement

Interest rate swap

Equity swap

Currency swap

Credit default swap

n/a

Option on Eurodollar futureOption on Euribor future

Single-share option

Option on FX future

n/a

Option on Bond future

Exchange Traded Futures Exchange Traded Options OTC Swap OTC Foward OTC Option

Eurodollar futureEuribor future

Single-share future

FX future

n/a

Bond future

Money Market

Stocks

Foreign Exchange

Credit

Bonds

UNDERLYING

13


Advantages and Disadvantages of Specific Derivatives

Products Features and Advantages Disadvantages and Risks

• An over-the-counter (OTC) instrument• Customized contract between the two parties, in

terms of size, quality and delivery date• Usually involves no ‘upfront’ payment and ‘cash’

changes hands only at the expiry of the contract

• Standardized contract in terms of contract size, delivery dates, quality, trading hours, tick size, and maximum daily price limits

• Exchange traded; hence, zero counterparty risk• Involves a ‘down payment’ known as the initial

margin • Transparent pricing• Contract can be closed out prior to its maturity

(giving an opportunity to cut losses)

• Traded in OTC markets• Customized transactions, perfectly suiting

hedging needs• Provides a choice to set the currency you require• Useful for hedging against the spread between

prices of the final product and that of raw materials

• Generally no upfront payment

• Helps to lock-in the price but without the compulsion to honour the contract, especially to benefit from favourable price movements

• No margin calls for options buyers• Risk is limited for the buyer of options contract,

i.e., he/she can at the most lose the contracts premium

• More suitable for risk averse participants such as farmers and small commercial players

• Options can be exercised or offset before expiration

• Generally, a very liquid market allowing the producer to quickly reverse positions.

• It is negotiated between two parties and is not marketable

• OTC markets, where forward contracts are traded, are generally opaque, as trades are not compulsorily reported and transaction prices are unknown to the outside world

• Closing out the position to limit the losses may not be unilaterally possible

• Requires active portfolio management as loosing positions leads to margin calls

• Standardization can have an impact on hedging, as delivery dates and terms are not flexible

• Do not cover basis risk

• Transaction may turn costly if the swap is terminated before the expiry of the contract

• Generally, the contract sizes are large, hence, not suitable for small commercial players

• Challenge to achieve an agreement among different parties

• Time consuming commerce due to the long negotiations process

• Does not cover basis risk• Premium requires to be paid upfront by options

buyer• Premium payable for the options contract may at

times be “too high” as compared with the rights granted by the contract

• Options are in specified quantity (contract size) and represent some standard quality

• Using options requires thorough understanding of futures and options markets

Source: MCX Metal and Energy18

18“Importance and Benefits of Hedging”. MCX Metal and Energy. Occasional Paper Series No.3/2013

Forwards

Futures

Swaps

Options

14


The International Swaps and Derivatives Association (ISDA) was established in 1985 with the intention to make global derivatives markets safer and more efficient. ISDA’s pioneering work in developing the ISDA Master Agreement and a wide range of related documentation materials, and in ensuring the enforceability of their netting and collateral provisions, has helped to significantly reduce credit and legal risk. The Association has been a leader in promoting sound risk management practices and processes, and engages constructively with policymakers and legislators around the world to advance the understanding and treatment of derivatives as a risk management tool.19

Over three decades, ISDA’s work covers across OTC asset classes namely;

a) Credit Derivatives / Credit Default Swaps b) Equity Derivativesc) Interest Rates Derivativesd) FX Derivatives e) Energy, Commodities, Developing Productsf) Structured Products and Others

Islamic Hedging Products

Item Islamic Forward Islamic Profit Rate Swap Islamic Cross Currency Swap

Musawamah, Wad,Murabaha

Two

Commodity

To hedge financing or investment rate for a single currency

Short to medium-term and usually involves multiple cash flows

Yes

Musawamah, Wad, Murabaha, Bai As Sarf

Two

Foreign Currency or Commodity

To hedge financing or investment rate that involve more than one currency

Short to medium-term and usually involves multiple cash flows

Yes

Murabaha, Wad, BaiAs Sarf

Two

Foreign currency or Commodity

To hedge import or export proceeds

Short term and usually involves single cash flow

Yes

Whilst the conventional banking institutions have been spoilt for choice in terms of hedging products, its Islamic finance counterparts have limited hedging instruments to choose from. This is because of the strict Sharia’a requirement imposed to ensure that Islamic hedging contracts fulfill the conditions for the validity of contract as per outlined in Islamic Contract Law involving Offer and Acceptance, Contracting Parties and Subject Matter of the contract, as well as free from elements of riba, gharar and maysir. The progress for Islamic hedging instruments thus far concentrates on the urgent need to hedge against market risk, in particular foreign exchange risk and profit rate risk. Hence, the Islamic Forward, Islamic Profit Rate Swap and Islamic Cross Currency Swap are observed to be the most popular instruments being discussed in the market. Other Islamic hedging instruments of less popularity are options and structured products which are tailored according to client specifics and are quite delicate in terms of Sharia’a structure and issue.

In this edition of the ICD bulletin, it is suffice to make a general comparison for the three Islamic hedging products. We shall discuss the details of each product with its variations and process flows in the following editions of the bulletin. It is worth noting that whilst the above products are developed to hedge the users from market risk, new risks exist and need to be addressed and these are Islamic contract specific risks. For example, under a Murabaha contract, the assets used for the sale transaction changes ownership and if default occurs there will be no fall back on collateral unless it is imposed upfront prior to the offer and acceptance. This unique fact differentiates Islamic hedging instruments from the conventional hedging instruments.

19http://www2.isda.org/about-isda/

Type or combination of

contract used

Contracting Parties

Subject matter

Usage

Tenor horizon

Offer & Acceptance

15


Issues and Challenges

The current issues and challenges for Islamic hedging instruments are listed and discussed below:

A) The agreement is bilateral and therefore not standardiz ed

Most of the master agreements for Islamic hedging instruments in the market are bilateral agreements produced in-house and hence require close scrutiny of the contents prior to signing. At times, the process can be too tedious that in the end both parties of the contract lose excitement and decide to abort the effort half way. To avoid Islamic finance institutions from falling behind in competitiveness compared to their conventional counterparts, on 1 March 2010 the International Islamic Financial Market (IIFM) has taken the initiative to collaborate with ISDA to develop a standardized Islamic hedging master agreement called the ISDA-IIFM Tahawwut Master Agreement (TMA). The TMA provides a template and framework for the expansion of Islamic hedging activity in the Middle East, South Asia and many regions across the globe20. To date, the TMA covers variety of Islamic structures concentrating on forwards and swaps.

B) Difference in Shari’a advisory opinions and preferences

Although Sharia’a scholars in general agree on the permissibility of hedging activities, they differ in terms of opinions with regards to the Islamic concept, structure and process flow being used. Hence, there is a need for a unified, standardized and comprehensive guidelines as reference for all Sharia’a advisory boards and the guidelines will take into consideration all restrictions and jurisdictions. To do this, Sharia’a scholars across the globe should interact frequently with each other to understand the rationale of a given Sharia’a view. We believe standardization of the practices will further strengthen the Islamic finance industry.

C) Pricing of Islamic hedging instruments

Since Islamic hedging contracts are contract-specific, pricing of the product should relate to the subject matter of the contract. Currently, the pricing discovery is benchmarked against the market interest rate which has nothing to do with the subject matter. Appropriate pricing benchmarks need to be developed in order to trigger relevant and accurate risk assessment.

D) Lack of public awareness on products

Public awareness on Islamic hedging products is still low. Many corporate managers shy away from understanding the product and do not know who to refer to for advice. It could also be due to incomplete information given that the learning process becomes stunted. To solve this issue, Islamic financial institutions could organize engaging workshops on Islamic hedging instruments and move to address any concerns that new potential customers may have prior to signing the agreement.

E) Agreement language

This is one of the most common causes why corporate managers shy away from pursuing Islamic hedging transactions. The agreement often is too legally-worded and thick that understanding the structure becomes cumbersome. The best solution is to keep the agreement simple, precise and easy to digest.

F) Accounting treatment

Accounting treatment for Islamic hedging instruments need to be standardized. This is to foster uniformed assessment across the Islamic finance industry, worldwide.

Conclusion

Islam approves of hedging and acknowledges the need to minimize risks and reduce potential losses. Islamic hedging instruments are developed to hedge against real risks pertaining to real economic activities and are strictly prohibited for speculative purposes. In this era of globalization, businesses that engage in international trade are exposed to market risks especially related to foreign exchange risk and profit rate risk. Close risk monitoring is required in order to be alert with any adverse market movements that may have a negative impact on their balance sheet and income statement. The best way to manage this risk issue is to hedge the existing position either fully or partially depending on preference and expectation of future market movements. Islamic finance institutions play a very important intermediary role in this hedging chain. Going forward, it is hoped that the level of awareness on Islamic hedging instruments will improve and that many more businesses can come forward and benefit from the available products.

20Islamic Financial System: Principles and Operations. (2012). Kuala Lumpur: International Sharia’a Research Academy for Islamic Finance.

16


882

773

746.7

671.8

592

547

400.2

344

256

236

193.6

183

110

95

88.9

Managed Assets in USD bln0 100 200 300 400 500 600 700 800 900 1000

Government Pension Fund - Global

Abu Dhabi Investment Authority (UAE)

China Investment Corporation (China)

SAMA Foreign Holdings (Saudi Arabia)

Kuwait Investment Authority (Kuwait)

SAFE Investment Company (China)*

Hong Kong Monetary Authority Investment Portfolio (China - Hong Kong)

Government of Singapore Investment Corporation (Singapore)

Qatar Investment Authority (Qatar)

National Social Security Fund (China)

Temasek Holdings (Singapore)

Investment Corporation of Dubai (UAE)

Abu Dhabi Investment Council (UAE)

Australia Future Fund (Australia)

Reserve Fund (Russia)

Why SWFs and PFs are Good Investors for Africa

Africa requires accelerated investments to achieve the United Nations’ Millennium Development Goals (MDGs) and to reduce its development gap over the medium-term. For instance, it has been estimated that in order close the gap between its infrastructure and the rest of the world’s by 2020, the African continent would require an annual investment of

Global SWFs: Managed Assets as of August 2015

21Africa Infrastructure Country Diagnostic (AICD) (2013)22Preqin Sovereign Wealth Fund Report 2015

USD93bln over the 2010-2020 decade, to which only USD45bln is currently being met with internal and external sources of funding21. USD93bln equates to 1.3%-1.5% of global sovereign wealth fund (SWF) assets under management, which were estimated at between USD5.9tln and USD7.0tln at the end of 201422.

Source: SWF Institute, statista.com

Opportunities forSovereign Wealth Funds (SWFs)and Pension Funds (PFs) in AfricaBy: Nur Aina Abdul GhaniBusiness Development and Partnership Department

17


The strong demand originates largely from growth-induced demand for social and economic infrastructure like roads, water and sanitation, energy, telecommunications. Further massive funding would also be needed for modern economic infrastructure, underpinned by globalization and international competition, private sector development, efficient public services, and standard maintenance and upgrading of existing infrastructure.

Infrastructure Deficit in Sub-Saharan Africa

Lat Am& Caribb.

$72bn

Africa$150bn

MiddleEast

$1,977bn

Asia$2,746bn

Australasia$104bn

Europe$1,040bnNorth

America$219bn

Source: Yepes, Pierce, and Foster (2008) and reproduced in Foster and Briceno-Garmendia (2009: 1-2)Note: Road density is meas ured in kilometers per 100 square kilometers of arable land; telephone density in lines per thousand population; electricity, water, and sanitation coverage in percentage of population with access to services.

Source: Preqin Sovereign Wealth Fund 2015

An important investment vehicle for a growing number of emerging countries is their sovereign wealth funds (SWFs), which are state-owned investment vehicles that hold, manage or administer large pools of public funds, separated from foreign official reserves23. State-owned funds typically have a multi-generational investment horizon and therefore do not require immediate yield as they tend to have strong cash inflows in normal economic circumstances. As a result, SWFs can exploit long-term, illiquid asset classes and strategies to help them meet their investment objectives, while other investors are not allowed to do so.

Global SWFs Presence

23 Africa and Sovereign Wealth Funds 2013, Santiso, J. (Ed.) Madrid: ESADEgeo-KPMG-Invest in Spain, Investopedia

Normalized Units Sub-Saharan African Low Income Countries

Other Low-Income Countries

137

55

16

34

2

31

10

37

60

211

76

41

51

3

134

78

326

72

Total road density

Mobile density

Electricity coverage

Improved sanitation

Internet density

Paved-road density

Main-line density

Generation capacity

Improved water

Roads

Telecommunications

Electricity

Water and Sanitation

18


Source: African Private Equity and Venture Capital Association (AVCA), Ernst & Young, Emerging Markets Private Equity Association (EMPEA)

Selected Sub-Saharan Africa: Pension Fund Assets under Management (2014)

Meanwhile, pension funds are pooled-contributions from pension plans set up by employers, unions or other organizations to provide for the employees’ or members’ retirement benefits24. Pension funds are the largest institutional investors in most countries and dominate the stock markets where they invest.

USD322.0(VALUE)blnSouth Africa

Nigeria

Namibia

Kenya

Botswana

Tanzania

Ghana

Zambia

Uganda

USD25.0(VALUE)bln

USD3(VALUE)bln

USD3(VALUE)bln

USD3(VALUE)bln

USD3(VALUE)bln

USD3(VALUE)bln

USD3(VALUE)bln

USD3(VALUE)bln

In terms of Africa’s funding needs, according to OECD, several key points should be highlighted:

• Africa still needs external funding for its development

Tax revenues usually account for over a third of GDP in OECD countries. However, they account for far less in developing countries, particularly in Sub-Saharan Africa, where they only make up less than a fifth of GDP, with large differences in tax collection performance across countries25. According to OECD, even if domestic resource mobilization is slowly improving (by means of tax revenue as a % of GDP), African countries’ capacity to fill the investment gap is still limited and, over the medium term, most African countries will continue to rely on external resources of funding.

Sub-Saharan Africa: Gross Savings (% of GDP)(1977-2013)

Sub-Saharan Africa: Tax Revenue (% of GDP)(2003-2012)

25

20

15

10

% o

f GD

P

5

0

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013 2003

% o

f GD

P

20

15

10

5

02004 2005 2006 2007 2008 2009 2010 2011 2012

Source: World Bank Development Indicators 2015 Source: World Bank Development Indicators 2015

24www.businessdictionary.com, Investopedia 25OECD Center for Tax Policy and Administration26World Development Indicators 2015, World Bank

Additionally, private domestic savings remain largely below current investment needs (for example, Sub-Saharan Africa’s gross domestic savings rate is only at 14.8% of GDP vs. the world average of 22.2% of GDP)26 making the continent dependent on external resources. Few African countries show regular current account surpluses, and investments need to accelerate significantly to allow an effective development catching-up. In sum, African governments are in search for large investors with long-term investment horizons for financing vital infrastructure projects.

