Islamic Development Bank: Annual Report 2016

Transcription

1. Annual Report 1435H (2014) Together we build a better future
4. Corporate pro file of the Islamic Development Bank Establishment Capital The Islamic Development Bank (IDB) is an international financial institution established pursuant to Articles of Agreement done at the city of Jeddah, Kingdom of Saudi Arabia, on 21st Rajab 1394H corresponding to 12 August 1974. The Inaugural Meeting of the Board of Governors took place in Rajab 1395H (July 1975) and the IDB formally commenced operations on 15 Shawwal 1395H (20 October 1975). At its 38th Annual Meeting, the Board of Governors of IDB approved the 5th General Capital Increase whereby the Authorized Capital was increased to ID100 billion and the Subscribed Capital was increased to ID50 billion. By the same Resolution, the Board of Governors agreed to the calling in of the callable (in cash) portion of the 4th General Capital Increase. As at the end of 1435H, the subscribed capital of the IDB stood at ID49.86 billion. Vision Islamic Development Bank Group By the year 1440H, the Islamic Development Bank 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. The IDB Group comprises five entities: the Islamic Development Bank (IDB), the Islamic Research and Training Institute (IRTI), the Islamic Corporation for the Development of the Private Sector (ICD), the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), and the International Islamic Trade Finance Corporation (ITFC). Annual Report 1435H (2014) Mission To promote comprehensive human development, with a focus on the priority areas of alleviating poverty, improving health, promoting education, improving governance and prospering the people. Membership The membership of the IDB stands at 56 countries spanning many regions. The basic condition for membership is that the prospective country should be a member of the Organization of the Islamic Cooperation (OIC), pays the first instalment of its minimum subscription to the Capital Stock of IDB, and accepts any terms and conditions that may be decided upon by the Board of Governors. Head Office, Regional and Country Offices Headquartered in Jeddah, the Kingdom of Saudi Arabia, the IDB has four regional offices in Rabat, Morocco; Kuala Lumpur, Malaysia; Almaty, Kazakhstan; and in Dakar, Senegal and Country Gateway offices in Turkey (Ankara and Istanbul) and Indonesia. Financial Year The IDB’s financial year is the lunar Hijra Year (H). Accounting Unit The accounting unit of the IDB is the Islamic Dinar (ID) which is equivalent to one Special Drawing Right (SDR) of the International Monetary Fund. Language The official language of IDB is Arabic, but English and French are used additionally as working languages. Together we build a better future
5. | CONTENTS CONTENTS 33 Note: This report is the first of two volumes that constitute the Annual Report of the Islamic Development Bank. The second report contains the audited financial statements and is published in a separate volume as the Financial Statements. Both volumes are available online at www.isdb.org. All figures on entities are reported here as net approvals while their respective Annual Reports are in gross approvals. ISSN 0466-1319 04 | IDB Annual Report 1435H (2014) 66 65 47 52 Message from the President 8 Board of the Executive Directors 10 40 Years of Dedicated Service 12 Executive Summary 16 IDB in numbers 22 Chapter 1: IDB Group in Focus 1.1 Summary of IDB Group 1435H Results 1.2 IDB Group Major Initiatives 1.3 IDB Group Achievements 1.4 Creating Opportunities for the Poor 1.5 Promoting Awqaf 26 27 28 32 36 37 Chapter 2: Fostering Inclusive and Sustainable Development 2.1 Investing in Human Capital and Wellbeing 2.2 Financing Infrastructure 2.3 Boosting Agriculture and Food Security 2.4 Strengthening Capacity Development 2.5 Enhancing Economic Cooperation and Integration 2.6 Fostering Islamic Finance Development 38 39 42 46 48 50 56 2.7 Supporting Inclusive Solidarity 60 Chapter 3: Strengthening Institutional Effectiveness 62 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 Board of Governors Board of Executive Directors Operations Evaluation Audit Activities Risk Management Integrity function Group Ten Years Strategy Group Information Management and Technology Solutions 3.9 Knowledge Management and Innovation Program 3.10 Human Resources Management 63 63 63 64 67 68 69 69 Annexes 73 69 72 IDB Annual Report 1435H (2014) | 05
6. ABBREVIATIONS AAOIFI : ACAP: Accounting and Auditing Organization for Islamic Financial Institutions in IDB MCs ACKNOWLEDGEMENTS GTRC: Group Trade Related Issues Committee MENA: Middle East and North Africa MoUs: Memorandum of Understandings HLM2: High-Level Meeting on Country-Led Knowledge Hubs MTN: Medium Term Note MTR: Mid-Term Review OCR: Ordinary Capital Resources of IDB OECD: Organisation for Economic Cooperation and Development OFID: OPEC Fund for International Development OIC: Organisation of the Islamic Cooperation PIASR: Project Implementation Assessment Support Reports Project Completion Reports Awqaf Capital ACL: Audit Command Language ICD: AFAO: Association des Femmes de l’Afrique de l’Ouest Islamic Corporation for the Development of the Private Sector ICIEC: Islamic Corporation for the Insurance of Investment and Export Credit AFD: French Development Agency AFTIAS: Aid for Trade Initiative for Arab States APIF: Awqaf Properties Investment Fund AWEF: Arab Women’s Enterprise Fund BCG: Boston Consulting Group BED: Board of Executive Directors of IDB IDBSTATCAP: IDB Statistical Capacity Building Initiative PCRs: RLs: Reverse Linkages BoG: Board of Governors of IDB IFIs: International Financial Institutions SAO: Special Assistance Operations CEWs Country Economic Works IFP: Islamic Finance Primer SESRIC: CGOs: Country Gateway Offices IFSB: Islamic Financial Services Board CIBAFI: Council of Islamic Banks and Financial Institutions IIRA: Islamic International Rating Agency Statistical, Economic and Social Research and Training Centre for Islamic Countries IRTI: Islamic Research and Training Institute SFD: Saudi Fund for Development SMEs: Small and Medium Enterprises UN Special Program for the Economies of Central Asia CIS: Commonwealth of Independent States COMCEC: OIC Standing Committee for Economic and Commercial Cooperation ID: Islamic Dinar (equivalent to one Special Drawing Right of IMF) IDB: Islamic Development Bank IDBG Islamic Development Bank Group ISFD: Islamic Solidarity Fund for Development SPECA: ITAP: Investment Promotion Technical Assistance Program TA: Technical Assistance of IDB TCP: Technical Cooperation Program CUC: Cumulative Undisbursed Commitments ITFC: TCPP: DFID: UK Department for International Development International Islamic Trade Finance Corporation Trade Promotion and Cooperation Program ITFO: Import Trade Financing Operations of IDB TVET: Technical Vocational Education and Training IWAH: International Waqf Advisory House UIF: Unit Investment Fund KAUST: King Abdullah University for Science and Technology W4D: Waqf for Development Project WB: World Bank Kuwait Fund for Arab Economic Development WIEF: World Islamic Economic Forum WWF: World Waqf Foundation e4e: Education for Employment EIB: European Investment Bank ESP: Education Sector Policy EU: European Union EVD: Ebola Virus Disease FAWE: Forum for African Women Educationists KMIP: Knowledge Management and Innovation Program GCC: Gulf Cooperation Council LDMCs: GIAD: Group Internal Audit Department Least Developed Member Countries GIO: Group Integrity Office MCPS: Member Country Partnership Strategy GOED: Group Operations Evaluation Department MCs: Member Countries of the Islamic Development Bank GPE: Global Partnership for Education MDBs: Multilateral Development Banks 06 | IDB Annual Report 1435H (2014) KFAED: This Annual Report 1435H (2014) was prepared by the Economic Research and Policy Department in the Chief Economist Complex of the Islamic Development Bank under the overall guidance of the Board of Executive Directors. All Departments and Entities: The Annual Report Coordination Committee acknowledges the contributions and comments received from all the Departments and Entities in the IDB Group during the preparation of the Report. Chairman of the Annual Report Coordination Committee: Dr. Jamel Zarrouk, Chief Economist. Annual Report Coordinator: Dr. Abdullateef Bello, Director, Economic Research and Policy Department. Data, Tables, and Graphs Team: Abu Camara, Mohamed El-Goussi, and Abdul Rashid, Data Resources and Statistics Division. Finance Team: Aboubakr Kairy Barry, Director, Financial Control Department; Mohamed Zaffarulla Sathar, Manager, Dues & Accounting Division. Arabic and French Translation: Momodou Lamin Yaffa, Manager, Language Services Division. Printing Team: Khaled Nazer, Bank Secretariat; Muhammad Farooq, Administrative Services Department. SYMBOLS: .. Not Available - Not Computable $ United States Dollar ID Islamic Dinar IDB Annual Report 1435H (2014) | 07
