Presentation on the Shariah-Compliant Finance in the Private Sector and Development Finance Worlds
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Presentation on the Shariah-Compliant Finance in the Private Sector and Development Finance Worlds

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    Presentation on the Shariah-Compliant Finance in the Private Sector and Development Finance Worlds Presentation on the Shariah-Compliant Finance in the Private Sector and Development Finance Worlds Presentation Transcript

    • The Landscape of Shariah-compliant Finance:Identifying the Key Players and Opportunity Prepared for: Company XYZ Prepared by: Manny Peralta July 25, 2012
    • Defining the Opportunity with Key Players •  Demand for more Shariah-compliant financial products and services is on the rise. Financial institutions are positioning themselves to meet this surge in demand. This form of finance is carrying over into the Landscape development finance world. •  While not the only player in this market, Islamic Development Bank is the Key Players leading the multilateral development organization in terms of funding. •  Company XYZ should position itself to play in the Shariah-compliant finance market by targeting sectors that receive the most investment by Opportunity the ISDB and similar multilateral development banks.Page 2 Prepared by Manny Peralta on 7/25/12
    • Landscape: Demand for Islamicfinance products is on the rise.A. This surge in demand is occuring everywherein the Islamic world, and there are stark regionaldifferences in terms of the Islamic financingsolutions that can be provided. •  Malaysia has a well-developed sukuk infrastructure, while the Gulf States are still struggling to meet short-term maturity needs. •  The governments of Bahrain, UAE, and Qatar are testing out new short-term products with increased success. •  Saudi Arabia is more adept at handling short-term liquidity needs due to the depth of its investment sector.Page 3 Prepared by Manny Peralta on 7/25/12
    • Landscape: Demand for Islamicfinance products is on the rise.B. Changes in the regulatory environment areproducing an increased supply of capital. •  Saudi Arabia is recognizing that housing has According to the become a national priority, hence the IFC, mortgage Council of Ministers have passed a mortgage finance is not only law to boost real-estate development that is a high priority, but also one of the Shariah-compliant.   fastest growing •  in Bahrain, Islamic banks are being asked to investment areas. join forces in order to be better capitalized and be better prepared to weather global economic crisesPage 4 Prepared by Manny Peralta on 7/25/12
    • Landscape: Demand for Islamicfinance products is on the rise.C. Increased economic prowess in Asia and theMiddle East. •  Islamic finance assets total $1.3 trillion globally and are growing at an average annual rate of 15%.* •  The IMF estimates economies in developing Asian countries will expand 7.3% this year and 7.9% in 2013.** •  The number of millionaires in the Middle East rose 2.7% to 450,000 last year.****according to the Malaysia’s Securities Commission**according to its World Economic Outlook Update issued in April***according to World Wealth Report 2012 from Capgemini and RBC Wealth ManagementPage 5 Prepared by Manny Peralta on 7/25/12
    • Muslim customers are low-hanging fruit fornew Shariah-finance solutions. Regulatory environment growing more favorable Number of Surge in demand affluent Muslims and regional in Asia and the differences Middle East on the rise Private sector is catering more to Muslim customers’ financing needs Page 6 Prepared by Manny Peralta on 7/25/12
    • Some financial institutions are trying tostep up to match that demand.•  Global consumer banks, such as Standard Chartered Private Bank, have introduced a host of new Islamic finance solutions to target rich Muslims in parts of Asia (e.g. Malaysia) who lack investment options in the region•  SCPB and similar institutions have portfolios where 60% of profits or more come from Africa, the Middle East, and Asia.Page 7 Prepared by Manny Peralta on 7/25/12
    • However, private banks are still laggingin terms of solutions that they can offer.•  A leading Singapore-based wealth management firm interviewed in the New York Times states that while demand is on the rise: “few understand the needs of the Islamic ultrahigh net worth individual or take a ‘holistic view’ of wealth management services”Page 8 Prepared by Manny Peralta on 7/25/12
