Providing Resources . Fighting Poverty .Restoring Dignity

THE ROLE OF IDB IN PROMOTING DEVELOPMENT THROUGH ISLAMIC FINANCE

WIFE – AFFRoundtable 2015

TOKYO, JAPAN

https://youtu.be/shxj0WOkBo8

Providing Resources

Fighting Poverty

Restoring Dignity

3

Agenda

1. THE ISLAMIC FINANCIAL SERVICES INDUSTRY

2. IDB GROUP AND ISLAMIC FINANCE DEVELOPMENT

3. JAPAN & ISLAMIC FINANCE

4. POTENTIAL COOPERTAION BETWEEN IDB and JAPAN

The Pillars of Islamic Finance Internationalization

Growth

• US$ 2 trillion by Design

• growing 50% faster than Traditional Banking

Profitability

• Average ROE of 12% for top 20 Islamic

Customers

• –25% of the world’s population is Muslim

1 2 3

Current Outlook

Asset Growth17%

ROA1.6%

Customers+70 million

Islamic Financial Service Industry - Overview

Countries92+

Institutions900+

Strategic Needs

Increased Focus on Financial Inclusion

Create Regional Champions

Increasing Cost Efficiency

Islamic Financial Service Industry - Overview

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S&P 500: $1.9 Trillion of Assets

Islamic Financial Service Industry - Overview

What’s required for growth of Islamic Finance ?

To achieve this goal, the top three priorities have to be

• Knowledge/Human Capital Capacity Building

• Regulatory Clarity

• Responsible Innovation

• Technology

• Integrative Thinking Framework

A Bird’s eye view of the Muslim Population Distribution

Prospective cross border Islamic Finance investment prospects and implications on the global economic

development

Opportunities for Islamic Financial Investments & SRI

Countries with presence in IF

Conceptual exploration

Economic Developments Islamic Financial Markets

Growth of Islamic funds in

developed markets will attract

investors from other

jurisdictions with existing

Islamic finance presence

Establishment of a Islamic

financial hub in a developed

market will encourage the

introduction of more innovative

products and a more developed

secondary market

Islamic finance will thus be a

critical factor for continued

global economic growth

FDINiche Presence

Engaging with regulator

Multiple economies have

announced clear

development plans that will

require long term financing

Some of these plans were

announced but are not yet

fully financed

Capital mobility will thus be

critically important to

achieve those plans

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The Islamic finance ecosystems across many countries is significantlyunderdeveloped, with only 12 countries having developed systems. Only 28countries have some of Islamic finance regulations, with only 4 havingcomprehensive regulations (Source: IFDI)

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Outstanding performance by the top 4 countries Malaysia, Bahrain, Oman and UAE

8 others aiming for the next level of Development

A majority of countries have undeveloped Islamic finance ecosystems

Global Islamic Finance Development

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Agenda

1. THE ISLAMIC FINANCIAL SERVICES INDUSTRY

2. IDB GROUP AND ISLAMIC FINANCE DEVELOPMENT

3. JAPAN & ISLAMIC FINANCE

4. POTENTIAL COOPERTAION BETWEEN IDB and JAPAN

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Islamic Development Bank (IDB)

Foster the economic development and

social progress of MCs and Muslim

communities.

International Islamic Trade Financing

Corporation (ITFC)Promote and

enhances intra-trade and trade cooperation through trade finance

and promotion programs

Islamic Corporation for the Development of the Private Sector

(ICD)Promote development

of private sector

development.

Islamic Research & Training Institute

(IRTI)Undertake applied &

basic research in Islamic Economics and

Finance.

Islamic Corporation for Insurance of Investment &

Export Credit (ICIEC)Provide Shariah-

compatible export credit insurance,

political risk insurance, technical assistance.

Sharia's Compliance

1975 1981 1994 1999 2008

The Islamic Development Bank Group

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The Islamic Development Bank

Est. 1975 Authorized

Capt. of ID 100 B & Subscribed

of ID 50 B

1,128 staff distributed across entities & regional offices / Gateways

A Unique Model of South-South

Cooperation

Global MDB: Membership 56 Countries

Spread over 4 Continents

4Regional offices

AFRICA 27

LATIN AMERICA

1

ASIA26

EUROPE2

Rabat, Morroco(1993)

Dakar, Senegal(2006)

Kuala Lumpur, Malaysia( 1993)

Almaty, Kazakhstan( 1997)

5 new Country Gateway offices starting with Indonesia & Turkey

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Sector-wise

Aggregate IDB Group Financing (1975-2014)

Trade Financing, 54,853m

Project Financing, 47,308m

Special Assistance,

1,320m

Technical Assistance,

1,487m

Over the last 40-years, IDB Group has approved net financing of: ID 71.2 Billion (approx. US$ 103.3 billion)

Major Activities

Energy, 33%

Trade, 27%

Transportation, 11%

Agriculture, 8%

Water, Sanitation & Urban

Services, 6%

Industry & Mining, 5%

Education, 4%

Health, 3% Finance, 1%

Other, 1%

* Special Assistance primarily includes social sector projects e.g. relief operations, scholarships etc.