19


Global: Proportion of Sovereign Wealth Funds Investing in Each Class (2013 vs 2014)

Public Equities

100%

82%81%86% 86%

51%47%

54%59% 57%60%

31%33%

0%

24%

2013 201490%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Pro

port

ion

of S

WFs

Fixed income Private Equity Real Estate Infrastructure Hedge Funds Private D

Source: Preqin

27OECD Development Center, Working Paper No. 303 September 2011

• Sovereign wealth funds (SWFs) and pension funds (PFs) are ideal investors in the context of development in Africa: Africa needs long-term and stable funding that SWFs and PFs can bring, and the amount may be significant and may leverage other funding

As the OECD highlights, SWFs’ and PFs’ investments can aid long-term development goals, by providing the long-term and stable funding that is generally lacking in African economies. In particular, their long-term liability is not entirely similar to private investors, and SWFs and PFs are not subject to the discipline of the market. They can thus invest in illiquid and long-maturity assets that other institutional investors, such as private sector funds, cannot. Furthermore, as SWFs are not debt-leveraged, there is little risk that they have to call capital at short notice.

This implies that there will be fewer constraints regarding withdrawals on investments than for other investors, and that they

may contribute, not only to increase the size of investment flows to developing countries, but also to reduce the volatility of these flows, which is harmful for development. Overall, SWFs and PFs are able to capture a wider range of return drivers and access more investment opportunities perhaps not available to their liability-driven counterparts.

For example, by assuming that SWFs invest even only 1.0% of their assets in Africa (as World Bank’s President targets), this may facilitate joint investments by enterprises and SWFs up to about USD420.0bln over the 2010 – 2020 decade, which would broadly correspond to the missing half of required investments in infrastructure to meet the MDGs27. This may also attract other private-sector investors to enter new market once the benefits are clearer and the political context is proven safer through these state-sponsored investments. Furthermore, if developed economies raise barriers to state-backed investors, developing markets might seem even more attractive.

In Africa, the investment potential of SWFs and PFs remains largely unexplored, despite the increasing investments by emerging partners. It is essential for global SWFs and PFs to assume the very important role of being long-term financing providers of infrastructure projects. The matching of the needs of infrastructure projects for funding and SWFs’ and PFs’ needs for investments is ideal, given that managers of SWFs and PFs are enticed by rewarding returns and increased diversification of their investment portfolios to minimise risks, in addition to the goal of contributing to infrastructure and economic development. Moreover, SWFs, given their flexible operating processes, are considered to be exceptionally capable in the effective mobilization of the required human, financial and institutional resources needed for funding development programmes.

20


SWFs and PFs in Africa

To date, SWFs’ and PFs’ reported investments have been mostly in OECD countries and in their jurisdiction. Positively, they are progressively increasing their investments in developing countries, which can be seen as a part of a redistribution of global capital away from developed countries towards countries that have not traditionally received significant investments. Nevertheless, African economies, in particular Sub-Saharan African economies, remain largely excluded from this trend. A recent report by the ESADE Center for Global Economy and Geopolitics (ESADEgeo) suggests that between 2006 and 2013, SWFs allocated insignificant amounts to Sub-Saharan African infrastructure. The report showed that among the largest SWF infrastructure deals, none have been in Africa.

SWF Investments in Africa: Breakdown by Sector and Region (2011)

0

41

24

23

5

8

8

2

1

1

10

216

5 10Number of Operations 15 20 25

Sub-Saharan Africa

Others

Real Estate/Hotels

Banking

Financial

Infrastructure

Industrial

Extractive Industries

Construction/Engineering

North Africa

Source: Thouraya Triki and Issa Faye, 2011. “Africa’s Quest for Development: Can Sovereign Wealth Funds Help?” International Finance Review 12, pages 263 - 290

According to deals listed by Reuters, a significant portion of existing SWF investments in Sub-Saharan Africa are in the commodity and agriculture sector (see table below), particularly from Asian and Gulf countries seeking to secure their supply chains. Most of these investments involve small- and medium-size SWFs such as Temasek (USD215bln), the Dubai Investment Corporation (USD160bln) and Mubadala (USD60.9bln). However, the largest SWFs have remained almost absent from investing in Sub-Saharan Africa, to which the main reason for this lies in their specific mandates. To tackle this issue, an option is to change SWF mandates, by including infrastructure as an investment category.

However, given that SWFs are established by law, any change would probably necessitate legislative actions. An alternative would be the creation of a sub-entity with a specified mandate towards infrastructure investment. As mentioned above, further alternatives would include the pooling of resources amongst SWFs and bundling the pooled amount into a single portfolio. This can reduce risks and increase their leverage. For example, every SWF could contribute 1.0% of their annual assets to an entity, which has a mandate to invest in Sub-Saharan infrastructure.

21


Selected SWF Deals with Sub-Saharan African Firms (2011 - 2014)

Source: Reuters

SWF Target

Temasek

Temasek

Temasek

Temasek

Temasek

Temasek

Temasek

China African Development Fund

Temasek

Temasek

China African Development

Fund

Dubai Investment Corporation



Abu Dhabi Investment Council

Mubadala

Mubadala

China African Development

Fund

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

Singapore

China

China

Singapore

Singapore

UAE

UAE

UAE

UAE

UAE

UAE

-

Zambia

Gabon

Gabon

Tanzania

Senegal

Nigeria

Nigeria

Tanzania

South Africa

South Africa

South Africa

South Africa

Nigeria

Guinea

Cameroon

Africa focus

Guinea

Cameroon

Northern Coffee Corporation

Olam Gabun Steel

Gabon Fertilizer Company

Olam Tanzania

Olam Senegal

Ranona Limited

Seven Energy

Mamba Cement Project

Ophir Energy (listed in London)

Tana Investment

Shanduka Group

Dangote Group

Guinea Aluminium Company Ltd

Cameroon Alumina Ltd

Invest AD Emerging Africa

Guinea Alumina Corp. Ltd

Cameroon Aluminia Ltd

-

Retail

Oil/Gas

Cement Industry

Gas

Private Equity Fund with focus on

Africa

Diversified Conglomerate

Agriculture, oil and infrastructure

Financial Services

Mining

Mining

Mining

Mining

Steel Industry

Agriculture

Steel Industry

Chemicals

Agriculture

Agriculture

Via Breedens Investment Ltd and Aranda investments Pte Ltd







Venture with Jidong Development Group, Ned bank Capital and Bank of China Johannesburg

n.a

Venture with Oppenheimer & Son Ltd

n.a

n.a

Dubai Aluminium

Dubai Aluminium together with other investors

n.a

n.a

Dubai Aluminium

Hebei Steel venture with South Africa’s Industrial Development Corporation

Name SWF Subsidiary Country Country Country Name Sector

22


DevelopedEurope

28%

Global13%

Asia Pacific9%

Emerging MiddleEast and Africa

5%

Emerging Asia7%

Emerging Europe6%

DevelopedAmericas

30%

EmergingAmericas

2%

SGRF Geographic Asset Allocation (2015)

Source: Sovereign Wealth Center

Recent Non-African SWF and PF Developments in Africa

State General Reserve Fund of the Sultanate of Oman (SGRF) – Oman

In order to capitalize on the growing opportunities in African countries, the USD34.4bln State General Reserve Fund of the Sultanate of Oman (SGRF) opened a new office in Dar Es Salaam, Tanzania in January 2015 and has legally registered under the name of Onyx Stone Company Limited. The Bagamoyo Free Zone Project is the first mega-project undertaken by SGRF in Tanzania, which includes a port and supporting infrastructure within and outside the Free Zone. It is currently pursuing other opportunities such as the Mombasa Port in Kenya and Primefuels Logistics Company in Tanzania.

The New York State Common Retirement Fund - US

The New York State Common Retirement Fund, one of the largest US pension funds and worth about USD180bln, plans to invest as much as 3.0% of its assets in Africa in the next five years to diversify its portfolio and boost returns. The figure would be more than USD5bln based on the fund’s current valuation. African private-equity firms, venture capital, real estate and new infrastructure projects such as power plants are likely to receive funding, according to a statement by its Chief Investment Officer, Vicki Fuller.

The fund has so far invested about USD200mln in Africa, most of which was committed in the last 12 months to two private-equity firms: Helios Investment Partners and African Capital Alliance. The fund will write checks of about USD100mln for funds bigger than USD500mln and invest in smaller firms and new funds through a fund of funds manager rather than directly. In April 2015, the fund expressed interest to team up with sovereign-wealth funds and other pension funds to invest in African infrastructure projects.

23


Missouri State Employee’s Retirement System (Mosers) – US

The USD9.3bln Missouri State Employee’s Retirement System (Mosers) has for the past few years put money into private equity funds in Africa run by both Actis, which invests in Asia and Latin America as well as Africa, and Development Partners International (DPI), which focuses on Africa. Both private equity firms make investments that tap spending by the continent’s consumer class, from companies that provide healthcare and education to expanding electricity supply and shopping malls. With typically conservative pension funds showing an interest in Africa, analysts say this could be a significant inflection point, one that may help skeptical investors get more comfortable with the idea of investing on the continent.

Government Pension Fund Global (GPFG) - Norway

The world’s biggest sovereign wealth fund, the Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the government of Norway:

• The Government Pension Fund Global (GPFG) • The Government Pension Fund Norway

In 2014, the Government Pension Fund Global (GPFG), managed by Norges Bank Investment Management (NBIM), a part of the Norwegian Central Bank, added five African states to the number of countries it approves as marketplaces for trading in equities. It is keen to take advantage of the pace of economic growth across Africa to garner profitable returns on equity investments. The Norwegian fund’s investment in Africa has now been extended to Kenya, Tunisia, Ghana, Mauritius and Nigeria. Its investments in Nigeria, as at the end of 2014 was NOK497mln (USD63mln), which include stocks in companies listed on the Nigerian Stock Exchange (NSE).

The fund’s investment is highest in Zenith Bank, Nigeria’s largest bank, at 23.5%. This is followed by another lender, Guaranty Trust Bank at 21.0%. Access Bank has so far received the least investment from the wealth fund (3.2%).

Government Pension Fund Global (GPFG)’s Holdings in Africa

Source: Nairametrics

The fund also invested NOK630mln (USD80mln) in Kenya’s equity market as of December 2014. These investments were spread across 11 companies. In total, it had investments in 169 African companies and 22 bonds from four issuers. Although only 0.7% of the USD814bln fund’s investment was in the continent by December 2014, the fund is poised to increase its equity outlays in Africa. Because of its mandate, GPFG is prohibited to invest in infrastructure projects or in unlisted equities, which makes it difficult for Norway to make investments in a region with under-developed equity markets. Interestingly, in December 2014, the Norwegian Ministry of Finance called for a re-assessment of whether its SWF should be allowed to invest in infrastructure.

Name Holdings (%) Value (USD)

0.87

0.17

0.49

0.23

0.35

0.10

1.38

0.25

0.21

0.20

0.17

3,607,887

11,527,775

15,601,449

2,896,164

13,929,131

4,579,247

4,989,201

2,094,739

4,117,928

2,930,635

66,274,165

International Breweries

Breweries

Zenith

Seplat

Guaranty Trust Bank

Nestle Nigeria

UACN Plc

Access Bank

Lafarge Africa

Stanbic IBTC

Total

24


Total Investments by Geography (2014) Norfund’s Investments in Africa (2014)

CleanEnergy

40%

IndustrialPartnerships

20%

FinancialInstitutions

25%

SME Funds14%

Others1%

Asia7%Latin

America11%

Africa81%

• Committed investments: NOK 12.843bln• Number of investments: 126• Share of new investments in least developed

countries: 24%

Source: Norfund

• Total investments : NOK6.04bln• 490 companies• 110,000 jobs

Source: Norfund

Funding is provided via capital allocations from Norfund’s development assistance budget. Southern and East Africa are Norfund’s main investment areas, with investments in up to 490 companies. Norfund also targets selected countries in South-East Asia and Central America and has regional offices in San José and Bangkok.

Conclusion: Why Africa Should Be an Emerging Destination for SWFs and PFs

The last decade saw sustained growth across Africa, with GDP growth rates of 5.0% or more for most countries on the continent. While the slump in oil prices have dented the revenues of oil-exporting countries such as Nigeria and Angola, the International Monetary Fund (IMF) still sees growth rates for Sub-Saharan Africa that are double of those witnessed by advanced economies. In the coming years, Africa is forecast to remain one of the world’s three fastest–growing regions and to maintain its impressive 20 years of continuous expansion, growing 3.8% in 2015 and 4.3% in 2016, compared to the world average of 3.1% and 3.6%, respectively28. In 2014, Africa accounted for 9 of the 15 fastest–growing economies globally29, and in 2015, 7 out of the 10 fastest– growing economies in the world will be in Africa30. Some countries in the region are eclipsing the opportunity on offer in some emerging market behemoths such as Brazil – which is stagnating – and Russia, which is headed for a deep recession this year.

Norwegian Investment Fund for Developing Countries (Norfund)

Norfund – the Norwegian Investment Fund for Developing Countries – was established by the Norwegian Parliament in 1997 and since then has been investing more than 80% of their capital in Sub-Saharan Africa. Activity in the region have increased through a significant number of new investments. The organisation is the government’s main instrument for combating poverty through private sector development and Norfund’s objective is to contribute to sustainable commercial businesses in developing countries.

28International Monetary Fund (October 2015)29Annual Development Effectiveness Review 2014: Towards Africa’s Transformation, African Development Bank 201430International Monetary Fund (October 2015)

25


0 5 10

Change in real GDP from 2002 (USD bln)

15 20 25

24

15

13

12

9

6

5

2

2

9

30

Others

Utilities

Tourism

Real Estate

Financial Services

Manufacturing

Agriculture

Wholesale and retail

Infrastructure

Natural resources

Source: The Africa Competitiveness Report 2014 – World Economic Forum

% y

-o-y

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E

2016

F

1210

86420

-2-4-6

World

Emerging and developing Asia

Latin America and the Caribbean

Advanced economies

Emerging and developing Europe

Sub-Saharan Africa

Global GDP Growth Trend (1998-2016F)

Africa: GDP Growth by Sector Since 2002

Source: IMF, African Development Bank

31Annual Statistical Bulletin 2014, OPEC, 201432Minerals and Africa’s Development: The International Study Group Report on Africa’s Mineral Regimes, United Nations Economic

Commission for Africa (UNECA), November 201133The Africa Competitiveness Report 2014 – World Economic Forum34UN Population Statistics 2015

Of importance, encouraging demographics and closer regional ties will drive growth. The continent is currently home to more than 1 billion people, and will probably and rise to 2 billion by 2050 and 3.7 billion by 210034. At the same time, the population of young, middle-class Africans is rising while the labour force is expanding. Defined as those earning between USD2 and USD20 a day, the World Bank predicts Africa’s middle class to grow from 355 million (which represents 34% of Africa’s population) in 2010 to 1.1 billion (42% of total population) by 2060, making it the world’s fastest–growing middle class. Today, 26 of Africa’s 54 countries have achieved middle-income status.