7. MESSAGE FROM THE PRESIDENT In the Name of Allah , the Beneficent, the Merciful H.E. The Chairman, Board of Governors of the Islamic Development Bank Dear Mr. Chairman, Assalamu alaikum warahmatullahi wabarakatuhu In accordance with Articles 32(i), 32(iii) and 41(1) of the Articles of Agreement establishing the Islamic Development Bank and Section (11) of the By-laws, I have the honour to submit for the kind attention of the esteemed Board of Governors, on behalf of the Board of Executive Directors, the Annual Report on the operations and activities of the Bank in 1435H (2014). The Annual Report also includes the audited financial statements of the Bank as well as those of the operations of the Waqf Fund, as prescribed in Section (13) of the By-laws. Please accept, Mr. Chairman, the assurances of my highest consideration. Dr. Ahmad Mohamed Ali President, Islamic Development Bank and Chairman, Board of Executive Directors 08 | IDB Annual Report 1435H (2014) 1435H (2014) was a historical year for the Islamic Development Bank as it celebrated its 40th anniversary, Not President, which was graced with the presence placeholder only of His Majesty, King Salman bin Abdul Aziz. The occasion offered a unique opportunity to listen to and learn from the Bank’s stakeholders and beneficiaries regarding their experiences with and expectations from the Bank’s work in various sectors as well as to benefit from their suggestions on the way forward. I take this opportunity to thank all our member countries and development partners for their continuous support for the Bank and its activities. The past year was also a momentous year for the Bank as it launched three landmark initiatives. First, a retrospective assessment of the performance of the IDB Group was undertaken with a focus on its evolution, achievements, challenges and opportunities. The assessment identified the strengths of the Group and areas for improvement. Second, a new Ten-Year Strategy Framework was developed and endorsed by the IDB Board of Governors. The Strategy, which has five pillars -- economic and social infrastructure, private sector development, inclusive social development, cooperation among member countries, Islamic financial sector development, plus a cross-cutting one (capacity development), was designed to position the IDB Group as a value-added partner in the socio-economic development of its member countries. In order to implement the strategy, the IDB Group has developed institutional performance indicators and result-based targets for short and long-term actions. Third, with a rapidly changing development landscape, member countries are, more than ever before, confronted with unprecedented challenges -- such as volatile oil prices, youth unemployment, political instability, and disease -which require coordination and timely intervention. A few months ago, for instance, the Ebola crisis was the focus of major international conferences and country emergency plans. The crisis caught everyone by surprise and its effect and scale surpassed the capacity of the countries affected. The IDB Group spared no effort to mobilize resources from philanthropists and civil society to support the member countries concerned. Some lessons have been learnt from the crisis, which, I believe, will go a long way toward preparing us to tackle similar epidemic outbreaks in the future. Despite the difficult external environment in which it operates, I am pleased to report that the IDB Group recorded an impressive growth in net approvals of 11.7 percent from US$9.7 billion in 1434H to US$10.9 billion in 1435H. Analysis of the Bank’s allocation of its ordinary capital resources and other development assistance activities and achievements is presented in Chapter 2 of this report. As 2015 is a year of major events during which the conclusion of new international agreements are expected on sustainable development goals (SDGs), climate change deal to reduce carbon emissions, and global trade, I am confident that progress will be made on all these fronts. The IDB Group is ready to work with its development partners to support the efforts of its member countries to achieve the objectives of these important events. Since the pillars of the IDB Group’s strategy are consistent with the SDGs, I strongly believe that Islamic finance can play an important role in financing their implementation. It is high time to explore and exploit the potential of Islamic finance for SDGs as we transition to a new era. Dr. Ahmad Mohamed Ali President of the Islamic Development Bank and Chairman of the Board of Executive Directors, IDB Annual Report 1435H (2014) | 09
8. | BOARD OF THE EXECTIVE DIRECTORS BOARD OF THE EXECUTIVE DIRECTORS Hon. Dr Ahmad Mohamed Ali Hon. Ibrahim Halil Canakci President, IDB Group and Chairman, Board of Executive Directors Hon. Dr.Hamad Bin Suleiman Al Bazai Hon. Bader Abdullah Abuaziza (Saudi Arabia) (Libya) Hon. Ali Hamdan Ahmed Hon. Ismail Omar Al Dafa (UAE) (Qatar) 10 | IDB Annual Report 1435H (2014) Hon. Mohammad Parizi (Iran) Hon. Zeinhom Zahran (Egypt) Hon. Isa Rachmatarwata (Turkey) (Indonesia, Malaysia, Brunei Darussalam and Suriname) Hon. Mohammed Gambo Shuaibu Hon. Dr. Mohamed Ahmed Hassan Al-Afandi Hon. Mrs. Zourehatou Kassah -Traore (Nigeria) (Yemen, Sudan, Oman and Bahrain) (Senegal, Burkina Faso, Mali, Niger, Gambia and Togo) Hon. Bader Mishari Al Hammad (Kuwait) Hon. Mohammad Saleem Sethi Hon. Mohamed Zemmouri (Pakistan, Bangladesh, Afghanistan and Maldives) (Algeria, Morocco, Mauritania and Tunisia) Hon. Dr. Hisham Alshaar Hon. Dr. Zul Kifl Salami (Jordan, Iraq, Palestine, Syria and Lebanon) (Cameroon, Guinea, Sierra Leone, Benin, Côte d’Ivoire and Guinea-Bissau) Hon. Ulan Aiylchiev Hon. Abdirahman Sharif (Kazakhstan, Azerbaijan, Kyrgyz Republic, Tajikistan, Uzbekistan, Albania and Turkmenistan) (Gabon, Mozambique, Uganda, Comoros, Chad, Somalia and Djibouti) IDB Annual Report 1435H (2014) | 11
9. | 40 YEARS OF DEDICATED SERVICE GOblfk6isO1 40 YEARS OF DEDICATED SERVICE 40 ANS D’EFFORTS SOUTENUS Photos of the 39th Annual Meeting of IDB Group and the Celebration of the 40th Anniversary of IDB TESTIMONIALS “Our country, from which the great Islamic message came out, is very happy to host the first meeting of Finance Ministers of Islamic Countries, which aims to achieve a significant progress toward the attainment of Islamic solidarity. Through the realization of such solidarity, our Islamic Ummah can only fulfill its aspirations toward achieving progress and prosperity.” His Majesty Late King Faisal bin Abdulaziz Al Saud “We thank the President of the Islamic Development Bank Group, Dr. Ahmad Mohamed Ali and the Bank’s staff members for their efforts in supporting the development of member countries, and we wish them success in their mission.” Above: Invited dignitaries with His Majesty King Salman Bin Abdulaziz on the celebration of the 40th Anniversary in Jeddah, KSA. Custodian of the Two Holy Mosques Late King Abdullah bin Abdulaziz Al Saud “Since the beginning, Turkey has been among the most important partners of IDB. On the other hand, Turkey is also one of the countries to benefit from the advantages of the bank very well. Turkey has that capacity. Sometimes you cannot find a place to put the funds to good use. Turkey has become stronger especially with the economic reforms which were enforced for the last ten years. The Islamic Development Bank has paved the way for interest-free financial institutions to gain recognition in the world.” H.E. President Abdullah Gul, Former President of the Republic of Turkey “You have been working very closely with the United Nations on water issues, food crisis issues, also gender empowerment, sanitation and global health issues, and climate change. All of these are important areas where the United Nations and the Islamic Development Bank have been working very closely together.” H.E. Ban Ki-moon, UN Secretary General H.M. King Salman decorated IDB Group President with King Abdulaziz Sash Second Class (as conferred by the Custodian of the Two Holy Mosques) 12 | IDB Annual Report 1435H (2014) IDB Annual Report 1435H (2014) | 13
10. | 40 YEARS OF DEDICATED SERVICE Right: A happy young Anastasia Sompougdou (from Burkina Faso) who was blind at birth because she was born with cataracts in both eyes but she regained her sight back through IDB’s partnership programme “Alliance to Fight Avoidable Blindness”. She graced the 40th Anniversary with a message of “merci” (Thank you). TESTIMONIALS Below: Children carrying flags of the 56 member countries singing and dancing during the anniversary celebration. “We commend the IDB Group Boards Members, management and staff for the major achievements in the course of the past 40 years that have acquired the Group a prestigious place on the world’s socio-economic development map. Kingdom of Saudi Arabia and other member countries are proud of the Bank’s progress, high volume of its activities, diversity of its operations, flexibility of its mechanisms and its transformation into a constellation of institutions working in various development fields.” H.E. Dr. Ibrahim Abdulaziz Al-Assaf, Chairman of IDB Board of Governors, Minister of Finance, Kingdom of Saudi Arabia “We should be delighted with the performance of the Bank over the last 40 years.” H.E. Dr. Hamid Al-Ghabid, Former Secretary General of OIC “I am enthusiastic about our collaboration with the Islamic Development Bank. The Bank’s innovative approach to financing is helping to address some of the world’s most pressing health and development challenges, including the urgent need to end polio forever.” H.E. Bill Gates, Co-founder Melinda & Bill Gates Foundation “Islamic Development Bank has had a significant impact on its member countries. It has enhanced the economic and financial linkages between the member countries. Also, it has supported and facilitated the development of the financial infrastructure, in particular for Islamic finance, in the member countries.” H.E. Dr. Zeti Akhtar Aziz, Governor of Bank Negara Malaysia 14 | IDB Annual Report 1435H (2014) IDB Annual Report 1435H (2014) | 15
