0 strictly private & confidential. not to be disclosed without prior written consent of islamic...

1Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank

Impact Investing

KAZANSUMMIT 20157th International Economic Summit of Russia and OIC countries

Tatarstan – June 15-16, 2015

Mohamed Hedi Mejai, Director of the Investments Department

Islamic Development Bank


Impact Investing..

• Impact investing is a subset of socially responsible investing

• It is investment made with the intention to generate a measurable, beneficial social or environmental positive impact alongside a financial return

• Islamic Finance or ethical finance is fundamentally motivated by supporting the overall well-being and socio-economic development of the society and excludes investments in areas considered harmful to society or people

• And hence, it is very much in line with impact investing


Suitability of Islamic Banking Products to Impact Investing

Islamic Finance is based on the following principles:

• Investment in assets – real economy • Fairness – sharing in the risk and reward• Participatory financing – equity-based, venture capital, etc. • Avoidance of speculation and abuse – prohibition of charging

interest and excessive financing rate• Flexible contractual arrangements – Encouraging

entrepreneurship• Negitive List of industries that are harmful to society or health

(gambling, alcohol, arms, etc.)


Islamic Finance is gaining global attraction

According to the last IMF workshop on Islamic Finance during the WB/IMF Spring meetings 2015

• Islamic Finance is growing at 16% p/a and its total assets reached about USD 1.7

• It is expected to grow to USD 3.4 trillion by 2018

• Currently Islamic Banks have 38 million customers and expected to reach more than 70 million by 2018

• QISMUT (Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey) are dominating the Islamic Banking assets with 78% of global value

• QISMUT total assets expected to reach USD 1.6 trillion by 2018


Potential of Islamic Finance

• Availability of high liquidity• Can meet the demands of diverse population (i.e. Muslims and non-

Muslims)• Sukuk (i.e. Islamic bonds) are widely accepted and is an additional

tool for resource mobilization• Many non-member countries issued sukuk such as Hong Kong,

Luxemburg, UK, etc. • Investment in Infrastructure projects

Wider acceptance of Sukuk and global opportunities for more issuance


Islamic Finance in Russia

Russia has a good potential to develop Islamic Finance in CIS region and to attract a wide range of investors:

• Strong economy with a large absorption capacity• It is a large market with about 145 million population out of which

about 20 million are Muslims• It is a main driver of the Eurasian Economic Union (EAEU) which

has a total population of about 180 million and a gross domestic product of over 4 trillion U.S. dollars

• Islamic Finance is attractive to customers interested in ethical investing

• Hence, sukuk issuance in Russia for instance are likely to get good attraction from investors


Islamic Development Bank (“IDB”): Profile

■ Established in 1975 and headquartered in Jeddah, the Kingdom of Saudi Arabia

■ Purpose: To foster the economic development and social progress of member countries in a commercially viable manner

■ Currently 56 member countries (all developing countries) from the Middle East, Africa, the Asia Pacific region, South Asia, Europe and South America

■ Regional offices in Kazakhstan, Malaysia, Morocco and Senegal

■ Country gateway offices in Turkey and Indonesia

■ Field representatives in several member countries

■ All financial transactions are in compliance with Islamic law (Shariah)

Mission Statement

“We are committed to alleviating poverty, promoting human development, science & technology, Islamic banking & finance and enhancing cooperation amongst member countries in collaboration with our development partners.”

Ownership

Key Financial Indicators

Notes:

IDB’s unit of account 1 Islamic Dinar = 1 Special Drawing Right of the IMF Exchange rate of ID 1 = US$ 1.531750 used throughout this presentation

IDB’s financial year is the lunar Hijrah year (11 days shorter than the solar Gregorian year) Throughout the presentation, Financial data are based either on Audited Accounts Year-End November 2013 (*) or

public information shared in IDB’s website for Year-End October 2014 unless otherwise stated.

(US$ billion)

Total Assets 20.6*

Authorized Capital 150.0

Paid-up Capital 7.4

Ratings Aaa/AAA/AAA

Overview

Saudi Arabia 23.6%

Libya 9.5%

Iran 8.3%

Nigeria 7.7%UAE7.5%

Qatar 7.2%

Egypt 7.1%

Turkey 6.5%

Kuwait 5.5%

Others 17.1%


IDB Group and Mandate

■ International Islamic Trade Finance Corporation (ITFC): Supports trade finance activities amongst member countries.

■ Islamic Corporation for the Development of the Private Sector (ICD):

Supports the private sector in the member countries.

■ Islamic Corporation for Insurance of Investment and Export Credit (ICIEC): Provides investment protection and export credit insurance for member countries.