In view of Africa being amongst the world’s richest continents in terms of known mineral wealth, it is only apt that the natural resources sector is the largest contributors of GDP growth, contributing USD24bln in real GDP since 2002. Naturally, this has long made the continent a destination for resource-hungry investors. However, only a fraction of them are yet being extracted. The continent has 8.6% of the world’s proven oil reserves and 7.2% of its natural gas31. Africa also has a hefty share of the world’s minerals — including bauxite, copper, chromium, cobalt, gold, manganese, phosphate, titanium and diamonds32.

Due to Africa’s annual infrastructure spending needs of USD93bln per annum, it also goes without saying that infrastructure is the second largest contributor of GDP growth since 2002 (USD15bln), representing Africa’s increased focus on improving transport and telecommunication networks. Amongst others, emerging sectors include wholesale and retail (driven by a growing middle class), agriculture (60% of global uncultivated arable land is found in Africa), manufacturing (a by-product of improvements in human and IT capital) and financial services (follows a period of economic resilience and increased investment)33.

26


0

Consumer 1400

550

500

200

NaturalResources

Agriculture

Infrastructure

500

USD bln

1000 1500

Africa: Household Final Consumption Expenditure (2004-2013)

Projected Revenue Growth to 2020 (By Sector)

Africa: Population Trend (1980-2015F)

0

527602

673815

914 9411140

1257 13241493

USD

bln

200

400

600

800

1000

1200

1400

1600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

1400000

1200000

1000000

800000

600000

400000

200000

0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: World Bank

Source: The Africa Competitiveness Report 2013 – World Economic Forum

Source: UN Population Statistics

The continent’s growing consumer class is the key engine of growth and fuels Africa’s strong appetite for basic infrastructure, natural resources, agriculture as well as consumer goods. The continent’s domestic markets has the most compelling appeal for investors, compounded by rapid urbanization across Africa. The consumer goods sector in Africa is expected to experience a revenue growth of approximately USD1,400.0bln from 2008 through to 2020, driven largely by a growing middle class35.

35The Africa Competitiveness Report 2013 – World Economic Forum36World Bank

Currently, the continent has more than 600 million people of working age. By 2040, their number is projected to exceed 1.25 billion — more than in China or India — lifting GDP growth36. The rising share of Sub-Saharan Africa’s working-age population is increasing the continent’s productive potential at a time when most advanced economies face aging populations and a declining share of their working-age populations.

Typically, Africa is regarded as a geographic and economic link between Europe and the Middle East. However, as a result of its solid demographics, large and growing population, and high growth potential, the continent is quickly gaining traction with large investors (such as SWFs and PFs) as the new emerging market and destination for investment. The abundance of natural resources as well as human capital bodes well for cash-rich and opportunistic global investors given the relatively untapped disposition of Africa’s resources. A growing number of investors are keenly looking at countries with a large population (such as Nigeria and Egypt) due to the sheer market size, and therefore, opportunities it presents.

27


Ease of Doing Business (2015)

Europe & Central Asia

Sub-Saharan Africa

OECD High Income

East Asia & Pacific

Middle East & North Africa

Latin America & Caribbean

South Asia

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

85%

74%

65%

60%

55%

50%

50%

Share of economies with at least one reform making it easier to do business

Source: World Bank Doing Business Survey 2015

Unrest has paved the way for reform and cautious optimism, and previously volatile countries are transitioning to a relatively stable political environment. Positively, the continent’s legal and regulatory environment is continuously evolving and being developed. There has been a distinct improvement in the establishment of necessary frameworks, particularly in the financial services sector. In the past decade, African policymakers have appropriately undertaken a process of modernising legal and regulatory structures so as to establish more synchronised measures, encouraging greater inter-continental and international investments. While conflicting regulations across African markets remain, regulators continue to align and strengthen measures across the continent in key sectors. This has created a platform for higher economic growth in Africa and is likely to pave the way for greater investments in the medium to long term.

Many African countries have sought to improve their investment climate and conditions for doing business, which subsequently enhance long-term growth prospects. Notably, Benin, Côte d’Ivoire, the Democratic Republic of the Congo (DRC), Senegal and Togo are even in the top ten countries worldwide with the most reforms implemented to make it easier to do business. According to the Doing Business 2015 survey conducted by the World Bank, Sub-Saharan Africa accounted for the largest number of regulatory reforms in 2014, with 39 countries successfully reducing the complexity and cost of regulatory processes and 36 countries strengthening legal institutions.

In conclusion, Africa is at a crossroads and recent performance indicators continue to support the continent’s status as an attractive emerging market. An abundance of untapped natural resources, encouraging demographics coupled with rising domestic consumption, the need for infrastructure development, and a relatively stable business and political environment translates to significant opportunities which cannot be ignored. Although the building blocks are in place, challenges remain. Positively, countries in the region continue to work towards overcoming obstacles to sustained economic growth, and it is envisaged that these developments will change the investment climate in the near term, and will draw in much-needed investors such as SWFs and PFs.

28


In recent years, ICD’s Line of Finance (LOF) portfolio has been heavily concentrated in the Commonwealth of Independent States (CIS) region. As a result, a developmental impact assessment was needed in order to measure the positive outcomes of ICD’s LOF facilities and to further demonstrate that financial benefits are not the sole driver behind the provision of such facilities to member countries in the CIS region.

In line with ICD’s mandate, the LOF Division within the Financial Institutions Development Department (FIDD) extended the 1st and 2nd Global LOF to Uzbekistan, aimed at stimulating the growth of the small and medium-sized enterprises (SME) sector in the country. More specifically, the project was envisaged to help strengthen the long- term financial resources of financial institutions so that they in turn can help finance a greater number of SMEs. Moreover, the project, being Sharia’a compliant, was effective in promoting awareness among clients regarding Islamic finance, and consequently increased penetration of Islamic financing in Uzbekistan.

In 2006, ICD extended a total of USD3 million LOF facility to Uzbekistan for two financial institutions, namely Uzbek Leasing International (USD1 million) and Ipak Yuli Bank (USD2 million). These initial partnerships were further strengthened in 2009 by the USD50 million Global Line which was allocated to several financial insitutions in Uzbekistan. Furthermore, in 2011, ICD approved an additional USD30 million LOF facility to support investment activities in the SME sector, given the good track record of financial institutions in the country, and in order to meet the increasing demands for financing following the credit squeeze which resulted from the worldwide financial crisis.

Ipak Yuli Bank

Ipak Yuli Bank was among the many banks that submitted applications showing their interest in obtaining the LOF from ICD in 2009 and 2011. Following the positive outcomes of LOF’s internal assessments, ICD decided to extend a LOF facility to Ipak Yuli Bank and hence, agreements were signed for an amount of USD5 million in 2009 and USD5 million in 2011, which were fully disbursed.

Utilizing the funds disbursed by ICD, Ipak Yuli Bank channeled USD10 million to a total of 24 SMEs in Uzbekistan. The majority of the SMEs were from the light industry and were mostly involved in the production of paper, furniture, apparel and so on. These SMEs utilized the financing to expand their operations and this resulted in substantial income generation and job creation in the local economy.

By: Abdulhaki KorbayramLine of Finance DivisionFinancial Institutions Development Department

Case Study“High Exposure, High Impact”: The Success of Uzbekistan’s Ipak Yuli Bank in Strengthening the SME Sector through ICD Support

29


Based on the information collected by Ipak Yuli Bank, through the 24 sub-projects, a total of 857 jobs were created across various sectors of the economy. Moreover, they also contributed to the overall economy of Uzbekistan through increased tax revenues. Ipak Yuli Bank also ensured that all the sub-projects benefiting from ICD’s LOF adhered to the local environmental laws issued by the Cabinet of Ministers and requested for certification from the clients whenever they deemed necessary.

For Ipak Yuli Bank, the total number of staff increased from 1,051 in 2009 to 1,803 in 2013. According to the Management of the Bank, the average wage for their employees is higher than the industry average and they often benefit from banking-related trainings provided by various reputable institutions in Uzbekistan.

The overall development outcome is rated “Successful” based on component ratings of “Satisfactory” for Financial Performance and Achievement of Business Objectives; “Satisfactory” for Economic Performance; “Satisfactory” for Contribution to ICD’s Mandate and Objectives; and “Partially Unsatisfactory” for Environmental, Social, Health, and Safety Performance.

In other words, ICD’s support positively impacted the operations of Ipak Yuli Bank, leading to job creation both for the Bank and Uzbekistan as a whole. This example is testimony of the importance of Line of Finance in supporting the SME sector in ICD member countries. Similar studies will be conducted moving forward in order to assess ICD’s LOF impact for SMEs in other member countries.

30


02Raise Third-Party CapitalMobilize sizable third party capital for the various funds that are managed / co-managed resulting in a significant multiplier effect on ICD’s deployed resources (commitment).01

Building back-up depth to be a General PartnerAsset Management Department (AMD) sponsors and launches ICD’s branded funds by seeding and partnering with relevant General Partners (GPs). Partnering with other GPs will enhance the department’s internal capability so that in future it will be able to manage its own (branded) funds.

03Increase and Sustain Risk Adjusted Returns

Enhance the risk-adjusted returns for the underlying funds to achieve management strategy.

ICD’s Asset Management Department Offers Diversification of Products for Investors

Background and Strategy

The Asset Management Department (AMD)’s role is to help connect our clients (which consists of sovereign wealth funds, financial institutions, pension funds, insurance companies, endowments, foundations, family offices and high-net worth individuals) with investment opportunities across emerging markets. AMD provides investors with fund management solutions spanning the full spectrum of asset classes in diversified industries within a wide geographic footprint.

Our multi-billion product offerings are tailored towards unique return and risk objectives in more than 51 countries. AMD runs a core product portfolio of proven, seasoned managers in whom we have a high level of confidence to provide high risk-adjusted returns over benchmark funds. ICD Asset Management has one of the most experienced investment teams in the Middle East and North Africa. The latter is complemented with robust processes and control structure aligned with interlinked risk frameworks and bespoke investment guidelines. AMD’s products include money markets, sukuk, public equities, small- and medium- enterprises (SMEs), and private equity.

AMD aims to create an enabling environment for the growth of Islamic finance and build partnerships with the private sector to enhance resource mobilization. The vision and philosophy of ICD’s asset management business is derived directly from these core pillars. Thus, the key objectives of ICD’s asset management business are:

In line with ICD’s strategy, AMD developed a three-phased plan: Concept Implementation, Focused Expansion, and Growth.

• Phase I - Concept (1435H – 1436H): AMD focused on building the core infrastructure of the asset management business by developing three primary fund platforms: Income & Capital Markets, SMEs and Private Equity. Each platform offers a set of solutions (funds) across unique asset classes and select geographies complemented with extensive market intelligence and industry-leading risk management. Each fund is set-up with its own style, strategy, management and partnerships.

• Phase II - Expansion (1437H – 1438H): AMD will expand its product line across asset classes, geographies, and sectors and will grow existing AUM through a dedicated fund raising team within the department.

• Phase III - Growth (1439H – Onwards): After setting-up the core infrastructure, expanding the product range, and addressing key challenges through spin-off, the ICD asset management business will be set for growth through further expanding the range of products (asset base, fund type, geography and sector) thus, increasing AUMs while further raising the multiplier effect.

By: Ali Mamoun Ibrahim Hassan and Zahra Ahmad Mohammad AlwazirIncome & Capital Markets Funds ProgramAsset Management Department

31


Income and Capital Markets Funds Platform

Income and Capital Market funds seek to generate high–yielding and consistent excess returns by delivering a periodic dividend stream (on a monthly, quarterly or semi-annual basis) through risk analysis and intelligent investments. The diagram below conveys the different products and positioning:

MoneyMarket

Fund

TradePremium

Fund

Lower Risk/Reward Potential Higher Risk/Reward Potential

Target return:12M-Libor + 200 bpsDividend Frequency:MonthlyAllocation:Short - term bankplacements and to alesser degree insukuksLimits: Defined

Target return:12M-Libor + 300 bpsDividend Frequency:Semi-AnnualAllocation:Trade finance ( clean,sovereign, andstructured)Limits: Defined

Target return:12M-Libor + 400 bpsDividend Frequency:Semi-AnnualAllocation:PredominantCorporate finance,other fixed income,Quasi-Equity**Limits: Defined

Target return:12M-Libor + 500 bpsDividend Frequency:Semi-AnnualAllocation:Sukuk and other fixedincome

Target return:12M-Libor + 600 bpsDividend Frequency:AnnualAllocation:Listed Securities inselect and fast-growing emergingmarkets

SukukMutualFunds

ListedEquityMutualFunds

CorporatePremium

Fund

AMD launched the Money Market Fund (MMF) as a USD50 million seed investment from ICD in September 2013 and by Q3 2015, the fund reached USD230 million. MMF outperformed treasury funds in its category generating an average of 3.8% (well-above target return of Libor+200BPS) in EY2014. The success led to a surge in capital raised from 3rd party investors as it grew its AUM by 4.6x invested capital (to USD230 million as of present). This was a result of a well-crafted asset allocation strategy, risk framework implementation and an experienced portfolio management team. Within the next year, AMD plans to launch the Sustainable Islamic Fund, representing a diversified public equities fund while initiating the first stages of a Turkey Sukuk Mutual Fund.

In EY2014, the Unit Investment Fund (UIF) – a fund encompassing two sub-funds; Trade Premium, Corporate Premium and a legacy portfolio of fixed income products) delivered a 4% dividend distribution just north of its target return of LIBOR+300BPS. Within the same year, the fund underwent significant restructuring initiatives: optimized portfolio allocation, revisiting strategic plan, changing regulatory status and a go-to market investors plan. The fund is currently launching two new sub-funds, which recently have received traction and teaser requests from top-tier financial institutions. The sub-fund strategy is expected to grow UIF in AUM as well as performance.

