Islamic finance success offsetting global gloom

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Updated 28 January 2013

Islamic finance success offsetting global gloom

The private sector in the Kingdom has been spurred into action, giving a major boost particularly to real estate, construction, health care, education, financial services and a host of other activities, thus offsetting some of the global economic gloom, according to Khaled Al-Aboodi, CEO of the Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank (IDB) Group.
“However, financing for small and medium enterprises (SMEs) is not yet developed in most of the member-countries,” Al-Aboodi told Khalil Hanware of Arab News in an exclusive interview. “Even in GCC countries, there is lack of access to financing for SMEs,” Al-Aboodi pointed out.

The following are excerpts from the interview:

How has ICD's performance been in 2011 and what are its major achievements in 2012?
The persistence of uncertainty in the global financial arena coupled with continued global economic downturn has increased both perceived market risks as well as cautious approach to business operations. While lack of access to finance by the private sector has opened new opportunities for ICD to support private sector development in a number of member-countries, a combination of factors such as social unrest in some member-countries, increased cost of funding and lingering effects of financial crisis has made it very difficult for ICD to operate as planned. However, recognizing the role of a strong private sector in inclusive growth, ICD strived to utilize and apply a package of targeted investments and wide advisory services to accomplish its mandate. Despite the negative effect of financial crisis and social unrest in the region, ICD managed to approve 18 new projects and capital incease for three existing equity projects totaling $ 372.26 million in 1432H/2011. This was 58 percent higher than the previous year (2010), which reflects ICD's continuing robust support to private sector development in the member-countries. Equity investments accounted for the bulk of ICD's 1432H/2011 approvals, representing 38 percent of the total, followed by the line of finance (35 percent), long-term financing (22 percent), and short-term murabaha (5 percent). In terms of sectoral distribution, the three main beneficiary sectors were finance, industry and real estate, jointly attracting 85 percent of the total approvals. The financial sector accounted for the biggest allocation, totaling $ 201.26 million, or 54 percent of the 1432H/2011 approvals. In terms of regional composition, 31 percent of ICD's approved projects during 1432H were allocated to the Middle East North Africa (MENA) region, followed by South Asia (23 percent), Sub-Saharan Africa (16 percent), East Asia and Pacific (14 percent), and Europe and Central Asia (10 percent). In terms of recipient countries, ICD approvals were extended to 13-member countries, including three new countries — Algeria, Gabon and Turkmenistan. Overall, country- and region-wise allocation was made on the basis of a number of factors, including member-countries' creditworthiness, strategic priorities and development agendas, and financial sustainability of the projects. In 1433H/2012, ICD approved 19 new investment projects and 6 capital increases totaling $ 375 million. As a result, total approvals since inception amounted to $ 2.582 billion. Region-wise, around 38 percent of ICD's approved projects during 1433H were allocated to Eastern Europe and Central Asia, 15 percent to MENA, followed by Asia and Sub-Saharan Africa 14 percent and 7 percent respectively. The regional projects covering multiple regions accounted for 25 percent of total approvals. As part of its new strategy, ICD's advisory services also gathered further momentum in 1433H. In the past year, ICD successfully closed the fund-raising for Tunisia and Saudi Arabia SME funds, and also for the Central Asia Renewable Energy Fund. Furthermore, ICD has approved establishment of a Food & Agriculture Fund and Fixed Income Fund, and successfully secured some mandates in Tunisia and Cameroon for capacity building and creation of Islamic windows within conventional banks.

In what projects/companies have you invested in the past 12 months?
ICD approved 19 new projects and six capital increases in existing equity projects. In line with its new strategy of promoting Islamic financial channels, ICD approved $ 167 million worth of projects in the Islamic financial sector in 1433H/2012, which accounts for 40 percent of its total approvals. The share of products in the approval of financial sector projects were also well-balanced and included equity stakes of $ 47 million in financial institutions, and line of financing extended to qualified financial institutions at an amount of $ 120 million. At the same time, the business plan of 1433H/2012 envisioned continuation of ICD's direct investment in real estate sector with a more focused and balanced allocation of its resources to priority sectors. In the past year, ICD achieved its target for approval in the real estate sector. The amount of approval and disbursement stood at $ 202 million and $ 50 million respectively in the real sector of member-countries.