Good governance

Infrastructure for prosperity

Inclusiveness of muslim communities

Poverty alleviation

Crisis support

Promoting education

• “Promote comprehensive human development, with a focus on the priority areas of alleviating poverty, improving health, promoting education, improving governance and prospering the people.”

Mission

Vision 1440H

Improving health

By the year 1440H (2020G) IDB Group shall have become a world class development bank inspired by Islamic principles, that has helped significantly transform the landscape of comprehensive human development in the Muslim world and helped restore its dignity.

Member country prospective needs

Strategic alignment of the 10YS: IDBG Mission and Vision aligned to MCs' needs and challenges

The Mission and the Vision 1440H are validity with the MC current and prospective needs

IDBG missionPriorities addressed

Vision strategic thrustsPriorities addressed

MC needsPriorities identified

Alleviate Poverty

Promote Health

Universalize Education

Prosper the People

Empower the Sisters of Islam

Facilitate integration of IDBG MC Economies

Improve the Image of Muslim World

Expand the IF Industry

Prospering people

Alleviating poverty

Promoting education

Improving health

Improving governance

Food and water security

Energy security and renewable energy

Private sector development

Education

Social inequalities

Women empowerment

Employment, specially in the youth population

Health

IF Sector as a mean to develop the country

Infrastructure across sectors

Source: BCG, IDB mission statement, MC megatrends, MC stakeholders consultations

CONNECTIVITYA Strong Catalyst for

South-South Collaboration

ISLAMIC FINANCE SECTOR GROWTHA Leading Reference in

Islamic Finance

INCLUSIVENESSBecome a Preferred Partner

for MCs1 Social and Economic Development

Strategic objectives: The Vision translates into strategic objectives that will drive the core activities of IDBG

Addresses the needs of the poorer

and marginalized communities who

represent a significant

portion of the IDBG's stakeholders

Promotes cooperation among its MCs to enhance

trade, investment, knowledge, and capacity

development as part of its mandate

Facilitates the development of the global Islamic Financial

industry as a part of its unique mandate

1. Member Countries YSource: IDB; BCG

Strategic objectives

Rationale

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Underpins the achievement of the strategic pillars and strengthens the institutional and social capabilities of the member countries

Projects with infrastructure

component across sectors (Agriculture, education,

health, transport, etc.)

Non- sovereign related activities conducted with the purpose to

develop the private sector1

Activities with the primary purpose to develop the

Islamic finance sector

Interventions with a special focus on the

neediest populations3

Activities conducted with the purpose to enhance trade

and investments between MCs

Strategic pillars: The five pillars (+1 CC) outline the core focus areas over the next 10 years will be the basis of IDBG Core

Competencies – What IDBG is good/best at …

1. PPPs are included as part of Infrastructure 2. Member countries and muslim communities in non-member countries 3. Excludes infrastructure financing Source: BCG

Economic and social

infrastructure

1

Private sector development

2Islamic

finance sector development

3

Social development

4

Cooperation between MCs2

5

CapacityDevelopment

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Establish single source of capacity development

The Cross Cutting Areas: Capacity development is integrated in each strategic pillar and coordinated across IDBG

Training, education and other 'softer'

elements complimenting

the 'hard' physical build

out

Advising and training financial

institutions through which

IDBG will channel the

financing to the private sector

Assisting MCs in standard setting

and harmonization,

advisory of legislative and

regulatory frameworks

Building capacity for

implementation channels (NGOs,

governments) through which

IDBG offers support

Interconnector for MC'scapacity

development & build capacity in

regional integration and

cooperation organizations

Centrally Coordinated and reported across different pillars

Economic and social

infrastructure

Private sector development

Islamic finance sector development

Social development

Cooperation between MCs2

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Strategic objectives

Strategic pillars

Overarching Vision

Cooperation between Member Countries

Economic and social infrastructure

Private Sector Development

Inclusive Social Development

Islamic Financial Sector

Development

Guiding Principles

Manage for ResultResource

Mobilization

Link Strategy to Budget & Resources

Group Synergy & Governance

Selectivity

Financial SustainabilityBuild Capabilities in Strategic

Pillars

INCLUSIVENESS:Become a preferred partner for MCs

economic and social development

IFS GROWTH:The leading reference in Islamic

Finance

CONNECTIVITY:A strong catalyst

For South-South Cooperation

IDBG Vision

Strategy Implications Financial Implications Operational Implications Organizational Implications