SME Funds Platform

In emerging and frontier markets, entrepreneurs and business owners looking to start or grow SME businesses face significant challenges particularly in terms of access to appropriate financing, experienced business support and the market linkages and networks needed to succeed. SMEs are also considered too large for micro-finance, too small for traditional private equity and too risky for traditional security-based lenders as they are often informally structured (compared to large corporates) or lack security or track record. Thus, many entrepreneurs and business owners find themselves in the ‘missing middle’37.

SMEs are strategic to ICD in multiple ways: 1) Crucial to the development of a strong Organization of Islamic Cooperation (OIC) economies 2) Principal means of job creation for the bottom of the pyramid individuals and the driving force for a thriving, formal economy 3) Building a healthy national infrastructure, and encouraging political and social stability

37http://www.grofin.com/sme-fund-management-solutions/invest-in-the-sme-sector.aspx

32


SM Funds CurrentlyLaunched

SME Funds to beLaunched in 1437H

SME Funds to beLaunched in 1438H

Country -specific

Region-specific

ICD’s Approach to Fund Management

Despite the targeted annual double digit returns attained from investment in the SME sector within the OIC, the management of the fund can be quite challenging, as enterprises require close follow-up. Our experience shows that selected local fund managers can do this job in an appropriate manner, and still contribute to the creation of considerable value.

ICD has accumulated competence in the selection of strategic fund managers and the establishment of appropriate fund structures catered to:

1) Maximize rewards to its investors2) Boost OIC development

ICD and investors will continue to invest in SME funds, primarily through external fund management companies, and in some cases through establishment and ownership of fund management companies where demand has been identified in a specific geographic market.

At present, ICD has outperformed its requirements as two of the operational funds, the Saudi SME and the Tunisia SME, have started generating investment returns and offering dividends to shareholders during the commitment period. AMD has been actively developing a number of funds in 1436H,

which are expected to be launched in the next two years. This includes the Turkey SME fund, which will be launched in Q1 2016, while a regional MENA SME fund in collaboration with the European Bank for Reconstruction (EBRD) will be launched in Q2 2016. The launch date for the Algeria SME Fund, the Bahrain SME Fund, as well as the KAUST Venture Capital Fund will be in Q4 2016.

For this reason, ICD offers a solution of access to finance for the region’s under-served SME sector through the deployment of mezzanine capital in well-planned, properly-capitalized and skillfully-managed businesses. Over the past two years, 1435H –1436H, AMD strategy has enabled the launch and development of SME funds across select high growth geographic markets (as conveyed by the infographic below).

SME Funds in High-Growth Geographic Markets

33


Introduction

With strong economic reforms, a well-structured investment environment, a young educated population, and a high SME concentration, Tunisia has proven to be an attractive place to invest.

The Theemar SME Fund was established in November 2012 with a target size of USD25 million. It was established as a closed-end 100% equity fund for financing SMEs in Tunisia. Primarily, the fund was set up with clear commercial and developmental initiatives:

1. Enhance investor returns

The fund invests in profitable projects with the goal of generating double-digit risk-adjusted returns to investors. The average debt or quasi-equity transaction is valued between TND1.5 and TND2.5 million (no transaction exceeding 15%) of the fund size with an average tenor of 4 to 5 years.

2. Developmental Impact

(a focus on enterprise development and employment)

To help Tunisian SMEs improve their competitiveness, facilitating their access to local and international markets, ensuring company growth as well as human capital acquisition. In tandem to the latter, Theemar will have a strong presence in under-developed and rural areas. The goal is to facilitate the establishment of 30 companies and the creation of 1,000 jobs.

The Fund Management Team

The Fund is managed by UGFS, a Tunisian top Investment Company for small and medium enterprises. UGFS was established in 2009 and offers its clients wide-ranging access to the Tunisian financial market and a comprehensive selection of financial products and services. UGFS has been managing the all equity fund since its inception. UGFS is headed by its General Manager Mr. Mohamed Salah Frad who has a team that consists of a 14 members (three of which have private equity background).

Highlight: Tunisia Theemar Fund

38http://www.nyssa.org/programs/conferencesseminars/ctl/viewdetail/mid/754/itemid/2521/d/20151110.aspx

Their asset management services include discretionary portfolio management and local fund management. They encompass a full range of corporate finance advisory services, including mergers & acquisitions, IPOs, private placements, investment evaluation as well as private equity. The fund will have a group of committees including an investment committee, an advisory committee and a Sharia’a committee (with well-renowned scholars in the field).

Theemar October 2015 Portfolio Snapshot

As of October 2015, four deals have been financed within the automotive, healthcare, and financial services industries totaling approximately USD5 million. Overall, deals sourced came from a variety of sectors with dominance in sectors of strategic importance such as agrifood, industrial, financial services, production, and so on. Aside from the four already disbursed deals, there are two deals approved and to be disbursed soon, and 15 others under preliminary analysis and due diligence.

Theemar’s net asset value (NAV) has been consistent since the fund’s inception and it is expected that the fund will take two to three years to give investment returns to its investors as it is a pure equity fund and returns are more long-term.

Private Equity Funds Platform

Earlier this year, the global consultancy firm, McKinsey & Co., published a report describing the strong growth in alternative investments: an asset class which includes hedge funds and private equity. As conveyed by the report, alternative investments have produced almost double the rate of growth of assets under management over traditional investments (pension funds and mutual funds) over the eight-year period ending 2013. With just over USD7 trillion in assets, the sector has become an even more formidable category than ever. Additionally, over the past several years, several high profile institutional investors have allocated an increasing amount of their assets into alternative investments seeking higher returns and reduction of risk not easily achievable in traditional investment categories38.

Agrifood

Automotive

Industrial/Production

Healthcare

Telecom/IT

Financial Services

Energy/Petroleum

Others

22%

5%

3%

9%

11%

24%

7%

19%

Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

TUN NAV

NET ASSET VALUE

34


It is clear that the future mantra for success in private equity is going to be adding value by operational improvements. As a result, private equity firms or funds need to have sector expertise which, in many cases, can mean that they focus on particular themes. Mandated by multilateral developmental initiatives and investor fiduciary milestones, AMD has set up specific thematic funds to help address problems created by trends such as resource shortages or urbanization.

ICD’s Thematic Funds

The ICD Food & Agribusiness Fund has beendeveloped to make a catalytic contributiontowards promotion of food security anddevelopment of the food and agriculture sectorin the Member Countries.

The ICD Healthcare Fund focuses on the core,traditional healthcare sub-sectors within ICDMember Countries. The subsector of interestinclude general hospitals, specialized clinicssuch as pediatrics, medical laboratories,pharmaceutical companies, pharmacy logisticsand chains.

Other funds in solar energy, education sector,are also in planning stages. It is envisaged thatat least one of these funds in the renewableenergy sector will be successfully developedand launched before the year 1438H.

The ICD Central Asia Renewable Energy Fundhas been created to develop and promote therenewable energy sector in various CentralAsian Member Countries.

The ICD Islamic Banks Growth Fundis designed with the objective of futherstreamlining, expanding and improving theeffectiveness of ICD’’s intervention program inthe financial institution sector.

Current Funds Future Funds

During 1436H, AMD launched the Islamic Banks Growth Fund (IBGF) with a first close of USD100 million. IBGF targets Islamic retail banking in economies requiring high traction in Islamic finance and leverages on ICD’s in-house expertise and core-competency in Islamic banking. In addition, AMD is in the final stages of achieving its first close of USD300 million in the Food & Agribusiness Fund (FAF), which is expected to be launched in the beginning of the next quarter. FAF invests through equity and quasi-equity in select food and agribusiness companies across the full value-chain to (a) generate attractive commercial returns; while (b) promoting development of the food and agribusiness sector in the various target countries.

The fund is setup in partnership with a top-tier regional private equity fund firm in the Dubai International Financial Center (DIFC) in the UAE and with knowledge partnership from Rabobank (a Dutch-based global leader in food and agribusiness financing and sustainability-oriented bank). Additionally, AMD has been able to achieve a first close of USD50 million for the Central Asia Renewable Energy Fund (CAREF), a clean technology fund focused on hydro and wind energy sources (with a guaranteed off-take structure), managed in partnership with strong local partners: The Lancaster Group, a premier business group of Kazakhstan and the National Agency for Technological Development (NATD), a Kazakhstani government institution for the development of renewable energy projects in the region.

The funds established by AMD offer a wide range of theme-based funds geared towards investors seeking higher double-digit returns with a longer-tenor appetite. AMD’s approach to private equity is exposed to highly volatile valuation environments within the OIC countries, which demands a solid asset management team. Similar to the SME funds structure, AMD will partner with well-renowned international firms with solid expertise in their relevant sector verticals for fund management and advisory. In tandem, AMD’s private equity approach is focused on ensuring tangible collateral and diversified cash flows to provide a sound foundation for long term investment value, as well as developing a platform from which meaningful growth can be achieved.

Summary

Navigating the turbulent terrain and dynamics of emerging markets merits scrutiny and thus demands a globally experienced management team to capitalize on opportunities. ICD AMD brings the best in-house and international management teams, a breadth of unique and well-positioned products and develops an ecosystem that boosts development across the OIC countries. This enables AMD to meet investor goals and realize ICD’s vision of becoming an emerging market leader in its domain.

35


Introduction

Empirical studies find that only obstacles related to finance, crime, and political stability are directly linked to firm growth. Moreover, a number of theoretical and empirical literature confirms the importance of financial inclusion for long-term economic development. Countries with better financial inclusion grow faster and income inequality and poverty experiences a reduction.

On the other hand, access to finance remains a key constraint to the private sector, especially in developing and least developed countries (LDC). The World Bank indicates a high reported severity of financial obstacles in poor countries. Access to finance is disproportionally difficult for firms in LDCs, with 41% of SMEs in LDCs reporting access to finance as a major constraint to their growth and development, as compared with 30% in middle-income countries, and only 15% in high-income countries. A large number of empirical studies suggest the positive effect that financial inclusion has on firms’ growth, especially firms that require the most finance.

In this paper, a firm-level survey database is used to focus on the following questions. First, what are the firm-level and country-specific predictors of financing obstacles in the Organization of Islamic Conference (OIC) countries? Second, how similar are those determinants for OIC’s LDCs and developing countries?

The current paper contributes to the existing discussion on financing obstacles in several unique ways. First, in contrast to previous studies which mostly focus on all developing countries, the present study takes a sub-set of the group of developing countries’ and LDCs’ private sector firms to analyze the causes of their financing challenges. Second, although a number of studies have been conducted to analyze the financing obstacles of some OIC countries, this study uses a primary data source which contains a large sample of firms. Third, binary probit regression technique for the least developed and developing OIC countries are estimated separately, assuming that the determinants of financing obstacles are different for these two categories of economies.

Data and Methodology

The data source of this study comes from the Enterprise Surveys (ES) conducted by the World Bank, which contains the responses of over 130,000 firms in 135 countries, of which 113 have been surveyed following the standard methodology. For the sample of OIC countries, 13,300 firms were surveyed in 30 economies between the period of 2006 and 2010. The survey does not cover some of the Middle East and North African (MENA) and the Asian OIC countries due to the following two reasons. First, some countries were not surveyed (i.e. Saudi Arabia, Bahrain, Brunei, Iran etc.) so far by the World Bank. Second, the countries that were surveyed (i.e. Malaysia, Egypt, Lebanon, Syria etc.) did not adhere to the ES’s global methodology and therefore the inferences made should be interpreted cautiously.

For the sake of the context-specific analysis, all OIC countries have been classified into two groups: LDCs and developing OIC countries. According to the United Nations’ (UN) definition, LDCs include countries with:

a) low per capita incomeb) low level of human resource developmentc) high degree of economic vulnerability

According to these criteria the sample countries are 16 LDCs and 14 developing countries of the OIC. In order to construct a variable for financing obstacles, the following question on the survey was used: “How problematic is financing for the operation and growth of your business?”. Given that the financing obstacle is a binary dependent variable (1 if a firm considers the financing as a major or very severe obstacle, 0 if otherwise) a binary probit maximum likelihood estimation model has been used in the study.

A number of firm-specific and country-level independent variables have been added to the regression models. A firm-specific control variables include firm’s age and size, sectoral involvement, ownership structure, export and external auditing status. The following are the main country-level variables that were used in the regression analysis: GDP per capita, the percentage value as a share of private sector credits by domestic bank to the GDP, and a set of indicators that measure the development level of macro-institutions (i.e., rule of law, regulatory quality).

39A full version of this paper is published at Journal of Economic Corporation and Development, 35, 1 (2014), p. 103-132

What Prevents Firms from Access to Finance?A Case Study of OIC Countries39

By: Majid Kermani and Elvin AfandiStrategy and Policy Department

36


When it comes to the econometric analysis, the results suggest that the firm-level characteristics tend to be broader and robust in the OIC LDCs compared to its developing countries. Older, larger, manufacturing, externally audited and foreign-owned firms report less financing obstacles in LDCs compared to other OIC countries.

The regression results also suggest that country-level variables such as GDP per capita, private credit and institutional development play a significant role in explaining the financing obstacles. However, due to the multicollinearity and casual relationship, institutional development is found to be economically insignificant when controlled for country-level variables on economic development and financial intermediation.

Conclusion

In the literature, access to finance is found to be one of the most binding obstacles for firm growth. This study aimed at revealing the firm-level and country-specific predictors of the financing obstacles in both LDCs and developing OIC countries. The results show that the number and content of firm-level characteristics that predict financing obstacles in LDCs and developing OIC countries are not the same. Overall, age, size, external auditing status and foreign ownership predict financing obstacles in OIC countries. A separate analysis of LDCs and developing OIC countries indicate that the firm-level characteristics predict more of the financing obstacles in the LDCs compared with developing OIC countries.

Categorizing firms by their age, size, sectoral origin, world trade integration and ownership is found to be more useful when considering the financing obstacles in LDCs. Thus, financing inequality among firms appears to be even more prominent in LDCs compared with the developing countries when controlled for country fixed effects. Firms in LDCs that are younger, smaller in size, in the manufacturing sector, less involved in exports, and domestically-owned, report higher financing obstacles.

The results also indicate that broad economic development and financial deepening is important in alleviating firms’ financing obstacles in OIC countries. The analysis of the regressions models suggest that firms in countries with higher economic development, deeper financial intermediation and better institutional development report lower financing obstacles. Nevertheless, the findings suggest that it is hard to distinguish the effects of institutional development from the financial and overall economic development in OIC countries when the effect of these country-level variables are estimated simultaneously.

It was further realized that access to finance seems to be independent of some firm-level characteristics such as size, export status, external auditing and ownership in OIC developing countries if country-specific development variables were further controlled. However, all these firm characteristics (except export status) appear to be significant predictors of financing obstacles in LDCs firms.