    • Still, Shariah-compliant finance is alsogrowing in the development world.The Islamic Development Bank (ISDB) is thefront-ronner in this market•  A week ago the ISDB made its largest approval for funding development projects since its inception in 1975•  Other major players include the Asian Development Bank, the World Bank, and some national governments. •  Many examples of these include co-financing agreements with the ISDB, who have actively looked for partnerships in Islamic financing. •  The ISDB and the WB have co-financed over 60 projects in 26 countries in Africa, Asia, and the Middle East worth $3.2 billion.Page 9 Prepared by Manny Peralta on 7/25/12
    • Key Players: Islamic Development BankWhere does ISDB focus its investments? Key Sectors* 4% Utilities and 13% Infrastructure Agriculture 24% 59% Human development SME Finance + Other*Based on funding allocation for 2012Page 10 Prepared by Manny Peralta on 7/25/12
    • Key Players: Islamic Development Bank The details of ISDBs recent $1+ billion deal Allocation by sector (in millions) 800 700 600 500 400 300 200 100 0 Utilities and Agriculture Education SME Finance Infrastructure*The list of countries receiving funding can be found in Appendix A. Page 11 Prepared by Manny Peralta on 7/25/12
    • Key Players: Islamic Development BankOther recent deals•  In June 2012, the ISDB signed a co-financing agreement with the Korea Development Bank for $2 billion, aimed at building public-private partnerships in the ISDB’s 4 key sectors•  In July 2012, the ISDB signed a $1 billion agreement with the Egyptian government to finance their energy sector and food imports. •  The timing of this deal is key, because Egypt’s outgoing military government had a difficult time securing funding from multilateral institutions, hence why President Morsi is keen to fill the gap in funding.Page 12 Prepared by Manny Peralta on 7/25/12
    • Key Players: Asian Development BankThe ADB is following ISDBs lead.•  The ADB has 13 common member countries with the Islamic Development Bank.•  They signed a co-financing agreement in September 2008 calling on both institutions to provide up to $2 billion each over a three-year period. •  The co-financing agreement mainly targets infrastructure and public utilities, with some funding for education and health. •  The ADB has piloted Islamic financing in an infrastructure project in Pakistan. Though Islamic financing hasn’t been its first choice originally, the decision was based on client needs.Page 13 Prepared by Manny Peralta on 7/25/12
    • OpportunityDFI should identify Multinational Companies whohave large operations in the Middle East andIslamic parts of Asia with business in key sectorsthat receive ISDB funding.•  One leading example is General Electric, and specifically, their GE Energy division. –  GE is the first American company to have launched Islamic bonds (2009). –  Middle East and Africa accounted for 6.1% of GE’s total revenues in FY2010. –  GE Energy signed a $2 billion contract with the government of Kuwait in 2009.Page 14 Prepared by Manny Peralta on 7/25/12
    • Questions?•  Please don’t hesitate to contact me (manuel.i.peralta@gmail.com) with any questions.•  I addressed a few potential questions in the appendices.•  Thank you for your time!Page 15 Prepared by Manny Peralta on 7/25/12
    • Appendix A:Details of ISDB’s recent $1Bn deal•  $683 million for power generation and power transmission projects in five IDB Member Countries:  Morocco, Tunisia, Iran, Uzbekistan and Tajikistan;•  $274.8 million for food security and rural development activities in African countries:  Cameroon, Chad, Uganda, Benin, Burkina Faso, Mali, Niger, Mauritania and Togo;•  $146.2 million for educational projects in Indonesia,Yemen and Bangladesh;•  $45 million to Indonesia Exim Bank for the financing of export- oriented small and medium size industries;Page 16 Prepared by Manny Peralta on 7/25/12
    • Appendix B:Is Shariah-compliant finance cost-effective?•  This trend toward Shariah-compliant finance is indicative of future growth in an industry that is rapidly developing.•  As more capital is channeled to Islamic finance solutions, the cheaper the products will become.Page 17 Prepared by Manny Peralta on 7/25/12
    • Appendix C: Are there any non-monetarydownsides to using Islamic finance solutions?•  Yes. There have been some cases where political and legal resistance to this form of financing are apparent. –  E.g., in Kazakhstan, which has a Muslim-majority (70% of population) and is a member country of the ISDB, regulations have been passed to secularize state institutions (e.g. banning prayer in those institutions).Page 18 Prepared by Manny Peralta on 7/25/12