11. A YEAR IN REVIEW | EXECUTIVE SUMMARY EXECUTIVE SUMMARY A year in review 1435H (2014) was a challenging year for the global economy after six years of slow and uneven recovery which was a reflection of various country-specific conditions. The challenges of increasing and fragile geopolitical tensions, volatile commodity prices, high youth unemployment, macroeconomic imbalances, widening income inequality, sluggish private sector growth and outbreaks of epidemic diseases, especially Ebola, affected many IDB member countries. Against this backdrop, member countries’ development needs have increased considerably. In order to respond to these needs, the IDB Group in 1435H recorded an impressive net approvals of ID7.1 billion (US$10.9 billion), representing an increase of 11.7 percent over the previous year. Of this total, the IDB Ordinary Capital Resources (OCR) and ITFC operations accounted for 47.0 percent and 47.3 percent respectively, followed by ICD for 4.5 percent with other funds (APIF and UIF) accounting for 0.6 percent each and Special Assistance operations for 0.1 percent. In terms of growth, the highest was ICD at 33.8 percent, followed by OCR at 20.7 percent and ITFC at 4 percent. UIF and APIF declined by 34.3 percent and 23.8 percent respectively. At the regional level, the largest allocation in 1435H went to the Middle East and North Africa member countries amounting to ID3.2 billion ($4.8 billion), followed by the Asian member countries with ID1.8 billion ($2.7 billion), Sub-Saharan Africa (SSA) with ID1.7 billion ($2.6 billion), and the Commonwealth of Independent States (CIS) with ID390.2 million ($592.6 million). The top five recipients of IDB Group financing in 1435H were Egypt, which received 18.9 percent or ID1.3 billion ($2.1 billion), followed by Bangladesh with 17.1 percent or ID 1.2 billion ($1.9 billion), Morocco at 7.3 percent or ID519.8 million ($795.3 million), Pakistan at 6.7 percent or ID476 million ($729.0 million) and Turkey with 4.4 percent or ID313.7 million ($482.2 million). During the period (1396H -1435H), 7,613 projects and operations were approved by the IDB Group for a total amount of ID70.1 billion ($101.7 billion). This amount excluded the ICIEC’s cumulative insurance commitments of ID15.6 billion ($23.8 billion) and business insurance operations of ID14.6 billion ($22.2 billion). Of the Group 16 | IDB Annual Report 1435H (2014) approvals (less ICIEC’s activities), the IDB-OCR accounted for 41.8 percent, ITFC 23.1 percent, and ICD 2.7 percent. Others including pre-ITFC trade financing accounted for 29.1 percent, UIF 2.2 percent, APIF 0.4 percent and Special Assistance operations 0.7 percent. The Group disbursements totaled ID3.5 billion ($5.2 billion) in 1435H compared with the repayments of ID2.6 billion ($3.8 billion). Since inception up to the end of 1435H, Group’s total disbursements reached ID46.2 billion ($66.7 billion) while repayments totaled ID34.5 billion ($49.5 billion) resulting in net resource transfer of ID11.7 billion ($17.2 billion). THE IDB GROUP IN 1435H RECORDED AN IMPRESSIVE NET APPROVALS OF ID7.1 BILLION ($10.9 BILLION), REPRESENTING AN INCREASE OF % 11.7 THE MAJOR INITIATIVES OF THE IDB GROUP IN 1435H WERE: • 40 Years Assessment Study: The Group undertook a major retrospective assessment of its performance. Led by the leading US-based management consultants, Boston Consulting Group (BCG), the assessment revealed that the Group had shown impressive growth in membership, capital, and operations as well as having undergone significant transformation with a view to serving its mandate better. The study identified three stages of the Group’s evolution and development from the operational growth perspective. These stages were Start-up Stage – (1395H-1410H) (1975-1990); Ramp-up Stage – (1410H-1422H) (1990-2001); and Acceleration Stage – (1422H-1434H) (2001-2013). It also documented the key strengths and uniqueness of the Group as well as the challenges it has faced and the implications of those challenges for its Ten Years Strategy, which the BCG also drafted. • Capital Increase: After the historical resolution by the IDB Board of Governors at its 38th Annual Meeting held on 11-12 Rajab 1434H (21-22 May 2013) in Dushanbe, Tajikistan to increase the Bank’s Authorized Capital to ID100 billion and the issued capital to ID50 billion, 98.6 percent of the amount has so far been subscribed by the member countries. • Resource mobilization: Four series of Trust certificates (sukuk) under its updated Medium Term Note (MTN) program were issued, of which two series were via benchmark issuances of $1.5 billion each, while the two others were through private placement. All the issuances were oversubscribed and also witnessed the participation of new high quality investors, which manifested the acceptance of IDB credit in the global fixed income space. The IDB’s sukuk, apart from being listed on the London Stock Exchange, are also listed on the member country securities exchange including Bursa Malaysia (Exempt Regime), Nasdaq Dubai and Borsa Istanbul. COMMONWEALTH OF INDEPENDENT STATES (CIS) ID390.2 MILLION ($592.6 MILLION) REGIONAL LEVEL ALLOCATION IN 1435H MIDDLE EAST AND NORTH AFRICA MEMBER COUNTRIES ID3.2 BILLION ($4.8 BILLION) SUB-SAHARAN AFRICA (SSA) ID1.7 BILLION ($2.6 BILLION) ASIAN MEMBER COUNTRIES ID1.8 BILLION ($2.7 BILLION) IDB Annual Report 1435H (2014) | 17
12. EXECUTIVE SUMMARY | A YEAR IN REVIEW A YEAR IN REVIEW | EXECUTIVE SUMMARY • Member Country Partnership Strategy (MCPS): MCPSs were launched for six countries. That of Chad and Benin were finalized during the year while those of Egypt, Iran, Uzbekistan and Yemen are at various stages of preparation. Cumulatively, the IDB Group has completed 17 MCPSs which are under active implementation while five others are at various stages of preparation. Country Economic Work for Chad was completed while those of Iran, Mali and Niger have been initiated. The Mid-Term Review (MTR) of MCPSs for Pakistan, Uganda, Kuwait, and Kazakhstan was conducted. • Credit Ratings: Three entities of IDB Group (IDB, ICIEC and ICD) have been rated by either one or all of the top three international agencies – Standard & Poor’s, Moody’s and Fitch Ratings. Since 2002, the IDB has maintained the highest credit ratings of “AAA” from Standard & Poor’s, Moody’s and Fitch Ratings with a stand-alone credit rating among the highest of Multilateral Lending Institutions. Similarly, since June 2008, the ICIEC has been granted Aa3 rating by Moody’s, which has placed it at par with major insurers of credit and political risk in the global arena. For the first time, the ICD was assigned AA by Fitch’s credit rating with a Stable Outlook and a Short-term IDR of ‘F1+’. Fitch noted that ICD’s ratings are driven by support from key shareholders Islamic Development Bank (IDB, AAA/Stable) and the Kingdom of Saudi Arabia (AA/Stable), which owned 46.7 percent and 18.7 percent, respectively, of paid-in capital as of end-October 2014. The achievements of the Bank in key economic sectors of member countries in 1435H were: • Infrastructure received the largest share of IDB-OCR at 83 percent or ID2.8 billion ($4.2 billion), followed by agriculture at 8 percent, education 4.5 percent, health 3.0 percent, and other sectors, including finance, at 1.5 percent. THE TOP FIVE RECIPIENTS OF IDB GROUP FINANCING IN 1435H 4.4% TURKEY 6.7% PAKISTAN 7.3% MOROCCO ID313.7 MILLION ID476 MILLION ID519.8 MILLION ($482.2 MILLION) ($729.0 MILLION) ($795.3 MILLION) 18 | IDB Annual Report 1435H (2014) 17.1% BANGLADESH ID1.2 BILLION ($1.9 BILLION) 18.9% EGYPT ID1.3 BILLION ($2.1 BILLION) • Within infrastructure, the energy sector accounted for the largest allocation of financing at 44.9 percent, followed by transportation at 33 percent, water and sanitation at 16.1 percent, industry and mining at 5 percent, and information and communication at 1 percent. • In education, 31 operations were approved for an amount of ID148.2 million ($227.7 million). – The largest project approved in education sector was the support for bilingual education in six states of Nigeria which provides an opportunity in bilingual education for Almajiri (itinerant Koranic students). – Under its education for employment (e4e) initiative, Yemen is a beneficiary of $4.6 million which is implemented jointly with the IFC, from the Transition Fund under the Deauville Partnership. – With the Global Partnership for Education (GPE), the Bank is piloting its Triple Win innovative financing mechanism in the education sector. • Seventeen health sector operations were approved for ID100.8 million ($153.8 million) covering various aspects of national health system. Growth in health sector financing in 1435H grew impressively by 72 percent over the previous year. • On the Ebola crisis, the Bank has approved an emergency assistance grant of $600,000 to support Guinea and Sierra Leone as well as a $10 million grant through ISFD as seed financing to attract philanthropists and non-governmental organizations of the projects ($2 billion), with IDB contributing 40 percent ($800 million). to contribute resources for Ebola Virus Disease. It has also extended a financing facility to Guinea amounting to $34 million to strengthen its health system, of which $6 million is earmarked for the Ebola control efforts. • Seventeen transportation sector projects were approved for ID909.5 