Establishing a branch of the Islamic bank in Estonia.Feasibility study.

1. Establishing a branch of the Islamic bank in Estonia
Feasibility study
Prepared by:
Vladimir Maslov
Mark Maslov
Maslov Consulting LLC
February 2014
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2. Content
1. Idea and goals
3
2. The problem and its solution
4
3. Potential customers
5
4. Preconditions
6
5. Risks. SWOT analysis
13
6. Estonian and Baltic States’ potential
16
7. Next steps
18
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3. 1. Idea and goals
The aim is to establish a branch of the Islamic bank in the Baltic States
to facilitate the implementation of creative projects in various sectors
of the economy such as industry, agriculture, energy, information and
communication technologies.
3

4. 2. The problem and its solution
Competitive advantage of Islamic banking in the Baltics:
a new, unique and just form of financing in the region.
4

5. 3. Potential customers
At the beginning stage, customers of the branch will be companies with a
turnover of at least 2 million € and have been running in the market for at
least three years. The Baltics is one of the fastest growing region in the
European Union. There are suitable promising companies with viable plans
and development potential. The approximate quantity of customers can be
2-2.5% of all running companies.
The priorities are:
 Production companies
 Agricultural enterprises
 IT developers
 Transportation and logistics
Statistics on companies in 2013
Country
Number of companies
Estonia
170000
Latvia
265000
Lithuania
181000
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6. 4. Preconditions. What for?
The study of the mechanical engineering sector in
Estonia conducted by the University of Tartu in
2011 showed the demand on additional financial
instruments. The survey involved 124 production
enterprises of which 60% were in favor of the need
for new financial instruments.
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7. 4. Preconditions. Why Estonia?
• EU member
• Developed infrastructure (100% fiber optic broadband by 2015, more than 1,150 public wireless
access points to the Internet)
• Operating electronic state (voting, tax, health care, etc. Estonian companies are developing
similar solutions for the State of Qatar)
• Competitive costs and tax system (1/3 of staff costs compared to Finland or Sweden, simple tax
system, reinvested profits are not taxed, online registration of a new company in 20 minutes!)
• Low risk (2nd place along with Denmark regarding the stability index in the EU, the lowest public
debt in the EU, low level of corruption)
• Skilled and educated workforce (55% speaks one or more foreign languages, core competence in
electronics, transport and logistics, food and chemical industries, engineering and metalworking,
information technology)
• Advantageous geographical location (close integration with Scandinavia, proximity to Russia ,
good connections to Central Europe)
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8. 4. Preconditions. Tax system
In Estonia reinvested profits are not taxed!
8