Communication & Change Mgmt

Strategy Focus

Ops. Effectiveness & Org. EfficiencyFinance

Internal and External Communication & Change Management

Capacity Development

IDBG 10 Year Strategy Framework

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Sector Results

IDBG Performance

Overarching Goals

20% increase in strategic alliances and MOUs with

Multilateral/IIIs, and No. of Master Plans developed

Islamic Financial Sector Development in 10 Years

40 MCs shall have the

appropriate eco-system for Islamic Finance

4 MCs have 100% of

their population have access to financial services

12 countries shall have

integrated domestic IFIs with international system

20% increase in IFIs with IDBG Equity

participation

20% increase in contribution to the global

dialogue on IF

25%of global population regardless of their

status and wealth, should have access to Islamic financial services

Are aware and familiar with… Can afford to use…Can reach physically/virtually...

Islamic Finance Industry to Reach 7.5 Trillion

Develop A synergy strategy between IDBG Department and Entities

1-2 years 3-5 years >5 years

Enablement• Enabling regulations and

prudential standards – IFSD and IFSB

• Enabling regulations for Islamic instruments – IIFM / IILM / IFSD

• Funding for poor / disadvantaged – WWF / APIF / IFSD

• IRTI – Capacity building and Public awareness programs

• Government and CB

Performance• Equity investments – IDBi• Adoption of compatible

accounting and auditing standards – AAOIFI, CIBAFI, IFSB. IFSD

• Highest levels of corporate governance and transparency –AAOIFI, CIBAFI, IFSD

• ITFC, ICIEC, ICD and FPDC• IRTI – Capacity building and

Public awareness programs

Reach• SME Funding – ICD• Engagement on global forums –

IDBG• New Product Innovations and

Social Impact – IDBG, CIBAFI and FPDC

• University programs in Islamic finance – IRTI

• Research and publication - IRTI

Enablers

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Islamic Financial Sector Development in 10 Years

Contribute to the Islamic Finance Industry Development/ Efficiency and stability

Contribute to the economy Development (Public & Private Sectors)

(Islamic Finance Industry)

IFSD FPDC

IDBi Treasury

WWF/APIF

Training & Research +Public Dissemination+ Consultancy/Services

ICDITFC ICIECIRTI

OC

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Each member country confronts three broad types of issues in the development of Islamic finance

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2. PERFORMANCE

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TIME - Stage of Industry Growth

1. ENABLEMENT

3. REACH

Member countries need to have the appropriate eco-system to facilitate transactions and establishment of institutions

Islamic Financial Institutions need to perform according to the highest of standards and be considered as the leading providers of financial services

All segments of the population that require Islamic financial services have access to it, regardless of their ability and wealth

IDB Islamic Finance Development Strategy

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By supporting the development of Islamic finance, microfinance andAwqaf sectors, the IDB is working towards its objective of providingaccess to financial services for all Muslims

Ultra High Net Worth Individuals

Islamic Financial

Institutions

High Net Worth Individuals

Affluent Individuals

Upper Mass

Mid Mass

Lower Mass

Economically DisadvantagedAwqaf

Institutions

Microfinance & Microtakaful

Financial Services Ecosystem

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Regulatory & Supervisory

Agencies

Islamic Infrastructure Institutions

Multilateral / Bilateral

Institutions & Bodies

Muslim Consumers

Islamic Finance Development Impact

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Islamic Infrastructure Institutions

Global

Country

Institutional

Legal, Regulatory & Supervisory Framework

Research, Training Capacity Building

New Islamic Banks &

Windows

Conversion of Conventional

Banks

Advisory and Product

Development

Creating Sound International Regulatory

Environment and Industry Best Practices

Enabling Robust Environment

Supporting the growth of the Industry

Islamic Finance Development Impact

Microfinance,Awqaf (Trust),

Zakat

Strategic Partnerships

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Agenda

1. THE ISLAMIC FINANCIAL SERVICES INDUSTRY

2. IDB GROUP AND ISLAMIC FINANCE DEVELOPMENT

3. JAPAN & ISLAMIC FINANCE

4. POTENTIAL COOPERTAION BETWEEN IDB and JAPAN

31

Agenda

1. THE ISLAMIC FINANCIAL SERVICES INDUSTRY

2. THE ISLAMIC DEVELOPMENT BANK (IDB) GROUP

3. JAPAN & ISLAMIC FINANCE

4. POTENTIAL COOPERTAION BETWEEN IDB and JAPAN

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10Y Strategy Implementation

Recommendations

Thank you