million ($1.4 billion) with the majority of the financing benefiting six African member countries • Ten urban development operations were approved for an amount of $479 million benefiting Bahrain, Iran, Côte d’Ivoire, Lebanon, Mali, Senegal and Nigeria. • Thirty agriculture operations were approved for ID269.3 million ($406.4 million) compared to ID471.9 million ($714.0 million) a year earlier. The low approvals were due to non-acceptance of financing terms and conditions by beneficiaries; high country exposure; and/or high Cumulative Undisbursed Commitments (CUC). • Sixty-three operations were approved under the Technical Cooperation Program (TCP) for an amount of $1.5 million, out of which 15 were regional operations benefiting 25 member countries. • Sixteen projects were co-financed in 14 member countries with other development partners. Of these, eight projects in seven countries were with the Coordination Group, which collectively provided about $1 billion of financing, equivalent to 50 percent of the total cost With the Global Partnership for Education (GPE), the Bank is piloting its Triple Win innovative financing mechanism in the education sector • A total of 381 students benefited from the Scholarship Program for Muslim Communities in nonmember countries, bringing the total beneficiaries from the inception of the program in 1404H (1983) to 13,170 students. • Fifty students were granted the M.Sc. Scholarship Program in Science and Technology for the Least Developed Member Countries, bringing the cumulative number of beneficiaries since the inception of the program in 1419H (1998) to 560 students. • One hundred scholars received the Merit Scholarship Program for High Technology for member countries. • Eight operations under the NGO and Women Empowerment Program were approved for a total amount of $450,000 for Burkina Faso, Kuwait, Kyrgyz, Senegal, Uganda, Yemen, and regional projects for Arab countries (North Africa and Gulf regions). The 12th IDB Prizes for Science & Technology were awarded to (i) The Institute for Research and Community Services, Institute Teknologi Bandung, Indonesia (ii) Photonic Research Centre, University of Malaya, Malaysia and (iii) Faculty of Information Technology, the Islamic University of Gaza, Palestine. IDB Annual Report 1435H (2014) | 19
13. EXECUTIVE SUMMARY | A YEAR IN REVIEW The 9th IDB Prize for Women’s Contribution to Development, was devoted to “Women’s Contribution to Food Security”. The Individual category was equally shared by Mrs. Jahan Selina (Bangladesh) and Mrs. Fatima Ayat Mosa (Morocco) while the Organisation category was shared by the Association des Femmes de l’Afrique de l’Ouest (AFAO) of Senegal and the Bright Generation Community Foundation (Ghana). Since the inception of the Prize in 2006, a total of 33 laureates have been selected from 22 countries. The IDB Reverse Linkage initiated and piloted several new projects including water quality treatment between Burkina Faso and Morocco; artificial insemination of livestock between the Kyrgyz Republic and Indonesia; rice production between Brunei and Malaysia, and eye-care treatment between Niger and Turkey. Indonesia has become the first country to have included a budget allocation of $2 million specifically for use in IDB’s Reverse Linkage projects. Of this amount, Indonesia has confirmed an allocation of $940,000 for the approved Reverse Linkage project with Kyrgyz Republic while the remaining amount of $1.06 million is being earmarked for two other Reverse Linkage projects with Senegal and Mozambique. The Bank celebrated its 40th Anniversary under the auspices of the Custodian of the two Holy Mosques, Late King Abdullah Bin Abdulaziz. The Anniversary coincided with the 39th Annual Meeting of the Board of Governors (BoG) who took the following key decisions during their meeting: 20 | IDB Annual Report 1435H (2014) A YEAR IN REVIEW | EXECUTIVE SUMMARY • Directed the Board of Executive Directors to transform the Ten Years Strategy Framework into a detailed strategy with action plans, concrete implementation mechanisms, and specific timelines 30 AGRICULTURE OPERATIONS WERE APPROVED FOR ID269.3 MILLION ($406.4 MILLION) 17 TRANSPORTATION SECTOR PROJECTS WERE APROVED FOR ID909.5 MILLION ($1.4 BILLION) • Re-elected Dr. Ahmad Mohamed Ali as President of the IDB for a new five-year term • Elected a new Board of Executive Directors for a three year-term • Selected Indonesia, Tunisia, Morocco and UAE to host the Bank’s Annual Meetings in 1437H, 1439H, 1440H and 1442H respectively (while the annual meetings of 1438H and 1441H will be held in Jeddah). The Board of Executive Directors (BED) in their deliberations in 1435H approved 91 projects and adopted 137 resolutions on financing, policy, and administrative matters. Some of the important items deliberated upon were the IDB Group Business Travel Policy, revision of the ceiling of the loan service fee, empowerment of Regional Offices, and extension of term of office for the Vice Presidents. Twenty-three ordinary projects were post-evaluated in 1435H corresponding to 31 operations in addition to one ICD project, bringing the total evaluated projects to 24 (or 32 operations). A cluster of Special Assistance operations in one non-member country was also evaluated along with the review and validation of 8 Project Completion Reports (PCRs). Two audit-related IT systems are being implemented by the Bank namely: (i) TeamMate Audit Management Software, which improves and streamlines the auditing process, procedures and recording of audit working papers within GIAD, and (ii) Audit Command Language (ACL) data analytic Software, which allows the auditors to perform data mining and analytics. A new zero tolerance policy on combating corrupt and fraudulent practices and ensuring overall commitment to integrity and high ethical standards has been put in place. These are the Speak-Up Hotline and Web Reporting System. These initiatives allow individuals to report suspected incidences of corrupt and fraudulent practices in IDB Group financed activities. The Hotline is open 24/7 and in over 175 languages while the Web Reporting System provides anonymous, web-based incident reporting in up to 45 languages and can be accessed at integrity.isdb.org. A new Group’s Ten Years Strategy Framework was approved by the Board of Governors. It comprises three strategic objectives (inclusiveness, connectivity and Islamic financial sector growth), five pillars or priority areas, and one cross-cutting theme. It also incorporates seven guiding principles for implementation. Under its ambitious Group Business Enhancement and Systems Transformation Program (GBEST Program), several solutions have been delivered for live use in all business areas of IDB Group such as Funds Management, Cash Management, Bank Communication Management, Employee and Manager Self Services, Budget Planning and Consolidation, Scholarship Management, Treasury and Investment, Operations Financing and Travel Management. Work is in progress to complete the remaining solutions of Operations Management, Risk Management, Enterprise Content Management and Business Intelligence & Analytics. The one-year special Knowledge Management and Innovation Program (KMIP) undertook a number of initiatives including (i) a roadmap for KMI for the period Q2-1435H to Q1-1436H, (ii) a KM Strategy was endorsed by the Group Management, (iii) Knowledge products taxonomy was developed and a database of knowledge products publications in IDB Group was designed, and (iv) the reactivation of two Communities of Practice – Islamic Finance and Infrastructure. The total workforce of the IDB Group reached 1,144 staff by the end of 1435H comprising nine management, 57 directors, 61 managers, 636 professionals, 139 para-professionals and 242 support staff. Twelve Young Professionals were recruited during the year under review. Furthermore, the Bank has conducted a 360-degree feedback and executive coaching for all members of the Management, Directors and Managers to help promote leadership effectiveness. It has also launched a Talent Management System with the implementation of a Learning Management Module as well as eLearning which gives 24/7 access to more than 250 online courses in Leadership and Functional Tracks. IDB Annual Report 1435H (2014) | 21
