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Monday, 22 December 2008

Islamic banks unscathed by global crisis: Al-Aboodi

JEDDAH: Islamic banks are the least affected by the current global financial crisis triggered by subprime tsunami in the United States, the CEO & general manager of Islamic Corporation for the Development of the Private Sector (ICD) said.

In an exclusive interview with Arab News, Khaled Al-Aboodi said, “Islamic banks are Shariah-compliant and Shariah does not allow them to invest in subprime products as compared to conventional banks.”

Al-Aboodi, who began his career with the Saudi Ministry of Economy and Finance in 1982, became ICD chief in 2007. Talking about the recent banking crisis, he said you must have seen that most conventional banks worldwide were in trouble because they don’t deal with Shariah products. “Islamic banks are very strict in their policies which are monitored closely by Shariah boards at various stages,” Al-Aboodi said.

He said ICD is in the process of setting up an asset management firm in the Kingdom, which will be named Ewaan Capital and will deal with Shariah-compliant mortgage financing. ICD has applied for a license from the Capital Market Authority (CMA) and already had initial discussions with the Saudi Arabian Monetary Agency (SAMA), the Kingdom’s central bank.

ICD, an Islamic Development Bank (IDB) affiliate, applies Islamic modes of financing in operations that include installment sales, leasing, Mudaraba, Murabaha and equity participation, Al-Aboodi said. The authorized capital of ICD is $1 billion. ICD’s shareholders are the IDB (50 percent), Islamic member countries (30 percent) and five financial institutions from member countries (20 percent).

He said the mandate of ICD is to support economic development of its 48 member countries through provision of finance to projects promoting private sector as a vehicle for economic growth and prosperity. The projects financed by ICD are selected on the basis of their contribution to economic development taking into account factors such as creation of employment opportunities and contribution to exports.

ICD also accepts co-financing for its projects and advises governments and private sector groups on policies to encourage the establishment, expansion and modernization of private enterprises, development of capital markets, improvement in management practices and for enhancing the role of market economy, he added.

In 2007-08, the market for ICD evolved further and investment diversified into new markets. Bangladesh became a new member of the ICD as a beneficiary country and financing of projects in the country increased from $5.3 million to $6 million.

Despite global economic slowdown and negative impact of a tightening financial market, ICD achieved its targets. Al-Aboodi said this year ICD approved $340 million in financing which is a 6 percent increase compared to last year. Since its founding in 2001, ICD has approved projects worth $1.2 billion, he said.

“The global financial crisis is creating some kind of uncertainty but we will try to meet demands from the private sector and we expect same growth next year,” he added. “So far none of ICD projects is affected by the global crisis,” Al-Aboodi said after visiting various countries and taking the first hand information of the ongoing ICD projects. Al-Aboodi recently visited Azerbaijan, Kazakhstan, Uzbekistan, Russia, Turkey and Bosnia where ICD has financed private sector projects. In Azerbaijan, ICD has established Caspian International Investment Company (CIIC), which has started operations after reaching the projected capital of $70 million.

He added, “The first Islamic investment company was set up after identifying investment opportunities offered by the developing Azerbaijan economy - the fastest growing economy in the world.” Al-Aboodi, who also participated in “Agroinvest.kz-2008”, the first international investment forum, held in Astana, Kazakhstan, in October, signed memorandums of understanding (MoUs) with Kazagro national holding company and Food and Agriculture Organization (FAO) to explore Kazakhstan’s agricultural potential and establish contacts with Kazakh entrepreneurs.

He said ICD also organized a half-day seminar in June for knowledge sharing and information dissemination among IDB member countries on the challenges and solutions for public-private participation (PPP) in the social sectors such as health, education and other related fields. ICD, which was recently admitted as an associate member to the Islamic Financial Services Board (IFSB), had signed a $12.5 million Ijara (lease) agreement with Arab Malaysian Vegetable Oil Products Company Ltd., to set up the first palm oil-based vegetable oil refining and downstream processing plant in Yanbu. The project would produce cooking oil and have an annual production capacity of 90,000 metric tons. It will also produce non-hydrogenated downstream products such as vegetable ghee, fats, shortening and margarine. The project plans to export up to 90 percent of its production while the rest will be sold in the Saudi market.

He said ICD has a big presence in Africa also. It has signed a line of finance agreements with the Arab Bank for Economic Development in Africa (BADEA) to finance private sector projects in its African member countries. ICD has also been involved in charitable exercises for the last few years. Recently, ICD had given away 700 free school bags to the children of needy families and orphans in cooperation with Al-Irshad Charitable Society, Tripoli, Lebanon.

“This initiative came as ICD’s Solidarity Fund strategy to serve needy communities within IDB member countries by providing assistance in different fields and various ways,” Al-Aboodi added.

(Arab News)

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