What was ICD's contribution to the development of member-countries in 2011?
The Islamic Corporation for the Development of the Private Sector (ICD) was established to support the economic development of its member-countries by providing Shariah-compliant financing to private sector projects. The ICD offers advice to governments and private organizations to encourage the establishment, expansion and modernization of private enterprises, the development of capital markets, the adoption of best management practices, and enhancement of the role of the market economy. The ICD focuses on developmental projects, which contribute to the creation of employment opportunities, poverty reduction, raising the general standard of living, improved health and education, and the encouragement of exports. Generally speaking, ICD's role is to try to enhance the role of the private sector in these countries by providing not just finance but know-how as well to facilitate their growth.

How popular is Islamic finance in the region and how are you promoting it? Has the economic downturn increased its popularity?
Islamic finance is growing in popularity and already a majority of retail and corporate banking clients prefer the option of Islamic banking over conventional banking when available. Our operations and dealings are on the basis of Islamic banking principles and also support the establishment and finance of Islamic financial institutions not only in the region but also in the wider Asian and African spheres. ICD's mandate is to promote, in accordance with Shariah principles, the economic development of is member-countries by encouraging the establishment, expansion and modernization of private enterprises. To fulfill our mandate, we support the private sector through the following ways: First, we assist them alone or in collaboration with other financing institutions the establishment and expansion of enterprises. Second, we can make direct investment, through Islamic instruments, in the subscription and purchase of their share capital. We also promote with participation of other sources of financing, including the structuring of syndication deals, underwriting of securities, joint ventures and other forms of association. Moreover, we can get involved in issuing mudharba, leasing and istisna'a bonds and other financial instruments. At the top of these, private sector firms may benefit from our advisory services and technical assistance programs. Yes, the downturn has certainly increased the popularity of Islamic finance without a doubt.

How did you secure funding last year and what are your plans in the coming years to ensure you have adequate funds to achieve your objectives?
Normally, we secure funding via partnership and syndication. In fact, ICD actively engaged in building strong relationships with major international development institutions. ICD established new partnerships through the execution of memorandum of understanding (MoU) with a number of institutions, including Exim banks in Indonesia and Malaysia, Eurasian Development Bank in Kazakhstan, Kenyan Company for Habitat and Housing in Africa, and National Innovation Fund in Kazakhstan. For example, ICD became a signatory to the International Finance Corporation's (IFC's) Master Cooperation Agreement, which makes it easier for both institutions to collaborate on private sector investments in MENA and in emerging markets worldwide. All these MoUs aim at transferring knowledge, especially in Islamic finance, syndicating and co-financing activities, originating and structuring activities, and establishing new products.

What role does ICD play in promoting SMEs in member-countries?
The small and medium enterprises (SMEs) have a crucial role to play in a country's growth and development, and ICD has big plans for them. It is an important sector in all the member-countries, even the higher income ones. Yet, financing for SMEs is not developed in most of the member-countries. Even in GCC countries, there is lack of access to financing for SMEs. Now we are focusing on this sector by establishing ijara companies. We are also looking at direct financing of SMEs, and are now working to establish the first SME Fund with a capital of SR 1 billion. Also, during this year, ICD and the Caisse Des Depots Et Consignations (CDC) with support from KIPCO group and Albaraka Bank structured and launched the largest CMF regulated and first Tunisian SME Shariah Complaint Fund with the principal purpose to address the SMEs' funding gap by providing financial assistance in the form of growth capital to suitable SMEs that are poised for exponential growth. ICD has been working for a long time in developing special programs for development of the SME sector in IDB member-countries. It is clear that job creation has become a big issue that needs to be addressed. Recent events in the Middle East confirm that lack of jobs and unemployment cause people sometimes to be unhappy to the extent of almost overthrowing regimes. ICD has been developing SME programs to support governments' efforts in member-countries by providing ingredients for establishing a very good SME authority in each country because in many countries such an authority is either absent, with the result that there is no authority to take care of SMEs' affairs in terms of regulations and creating an environment ensuring their development or sometimes the authorities exist but they are not very well equipped or are bureaucratic.

How many projects has ICD financed so far and what is the total value of the projects?
ICD's accumulated approvals since it began operation reached $ 2.17 billion by the end of 1432H/2011, which has been allocated to 218 projects. The corporation approved about 60 percent of its investments through two main modes of finance — equity and murabaha. The cumulative gross approvals of ICD by mode of finance include $ 766.07 million of equity, $ 535.77 million of murabaha, $ 526.5 million of ijara, $ 223.13 million of installment sale, and $ 119.14 million of istisna'a.