14. | IDB IN NUMBERS IDB IN NUMBERS 2100 18000 THE PRESENT MEMBERSHIP OF THE BANK CONSISTS OF 2000 IDB-OCR 41.8% 56 COUNTRIES 1900 PRE-ITFC TRADE FINANCING 29.1% KAZAKHSTAN 17000 ITFC 23.1% ICD 2.7% UZBEKISTAN 1800 1700 1600 AZERBAIJAN ALBANIA SPECIAL ASSISTANCE OPERATIONS 0.7% TURKEY TURKMENISTAN TUNISIA TAJIKISTAN APIF 0.4% IRAN PALESTINE 15000 GROUP APPROVALS (LESS ICIEC’S ACTIVITIES) SYRIA LEBANON MOROCCO 16000 UIF 2.2% KYRGYZ REPUBLIC OPERATING COUNTRIES FALL WITHIN FOUR IDB REGIONAL GROUPINGS: MENA ASIA SSA CIS 14000 AFGHANISTAN IRAQ ALGERIA JORDAN LIBYA PAKISTAN KUWAIT 1500 13000 BAHRAIN EGYPT SAUDI ARABIA 1400 QATAR U.A.E BANGLADESH 12000 JEDDAH MAURITANIA OMAN MALI 1300 11000 NIGER SENEGAL 1100 YEMEN SUDAN BURKINA FASO DJIBOUTI GUINEA BENIN SIERRA LEONE 10000 NIGERIA CÔTE D'IVOIRE TOGO BRUNEI SURINAME CAMEROON 1000 MALDIVES 9000 MALAYSIA SOMALIA UGANDA 900 8000 GABON INDONESIA 7000 800 700 6000 COMOROS TOTAL IDB GROUP NET APPROVALS IN 1435H 600 CUMULATIVE IDB GROUP NET APPROVALS (1396H-1435H) (1976-2014)* MOZAMBIQUE $10.9 BILLION 500 5000 $101.7 BILLION 4000 400 3000 300 2000 200 Treasury operations which are reported in previous Annual Reports of the Bank were removed from this year Annual Report due to change in data classification in accordance with the Bank’s Liquidity Risk Management Guidelines. 100 1000 * Cut-off date for data reported here was 30 Dhul-Hijja 1435H (24 October 2014). Source: IDB. 0 IDB Group Net Approvals in 1435H 22 | IDB Annual Report 1435H (2014) Bangladesh Egypt Pakistan Iran Turkey Morocco Indonesia Saudi Arabia Jordan Algeria Tunisia Sudan Bahrain Kuwait Uzbekistan Senegal Lebanon Azerbaijan Mauritania Kazakhstan Syria Yemen Burkina Faso Malaysia Mali Nigeria Libya U.A.E. Chad Oman Cameroon Côte d'Ivoire Gambia Uganda Iraq Niger Benin Albania Gabon Qatar Guinea Turkmenistan Djibouti Maldives Tajikistan Sierra Leone Togo Kyrgyz Republic Palestine Suriname Mozambique Brunei Somalia Afghanistan Comoros Guinea-Bissau Turkmenistan Libya Qatar Sudan Gabon Albania Guinea-Bissau Iraq Afghanistan Brunei Syria Somalia Malaysia Maldives Palestine Tajikistan Iran Algeria Yemen Comoros Kazakhstan Mozambique Togo U.A.E. Djibouti Sierra Leone Kyrgyz Republic Gambia Bahrain Indonesia Guinea Suriname Mali Niger Côte d'Ivoire Kuwait Chad Mauritania Benin Oman Jordan Uganda Lebanon Azerbaijan Cameroon Tunisia Uzbekistan Saudi Arabia Burkina Faso Turkey Nigeria Senegal Pakistan Morocco Egypt Bangladesh 0 Cumulative IDB Group Net Approvals (1396H-1435H) (1976-2014) IDB Annual Report 1435H (2014) | 23 $ Million GUINEA-BISSAU $ Million CHAD GAMBIA 1200
15. | IDB IN NUMBERS IDB IN NUMBERS 98.6% 83% IN 1435H, INCREASED THE BANK’S AUTHORIZED CAPITAL TO ID100 BILLION MOROCCO ID519.8 MILLION ($795.3 MILLION) AND THE ISSUED CAPITAL TO INFRASTRUCTURE RECEIVED THE LARGEST SHARE OF IDB-OCR ID50 BILLION 7.3% 11% GROWTH 6.7% 3% G 75 he dev stud elo y pm RO STAR W TH 1395H- T-UP 141 S 0H TA (19 G T 4.4% TURKEY ID313.7 MILLION ($482.2 MILLION) 2H (1990-2 H-142 001 410 ) 1 AC 1 e g s a t C o ) s f t e h e E 990 ed thr e operationa e Grou 422H l gro p’ fi m th i -1 t wt s e en ro hp v id nt f e e T P 96H -1435H), 7,613 PROJE CTS AN D OP ER AT I 40 YEARS ASSESSMENT STUDY: THE GROUP UNDERTOOK A MAJOR RETROSPECTIVE ASSESSMENT OF ITS PERFORMANCE O W DU S RI G HE ER (13 IOD N N ID70.1 BILLION ($101.7 BILLION) TH OW E GR STAG % ION 2013) 13 AT 0012 ER 4H ( nd EL 143 na tio tive. olu pec rs PAKISTAN ID476 MILLION ($729.0 MILLION) -UP STAGE RAMP TRANSPORTATION INDUSTRY AND MINING 44.9% 33% 5% 31 OPERATIONS WERE APPROVED FOR AN AMOUNT OF ID148.2 MILLION ($227.7 MILLION) ER EA PP VED E IDB GROUP BY TH PROJECTS AND OPERATIONS ICIEC AAA IDB SEVENTEEN HEALTH SECTOR OPERATIONS WERE APPROVED FOR ID100.8 MILLION ($153.8 MILLION) COVERING VARIOUS ASPECTS OF NATIONAL HEALTH SYSTEM AA 24 | IDB Annual Report 1435H (2014) BENIN CHAD EGYPT CREDIT RATINGS IN 1435H, THREE ENTITIES OF IDB GROUP (IDB, ICIEC AND ICD) HAVE BEEN RATED BY EITHER ONE OR ALL OF THE TOP THREE INTERNATIONAL AGENCIES IRAN UZBEKISTAN 10 URBAN DEVELOPMENT OPERATIONS WERE APPROVED FOR AN AMOUNT OF $479 MILLION GROWTH IN HEALTH SECTOR FINANCING IN 1435H GREW IMPRESSIVELY BY 72% OVER THE PREVIOUS YEAR. ICD 30 AGRICULTURE OPERATIONS WERE APPROVED FOR ID269.3 MILLION ($406.4 MILLION) 17 MEMBER COUNTRY PARTNERSHIP STRATEGY MCPSs WERE LAUNCHED FOR SIX COUNTRIES. THAT OF CHAD AND BENIN WERE FINALIZED DURING THE YEAR WHILE THOSE OF EGYPT, IRAN, UZBEKISTAN AND YEMEN ARE AT VARIOUS STAGES OF PREPARATION 3% HEALTH 17 RO 7,613 AA3 EDUCATION 16.1% WITHIN INFRASTRUCTURE, THE ENERGY SECTOR ACCOUNTED FOR THE LARGEST ALLOCATION OF FINANCING AT IN EDUCATION 4.5% WATER AND SANITATION OTHER CAPITAL INCREASE 8% AGRICULTURE 1% BANGLADESH ID1.2 BILLION ($1.9 BILLION) INFORMATION & COMMUNICATION 18.9% 17.1% EGYPT ID1.3 BILLION ($2.1 BILLION) THE ACHIEVEMENTS OF THE BANK IN KEY ECONOMIC SECTORS OF MEMBER COUNTRIES IN 1435H OF THE AMOUNT HAS SO FAR BEEN SUBSCRIBED BY THE MEMBER COUNTRIES 1.5% THE TOP FIVE RECIPIENTS OF IDB GROUP FINANCING IN 1435H YEMEN SEVENTEEN TRANSPORTATION SECTOR PROJECTS WERE APPROVED FOR ID909.5 MILLION ($1.4 BILLION) 63 OPERATIONS WERE APPROVED UNDER THE TECHNICAL COOPERATION PROGRAM (TCP) FOR AN AMOUNT OF $1.5 MILLION, OUT OF WHICH 15 WERE REGIONAL OPERATIONS BENEFITING 25 MEMBER COUNTRIES. IDB Annual Report 1435H (2014) | 25
16. IDB GROUP IN FOCUS | CHAPTER ONE CHAPTER ONE IDB Group in Focus 3.3% DURING 2014 AND IS EXPECTED TO IMPROVE TO 3.5% BETWEEN 1396H AND 1435H, THE IDB GROUP APPROVED 7,613 PROJECTS THE CHALLENGE IS HOW TO SUSTAIN THE GROWTH MOMENTUM % 26 | IDB Annual Report 1435H (2014) AND OPERATIONS TOTALING ID70.1 BILLION ($101.7 BILLION). VOLATILE COMMODITY PRICES LACKLUSTRE DOMESTIC DEMAND MACROECONOMIC IMBALANCES IN 2015 1.1 SUMMARY OF IDB GROUP 1435H RESULTS After six years of slow recovery, the global economy in 2014 was still weak, uneven, and uncertain. Global growth remained unchanged at 3.31 percent in 2014 and is expected to improve to 3.5 percent in 2015. The pace of recovery has varied widely between advanced countries and emerging and developing countries reflecting various country-specific conditions. The legacies of high debt burdens and persistent unemployment (especially among young people) plus low potential growth still cast a shadow on the economies of advanced countries. On the other hand, the emerging and developing economies, which account for the lion’s share of the global growth, achieved 4.4 percent in 2014 (lower than 5.1 percent in 2012 and 4.7 percent in 2013) and are expected to decline slightly to 4.3 percent in 2015. The challenge is how to sustain the growth momentum in the face of lacklustre domestic demand, increasing geopolitical tensions, fiscal distress, macroeconomic imbalances, decelerated trade growth, low credit growth, sluggish private sector growth, volatile commodity prices, and high unemployment. In addition, deepening regional conflicts and outbreaks of epidemic diseases especially Ebola with substantial spillover effects are posing serious development challenges to many IDB member countries. Against this background, the IDB Group has supported the ever-increasing development needs of its member countries by recording an impressive operational growth of 11.7 percent in 1435H to reach ID7.1 billion ($10.9 billion) from ID6.4 billion ($9.7 billion) in 1434H (Figure 1.1). REGIONAL CONFLICTS AND OUTBREAKS OF EPIDEMIC DISEASES, ESPECIALLY EBOLA, ARE POSING SERIOUS DEVELOPMENT CHALLENGES TO MANY IDB MEMBER COUNTRIES The IDB Ordinary Capital Resources (OCR) and ITFC operations accounted for 47.0 percent and 47.3 percent respectively, followed by ICD 4.5 percent with other funds (APIF and UIF) accounting for 0.6 percent each and Special Assistance operations accounting for 0.1 percent. In terms of growth in net approvals in 1435H, 1 2 Figures are from the IMF World Economic Outlook Update, January 2015. This is based on IDB classification of its 56 member countries into four regions namely MENA, Asia, Sub-Saharan Africa, and Countries in Transition (CIT). To avoid confusion, CIT is replaced in this report with Commonwealth of Independent States (CIS). FIG 1.1 IDB GROUP NET APPROVALS 8 7.1 7 6.4 5.9 6 ID billion GLOBAL ECONOMIC GROWTH REMAINED AT 5 4 4.5 3.9 3 2 1 0 1431H 1432H 1433H 1434H 1435H 0.05 0.04 0.07 0.04 APIF UIF FIG 1.2 NET APPROVALS BY ENTITIES AND FUNDS 4.0 3.5 3.3 3.3 3.0 ID billion The IDB Group undertakes a number of activities that are aimed at promoting inclusive and sustainable development of member countries in particular and the Muslim communities in general. This chapter analyses the Group’s operations, major initiatives during 1435H, and the entities’ activities – ICD, ITFC, ICIEC and IRTI – as well as those of other Funds (mainly ISFD and APIF) and the World Waqf Foundation. 3.3 2.8 2.5 2.0 1.5 1.0 0.5 0.0 0.2 0.3 ITFC IDB-OCR ICD 1434H 1435H ICD registered the highest at 33.8 percent, followed by OCR 20.7 percent and ITFC 4 percent with other funds declining by 34.3 percent for UIF and 23.8 percent for APIF (Figure 1.2). A regional2 breakdown of IDB Group net approvals in 1435H shows that Middle East and North Africa received the lion’s share of ID3.2 billion ($4.8 billion), then Asia ID1.8 billion ($2.7 billion), Sub-Saharan Africa (SSA) ID1.7 billion ($2.6 billion), and Commonwealth IDB Annual Report 1435H (2014) | 27