Key IDB Group Members*

■ Project Finance, Loans and Technical Assistance aimed at the development of:

■ Agriculture

■ Basic Infrastructure & Industrial sectors

■ Education

■ Healthcare and other Social Sector Institutions

■ Equity Investment and Lines of Financing for the development of Financial Institutions

■ Human Development

■ Agricultural and Rural Development and Food Security

■ Infrastructure Development

■ Private Sector Development (ICD)

■ Intra-Trade Among Member Countries (ITFC)

■ Research and Development in Islamic Banking and Finance (IRTI)

IDB Activities IDB Priority Areas

* These institutions have their own separate balance sheets and member countries except IRTI.

■ The Islamic Research and Training Institute (IRTI): Leads the development and sustenance of a dynamic and comprehensive Islamic Financial Services Industry.


Consistently Rated ‘AAA’ Since 2007

IDB’s ‘AAA’ rating is predominantly derived from its standalone credit profile in contrast to other multilateral development banks’ (“MDB”) reliance on ‘AAA’ rated callable capital

“Low leverage…”

“Very strong capitalization…”

“Established track record in terms of asset quality…”

“Preferred Creditor status…”

“Strong commitment from shareholders…”

“Strong liquidity…”

Zero Risk Weighted

(Since 2006)Last Rating: Oct. 2014

Source: Rating Agencies Reports

Eligible as Level B collateral for the Bank’s operations(Since 2007)

Last Rating: July 2014

(Since 2002) Last Rating: Sep. 2014

Accepted as marketable assets in the European Central Bank (ECB) list

Eligible for inclusion in the liquidity buffer of banks under the FCA supervision(BIPRU 12.7.2 )


Strengthening Partnerships

■ Co-financing activities, on average, represent 35% of IDB-OCR cumulative financing.

■ The Bank collaborates with development partners and donors to co-finance projects and operations in member countries.

■ This collaborative strategy has helped it to pool and tap resources from a large number of organizations and institutions which are interested in jointly financing development.

2005 2006 2007 2008 2009 2010 2011 2012 20130

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

IDB Approvals for Co-Financing ($ in mln)


IDB’s Intervention Areas and Regions

Sectoral Distribution Geographic Distribution

■ The Bank intervenes in key economic sectors of member countries to enable them to leapfrog the stages of development and to attain international development goals.

■ IDB Group’s total net approvals have reached $97.8 billion.

■ IDB has one of the broadest operational scopes amongst major MDBs.

■ Similarly, IDB’s existing portfolio is diversified across several regions.

Source: IDB's website, IDB's Economic Research and Policy Department; (“CIT-7”): Azerbaijan, Kazakhstan, Kyrgyz Rep., Tajikistan, Turkmenistan, Uzbekistan and Albania(“ASIA-8”): Afghanistan, Bangladesh, Brunei, Indonesia, Malaysia, Maldives, Pakistan and Suriname(“MENA-Other Countries-8”) : Iran, Iraq, Jordan, Lebanon, Palestine, Syria, Turkey and Yemen(“MENA-North Africa-5”) : Algeria, Morocco, Tunisia, Lybia and Egypt

Agriculture11.9%

Education7.4%

Energy26.4%

Finance 4.5%

Health5.6%

Industry & Mining7.7%

Others0.4%

Transportation21.8%

Information & Communications

1.1%

Water, Sanitation & Urban Services

13.2%

MENA-Other Countries-8

19%

SSA-2214%

Asia-86%

CIT-731%

MENA-North Africa-5

20%

MENA-GCC-6

10%


Areas of cooperation

• To provide Technical Assistance and Advisory Services to lay down the legal framework for Islamic Finance in the Russian Federation

• To advise on the possible issuance of Sukuk by the Russian Federation

• Cooperate to establish a joint Islamic Bank to cater the needs of both Muslims and non-Muslims customers in Russia.


Contact us:

Islamic Development BankP.O Box 5925 Jeddah 21432 K.S.A

Tel: +966-12-646-7422Fax: +966-12-636-7554

Email: [email protected]: http://www.isdb.org

Mohammed Hedi MejaiDirector of Investments Department

mailto:[email protected]

http://www.isdb.org/


The Investments Department (IDBi)

“The Investments Department is responsible for undertaking and managing the IDB’s medium and long term direct and funds investments made from the Ordinary Capital Resources of IDB, the IDB Waqf Fund, Staff Pension Fund, Islamic Solidarity Fund for Development”.