Results

The chart below illustrates a distribution of firms in OIC countries which reported that access to finance remains an obstacle for them. On average, access to finance tends to be a ‘major’ problem for 20% of the firms and a ‘severe’ challenge for 14% of the firms in the total of OIC countries. Meanwhile, 44% of enterprises in LDCs report access to finance as a ‘major’ or ‘severe’ problem. In the developing OIC countries, the number of firms with no, minor or moderate financing obstacle is much higher than those with major and severe financing constraints. In general, it appears that the distribution of financing obstacle of firms in developing OIC countries are skewed more towards left (less financing constraint) in comparison with the firms in LDCs. Finally, the number of firms with major and severe financing obstacles are considerably lower in developing economies of OIC as compared with LDCs.

All OIC

Firm

s’ r

espo

nces

(%)

28

50

0

19 1920 20 20 20 21

16

1014

18 18

25

34

LDC-OIC Developing-OIC

Access to finance is obstacleno minor moderate major severe

Distribution of Self-Reported Financing Status of Firms

37


Establishing a Successful Role Model in Asia’s Frontier Markets: Spotlight on Maldives Islamic Bank

Pioneering Islamic banking in a small country like Maldives (population 345,000), with several challenges such as the absence of supporting infrastructure, a shortage of Islamic finance talent and the lack of economies of scale, was indeed a daunting task. So what took the Islamic Corporation for the Development of the Private Sector (ICD) to establish Maldives Islamic Bank (MIB) as an Islamic banking force to be reckoned with in the country?

As the majority stakeholder in MIB, ICD acted as an “enabler”, facilitating the management in the achievement of desired goals through active involvement at the Board level. The results were highly encouraging. MIB commenced operations in March 2011 as the first Islamic commercial bank in the Maldives. ICD contributed 85% of the paid-up capital while the balance was subscribed by the Government of Maldives. Although the journey in the beginning was ridden with challenges, ICD successfully steered the institution in the right direction with government support.

During the first year of operations, the bank faced difficulty in mobilising assets due to limited product offerings. Liquidity management was the biggest challenge in the absence of Sharia’a compliant instruments and an enabling regulatory framework. Setting up a correspondent banking network for a newly-established institution also proved to be a difficult task, resulting in negligible trade finance business during the early years. There was a dearth of Islamic finance talent in the local market, which required the bank to recruit human resources from abroad. Above all, there was mounting pressure from Maldives Monetary Authority (MMA) to meet the minimum capital requirement. Against this backdrop, meeting budgetary targets was an uphill task.

Having encountered similar issues in other frontier markets, ICD was well-aware of the fact that strong support at Board level will be crucial in overcoming obstacles faced by the bank. Hence, the Board worked very closely with the MIB’s management in devising practical and economical solutions for a multitude of problems.

ICD supported the management in negotiations with the regulator for the placement of excess funds under a Wakalah Agreement with state entities. Pakistan-based Burj Bank, in which ICD is a core sponsor, facilitated the process of establishing a correspondent banking relationship with Habib American Bank in the US. Furthermore, a consultant was engaged by ICD to assist MIB in the development of new products, policies and recruitment of human resources. Subsequently, MIB managed to launch several products.

Home financing under Diminishing Musharakah, Real Estate Financing (under Istisna’a), Vessel Financing, Construction Materials Financing and Trade Finance were successfully introduced by the bank. On the retail side, cash withdrawal service via POS was launched for the first time in Maldives. Retail products portfolio was augmented by the launch of Consumer Goods Financing, Car Financing, Motor Cycle Financing and Balance Transfer Facility. The bank also initiated Saturday banking. Moreover, an MOU was signed with the Maldives Hajj Corporation and the Ministry of Education to provide consumer financing. Another first by MIB was the launch of Instant Debit Card in Maldives. Furthermore, the bank extended its network by opening the Hithadhoo branch in 2015.

By: FID Department

38


As a result, the bank has been on the upward growth trajectory since 2013, posting a healthy Return on Equity (ROE) of 11% in 2014. This is just the beginning; MIB aims to be amongst the ‘Top 3’ players in the Maldivian banking industry by 2020 in terms of asset size, deposits and profitability.

MIB is planning to expand the footprint of Islamic banking across the country by opening three new branches in Thinadhoo (target date: mid-December 2015), Hulhumale (January 2016) and Kuldhufuushi (March 2016), respectively. This will bring the total number of branches to five by March 2016, making MIB the second largest bank in terms of branch network (the state-owned Bank of Maldives being the first). Two more branches are planned in 2017.

In its pursuit to capitalise upon the huge potential of Islamic banking in the Maldives, MIB is currently developing new products and services. An MOU is being signed with Maldives Post Ltd., which will allow MIB to offer its services through the latter’s outlets across the country. In Q1 2016, the bank plans to introduce mobile banking and education financing. The launch of international debit card services in collaboration with Visa/MasterCard is envisaged in 2017. MIB intends to establish an investment banking unit to lead-manage sukuk issuances in the country. There are also plans to introduce bancatakaful service in collaboration with a takaful player.

Through the establishment of MIB, ICD has successfully achieved several of its key developmental goals. The bank has been instrumental not only in the development of Islamic finance in the country, but in infrastructure development as well - by providing financing for the construction of harbours, roads, hospitals and the import of generators for islands with no or inadequate power supply.

To support the government’s key developmental goal of overcoming acute housing shortage, especially in Male, the bank has actively financed real estate projects. MIB has extended financing for construction of guest houses at inhabited islands, which has indirectly contributed to job creation and business opportunities for residents of these islands. Above all, MIB has provided an Islamic banking opportunity to a sizable segment of the Maldivian population which had previously refrained from dealing with conventional banks due to religious reasons.

39


ICD’s Advisory Services Programs: Turning Strategy into Reality

Currently, ICD provides advisory services to governments, and public and private companies. The services cover economic, financial, institutional and legal aspects relating to creating an enabling environment for private sector development, project financing, restructuring/rehabilitation of companies, privatization, securitization, Islamic finance and development of Islamic markets, particularly sukuk. Advisory services, through the Advisory Services Department (ASD), are provided through a number of programs as highlighted below.

Islamic Financial Institutions Program (IFI)

The Islamic finance industry has grown rapidly over the past decade and its systemic importance has increased globally, notably in ICD member countries. This trend is expected to continue, driven in particular by robust economic growth and relatively unbanked market segments. The recent growth of Islamic finance has led to an increased demand for ICD to provide a wide range of Sharia’a compliant financial solutions to meet the differentiated needs of consumers and businesses in the global economy. Reflecting on this, ICD has recently adopted a strategy that will focus on the development of what is called “Islamic Finance Channels”. These channels are designed to widen the reach of Islamic financial products and services with the objective of contributing significantly to the developmental goals of ICD member countries. This will be achieved substantially through the setting up of Islamic banks, investment and Ijarah companies, Takaful and Re Takaful companies in member countries.

In light of the above, ICD launched the Islamic Financial Institutions (IFI) Program in 2011. The IFI program offers a wide range of advisory services including: (i) Converting conventional banks into Islamic banks

(ii) Setting up Islamic windows or Islamic branches within conventional banks

(iii) Assisting Islamic banks in raising funds (iv) Assisting governments in establishing or enhancing existing Islamic financial systems, in addition to providing various capacity building

advisory services and programs

Since its launch, the IFI program has successfully rendered a large number of advisory services to renowned financial institutions in ICD member countries. The demand for the program is growing rapidly as it is fast becoming a leader in the field. The IFI program has become an important gateway for the Islamic Finance Channels strategy, in addition to strategic partnerships in various member countries. The table below shows the IFI portfolio.

By: Usama Alamin KhoujaliAdvisory Services Department

40


Industry Business and Environmental Support Program (IBES)

IFI Portfolio

Country Scope Status

Suspended War Zone

ActiveActive

Active

ActiveActive

Islamic Window

Fund raising Closed

ClosedClosed

Closed

Closed

Closed

Closed

BFPME

Libya Five

Bonki Rushid

El Wifack Leasing

Coris Bank

BCC

Locafrique

National Bank of Yemen

AzerCredit

Zaman Bank

Afriland

BCIMR

Trust Bank

Kazakhstan

Ivory Coast

Tunisia Islamic WindowCameroon Islamic Window

Yemen Islamic Subsidiary

Libya New set up for five SMEs banks

Chad Islamic Window

Djibouti Islamic WindowAzerbaijan Advisory on Islamic Window plans

Tajikistan

Tunisia

Burkina Faso

ConversionConversion

Conversion

Islamic Window

Suriname

Project

In the same year, ICD launched the Industry Business and Environmental Support Program (IBES). ICD, in collaboration with governments of its member countries, will aim to identify critical challenges weighing on the growth of businesses and the private sector, in addition to working closely with public and private partners. This is achieved by identifying solutions and putting in place required technical assistance interventions and mobilizing required partnerships, expertise and resources to implement such solutions. Through the IBES program, ICD seeks to support IDB Group member countries in the development of a conducive, enabling environment for businesses, in addition to improving firms’ competitiveness, enhancing value chains, and promoting industrialization in productive sectors.

Since inception, IBES has contributed to several policy design and implementation initiatives in member countries with four engagements in Yemen, Djibouti, Mauritania and Sierra Leone, in areas ranging from the Special Economic Zone (SEZ) policy, industrial zones development and capacity building programs. These projects were designed through dialogue and partnerships with relevant IDB Group functions, international development finance institutions (DFIs), international experts and centers of excellence in member countries. By the end of 1436H, IBES deployed about USD6.5 million of technical assistance funding raised within IDB group and from partner institutions such as Deauville Partnership, TIKA, AFTIAS and JICA. Through its value, IBES demonstrated ICD’s ability to offset the capacity gaps found in many public agencies undertaking such demanding business environment support initiatives.

41


Sukuk and Capital Markets Program (SCM)

After the global financial crisis of 2008-2009, the Islamic finance industry gained prominence as it proved to be more resilient to volatility compared to its conventional peers. A booming field within Islamic finance has been sukuk issuances.In 2014, the sukuk market got a major boost when non-Muslim jurisdictions such as the UK, Hong Kong, South Africa and Luxembourg, supplemented by the likes of Senegal, the World Bank and Goldman Sachs, issued their debut sukuk offerings. Traditional markets such as Malaysia, Saudi Arabia, the UAE, Bahrain, Turkey and Indonesia maintained the momentum of their sukuk issuances with regular corporate originations and several government and quasi-government issuances.

At ICD, we have a dedicated team focused on advising governments in our member countries on sukuk issuances. Our team is driven by the conviction that sukuk are appealing for member countries, because it offers an alternative source

FCTC Senegal Sovereign Sukuk

of capital and diversifies the country’s investor base. The Sukuk Program team can assist member countries on two levels: at the sovereign level and/or at the central bank level.

ICD plays a key role in developing Islamic money market by:

i) Assisting member countries in tapping the international Islamic capital markets

ii) Helping member countries in replacing T-bills with short-term sukuk

The team has been involved in high-profile transactions and has successfully closed the first African sovereign sukuk, the Senegal Sukuk. The team has also been appointed advisor for a West African sovereign sukuk, as well as advising central banks in member countries on issuing short-term sukuk for liquidity management of Islamic assets.

Name FCTC Senegal Sovereign Sukuk

Structure

Tenure

Issue Date

Sector

Issue Amount

Type

Currency

Purpose of Issuance

Sovereign

Infrastructure / Education

IjarahXOF

XOF100,000,000,000 (USD208.0mln)

48 Months

23 June 2014

The proceeds will be used to finance projects for the economic and social development of the State

42


Development often involves working with scarce resources in uncertain and risky environments. Evaluation is essential to assess the value of our activities and to learn from them in order to make informed decisions. This allows us to spend our limited resources wisely.

In 1432H (2011), the Board of Directors of ICD adopted the Development Effectiveness Policy of ICD, which consists of proposed principles and actions to respond to its strategic focus on Development Results.

The M&E Department is implementing the policy in close collaboration with the business departments in ICD. In 1436H (2015), the M&E Team has conducted 8 evaluation exercises: 4 (FIDD), 3 (DIFD) and 1 (DIFD/ASAM).

Monitoring is an ongoing system of gathering information and tracking project performance. Evaluation aims to assess the overall relevance, efficiency, effectiveness, sustainability and impact of the project design, in addition to implementation and subsequent outcomes in order to support decisions moving forward.

The “M”, which stands for monitoring, is the role of the business units, especially the follow-up teams, as part of the Annual Business Review (or the Project Supervision Report - PSR). The “E”, which stands for evaluation, on the other hand, is implemented by the M&E Department through the Expanded Project Supervision Report (XPSR).

2015International

Year ofEvaluation

10 Things to Know About Evaluation and How They Are Applied in ICD Context

The International Development Community has declared 2015 the International Year of Evaluation with the aim to advocate and promote evaluation to improve people’s lives.

Why 2015?

Because it is the year when a new set of internationally agreed goals, called Sustainable Development Goals (SDGs), replaced the Millennium Development Goals (MDGs).

To celebrate this year, ICD’s Monitoring and Evaluation (M&E) Team is pleased to summarize here one of the most succinct and useful resource to understand M&E in 10 points. For each point, you will have a practical example on how ICD is implementing it. The Overseas Development Institute (ODI) has developed the “10 Things to Know” in support of the International Year of Evaluation 2015. ODI is the UK’s leading independent think tank on international development.

1) WE CAN’T DO DEVELOPMENT WITHOUT EVALUATION

2) MONITORING AND EVALUATION ARE NOT THE SAME THING

PAST

FUTURE

EVALUATION

RelevanceEfficiencyEffectivenessSustainabilityImpact

By: Ibrahima Dit Thierno Lo and Nouf AlhimiaryMonitoring & Evaluation Department

43


Good evaluation goes beyond broad statements of success to ask: what specific changes occurred (positive or negative, intended or unintended).

Although a six-rating scale is used to assess the success of ICD projects (Highly Unsuccessful, Unsuccessful Mostly, Unsuccessful, Mostly Successful, Successful, Highly Successful), the evaluation report provides the rationale and the justifications of each rating and the specific changes resulted due to ICD intervention.

Project staff, funders, participants and beneficiaries all play an essential role in the evaluation process.

During every evaluation mission, the Evaluation Team conducts meetings with all groups of stakeholders including the management of ICD’s clients, the government officials, a sample of its suppliers and customers, selected SMEs, as well as ICD’s follow-up team and Board members in the case of equity investments.

Yet evaluations will almost always show mixed results. Understanding and sharing what doesn’t work is just as important as what does.