17. CHAPTER ONE | IDB GROUP IN FOCUS FIG 1.3 TRENDS IN SHARE OF ENTITIES IN TOTAL IDB GROUP NET APPROVALS 100 % 28 | IDB Annual Report 1435H (2014) 3.9 4.5 3.7 59.0 56.1 48.1 43.5 47.0 1431H 1432H 1433H 1434H 1435H Resource mobilization: In order to make more financial resources available to member countries and supplement its own limited resources, the IDB has intensified its 20 ITFC FIG 1.4 TRENDS IN BANK GROUP DISBURSEMENTS AND REPAYMENTS 5 4.3 3.8 3.5 3.3 2.0 1 1434H 1435H rate (11 percent average annual growth in project financing approvals) to better respond to increasing needs. Acceleration Stage – From 1422H to 1434H (2001 – 2013): During this phase, the IDB’s membership base remained stable while approvals witnessed a rapid growth (13 percent annual growth on average in project financing approvals). This increase was mostly driven by a sharp rise in the focus on economic infrastructure, and the need to respond to the global financial and economic crisis. Acknowledging the rapidly changing world, particularly propelled by technology and networking, the Group embarked, in 1426H (2006), on the shaping of a compelling Vision of development together with its member countries. The Vision set the new strategic direction to 1440H (2020), for the Group to remain relevant to its member countries and the Muslim communities in non-member countries, and to continue to champion the development of the Islamic financial sector. Repayments 1434H 1433H 1432H 1431H 1430H 2075 2024 2216 1429H 1428H 1427H 1373 1927 1426H 1425H 1424H 1127 1423H 1422H 1296 1004 1033 896 1419H Ramp up stage 1420H 865 1418H 706 1417H 367 1416H 496 281 1413H 1414H 367 317 157 1410H 1412H 154 1409H 1411H 184 1408H 206 Startup stage 1407H 101 +3% 1000 1415H 11% 1421H 2000 1579 3000 0 4950 3004 3635 4000 3879 +13% 4756 4540 5000 141 Capital Increase: The IDB Board of Governors at its 38th Annual Meeting held on 11-12 Rajab 1434H (21-22 May 2013) in Dushanbe, Tajikistan adopted a resolution to implement the directive of the Extraordinary Islamic Summit held in Makkah Al-Mukarramah on EVOLUTION OF IDB GROUP NET APPROVALS (1395H – 1434H) 1406H 40 Years Assessment Study: The Group undertook a major retrospective assessment of its performance over its 40 years journey. To ensure an impartial assessment, the assessment was outsourced to a reputable consulting firm, the US-based Boston Consulting Group (BCG). The assessment revealed that the Group has grown remarkably in membership, capital, and operations as well as having undergone significant transformation with a view to serving its mandate better. The assessment identified three stages of the Group’s evolution and development from the operational growth perspective (Box 1.1). It also documented the key strengths and uniqueness of the Group as well as the challenges it faced and the implications of those challenges for its Ten Years Strategy, which the BCG also drafted (Box 1.2). 166 1433H Disbursements 1405H 1432H 149 1431H 1404H 0 Ramp-up Stage – From 1410H to 1422H (1990 – 2001): In this stage, the membership base continued expanding and became even more diverse. In order to cope with this, the Group established four Regional Offices in Rabat (Morocco), Kuala Lumpur (Malaysia), Dakar (Senegal) and Almaty (Kazakhstan). The Group stepped up its growth 123 1.9 1403H 2 2.6 2.5 1402H 2.3 149 2.6 1401H 114 3 Start-up Stage – From 1395H to 1410H (1975-1990): During this period, the Group tackled challenges which are common to newly founded institutions and others which were unique to it since it had no comparable precedent to go by. The Bank laid its foundations, set directions, and formulated initial guidelines for its operations. Therefore, and despite the rapid extension of its membership base and the significant increase in its subscribed capital, growth of approvals was moderate (3 percent annual growth in project financing approvals – see the graph below) and activities were mostly focused on economic infrastructure and on industry and mining. 115 4 BOX 1.1: THE IDB GROUP THREE-STAGE EVOLUTION 1400H ICD 79 IDB-OCR 1399H 0 105 The IDB Group embarked in 1435H on some major initiatives which included an assessment of its 40 Years journey, a new Ten Years Strategy, credit rating exercise, resource mobilization, and scaling up of its policy dialogue instrument -- member country partnership strategy (MCPS). A brief overview of the progress made on these initiatives is presented below. 3.2 resource mobilization effort and diversified its strategy. In 1435H, it issued four series of Trust certificates (sukuk) under its updated Medium Term Note (MTN) program, of which two series were via benchmark issuances of $1.5 billion each while the two others were through private placement. The first public issuance was a $1.5 billion deal in March 2014 (Series 16 maturing in March 2019) and the second transaction was another benchmark issuance of $1.5 billion in September 2014 (Series 19 maturing in September 2019). Both issuances were oversubscribed and issued at an improved launch spread of 23 bps and 10 bps respectively above the prevailing By the end of 1435H, the Authorized Capital of the Bank stood at ID100 billion while the issued capital was ID50 billion with 98.6 percent of this amount subscribed by member countries so far. The distribution of the subscribed capital by countries is presented in Annex 4. 1398H 1.2 IDB GROUP MAJOR INITIATIVES 2.4 47.3 50.8 1397H On the Group’s field presence program, progress was made on three key areas: (i) empowerment of Regional Offices, (ii) opening of pilot Country Gateway Offices (CGOs) and (iii) enhancing roles and responsibilities of field representatives (FR). During 1435H, the transformation of administrative, financial and operational aspects was completed for the Regional Offices of Dakar, Almaty and Rabat, and initiated for the Kuala Lumpur Regional Office. The CGOs for Turkey and Indonesia were made operational and progress was made on the establishment of three CGOs in Bangladesh, Egypt, and Nigeria. Also, critical constraints to performance of the FRs, including the need to upgrade their office physical infrastructure, were addressed in order to enhance their effectiveness. The increased field presence of the Group is expected to play a critical role in the effective delivery of the development assistance to member countries. 60 46.9 1396H 16 In 1435H, the IDB Group disbursed a total of ID3.5 billion ($5.2 billion), a decline of 21 percent over the previous year’s. Similarly, the Group repayments amounted to ID2.6 billion ($3.8 billion) in 1435H, a decline of 0.2 percent over the level of 1434H. Since inception up to the end of 1435H, Group disbursements reached ID46.2 billion ($66.7 billion) while repayments totaled ID34.5 billion ($49.5 billion) resulting in a net resource transfer of ID11.7 billion ($17.2 billion) (Figure 1.4). 39.5 40 ID billion Between 1396H and 1435H, the IDB Group approved 7,613 projects and operations totaling ID70.1 billion ($101.7 billion). In addition to this amount, ICIEC’s insurance commitments reached ID15.6 billion ($23.8 billion) and business insurance operations for an amount of ID14.6 billion ($22.2 billion). Of the cumulative Group approvals, the share of IDB-OCR was 41.8 percent, ITFC 23.1 percent, and ICD 2.7 percent. Others including pre-ITFC trade financing accounted for 29.1 percent, UIF 2.2 percent, APIF 0.4 percent and Special Assistance operations 0.7 percent (Figure 1.3). 80 37.0 26-27 Ramadan 1433H. Following that historical resolution, both the authorized and issued capitals of IDB were increased substantially. $ million of Independent States (CIS) ID390.2 million ($592.6 million). The top five beneficiaries of IDB Group approvals in 1435H were Egypt 18.9 percent (ID1.3 billion or $2.1 billion), Bangladesh 17.1 percent (ID 1.2 billion or $1.9 billion), Morocco 7.3 percent (ID519.8 million or $795.3 million), Pakistan 6.7 percent (ID476.0 million or $729.0 million) and Turkey 4.4 percent (ID313.7 million or $482.2 million). IDB GROUP IN FOCUS | CHAPTER ONE Acceleration stage IDB Annual Report 1435H (2014) | 29
18. CHAPTER ONE | IDB GROUP IN FOCUS BOX 1.2 KEY STRENGTHS AND DISTINCTIVENESS OF IDB GROUP BASED ON 40 YEARS ASSESSMENT The identity and the achievements of IDB Group (IDBG) throughout the course of its 40-year journey have enabled it to build key strengths that it can leverage for the next Ten Years strategy. The strengths and uniqueness of IDB Group are: a) Its uniqueness lays in its constituency and its founding principle of South-South solidarity. b) It has a trust-based relationship with member countries (MCs) due to its political neutrality, high integrity and non- conditionality of its support. c) It has a strong financial capacity for resource transfer to MCs, together with the confidence of MCs and rating agencies in its financial stability as reflected in its AAA rating. d) Its leadership and facilitation role in the seeding and expansion of the Islamic financial sector was unique among MDBs as demonstrated by its support to the establishment of global Islamic financial sector institutions and advisory regulatory bodies as well as introduction of new financial products. IDB GROUP IN FOCUS | CHAPTER ONE KEY CHALLENGES AND IMPLICATIONS FOR THE TEN YEARS STRATEGY The challenges facing the IDB Group and their implications are: a) The rapid growth experienced in recent years has increased IDB Group’s scope and scale of interventions in member countries (MCs). This growth needs to be adequately resourced to ensure financial sustainability, enhance the quality of interventions and accelerate implementation. b) While mobilizing additional resources from the market (through sukuk issuance) is a positive achievement, the Bank’s financial model needs to be adjusted to reflect the changes in its capital structure. c) Efforts to mobilize concessional resources have been a step in the right direction, but this needs to be more intensified in order to better serve the neediest populations and achieve the Vision’s aspiration to become a knowledge bank. d) While IDBG’s willingness to meet MCs’ needs has built up strong relationships, it has resulted in a demand-driven model that requires to be sharpened to optimize IDB’s overall impact. e) Its role has been significant in pioneering trade finance and trade promotion with the aim of increasing OIC intra-trade (which has reached 18 percent of total trade as of October 2013) and linking trade to development. e) Given that all MCs are classified as developing countries, IDB Group needs to deepen its efforts in providing innovative solutions and in supporting and strengthening capacity development programs and institutions in its MCs. f) It has gained expertise in areas such as Islamic finance and infrastructure financing, and specific in-depth knowledge of MCs development context, global relationships and extended partnerships base. f) IDB Group needs to enhance its leadership and facilitation role to further promote Islamic financial sector development in the MCs and globally, while introducing innovative products and expanding further the non-banking sector. g) It has accumulated experience in supporting the delivery of services to disadvantaged groups in MCs and muslim communities in non MCs. g) The creation of separate entities and departments, particularly in the private sector and Islamic finance activities, without defining appropriate coordination mechanisms, requires better harmonization in order to realize synergies and maximize potential benefits. h) Decentralization efforts are a positive step, but need to be expanded to increase field presence and effective delivery, paying special attention to processes and cost-benefit considerations. “The identity and the achievements of IDB Group (IDBG) throughout the course of its 40-year journey have enabled it to build key strengths that it can leverage for the next Ten Years strategy.” 