9. 4. Preconditions. Scandinavian manufacturer`s opinion
about business climate in Estonia
Bo Henriksson, ABB Country Manager in Estonia:
The government doesn't meddle. "The climate to operate a business in Estonia is very easy," says Henriksson.
"There is very little bureaucracy."
An ample supply of specialists. Even when the labour market has been at its tightest, ABB has been able to
recruit and train the specialists it needs. When ABB could not find the specialists it needed to produce turbines
for wind generators, it created programs and trained them itself.
A good work ethic. At the level of the assembly line workers, the local labour is consistently praised as honest
and hardworking.
Geography. Since as much as 100 percent of some of ABB Estonia's production is slated for other ABB factories,
the geographic proximity to Scandinavia is critical. This is true of wind turbine production at the Jüri factory:
although thirty percent of the world's wind parks use its products, every generator must journey to another
ABB facility before it meets its final user.
Room to grow. ABB is engaged in lobbying work with ABB Corporate to expand production in Estonia. There
are case studies which illustrate success in moving entire operations to Estonia, such as in 2006 when ABB
moved the compact substation manufacturing facility from Denmark. "It's profitable in Estonia," says
Henriksson. "For a variety of reasons, it wasn't ever profitable in Denmark."
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10. 4. Preconditions. Financial sector overview
• Close relationship with the Scandinavian banking system including
through ownership
• 7 registered banks. All the rest are acting as branches.
• Relatively small share of the financial sector in the economy as a
whole
• The private sector credit load to GDP ratio is relatively low.
• Estonia has a small public debt.
• The financial sector is stable compared to other EU countries
• Highly developed system of Internet banking
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11. 4. Preconditions. Market shares of Estonian banks
Bank
Balance volume
1000 EUR
%
BIG
1,52%
346 544
SAMPO
9,37%
1 641 204
DnBNORD
1,29%
315 746
Krediidipank
2,39%
396 301
LHV
0,79%
282 689
NORDEA
13,54%
3 167 452
CITADELE
0,75%
264 329
SEB
19,16%
3 614 192
SWEDBANK
46,50%
7 844 040
UniCredit
1,65%
261 166
ÄRIPANK
0,73%
165 010
POHJOLA
0,02%
142 325
не входящие в союз банков
2,29%
297 763
100,00%
18 738 761
Всего
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12. List of institutional investors in Estonia
ACCOUNT OPERATORS
•
Avaron Asset Management AS
http://www.avaroncapital.com
•
Hansa Investeerimisfondid AS
http://www.swedbank.ee
•
Kawe Kapital AS
http://www.kawe.ee
•
LHV Varahaldus AS
http://www.lhv.ee
•
SEB Ühispanga Fondid AS
http://www.seb.ee/fondid
•
Trigon Alternative Funds AS
http://www.trigon.ee/en
•
•
Trigon Funds AS
http://www.trigon.ee
ERGO Varahalduse AS
http://www.ergofondid.ee
AB
http://www.unitedpartners.ee/
•
INVESTMENT COMPANIES
•
•
KIT Finance Europe
http://www.kfe.ee
•
Evli Securities AS
•
http://www.evli.com/pub/web/EE
/ee/index
•
Cresco Väärtpaberite AS
http://www.cresco.ee
•
•
Lõhmus, Haavel & Viisemann AS
http://www.lhv.ee
•
Trigon Securities
http://www.trigoncapital.com
•
East Capital Asset Management
AB http://www.eastcapital.com
•
Privanet Eesti
•
T. Rowe Price Global Investment
Services
•
Danske Capital AS
http://www.danskepank.ee
•
IPS “Hansa Fondi” AS
•
EVLI Fund Management Company
Ltd
INVESTMENT BANKS
•
East Capital Asset Management
•
United Partners Group
•
BaltCap http://www.baltcap.com
Trigon Capital
http://www.trigon.ee
REAL ESTATE INVESTORS
Evli Securities AS
http://www.evli.com/pub/web/EE • Eften Capital http://www.eften.ee
/ee/index
Nordic Financial Services
http://www.nordicfinancial.com
Cresco AS http://www.cresco.ee
VENTURE CAPITAL
•
AS Eastern Europe Real Estate
Investment Trust
http://www.eereif.com/
•
Metro Capital Management AS
http://www.metrocapital.eu
•
Redgate Capital
http://www.redgatecapital.eu/
•
Trigon Property Advisors
http://www.trigoncapital.com
•
Ambient Sound Investments OÜ
http://www.asi.ee
•
MTVP AS
http://www.martinsontrigon.com/
•
BaltCap http://www.baltcap.com
MEZZANINE FINANCING
•
Redgate Capital
http://www.redgatecapital.eu/
•
Balti-Ameerika Ettevõtlusfond
•
Hanseatic Capital
http://www.hanseaticcapital.net/
•
Baltic Mezzanine
http://www.balticmezzanine.ee
PRIVATE EQUITY
•
Alta Capital Partners
http://www.altacapital.ee
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13. 5. Risks. Religious risk is avoidable
The leaders of the Christian churches recognize the morality of Islamic
banking compared to traditional banking system.
The Vatican has put forward the idea that "the principles of Islamic
finance may represent a possible cure for ailing markets.“*
*Lorenzo Totaro (2009-03-04). "Vatican Says Islamic Finance May Help Western Banks in Crisis". Bloomberg L.P. Retrieved 2009-04-13.
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14. 5. Risks. SWOT-analysis
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15. Loans and deposits correlation of Estonian companies to 30 September
2013 (thous. €)
6000000
5000000
4000000
3000000
2000000
1000000
0
Loans
Deposits
BIG
DANSKE
DNB
288073,92 1057140,029 493606,389
238231
1475535
221564
EKRE
131349,3
HANDELSB
112497,159
LHV
163545,48
VERSO
23647,16
NORDEA
2269959,96
CITADELE
47665,51
SCANIA
39459,61
206542
76375
272370
88406
844296
85443
0
SEB
SWED
3162635,29 5371607,91
2420111
5059805
ÄRIP
27568,31
POHJOLA
94073,82
FOLKIA
2309
135699
2981
0
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16. 6. Estonian potential
If we consider that by the end of the first year the new branch will capture 0.5% of
the market and further annual growth will be at 12.5%, the potential of Estonia can
be estimated within a needed investment of € 31 million and € 2.3 million income.
16

17. 6. Potential of all Baltic states
First year result in Estonia, Latvia and Lithuania (thous. €)
70000
66426
60000
49819
50000
40000
33213
30000
20000
10000
4982
3736
2491
0
Estonia
Latvia
Investment
Lithuania
Income
Total investment - 149.5 million €
Income – 11.2 million €
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18. 7. Next steps
Start!!!
Achievement
of objectives
Registration of
the branch
Discussion and approval of the terms and
objectives of the branch
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19. Contact:
Mark Maslov
GSM: +372 5129624
mark@maslov.ee
Linkedin profile: here
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