One important section of ICD evaluation reports is the lessons learned and recommendations. It describes what works, what does not work, why, and how in order to reach our development targets.

3) IT’S ALL IN THE DETAILS

4) EVALUATION INVOLVES EVERYONE

5) ‘FAILURES’ ARE IMPORTANT

Researcher

Evaluator

Manager

Specialist

Beneficiary

ProjectStaff

Plan A

Plan B

44


There is also no sole best method for evaluation. Evaluators often use a combination of methods to gather, analyze and interpret information. Deciding which method depends on the evaluation purpose, the context, and the resources and information available.

ICD’s M&E approach adheres to the Good Practice Standards (GPS) of the Evaluation Cooperation Group (ECG) of the Multilateral Development Banks (MDB) for Evaluation of Private Sector Operations, which follow four outcome dimensions:

(i) Financial performance (ii) Economic performance (iii) Private sector development (iv) Environmental and social performance. ICD, due to its

specificity, has added another dimension (v) Promotion of Islamic finance

Credible, question-led evaluation will show mixed results and recognizing this is an important part of the learning process.

The questions M&E usually asks are the following:

• What is ICD intervention’s long-term impact on the company’s profitability and viability?

• What are the benefits for customers, employees, government and suppliers?

• Does the project contribute to the promotion of Islamic finance?

• To what extent does the project contribute to the performance of the client company in particular and the SMEs in general in terms of competitiveness, innovation and access to market?

• What are the effects of the project on the environment, the employees and the population in general and the most disadvantaged groups in particular?

• What was the specific role of ICD (Additionality)?• What did we learn and what should happen next?

Evaluation must take social, cultural, economic and political contexts into account.

During the XPSR exercise, the context is assessed to determine how it is affecting the project being evaluated in terms of opportunities and threats. The report presents the economic outlook and the landscape of the sector of the project.

6) EVALUATIONS COME IN ALL SHAPES AND SIZES

7) EVALUATION IS QUESTION-DRIVEN

?

ACTION

QUESTIONS

What should happen next?

?

CAUSALQUESTIONS

What caused or affected thischange and what was therole of the intervention in

causing the change?

?

SYNTHESISQUESTIONSWhat was the overall successof the intervention?

?

DESCRIPTIVE

QUESTIONS

What has happened or what

has changed?

SOCIAL

CULTU

RA

LPO

LITI

CAL

ECONOMIC

8) CONTEXT IS PARAMOUNT

45


Informal evaluations can be undertaken on a daily basis, during the research, design, management or administration of a project. The more evaluation questions and processes are integrated into a project, the more useful evaluation systems will become.

In ICD, the M&E process starts with the DIMS (Development Indicators Monitoring System). All new projects should have a DIMS Sheet, validated by the M&E Team, prior to ICM approval. During the implementation of the project, the management can ask the M&E team to conduct a Real-Time Project Evaluation for problematic projects as well as for successful projects with high potential of learning and replication.

Communicating the findings of the evaluation is essential to development. Whether through infographics, multimedia, or publicly-available reports.

In February 2015, ICD, through its M&E Department, co-sponsored the Conference and 4th Annual General Assembly of Middle East and North Africa Evaluators Network (EvalMENA) in Cairo, Egypt. The ICD sponsorship had four main objectives:

(i) Communicate and share evaluation experiences and findings

(ii) Celebrate the International Evaluation Year 2015(iii) Increase the external visibility of ICD’s M&E function(iv) Build and expand the M&E network with professional

organizations and associations, and with professional evaluators from all over the world

In May 2015, ICD published its first Annual Development Effectiveness Report (ADER). The report presents ICD’s development achievements and its vision to implement a robust development effectiveness framework.

9) IT IS NOT JUST AT THE END

10) FINDINGS NEED TO BE COMMUNICATED

DESIGN

IMPLEMENTATION

END

OF P

ROJECT REVIEW

ONGOING LEARNING,MONITORING

AND EVALUATION

For more information: http://www.odi.org/publications/9105-10-things-know-about-evaluation

46


Developing Human Resources: Walking the Talk

In this context, we do not mean human resources (HR) as a function, but HR as in the actual people in the organization. The factor that makes or breaks our organization, that sets us for success, or drags us to failure; the most complicated factor to address, and the most rewarding at the same time.

HR makes the difference for the Islamic Corporation for the Development of the Private Sector (ICD) – we are as good as our people are and how they work together, and we are as weak as our people are and how they fail to synergize.

How HR performs in any organization is subject of two factors, namely competencies (behavioral and technical) and culture. Having the most competent people technically and behaviorally without the right culture would not be of much benefit.

By: Mohamed Magdy TantawiHR Department

ICD Approach to Accessing Talent within the Islamic Finance IndustryTaking this into consideration, the HR department has undertaken different projects in the course of the year with the aim of building the competencies of ICD staff, and at the same time addressing the cultural aspects.

High-Quality ProgramsThe Corporate MBA Program

We were successful in launching a corporate MBA with one of the most reputable business schools in the world, IE Business School, which is based in Madrid, Spain. The program was established with the intention of grooming and developing ICD staff to be ready to assume a leap in their career, boosting their self-confidence, and equipping them with up-to-date management thinking and practical training while instilling the mindset of success in each one of them. Such mindset will spill-over to others in the organization and over time; what was established to address competencies, will end up to positively affect the ICD culture. Having well-trained top talents on board will attract others to join the organization as well. As the saying goes: birds with same feather flock together.

The MBA program is a 15-month program that includes 10 face-to-face modules five days each; six modules in Jeddah, two modules in IE (Madrid), one module in Harvard (Boston), and one module in UC Berkeley (San Francisco); graduation project is an entrepreneurial project business plan.

47


The ICD-IE Masters in Islamic Finance and Leadership (MIFL)

Building on the success of the corporate MBA, and the high level of satisfaction with the quality of teaching, design, and delivery of IE Business School, ICD collaborated with IE Business School in a very innovative venture–the ICD-IE Masters in Islamic Finance and Leadership (MIFL). The MIFL is a 15-month degree program that is highly practical in nature, taught by successful Islamic finance practitioners and heavily uses the case method to better engage students and bring the teaching to live. The program is composed of three main parts:

a) The technical part involves the students joining the IE Master Program in Global Finance for six months and learning in a competitive environment

b) The leadership part is based on the ICD-created competency framework for the Islamic Finance Talent Development Program (IFTDP). This will include different leadership skills needed by professionals to succeed in corporate life

c) The Islamic finance part is where the IE team and ICD team work together to identify the right curriculum and the competent practitioners to run this part. The program ends with a graduation project, where each student will write a case study about a real transaction in the arena of Islamic finance

The MIFL is designed to be a public course open to other organizations in the industry. The program will not only benefit the IFTDP Associates and ICD employees, but will also benefit the entire industry by setting a high bar for other Master programs in Islamic finance, and by enriching the Islamic Finance literature by at least 16 case studies every year.

Such programs that, at face value, is geared to groom ICD talents will also function to define and refine the ICD culture. Eventually with time, everyone in the ICD will feel that there is an opportunity to learn and develop, that ‘his’ or ‘her’ colleagues are actively engaged in learning ventures to upgrade their skills and knowledge, and that ‘he’ or ‘she’ cannot afford to stand still and be outdated. A culture of continuous learning and development is slowly in the making in ICD.

ICD is a developmental institute that decided to live a core value of development to walk the talk. Development starts here within our organization.

48


Development Institution and Financing Department (DIFD): Infrastructure Remains a Focus

1436H marked a commendable year for the Development Institution and Financing Department (DIFD)’s term finance approvals, both in terms of volume and quality. The year saw DIFD focusing on providing growth capital in the form of debt and equity to clients for projects in industries other than the financial sector. DIFD financing was well-diversified both in terms of sectors and regions.

DIFD: 1436H Approvals

Increased Focus on Infrastructure Financing

An important highlight of DIFD’s operations in 1436H include increased concentration on infrastructure development financing in the Islamic Corporation of the Development of the Private Sector (ICD)’s 52 member countries. ICD realizes that infrastructure development is a vital component in supporting a country’s economic growth. Developing infrastructure enhances a country’s productivity, consequently making countries more competitive thus boosting a region’s economy. Not only does infrastructure in itself enhance the efficiency of production, transportation, and communication, but it also helps provide economic incentives to public and private sector participants.

By: Jawad M. KhokharDirect Investment and Financing Department

Region Approvals (%) Approvals (USD million)

East Asia

CIS & Turkey

Middle East

Africa

South Asia

16% 31.10

16% 30.0

8% 15.024% 47.0

36% 69.40

49


DIFD believes that within infrastructure, power is the single biggest driver of economic growth and competition in member countries. It is for this reason that DIFD actively participated in the recent initiative by the government of Egypt to develop 4,300 MW of solar and wind projects on a Build Own Operate (BOO) basis through a Feed-in-Tariff (FiT) program. ICD, through DIFD, not only participated in the development of the 50 MW solar power project under the FiT program but is also committed to finance up to 12 power projects through project debt financing. DIFD is also focusing on expanding its operations in infrastructure power sector financing in member countries such as Pakistan, Bangladesh and Indonesia which have well-established legal and regulatory frameworks dealing with power sector financing and are in dire need of financing.

Decentralization: Catalyst of Growth

DIFD is currently looking to decentralize its operations in order to improve deal pipeline and better understand the financing needs for maximum development impact in member countries. Decentralization will allow DIFD to develop regional expertise and expand regional operations more aggressively. Decentralization of DIFD will comprise of a two-phase process. In the first phase, teams will be formed according to the regional coverage, namely South & East Asia, Middle East & North Africa, Sub Saharan Africa and Central Asia & Turkey. In the second phase, regional teams will be moved to regional offices coupled with local recruitment to reinforce the regional teams.

Improving Processes and Procedures

DIFD embarked on an initiative to develop a detailed Transaction Management System (TMS) with ICD’s IT division to improve its internal transaction processing. The first phase of the TMS has already been developed and successfully implemented. DIFD is looking to fully implement the TMS by mid 1437H. TMS will allow the DIFD team and ICD management to review and improve the transaction processing time.

Challenges Faced

DIFD is striving to develop financing products which are not only Sharia’a compliant but can also be used in parallel to conventional financing products. One of the biggest challenges which DIFD is facing is the financing product incompatibility with conventional debt financing, especially in scenarios of syndicate financing transactions. DIFD is working closely with ICD’s legal and Sharia’a team to address the issues faced for Sharia’a compliance and develop innovative Islamic financing solutions.

Looking Forward

DIFD is looking forward to expand and grow regionally in 1437H. DIFD’s initiatives in 1436H will pave way for the growth in 1437H, and DIFD is looking forward to be the main growth driver of ICD’s operations.

50


From the Marketing Perspective, Creating Awareness Is Key

The success of a company often rests on solid reputation, and it is the marketing function that helps build this reputation. In this respect, the Corporate Marketing and Communication Division (CMCD) strives continuously to raise awareness of the Islamic Corporation for the Development of the Private Sector (ICD) and its developmental mandate, and build recognition by transmitting brand values with the aim of enhancing ICD’s position as an industry leader in the Islamic finance sphere. It is a well-known fact that the reputation of a company is built through active participation in industry events, effective communication (externally and internally), and a wide-range of quality products or service offerings, which are supported by marketing efforts.

Since the division’s inception in 1434H, many marketing and communication efforts were conducted – online and offline – in order to achieve this target. In 1436H alone, the CMCD was able to perform more than 20 brand-awareness activities. The last year witnessed ICD participating in more than 55 industry events, in which ICD was branded as a ‘Multilateral Strategic Partner’ in many conferences, domestically and globally. Vast media coverage in reputable magazines and industry newsletters such as the Thomson Reuters Country

Report, the Islamic Finance News (IFN) newsletter, the Global Islamic Finance Report, the G20 Summit Report, and the UNA-UK Development Goals Publication centered on ICD’s many achievements and success stories. In addition, thought-provoking interviews with H.E. Khalid Mohammed Al Aboodi and CEOs of ICD’s affiliates in the Commonwealth of Independent States (CIS) countries were carried out, focusing on invigorating issues.

By: Nabil El-AlamiCorporate Marketing and Communications Department

51


ICD was a sponsor of business newsletters in various CIS countries such as Kazakhstan, Azerbaijan and Tajikistan, as developing newsletter programs with a solid audience further serves as an effective marketing platform for ICD. The CMCD also shared its expertise and was considerably involved with the conceptualization and the delivery of an integrated marketing and communication strategy for Coris Bank in Burkina Faso and Alwifack Bank in Tunisia.

In order to reach out to potential customers, more than five videos were produced to illustrate ICD activities in 10 countries and highlight ICD’s various products, services and programs. Moreover, the corporate video was conducted in four languages and videos showcasing ICD’s line of products and services were produced and published on ICD’s official YouTube Channel, underscoring the move to bring marketing operations into the digital era.

52


on small and medium-sized enterprises (SMEs) and the untapped opportunities for SME lending in Islamic finance. Meanwhile, future events will be organized or attended in the targeted countries and sponsorship will also be focused on selected sectors.

In the new year, the CMCD plans to realize the following strategic objectives:

• Help in developing Islamic financial channels by promoting the existing networks and showcase its achievements in different events and media

• Assist in providing advisory services for establishing Islamic finance windows and converting conventional financial institutions to Sharia’a compliant financial institutions. CMCD will provide the integrated marketing and communication strategy for the established windows/entities. In addition, CMCD will help the Islamic Financial Institution (IFI) Program to develop marketing tools to reach its targets

• Support the business units to participate in different platforms to provide finance for investments in high-impact sectors identified by the business units

• Help the advisory services and asset management departments to acquire and design the appropriate marketing and communication tools to reach its segments and better present their different services

• Promote the ICD Thomson Reuters Islamic Finance Development Indicator in order to become the benchmark and reference for ICD member countries

• ICD to become the leading institution for the development of the private sector in its member countries by presenting its efforts to ease access to finance for SMEs

The CMCD played a crucial role in facilitating ICD and its affiliates in securing international and sectoral industry awards. It is noteworthy that in 1436H, ICD and its affiliates collectively received the following awards:

• “The Most Outstanding Institution for Contribution to Islamic Finance” award from the Kuala Lumpur Islamic Finance Forum (KLIFF), 2015

• “The Islamic Economy Award - The Money and Finance Category“ from Dubai Chamber of Commerce and Industry and Thomson Reuters, 2015

• “Africa Deal of the Year” and “Cross-border Deal of the Year” from IFN News, 2015

• “The Award of Excellence for Outstanding Contribution to the Development of Islamic Finance in the Private Sector” from the London Sukuk Summit, 2015

• “Best Islamic Finance Initiative Award” from the African Banker Magazine, 2015

• “Best Development Bank” from CPI Financial 2015

Moving forward, the most effective strategies are those that are planned for the long-term. In the coming years, the CMCD plans to diversify its current marketing and communication activities in order to further position ICD as a pioneer in the Islamic finance field and as an active stimulator of the private sector in its 52-member countries.