30 | IDB Annual Report 1435H (2014) i) The investments in organizational technology infrastructure for data and knowledge and decision support systems should continue to drive corporate transformation. j) There is an opportunity to transform support functions into strategic partners of the business departments. k) The ten-year strategic framework and supporting initiatives are tackling these challenges and reflect IDB Group’s commitment to continue growing, but in a more effective, sustainable, and efficient way. five-year $ mid-swap rate. These global issuances also witnessed participation of new high quality investors which manifested the acceptance of IDB credit in the global fixed income space. In the private placement area, which is more dedicated for specific investors demand in term of currency and tenor, the IDB issued a $100 million threeyear sukuk maturing in April 2017, as well as a €300 million four-year sukuk maturing in October 2018, the first IDB’s sukuk denominated in Euro issued directly to a group of private investors in Europe. This resource mobilization exercise, apart from the fund raising agenda, was also aimed to promote the Islamic financial industry in member countries as well as in the global arena. The IDB’s sukuk, apart from listed on the London Stock Exchange, are also listed on the member country securities exchange including Bursa Malaysia (Exempt Regime), Nasdaq Dubai and Borsa Istanbul. Member Country Partnership Strategy (MCPS): Launched in 1431H (2010), the MCPS has remained a key instrument for aligning IDB Group Strategy with member countries’ development plans. It is also the main tool for dialoguing with key stakeholders in member countries and other development partners. Besides focusing on project financing, the MCPSs also target numerous non-financing activities especially under the “Reverse Linkage” initiative. TABLE 1.1 MCPS ACHIEVEMENT RATES (AS OF MID-NOVEMBER 2014)/1 MCPS Under Implementation By November 2014, the IDB Group had completed 17 MCPSs which are under active implementation while five others are at various stages of preparation. The MCPSs under active implementation have recorded impressive achievements in terms of approvals (Table 1.1) The Group undertakes Country Economic Works (CEWs) to support the preparation of MCPSs. The CEW presents diagnostic analysis of the economic situation of the country and provides useful recommendations for addressing challenges facing the country including poverty reduction. During 1435H, the Bank finalized the Country Economic Work for Chad and initiated those for Iran, Mali and Niger. In 1435H, the IDB Group in partnership with government authorities conducted Mid-Term Review (MTR) of MCPSs for Pakistan, Uganda, Kuwait, and Kazakhstan. The MTR for Pakistan during the first three years of implementation showed a satisfactory approval rate of 75.6 percent (or $1.9 billion out of $2.5 billion). This led to the re-alignment of the IDB Group interventions in Pakistan, Net Approvals by IDB Group ($ million) Achievement Rates/2 (%) MCPS with financing envelope 1 Turkey (2010-13) 2 Uganda (2011-13) 2,000 2,200 109.3 300 562 187.0 3 Indonesia (2011-14) 4 Mauritania (2011-15) 2,500 1,5570 62.3 650 575 5 Mali (2011-14) 88.4 500 265 6 53.0 Pakistan (2012-15) 2,500 1, 885 75.6 7 Senegal (2012-14) 760 537 70.6 8 Tunisia (2013-15) 870 320 36.8 9 Niger (2013-15) 800 138 17.2 10 Bangladesh (2013-16) 9,500 4,460 46.9 11 12 13 Morocco (2013-16) (Interim) Suriname (2014-15) Chad (2014-16) 2,200 66 450 1,210 76 175 55.0 115.0 38.9 14 Malaysia (2012-15) * 87 - 15 Kazakhstan (2012-14) * 545 - 16 Kuwait (2012-15) * 1 - 17 (Interim) Somalia (2014-15) * 5 - MCPS without financing envelope * 1/ In 1435H, the IDB Group launched MCPSs for five countries. While that of Chad and Benin have been finalized, the other three countries (Egypt, Iran and Uzbekistan) are at various stages of preparation. The Bank published in June 2014 a Booklet “Implementation Status of Member Country Partnership Strategy (MCPS)”, which presents a snapshot of the status and implementation of MCPSs. Indicative Financing Envelope ($ million) 2/ Denotes no indicative financing envelope in the MCPS Programs. Country order is based on launching year. Implementation rate is defined as net approvals as % of indicative financing. based on new development needs and priorities. Two main pillars were subsequently agreed with the Government during the remaining period of MCPS (1436H/2015), namely; Supporting Energy Security and Ensuring Inclusive Islamic Finance. For Uganda, the MTR of its MCPS showed an impressive implementation rate, with most of its financing sourced from the IDB and the Islamic Solidarity Fund for Development (ISFD). Together, they overachieved the financing envelope by 119 percent (i.e. $357 million approvals out of $300 million). As for MTR for Kuwait, one major achievement recorded in 1435H was the approval of the Kuwaiti Parliament to participate in the General Capital Increase (GCI) of the IDB-OCR and other entities of the Group. For Kazakhstan, the MTR of its MCPS (2012-2014) led the IDB Group and the Government of Kazakhstan to sign a Cooperation Framework Agreement extending the MCPS period to 2015-2017, with an envelope of $2 billion. Credit Ratings: Three entities of IDB Group (IDB, ICIEC and ICD) have been rated by either one or all of the top three international agencies – Standard & Poor’s, Moody’s and Fitch Ratings. IDB Annual Report 1435H (2014) | 31
19. CHAPTER ONE | IDB GROUP IN FOCUS Since June 2008, the ICIEC has been granted Aa3 rating by Moody’s which has placed it at par with major insurers of credit and political risk in the global arena. This rating reflects both the stand-alone fundamentals of ICIEC as well as the potential support from its shareholders (IDB and member countries). It also reflects ICIEC’s legal structure and business nature, as the only multilateral export credit and investment insurance corporation in the world that provides Shari’ah compatible insurance and reinsurance products. In November 2014, ICD was assigned AA by Fitch’s in first time credit rating with a Stable Outlook and a Short-term IDR of ‘F1+’. Fitch noted that ICD’s ratings are driven by support from key shareholders, the Islamic Development Bank (IDB, AAA/Stable) and the Kingdom of Saudi Arabia (AA/Stable), which owned 46.7 percent and 18.7 percent, respectively, of paid-in capital as of end-October 2014. Fitch believes that IDB’s shareholding is likely to be diluted through future ICD’s capital increases. exceeded its annual target. Disbursement for financial institutions reached $181 million in 1435H (Figure 1.6). FIG 1.5 SECTORAL DISTRIBUTION OF OCR NET APPROVALS 1435H Others 1.5% Health 3.0% Education 4.5% Agriculture 8.0% Infrastructure 83.0% FIG 1.6 TRENDS IN ICD NET APPROVALS (1431H -1435H) 487.0 500 400 $ million With sound financial health and strong shareholders’ support, the IDB since 2002 has continued to maintain the highest credit ratings of “AAA” from Standard & Poor’s, Moody’s and Fitch Ratings with a stand-alone credit rating amongst the highest of Multilateral Lending Institutions. The IDB is also designated as a ‘Zero-Risk Weighted’ Multilateral Development Bank (MDB) by both the Basel Committee on Banking Supervision and the Commission of the European Communities. IDB GROUP IN FOCUS | CHAPTER ONE 364.0 354.5 300 227.7 200 145.9 100 1.3 IDB GROUP ACHIEVEMENTS Boosting Private Sector development: The Islamic Corporation for the Development of the Private Sector (ICD) made remarkable progress in implementing its ambitious business plan for 1435H despite a challenging economic and political environment. Its performance in 1435H was affected by both external as well as internal factors including social and political uncertainties in some member countries. The net approvals of ICD in 1435H stood at $487 million for 31 projects with disbursement reaching $360.4 million. ICD maintained a high disbursement/approval ratio of 60 percent and introduced new products such as Commodity Murabaha. In creating new channels of operations in member countries, the ICD approved $105.9 million for lines of financing and institutional equity projects, which 32 | IDB Annual Report 1435H (2014) 0 1431H 1432H 1433H 1434H 1435H FIG 1.7 TRENDS IN ITFC NET APPROVALS (1431H-1435H) 6 4.9 5 2.8 2 1 1431H 1432H In 1435H (2014), Thiqah coordinated the participation of IDB Group in several international and regional conferences and forums, organized and/or assisted in the promotion of various events including Global Islamic Economy Summit, Al-Madina Investment Forum, First Arab States Regional South-South Development EXPO, G8 Deauville Partnership Investment Conference, AgriTech 2014, Annual Investment A large proportion of ITFC’s approvals in 1435H, which provided financing to both the public and private sectors, were syndicated from banks and financial institutions in the international markets totaling $3.5 billion. Its main mode of financing is murabaha, in addition to using other modes such as Structured Trade Finance, Islamic Discounting and Letter of Credit opening/confirmation. ITFC’s financing activities cover energy (crude oil and petroleum products), fertilizers, plastics, textiles, agricultural inputs, food items, sugar, coffee etc. Besides its direct operations with clients, including LDMCs, Lines of Financing under Two-Steps Murabaha are also provided to local banks to support SMEs in member countries. THE TOTAL RECORDED APPROVALS FOR THE SUB-SAHARAN AFRICA REGION 2.2 0 Group Business Forum (Thiqah): This Forum, which is under the ICD, is aimed at enabling business leaders to maximize promising investment opportunities. Its primary focus is to maximize cross-border investments among IDB Group member countries, with the support of IDB Group’s financial products and services. Thiqah has developed a highly interactive portal to support and facilitate the promotion of investment projects and related services (www.idbgbf.org). Over the past five years, ITFC has recorded improved growth in its trade operations by more than doubling its operations from $2.2 billion in 1431H to $5.1 billion in 1435H (Figure 1.7). In terms of regional breakdown of approvals in 1435H, MENA region received $2.6 billion (50.4 percent), Asia $2 billion (39 percent), Sub-Saharan Africa region $515 million (10 percent), CIS $15 million (0.3 percent) and Others (non-Member countries) $12 million (0.2 percent). ITFC’s disbursements reached $2.8 billion in 1435H compared to $4 billion a year ago, which is a decline of 29.6 percent. $515 MILLION 4 3 The sectoral distribution of ICD’s approvals in 1435H shows that 54.9 percent was allocated to the financial sector. In terms of regional distribution, 21.5 percent of ICD’s approvals went to Europe & Central Asia, 8.6 percent to Asia, 19.2 percent to Middle East and North Africa, 39.1 percent to Sub-Saharan Africa, and 11.5 percent to regional projects. Expanding trade financing: The International Islamic Trade Finance Corporation (ITFC) promotes intra-OIC trade by financing imports and exports as well as facilitating trade development in its member countries. Its authorized capital, as at the end of 1435H, was $3 billion and its subscribed capital was $750 million, of which $718 million has been subscribed. 5.1 4.3 $ billion Prospering people and enhancing connectivity: The IDB Ordinary Capital Resources (OCR) provide the main funding for the Bank’s development activities targeting various economic sectors of member countries. In 1435H, the distribution of the OCR sectoral approvals showed that infrastructure received the largest share of 83 percent, followed by agriculture at 8 percent, education at 4.5 percent, health at 3 percent, and other sectors, including finance at 1.5 percent (Figure 1.5) ICD approved $204.5 million of direct investment in the corporate sector with $110.6 million disbursed. More than half of new approved projects targeted high-impact sectors such as agribusiness, energy, industrial, and infrastructure. Meanwhile, in the area of advisory services, ICD successfully recorded $4.6 million in revenue from its advisory services and an additional $7 million in revenue from its asset management programs. It also approved $68.8 million and disbursed $36 million during 1435H for advisory services and asset management. Meeting (AIM), World Investment Forum (WIF), First Investment Forum on OIC Plan of Action for Cooperation with Central Asia, 10th World Islamic Economic Forum (WIEF) and Palestine Trade and Business EXPO 2014. 1433H 1434H 1435H IDB Annual Report 1435H (2014) | 33
20. CHAPTER ONE | IDB GROUP IN FOCUS IDB GROUP IN FOCUS | CHAPTER ONE 5 4.3 4 $ billion “Islamic Research and Training Institute (IRTI) is to generate and disseminate knowledge in Islamic economics, banking and finance.” FIG 1.8 TRENDS IN ICIEC’S BUSINESS INSURED AND NEW COMMITMENTS (1431H-1435H) 3.3 3.1 3.4 3.1 3.6 3.1 3 2.3 2 2.0 2.2 1 0 IN 1435H, ICIEC BUSINESS INSURANCE OPERATIONS INCREASED BY 1433H 1434H 1435H Business Insured co-insurance, training, technical assistance and any other forms of collaboration. More information is available at this site: www.amanunion.net. ICIEC has been an active member of the Berne Union – the union of international credit insurers - which it joined in 2009. ICIEC has actively built cooperation agreements with a number of Berne Union members which helped in generating business through reinsuring projects that have strong developmental impact on member countries. TO REACH $4.3 BILLION FROM $3.4 BILLION IN 1434H BETWEEN 1417H AND 1435H, INSURANCE APPROVALS ISSUED TOTALED Developing Islamic Economics and Finance: The main thrust of the Islamic Research and Training Institute (IRTI) is to generate and disseminate knowledge in Islamic economics, banking and finance, as well as build capacities for the promotion of the Islamic financial services industry. $23.8 BILLION 34 | IDB Annual Report 1435H (2014) 1432H New Commitments 26.5% In the area of capacity building, the ITFC’s Trade Promotion and Cooperation Program (TCPP) is designed to enhance trade facilitation and strengthen cooperation among OIC member countries. Through the TCPP, the ITFC has launched Aid for Trade Initiative for Arab States (AFTIAS) and the UN Special Program for the Economies of Central Asia (SPECA) to address capacity constraints in its member countries. ITFC is also overseeing an IDB Group Trade Related Issues Committee (GTRC) which coordinates, mainstreams and synergizes all the Group trade-related activities meant for member countries. In addition, ITFC has prepared programming documents for Arab-Africa Trade Bridge Program which is aimed at promoting regional trade between African and Arab member countries of OIC. It has also joined international efforts in the creation of “Trade Facilitation Implementation Guide” which is an on-line information resource for trade practitioners, policy makers and academicians. 1431H Strengthening Credit and Country-Risk Insurance: The Islamic Corporation for the Insurance of the Export Credit and Investment (ICIEC) provides shari’ah compliant export credit and investment insurance services to exporters, financial institutions, and investors in member countries to cover the risk of non-payment of export receivables resulting from commercial (buyer) or non-commercial (country) risks, and political risks. It also provides re-insurance services to the export credit agencies of member countries. In 1435H, ICIEC business insurance operations increased by 26.5 percent to reach $4.3 billion from $3.4 billion in 1434H while the new commitments also witnessed a substantial increase of 63.6 percent to reach $3.6 billion compared to $2.2 billion in 1434H (Figure 1.8). Between 1417H and 1435H, insurance approvals issued totaled $23.8 billion while the business insured amounted to $22.2 billion with an overall claims ratio (claims paid over premium earned), the main indicator of credit insurance operations performance, at 22 percent, which is significantly below the industry’s ratio. The top six member countries that benefited from the ICIEC services since the inception of its business through 1435H were Saudi Arabia (26.5 percent), UAE (11.7 percent), Bahrain (11.1 percent), Pakistan (7.6 percent), Egypt (7.5 percent), and Turkey (4.6 percent). In its efforts at becoming the lead reinsurer in MENA region, ICIEC established in 2009 a Union of Commercial and Non-Commercial Risks Insurers and Reinsurers (AMAN UNION) including Export Credit Agencies (ECAs) from member countries of the Arab Investment and Export Credit Guarantee Corporation (DHAMAN) and the Organization of Islamic Cooperation (OIC). This organization aims at strengthening the cooperation between ECAs in terms of credit information, debt collection, inward insurance and In 1435H, IRTI organized its 9th IDB Global Forum on Islamic Finance on the theme of “Islamic Finance and the Economic Development: Lessons from the Past and Prospects for the Future”. The Forum which was held in conjunction with the 39th Annual Meetings of the IDB Group recommended that Islamic Finance be given an opportunity in the Central Asian countries and that the authorities should accommodate the introduction of Islamic finance both in the private and public sectors. During the year, IRTI produced 22 working papers dealing with tawarruq time deposit based on the wakalah principle; philanthropy in Islam; free market and state capitalism; analysis of Islamic endowment (Waqf) laws; regulatory and supervisory framework of Islamic Microfinance in Sudan; Maqasid al-Shari’ah-based Development Index; and integrating zakah, awqaf and Islamic Microfinance for Poverty Alleviation. In addition to producing an occasional paper on “Islamic Finance and The Economic Development: Lessons from IDB Annual Report 1435H (2014) | 35