What are ICD's investments in key sector projects in member-countries?
The sectoral composition of ICD's accumulated approvals underscores diversity and is spread over 16 sectors. The financial sector accounted for the largest share, amounting to $ 783.7 million, or 36 percent of the accumulated gross approvals since inception. The industrial sector had the second largest share with a total approved amount of $ 596.1 million, representing 27 percent of the gross approvals. This was followed by real estate, with a total approval of $ 276.2 million (13 percent). The remaining $ 514.6 million (24 percent) of the accumulated approvals was allocated to 13 different sectors.

Where do you see the Saudi economy heading in 2013, and with so many projects under way is Saudi Arabia on the threshold of another boom?
The Economist Intelligence Unit expects 4.3 percent growth of the Saudi economy in 2013, compared to 5.3 percent growth in 2012. The International Monetary Fund has forecast Saudi growth at 4.1 percent in 2013, compared to 6 percent in 2012 and 6.8 percent in 2011. The Saudi private sector has been spurred into action and a number of sectors such as real estate, construction, health care, education and financial services have received a major boost, offsetting some of the global economic gloom. According to the official records, more than 200 projects with a combined value of $ 1.23 trillion are expected to be completed by the end of 2013. This reflects the massive development under way in the Kingdom.

How important is the Kingdom's role in G20?
The Kingdom assumes a leadership position in both the Arab and broader Muslim worlds, representing a very diverse political constituency, and like other G20 countries it has been increasingly exposed to the challenges of globalization. In fact, the Saudi leadership will look to the G20 process to help make the international finance, the food commodities, and the oil and gas markets less volatile and easier to navigate. Moreover, the Kingdom will continue playing a systemic role in an ever-changing multi-polar world where the G20 is at its core.

INTERVIEW: Lessons in intelligent learning from the UAE’s master restructurer

Updated 15 December 2019

INTERVIEW: Lessons in intelligent learning from the UAE’s master restructurer

  • Pity the nation divided into fragments, each fragment considering itself a nation

Ziad Makhzoumi is ready for the next chapter. A serial entrepreneur, restructurer par excellence, corporate adviser and public speaker, the 64-year-old Lebanese-born executive is looking for a new challenge in a career that has made him one of the best-known figures in the regional business scene. “Retirement is not an option in the coming few years,” he told Arab News.

Since 2016, when Makhzoumi helped to put together the deal that saw fertility firm IVF Fakih sold to NMC Healthcare for more than 1.5 billion dirhams ($408 million) — then the biggest deal ever in the UAE health care sector — he has taken stock, written a book based on his immense corporate experience, and launched another start-up in the medical business that could have global ramifications.

The book, “Intelligent Learning: Competing in Systemic Chaos” is a manual for budding entrepreneurs, as well as a primer for more experienced executives and policymakers. “I wanted to write about my approach to strategy and problem-solving in business. The reason for my success over the years is my passionate drive to want to achieve positive outcomes in my personal and business life,” he said.

“When I advise businesses, many times I have been frustrated with people who are not interested in learning new things, they chose to ignore what is around them and are content with looking in one direction instead of seeing everything that is really there,” Makhzoumi said.

He was speaking in general terms, but perhaps his comments could be applied to the corporate situation for which he is still best known in the Middle East — the five-year stint when he was chief financial officer of Arabtec Holding, one of the UAE’s most prominent contracting groups, responsible for some of the Emirate’s globally iconic landmarks, including the Burj Khalifa, the world’s tallest building.

Arabtec, founded by his Lebanese compatriot Riad Kamal, had been a driving force behind the Dubai building boom of the early 2000s, but by the time the global financial crisis hit the region it was in all sorts of trouble, overextended and under financial pressure.


BORN: Beirut, Lebanon, 1955

• University of Manchester, Alliance Manchester Business School


  • Consultant, Booz Allen Hamilton
  • Chief financial officer, Arabtec Holdings
  • CEO, IVF Fakih
  • Adviser, Drake & Scull
  • Founder and CEO, MAP Sciences

Makhzoumi kept the wolf from the door for a considerable time, and helped to organize the rescue of Arabtec by Abu Dhabi backers. But a change of strategic direction by the new management left him out in the cold. It also left him well-qualified to comment on the UAE’s current real-estate related challenges.

The country is still growing in economic terms, according to figures from the International Monetary Fund, but oversupply of property developments has taken the steam out of the real-estate market, formerly one of the drivers of the local economy. Levels of indebtedness remain stubbornly high despite several rounds of restructuring since the 2009 crisis.