Digital marketing activities will play a crucial role and the coming years will see CMCD experiment with new digital marketing platforms to engage with potential clients. Online and offline advertisements will be focused more on the sectors targeted by ICD’s business units, and innovative marketing tools will be further designed in line with the strategic objectives of the Business Development and Partnership Department (BDPD). More informative videos will be produced to promote the Islamic finance industry in general and to create public awareness, with the focus

53


“The Institutional Excellence Award 2012”, from the World Islamic Banking Conference (WIBC), 2012

2012

2013

2014

2015

“Best Islamic Financial Initiative” from Tatweej Academy for Excellence Awards, 2013

“The Most Outstanding Institution for Contribution to Islamic Finance” award from the Kuala Lumpur Islamic Finance Forum (KLIFF), 2015

"The Islamic Economy Award - The Money and Finance Category " from Dubai Chamber of Commerce and Industry and Thomson Reuters, 2015

"Africa Deal of the Year" and "Cross-border Deal of the Year" from IFN News, 2015

“The Award of Excellence for Outstanding Contribution to the Development of Islamic Finance in the Private Sector" from the London Sukuk Summit, 2015

2015

"Best Islamic Finance Initiative Award" from the African Banker Magazine, 2015

“Best Development Bank” from CPI Financial 2015

“Islamic Bank of the Year” from ACQ Global Awards 2014

"Best Private Sector Developer - Middle East" from IAIR Awards on Global Economy and Sustainability under the patronage of the European Commission, 2014

“Best Development Bank" from CPI Financial, 2014

"Excellence in Development of the Islamic Private Sector - MENA 2014" from International Finance Magazine, 2014

"Best Islamic Leasing Provider" and "Best Islamic Finance Advisor" from CMO Organization, 2014

“Islamic Banking Business Excellence Award" from Acquisition International Magazine, 2014

2014

2013

54


Member Development Database

Albania

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 1.6 1.4 2.1 3

Inflation (annual %) 2.4 1.9 0.7 2.1

Fiscal deficit (% of GDP) -3.4 -5.2 -5.6 -4.8

Development Indicators

Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 75.5 75.8 76.1 76.3 76.5 76.6 76.8 77 77.2 77.4 77.5

Literacy rate (adults) 95.9 96.8 97.2

Poverty gap at $1.25 0.1 0.1 0.03 0.1 a day (PPP, %)

GDP per capita 1,859.6 2,466 2,781.6 3,051.8 3,603.01 4,370.5 4,114.1 4,094.4 4,437.8 4,256 4,458.1 4,619.2 (current USD)

Age dependency ratio (% 56.4 55 53.5 52.2 50.9 49.7 48.6 47.9 46.7 45.8 45.2 44.9 of working-age population)

Population growth -0.374 -0.418 -0.512 -0.631 -0.756 -0.767 -0.674 -0.496 -0.283 -0.148 -0.108 -0.100 (annual %)

Foreign Currency Credit Ratings

Credit Rating Agency Rating Rating

Moody’s Aa2 NR

Standard & Poor’s AA A-1+

Fitch AA F1+

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 3.3 2.8 4.1 2.6

Inflation (annual %) 9 1.1 4.1 4



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 69.8 70.0 70.2 70.3 70.5 70.6 70.8 70.9 71

Literacy rate (adults) 72.6


GDP per capita 2,094.9 2,600 3,102 3,467.5 3,939.6 4,912.3 3,875.8 4,473.5 5,421.7 5,457.6 5,504.2 5,498.1 (current USD)

Age dependency ratio (% 55.4 53.4 51.7 50.4 49.5 48.9 48.6 48.7 49.2 49.8 50.6 51.5 of working-age population)

Population growth 1.257 1.295 1.364 1.437 1.508 1.590 1.683 1.776 1.872 1.948 1.975 1.940 (annual %)

Algeria



Moody’s NR NR

Standard & Poor’s NR NR

Fitch NR NR

Long

-ter

m

Shor

t-te

rm

55



Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 2.2 5.8 2.8 0.6




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 68 68.5 68.9 69.4 69.8 70.1 70.3 70.5 70.6 70.6 70.7

Literacy rate (adults) 99.6 99.8 99.8 99.8 99.8 99.8 99.8

Poverty gap at $1.25 0 0 0 0.12 a day (PPP, %)

GDP per capita 883.6 1,045 1,578.4 2,473.1 3,851.4 5,574.6 4,950.3 5,842.8 7,189.7 7,393.8 7,811.6 7,884.2 (current USD)

Age dependency ratio (% 52.1 50.1 48 46.1 44.2 42.5 41.1 40.2 39.2 38.7 38.3 38.1 of working-age population)




Moody’s Baa3 P-3

Standard & Poor’s BBB- A-3

Fitch BBB- F3

Long

-ter

m

Shor

t-te

rm

Azerbaijan

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 3.4 5.3 4.7 2.7

Inflation (annual %) 2.6 4 2.5 1.5



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 75.1 75.3 75.5 75.7 75.8 76 76.1 76.3 76.4 76.5 76.7


Poverty gap at $1.25 a day (PPP, %)

GDP per capita 14,542 16,275.6 18,418.1 19,669.3 21,167.6 23,043 19,166.7 20,385 22,238.7 23,063.1 24,378.9 24,868.4 (current USD)

Age dependency ratio (% 43.3 42.1 41 37 33.8 31.3 29.3 27.8 28.6 29.3 30.1 30.9 of working-age population)




Moody’s Baa3 P-3


Fitch BBB- F3

Long

-ter

m

Shor

t-te

rmBahrain

56


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 6.3 6.1 6.1 6.3


Fiscal deficit (% of GDP) -3 -3.4 -3 -3.2


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 66.7 67.1 67.5 67.9 68.3 68.7 69.1 69.5 69.9 70.3 70.7


Poverty gap at $1.25 14.2 11.2 a day (PPP, %)

GDP per capita 434 462.3 485.9 495.9 543.1 618.1 683.6 760.3 838.5 858.9 954.4 1092.7 (current USD)





Moody’s Ba3 NR

Standard & Poor’s BB- B

Fitch BB- B

Long

-ter

m

Shor

t-te

rm

Bangladesh

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 5.4 5.6 5.5 5.5

Inflation (annual %) 6.8 -1.8 0.3 1.1



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 464.1 511.3 532.6 557.2 633 739.2 712.5 690 745.4 750.6 804.8 825.3 (current USD)

Age dependency ratio (% 91.6 90.8 89.8 89.4 88.8 88.1 87.2 86.2 85.6 84.9 84 83 of working-age population)




Moody’s NR NR

Standard & Poor’s B B

Fitch NR NR

Long

-ter

m

Shor

t-te

rmBenin

57



Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 0.9 -1.8 -0.7 -0.5

Inflation (annual %) 0 0.1 -0.2 0

Fiscal deficit (% of GDP) 16.9 14.1 14.1 -15.6


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 76.6 76.8 77 77.2 77.4 77.6 77.8 78 78.2 78.4 78.6



GDP per capita 18,759 22,131.9 26,338 31,157 32,707.7 37,799.3 27,727.1 31,453 41,786.6 41,808.8 39,152.3 41,344 (current USD)





Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Literacy rate (adults) 21.8 23.6 22.5 28.7


GDP per capita 332.4 371.4 407 422.5 474.7 569 551.8 574.5 665.8 673 709.8 713.1 (current USD)

Age dependency ratio (% 97.4 96.9 96.3 96.4 96.3 96.1 95.7 95.2 95 94.5 93.9 93.1 of working-age population)


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 6.5 6.6 4 5

Inflation (annual %) 1.7 0.1 -0.1 1.6




Moody’s NR NR

Standard & Poor’s B- B-

Fitch NR NR

Long

-ter

m

Shor

t-te

rmBurkina Faso

Brunei

58


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 4.6 5.6 5.1 5

Inflation (annual %) 2.5 1.7 2.6 2

Fiscal deficit (% of GDP) -1.6 -4 -5.1 6


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 51.6 51.7 51.9 52.2 52.5 52.9 53.3 53.7 54.1 54.6 55


Poverty gap at $1.25 7.2 a day (PPP, %)

GDP per capita 791.1 892.9 915.1 965.4 1,071 1,191.7 1,164.7 1,147.2 1,258.9 1,222.2 1,331.2 1,429.3 (current USD)



Cameroon

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 8.9 5.7 6.9 7.6


Fiscal deficit (% of GDP) 0.5 -2.1 -4.2 -3.4


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 47.1 47.4 47.7 48 48.4 48.9 49.3 49.8 50.2 50.7 51.2

Literacy rate (adults) 28.4 38.2


GDP per capita 292.6 454.7 660.2 712.0 801.4 929.3 803.9 895.9 988.4 972.7 985.1 1,024.7 (current USD)

Age dependency ratio (% 108.0 107.8 107.3 107.4 107.2 106.7 106 105 104.5 103.8 102.8 101.8 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm



Moody’s NR NR


Fitch B B

Long

-ter

m

Shor

t-te

rmChad

59



Comoros

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 3 3.5 3.3 3.5

Inflation (annual %) 1 3.5 2.8 1.8

Fiscal deficit (% of GDP) 3.3 17.8 -0.3 -1.2


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 58.6 58.8 59.1 59.3 59.5 59.7 60 60.2 60.4 60.6 60.9



GDP per capita 538.7 609.6 614.9 640.7 712.1 786.2 768.7 759.3 818.9 778.1 823 841.2 (current USD)





Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 10.7 8.7 7.5 7.7




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 875.1 929.9 942.2 962.9 1,078.5 1,257.7 1,233.3 1,236.1 1,231.9 1,281.4 1,447.2 1,545.9 (current USD)





Moody’s B1 NR


Fitch B B

Long

-ter

m

Shor

t-te

rmCote D’lvoire

60


Djibouti



Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 4.8 5 6 6.5


Fiscal deficit (% of GDP) -2.6 -5.4 -12 -13.1


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 57.4 57.7 58 58.4 58.8 59.3 59.8 60.3 60.8 61.3 61.8

Literacy rate (adults)


GDP per capita 822.1 867.7 910.4 974.6 1,060.8 1,234 1,462 1,358.5 1,472 1,586.8 1,684.5 1,805 (current USD)

Age dependency ratio (% 73.9 71.6 69.3 67.6 65.7 64 62.4 61.1 60.3 59.8 59.4 59 of working-age population)


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 2.2 2.1 2.2 4




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Literacy rate (adults) 71.4 66.4 72 73.9 75.1


GDP per capita 1,147.8 1,071.3 1,196.7 1,409.2 1,681.3 2,061.6 2,349.3 2,668.0 2,816.7 3,068.2 3,104.2 3,198.7 (current USD)





Moody’s B3 NR

Standard & Poor’s B- B

Fitch B B

Long

-ter

m

Shor

t-te

rmEgypt

61



Gabon

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 5.5 5.6 5.1 4.4


Fiscal deficit (% of GDP) 1.7 1.8 3 -1.9


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 59.5 59.7 60 60.4 60.9 61.4 61.9 62.3 62.7 63.1 63.4



GDP per capita 4,929.3 5,756 6,865.3 7,207 8,632.8 10,523.3 8,061.6 9,388.2 11,304.7 10,960.7 10,425.1 10,208.4 (current USD)

Age dependency ratio (% 83.9 82.6 81.3 80.2 79.2 78.2 77.2 76.2 75.7 75 74.4 73.8 of working-age population)




Moody’s Ba3 NR

Standard & Poor’s B+ B

Fitch B+ B

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 5.6 4.8 -0.2 5.1

Inflation (annual %) 4.9 5.5 7 5.3



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 360.7 415 433.3 440.3 520 608.6 549.5 562.2 517 504.9 477.4 418.6 (current USD)





Moody’s NR NR


Fitch BB- B

Long

-ter

m

Shor

t-te

rmGambia

62




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm Foreign Currency Credit Ratings


Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Guinea

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 3.8 2.3 0.4 -0.3




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Poverty gap at $1.25 21.3 13 12.7 a day (PPP, %)

GDP per capita 371.3 387.4 303.8 296.2 407.2 433.1 430.2 430.1 447.8 487.3 521.5 539.6 (current USD)



Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) -2.2 0.3 2.5 4.5

Inflation (annual %) 1.6 -0.1 -0.1 2



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 52 52.2 52.4 52.6 52.8 53.1 53.3 53.6 53.8 54 54.3



GDP per capita 339.9 370.9 401.1 396 455.4 553.5 517.1 518.6 659.5 559.2 538.7 567.8 (current USD)

Age dependency ratio (% 86.3 85.3 84.2 83.6 82.9 82.2 81.4 80.6 80.3 79.9 79.5 79 of working-age population)


Guinea Bissau

63



Indonesia

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 6 5.6 5 5.2


Fiscal deficit (% of GDP) -1.6 -2 -2.2 -2.3


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Literacy rate (adults) 90.4 92.0 92.2 92.6 92.8







Moody’s Baa3 P-3

Standard & Poor’s BB+ B

Fitch BBB- F3

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) -6.6 -1.9 3 0.6

Inflation (annual %) 41.2 19.7 16 17



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Literacy rate (adults) 82.4 82.3 85 83.5



Age dependency ratio (% 51.9 48.1 44.8 43.1 41.7 40.7 40 39.6 39.5 39.5 39.6 39.8 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rmIran

64


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 13.9 6.6 -2.4 1.3


Fiscal deficit (% of GDP) 4.1 -5.8 -3.0 -10


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 70.1 69.8 69.4 69.1 68.9 68.7 68.7 68.8 69 69.2 69.5



GDP per capita 1,391.6 1,849 2,350.2 3,125.6 4,513 3,725.7 4,487.4 5,839.3 6,650.2 6,882.4 6,334.1 (current USD)

Age dependency ratio (% 84.4 83.7 83.1 82.7 82.6 82.6 82.5 82.3 81.7 80.9 80 79.2 of working-age population)




Moody’s Caa1 NR


Fitch B- B

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 2.7 2.8 3.1 3.8




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 72.3 72.5 72.6 72.8 73 73.1 73.3 73.4 73.6 73.7 73.9

Literacy rate (adults) 89.9 91.1 92.2 92.6 95.9 97.9

Poverty gap at $1.25 0.1 0.01 0.02 a day (PPP, %)