Investments Department

Equity Investment Division

Fund Management Division

Resource Mobilization Division

Manage & Monitor current Portfolio

Invest in new IFIs & companies Rebalance the Portfolio

Manage & Monitor current Funds Portfolio

Identify & Process new Fund investments

Structure & Launch new investment Funds

Initiate Co-branded Funds with other Institutional Investors


IDBi - Equity Portfolio

Over 70 investmentsin 26 countries

Disbursed amount of US$ 704 million

Market value of US$ 1.53

billion

As of 26 April 2015

Contributes more than 10% of IDB’s net

income


IDBi - Funds Portfolio

Listed Equity

Real Estate

Alternative Asset ClassesConventional Asset Classes

Sukuk

Private Equity

Leasing & Ijarah

More than US$ 460 million commitments in 11 Funds

Trade Finance

Infra-structure


IDB’s Portfolio

• Infrastructure investments have the highest ratio in IDB’s portfolio with around 61.4% share. Energy and transportation constitute around 26% and 22% of the portfolio respectively. Water, sanitation and urban services are 13%.

• Education and health are far behind with 7.4% and 5.6% respectively.

• Cumulative energy investments are USD 30.8 billion, transportation investments are USD 9.8 billion, Water, sanitation and urban services investments are USD 5.8 billion. Total infrastructure investments are around USD 46 billion as of end of 2014.

• Education investments are USD 3.6 billion and health investment are USD 2.5 billion for the same period.

Source: IsDB's website, IsDB's Economic Research and Policy Department


IDBi- Investment Principles & Process

■ Sharia Compliance (conventional debt maximum – 1/3 of financing structure) for Brownfield

projects

■ 100% Shariah compliance for Greenfield projects

■ Global coverage (not limited to Member Countries)

■ Public and Private sponsors are eligible

■ Greenfield or Expansion projects with development attributes

■ Sound reputation and solid track record of sponsors

■ Feasibility study done by a reputable firm

■ Maximum 33% stake taken by IDB

■ No single major shareholder stake

Deal Sourcing & Screening

In- Depth Analysis

Clearance & Due Diligence

Approval & Disbursement Monitoring Exit


IDB Infrastructure Fund II

Target Size: US$ 2 billion

Description: - Successor to the US$730 million IDB Infrastructure Fund I- The largest dedicated infrastructure fund for IDB member countries beyond core infrastructure sectors of power, telecommunications, transportation, and includes investment in oil and gas, refinery and petrochemicals, steel and aluminum, mining, logistics and an allocation for healthcare, education, and financial services.

Main Investors: IDB, Public Pension Agency of the Kingdom of Saudi Arabia, the Public Investment Fund of the Kingdom of Saudi Arabia, the Ministry of Finance of the Kingdom of Bahrain and the Ministry of Finance of the Sultanate of Brunei Darussalam

Expected IRR: 18% (based on the figures of Fund I)

Funds to be Mobilized:

Up to US$24 billion

Fund Manager: ASMA Capital Partners B.S.C.(c), established by IDB and the founding investors in the Kingdom of Bahrain


Airbus Leasing Islamic Fund

Target Size: US$ 1 billion

Description: The first Shariah compliant Aircraft Leasing Fund seeded by Airbus and exclusively dedicated for buying and leasing AIRBUS planes mainly to GCC, MENA, CIS and southeast Asian airline carriers.

Main Investors:

IDB, Airbus Industries, Tabuung Hajji, Warba Bank, Kuwait International Bank and Tharawat Holding

Fund Type: Open Ended

Expected IRR: 15%

Fund Manager:

International Air Finance Corporation


Marina Mall - Morocco

71 Investments

• 34 IFIs• 37 Companies

• 7.41% total return in 1434H

• USD 150 million of Dividends over the last 3 years

■ Marina Mall is a real estate development project where

IDB partnered with SMI (Societe Marita Immobiliere).

■ SMI is a real estate development company established in

2003 and based in Morocco with track record

internationally mainly in Europe and Africa.

■ Marina Mall is the largest commercial area in Rabat.

■ Covers 8.5 acres in Rabat-Sale’s Bab al Bahr District

which is in the heart of New Rabat.

■ It is a mixed use project with the last generation of real

estate complex including premium housing, offices and a

shopping mall with 38.000 sqm on the ground floor

(parking included).

■ The Mall will be managed by Poly World, a shopping mall

operator operating 65 malls globally.

Expected IRR: 17%


KED Schools – Kingdom of Saudi Arabia

■ KED is a world class international school

operator managing over 40 schools

internationally in Europe, UK, USA and

India.

■ KED is partnering with strong local

investors to open a chain of bi-lingual

schools in KSA that offer world class

American curriculum along with Arabic

curriculum.

■ Education is a sector of core

significance to IDB.

Expected IRR: 22%


MOUs Signed

■ Public Pension Agency (KSA),

Ministry of Finance (Bahrain) and

Ministry of Finance (Brunei)

■ Sovereign Investment Authority (Nigeria)

■ Caisse de Depot et de Gestion (Morocco)

■ Sovereign Wealth Fund (Gabon)

■ Pertamina (Indonesia)

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