Property valuations have been languishing just as the UAE gears up for Expo 2020, the global business fair on which a lot of hopes have been pinned. Makhzoumi believes there is still some work for policy-makers to do ahead of that event.

“The medium-term outlook for the UAE remains stable, underpinned by sizeable sovereign wealth fund assets, as well as the government’s commitment to forge ahead with reforms. However, sustaining robust non-oil growth after Expo 2020 remains a key priority, especially in the context of the likelihood that global oil demand will slow,” he said.

But his Arabtec experience, as well as a later short term as an adviser to another troubled UAE contractor, Drake & Scull, make him wary that the boom days will return any time soon. “The real-estate sector in Dubai is still suffering a correction cycle that has been extended based on over-optimistic expectations, which might not happen because of external factors like the global economic and trade situation.

“As a result the over-building and high prices of real estate will possibly increase the incidence of default by the buyers and developers, and thus affect the banks’ balance sheet. The cycle could directly affect the banking sector’s ability to lend to other businesses, especially SMEs which are vital for the diversification of the economy,” he said.

On the subject of diversification, Makhzoumi has had plenty of experience in Saudi Arabia, and takes a more optimistic view of developments in the Kingdom.

“I have worked in Saudi Arabia at different times in my professional life, in the Seventies, Eighties and in 2000, but never have I witnessed the vast changes that are happening now under the leadership of Crown Prince Mohammed bin Salman. The Vision 2030 strategy has highlighted the intent, and the leadership is delivering on its promise. We are seeing events that 20 years ago we would not even contemplate. It is all good and will get better,” he said.

Makhzoumi’s current big project could be a game-changer in the medical field. MAP Sciences, a UK-based company that offers state-of-the-art diagnostics, has developed an all-in-one test based on the high-tech spectral analysis of a simple blood spot, dried on to a blotting card, which could be used by an individual without medical staff and revealing the results within minutes.

He explained the sophisticated science behind the product. “Not only will this new test dramatically overcome the cost and phobia of venous blood draw, but the minuscule sample required is subjected to a new laboratory technology, termed ‘MALDI-ToF mass spectrometry,’ which is quicker, cheaper and better than current tests,” he said.

MAP is involved in projects around the world, including a potentially huge research initiative in China with the government of the city of Nanjing to provide an efficient and rapid diagnosis for Downs syndrome during pregnancy, as well as trials in some of the leading medical institutions in the UK. “We have started our male and female cancer screening tests that will soon offer the individual a home-screening test that is affordable, reliable and fast,” he said.

He is currently seeking funds from global investors to help fuel MAP’s next phase of growth.

Makhzoumi spends a lot of time in the UK working on the MAP business, and is a skeptical observer of the political scene. A natural conservative, he has become disillusioned with post-Brexit developments in the country, and has moved away from the current Tory party philosophy under leader Boris Johnson, who has just won a resounding election victory.

“I believe the UK cannot be completely isolated from the European Community, and should have approached the problem differently. Great Britain is not so great any more — racial bias and secular isolation has become an acceptable political stand. I hope the new government will bring unity and future clarity and make the UK united again and reclaim its leadership role on the world stage,” he said.

If his view of the UK is less than optimistic, the situation in his native Lebanon he regards as altogether more depressing. “Lebanon is a very sad story. My heart bleeds for a nation, claiming to be a modern republic after 15 years of civil war, built on democratic principles that accepts corruption and favoritism as a normal social and political standard,” he said.

“The economic system needs a complete overhaul and only honest and capable professionals should be appointed, who have the nation’s interest at heart, and not accept office as an opportunity for personal gains and to abuse the citizens of Lebanon,” he said.

Quoting Kahlil Gibran, Lebanon’s national philosopher, Makzoumi said: “Pity the nation divided into fragments, each fragment deeming itself a nation,” and added: “The future of Lebanon hinges on whether these barbed fragments can at last be overcome in the interest of a forging a nation greater than the sum of its parts. The overriding obstacle to realizing this vision is that Lebanon remains cursed by geography, and its core fragments are liberally supplied by powerful and ruthless foreign patrons.”

Maybe policy-makers need a dose of “Intelligent Learning”? 

“The world is at war with itself, fueled by ideologies and economic and cultural assumptions that do not work together anymore, and old assumptions that are unreal. The world is going into a state of systematic chaotic disorganization. As individuals, governments, businesses and global citizens, we must learn differently,” he said.