GDP per capita 1,973.9 2,156.4 2,326.5 2,719.8 3,022.5 3,797.6 4,026.8 4,370.7 4,666 4,896.7 5,200.3 5,422.6 (current USD)





Moody’s B1 NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Iraq

Jordan

65



Kazakhstan

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 5 6 4.3 2.0




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Poverty gap at $1.25 0.4 0.3 0 0.1 0 0 0 a day (PPP, %)






Moody’s Baa2 P-3

Standard & Poor’s BBB A-2

Fitch BBB+ F2

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 6.6 1.5 1.3 1.7


Fiscal deficit (% of GDP) 35.6 34.9 25.5 6.2


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Literacy rate (adults) 93.3 93.3 93.7 93.9 95.5 95.6

Poverty gap at $1.25 0.4 0.3 0 0.1 0 0 0 a day (PPP, %)

GDP per capita 22,841.6 27,438.2 35,694.4 42,502.2 45,157.1 54,478.6 36,756.8 37,724.3 47,553.7 50,896.5 48,926.5 (current USD)





Moody’s Aaa2 P-1


Fitch AA F1+

Long

-ter

m

Shor

t-te

rmKuwait

66


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) -0.9 10.5 3.6 1.7


Fiscal deficit (% of GDP) -5.7 -3.7 0.2 -4.3


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Poverty gap at $1.25 5.1 2.3 5.9 3.4 0.1 1.4 1.5 1.4 1.2 a day (PPP, %)

GDP per capita 380.5 433.2 476.6 543.1 721.8 966.4 871.2 880.0 1,123.9 1,178 1,282.4 1,269.1 (current USD)





Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) -5.7 -3.7 0.2 -4.3

Inflation (annual %) 10.1 1.1 -0.7 3



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014









Moody’s B2 NR


Fitch B B

Long

-ter

m

Shor

t-te

rm

Kyrgyastan

Lebanon

67



Libya

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 104.5 -13.6 -24.0 4.6

Inflation (annual %) -3.7 1.7 3.7 0.9



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 4,682.6 5,807.6 8,159 9,304.3 11,219.4 14,231.6 10,151.6 11,933.8 5,517.8 13,035.2 10,454.8 6,569.6 (current USD)


Population growth 1.632 1.663 1.709 1.804 1.856 1.734 1.389 0.914 0.366 -0.084 -0.278 -0.112 (annual %)



Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 5.6 4.7 6.0 4.8




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Poverty gap at $1.25 0.1 0 0 a day (PPP, %)

GDP per capita 4,431.2 4,924.6 5,564.2 6,194.7 7,240.7 8,486.5 7,312 8,802.9 10,125.9 10,507.8 10,628 10,933.5 (current USD)





Moody’s A3 P-2

Standard & Poor’s A- A-2

Fitch A- F2

Long

-ter

m

Shor

t-te

rmMalaysia

68


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 1.3 4.7 5 5




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 3,537 4,008.6 3,671.9 4,754.5 5,533.8 6,596.9 6,630.7 7,013.4 7,266.9 7,350.4 7,704.5 8,483.8 (current USD)

Age dependency ratio (% 68 64.5 61.3 58.5 56.1 53.9 52.1 50.6 49.5 48.7 48.1 47.7 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 0 1.7 6.8 5.6




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 50.5 51 51.5 52 52.5 52.9 53.3 53.8 54.2 54.6 55



GDP per capita 360.9 390.7 411.9 460 519.3 614.3 610 621.2 680.8 641.8 669.7 706.7 (current USD)





Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Maldives

Mali

69



Mauritania

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 6 5.7 6.4 5.5




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Poverty gap at $1.25 7 6.8 a day (PPP, %)

GDP per capita 525.5 598.2 692.6 938 1,008.6 1,180.5 1,045.8 1,207.8 1,390.9 1,282.8 1,306 1,275 (current USD)

Age dependency ratio (% 83.1 82.2 81.3 81 80.7 80.2 79.6 79 78.6 78.1 77.5 76.8 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 2.7 4.4 2.9 4.4




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 1,650.3 1,867.3 1,931.8 2,107.9 2,389.7 2,792 2,822.1 2,782.7 3,001.2 2,860.9 3,056.1 3,103.2 (current USD)





Moody’s Ba1 NR


Fitch BBB- F3

Long

-ter

m

Shor

t-te

rmMorocco

70


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 7.1 7.4 7.4 6.5




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 234.1 277.6 311.4 326.4 407.7 480.6 453.3 416.1 527.5 580.4 584 602 (current USD)





Moody’s B2 NR


Fitch B+ B

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 11.8 4.6 6.9 4.6

Inflation (annual %) 0.7 1.1 -0.6 2.4

Fiscal deficit (% of GDP) -1.2 -2.6 -85.6 -8


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 52.8 53.5 54.1 54.8 55.4 55.9 56.5 57 57.5 58 58.4


Poverty gap at $1.25 20.5 11.8 10.4 a day (PPP, %)

GDP per capita 218 234.9 252.5 260.6 295.4 358.2 344.4 351 378.2 393.6 418.5 427.4 (current USD)





Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Mozambique

Niger

71



Nigeria

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 4.3 5.4 6.3 4.8


Fiscal deficit (% of GDP) 0.3 -2.4 -2.3 -2


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 510.3 645.8 804 1,014.7 1,131.1 1,376.9 1,092 2,315 2,514.1 2,739.9 2,979.8 3,203.3 (current USD)





Moody’s Ba3 NR


Fitch BB- B

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 3.8 3.7 4.1 4.3




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Literacy rate (adults) 49.9 54.2 55.5 54.9 55.4 54.7 56.8


GDP per capita 565.3 652 714 877 953.8 1,042.8 1,009.8 1,043.3 1,230.8 1,266.4 1,282 1,334.1 (current USD)





Moody’s B3 NR


Fitch B B

Long

-ter

m

Shor

t-te

rmPakistan

72


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %)

Inflation (annual %)

Fiscal deficit (% of GDP)


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 71.8 71.9 72.1 72.3 72.5 72.6 72.8



GDP per capita (current USD)

Age dependency ratio (% of working-age population)

Population growth 3.478 3.478 3.478 3.478 3.478 2.706 (0.445) (0.370) 2.879 (annual %)



Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 6 6.3 6.1 7.1




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Literacy rate (adults) 89 93.1 94 94.7 96.3 96.4 96.7 97.5 97.7



Age dependency ratio (% 34.2 33.6 32.9 26.8 22.5 19.7 18 17 17.7 18.4 19 19.6 of working-age population)




Moody’s Aa2 P-1


Fitch AA F1+

Long

-ter

m

Shor

t-te

rm

Palestine

Qatar

73



Saudi Arabia

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 5.4 2.7 3.6 3

Inflation (annual %) 3.6 3 3.6 3

Fiscal deficit (% of GDP) 14.7 8.7 -0.5 -14.2


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 9,186.3 10,756 13,273.7 14,826.9 15,947.4 19,436.9 15,655.1 18,754 23,256.1 24,883.2 24,646 24,161 (current USD)





Moody’s Aa3 P-1

Standard & Poor’s AA- A-1+

Fitch AA F1+

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 3.4 3.5 4.5 4.6

Inflation (annual %) 1.1 -0.08 1.4 1.5

Fiscal deficit (% of GDP) -5.6 -5.5 -5.1 -


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 642.6 732.3 772.7 808.3 948.5 1,094.6 1,018.4 998.1 1,081.1 1,019.3 1,040.1 1,061.8 (current USD)

Age dependency ratio (% 91.2 90.4 89.6 89.3 88.8 88.4 88 87.8 87.7 87.7 87.8 87.8 of working-age population)




Moody’s B1 NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rmSenegal

74


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 15.2 20.1 6 -12.8

Inflation (annual %) 12 8.5 10 14



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




GDP per capita 295.1 293.9 321 359.5 400.4 453.7 434.5 446.3 496.2 627 797.6 774.6 (current USD)





Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) -46.8 24.2 5.5 3.4

Inflation (annual %) 25.2 -8.8 5 5

Fiscal deficit (% of GDP) -15.6 -5.2 -6.7 -15


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 59.1 59.5 59.9 60.3 60.7 61 61.2 61.5 61.7 61.9 62



GDP per capita 466 550.8 661.6 868.3 1,081.2 1,248.4 1,183.2 1,421.5 1,596.4 1,662.3 1,726.1 1,875.9 (current USD)

Age dependency ratio (% 87 86.6 86 85.7 85.1 84.3 83.4 82.5 81.7 80.8 80 79 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Sierra Leone

Sudan

75



Suriname

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 4.8 4.1 2.9 2.7


Fiscal deficit (% of GDP) -4 -6.9 -5 -5.7


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 68.3 68.6 68.8 69.2 69.5 69.8 70.1 70.3 70.6 70.8 71



GDP per capita 2,606.8 3,033 3,645.9 5,295.5 5,862.1 6,973.1 7,561.5 8,430.9 8,450.3 9,484.8 9,933.1 (current USD)

Age dependency ratio (% 58.6 57 55.8 55.2 54.9 54.7 54.3 53.8 53.4 52.7 52 51.3 of working-age population)




Moody’s Ba3 NR


Fitch BB- B

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) n/a n/a n/a n/a

Inflation (annual %) n/a n/a n/a n/a

Fiscal deficit (% of GDP) n/a n/a n/a n/a


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 74.2 74.5 74.7 74.9 75 75 75 74.9 74.8 74.7 74.7



GDP per capita 1,261.4 1,419.6 1,591.5 1,779.8 2,080 (current USD)

Age dependency ratio (% 75.2 73.8 72.7 70.6 69 67.6 66.2 64.3 65.7 66.8 67.8 68.8 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rmSyria

76


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 7.5 7.4 6.7 3


Fiscal deficit (% of GDP) 0.6 -0.8 0.1 -1.8


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 64.9 65.3 65.7 66 66.3 66.6 66.8 67 67.1 67.3 67.4


Poverty gap at $1.25 10 4.7 4.4 1.3 a day (PPP, %)

GDP per capita 237.9 311.4 339.8 407.3 523.9 711.5 671.5 744.2 841.2 962.4 1,048.7 1,114 (current USD)





Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 3.7 2.3 2.3 3


Fiscal deficit (% of GDP) -5.3 -6 -3.5 -3.5


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 73 73.3 73.5 73.9 74.2 74.3 74.5 74.6 74.3 74 73.6



GDP per capita 2,790 3,139.5 3,217.9 3,394.4 3,805.3 4,342.7 4,162.6 4,212.2 4,305.1 4,197.5 4,316.8 (current USD)

Age dependency ratio (% 51.9 50.3 49 47.7 46.6 45.7 45 44.5 44.3 44.2 44.2 44.5 of working-age population)




Moody’s Ba3 NR


Fitch BB- B

Long

-ter

m

Shor

t-te

rm

Tajikistan

Tunisia

77



Turkey

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 2.1 4.1 2.9 3.1




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 71.6 72 72.4 72.8 73.2 73.5 73.9 74.2 74.5 74.9 75.2

Literacy rate (adults) 87.4 88.2 88.1 88.7 90.8 92.7 94.1 94.9 95.3

Poverty gap at $1.25 0.5 0.2 0.2 0.2 0.1 0 0.02 0.1 0 a day (PPP, %)

GDP per capita 4,586.8 5,855.5 7,117.3 7,727.3 9,309.5 10,382.3 8,623.9 10,111.5 10,584.2 10,646 10,975.1 10,529.6 (current USD)





Moody’s Baa3 P-3

Standard & Poor’s BB+ B

Fitch BBB- F3

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 11.1 10.2 10.3 9




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 64.2 64.3 64.4 64.5 64.6 64.8 64.9 65 65.2 65.3 65.5



GDP per capita 1,286 1,455.9 1,707 2,140.5 2,606.7 3,918.9 4,060 4,392.7 5,724.5 6,797.7 7,826.8 9,031.5 (current USD)

Age dependency ratio (% 63.1 61.4 59.4 57.7 55.6 53.3 51.4 50 49 48.5 48.3 48.2 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rmTurkmenistan

78


Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 4.7 5.2 3.6 3.2


Fiscal deficit (% of GDP) 10.9 9.9 6 -3


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 75.1 75.4 75.6 75.8 76 76.2 76.4 76.6 76.8 77 77.1

Literacy rate (adults) 90


GDP per capita 34,294.9 37,179.7 40,298.5 42,950.1 42,913.8 45,720 32,905.1 34,341.9 39,778.5 41,587.5 44,506.8 44,204.3 (current USD)





Moody’s Aa2 P-1


Fitch AA F1+

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 2.6 3.9 4.9 5.4


Fiscal deficit (% of GDP) -3 -4 -3.9 -2.7


Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Poverty gap at $1.25 19.2 12.2 12 a day (PPP, %)

GDP per capita 241.7 292.8 321.4 342.8 409.9 459.1 529.9 567.2 544.7 670.2 675.4 696.4 (current USD)

Age dependency ratio (% 108.7 108.6 108.3 108.2 107.9 107.4 106.8 106.2 105.7 105 104.2 103.4 of working-age population)




Moody’s B1 NR


Fitch B+ B

Long

-ter

m

Shor

t-te

rm

UAE

Uganda

79



Uzbekistan

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 8.2 8 8.1 6.2




Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 67.2 67.3 67.3 67.4 67.5 676 67.7 67.9 68 68.1 68.2



GDP per capita 396.1 465.1 546.8 643 830.4 1,023.1 1,181.8 1,377.1 1,544.8 1,719 1,878 2,037.7 (current USD)

Age dependency ratio (% 63.9 61.5 59.2 57.1 55.2 53.5 52.1 51 50.4 50 49.7 49.6 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rm

Economic Indicators

Indicators 2012 2013 2014 2015E

GDP (annual %) 2.4 4.8 -0.2 -2.2

Inflation (annual %) 5.8 8.1 10 8



Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Life expectancy (years) 61.1 61.3 61.5 61.7 61.9 62.1 62.3 62.5 62 .7 62.9 63.1



GDP per capita 607.9 696.1 817.1 904.6 1,181.2 1,361.7 1,239.8 1,310.1 1,282.4 1,289 1,408.1 (current USD)

Age dependency ratio (% 98.5 96 93.3 91 88.4 85.9 83.6 81.6 80.2 78.9 77.7 76.6 of working-age population)




Moody’s NR NR


Fitch NR NR

Long

-ter

m

Shor

t-te

rmYemen

80

ISLAMIC CORPORATION

FOR THE DEVELOPMENT OF THE PRIVATE SECTOR

P.O. BOX 54069, JEDDAH 21514 KINGDOM OF SAUDI ARABIA

Tel: +966 12636 1400 Fax: +966 12644 4427

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