IDB GROUP 2ND MEDIUM TERM BUSINESS STRATEGY 1434H-1436H (MTBS 2.

0)
Presented at IDBG Joint Board Forum Feb 11, 2013

EFFECTIVE DELIVERY & ENHANCING CONNECTIVITY

ISLAMIC DEVELOPMENT BANK (IDB)

ISLAMIC RESEARCH AND TRAINING (IRTI)

ISLAMIC CORPORATION FOR INSURANCE OF INVESTMENT AND EXPORT CREDITS (ICIEC)

ISLAMIC CORPORATION FOR THE DEVELOPMENT OF THE PRIVATE SECTOR (ICD)

INTERNATIONAL ISLAMIC TRADE FINANCE CORPORATION (ITFC)

EXECUTIVE SUMMARY
IDBG has adopted a 3-5 year medium term business strategyplan (MTBS) to guide its Vision 1440H journey, as depicted in Figure (i). Framed along the 9 Vision 1440H strategic thrusts, the MTBSs has 2 key complimentary elements i.e. a) the organizational reform; and b) the thematic strategies. Consequently, MTBS 1.0 for the period 1431H-1433H focused on building the organizational foundation, with a 4+2 focus area. The four core areas to build our competencies in are infrastructure, Islamic finance, human development and poverty alleviation, and economic cooperation, with two cross cutting areas i.e. private sector development and capacity development.

(Selective) Global Leadership Effective Delivery (external) Foundation Building (internal)

1431H 1434H 1437H 1440H

Figure (i):IDBG Organization Reform Phases

MTBS 2.0 (1434H-1436H) marks IDBG emphatic shift from internal foundation strengthening to building the external business infrastructure, themed effective delivery. The 4+2 Strategy Framework is now fine-tuned with 3 focus areas and 3 cross cutting areas as per Figure (ii). MTBS 2.0 Strategy Framework also provides the basis upon which the specific business and operational plans for the year 1434H of IDB1, IRTI, ICIEC, ICD and ITFC has been developed and approved by their respective Boards2. This paper, thus constitutes an aggregation of the IDB and entity specific business plans upon which group-wide initiatives is being proposed.
Comprehensive Human Development & Poverty Alleviation Infrastructure

Capacity Development The strengthening of organization capacity highlighted in Private Sector Development MTBS 1.0 (1431H-1433H) focused on recalibrating human Economic Cooperation capital, enhancing the key business processes, tools and systems. While this essential step was underway, IDB Figure (ii): MTBS 2.0 Strategy successfully sustain its AAA3. In addition, a number of other Framework key initiatives were launched during MTBS 1.0, most notably the Member Country Partnership Strategy (MCPS); the empowerment of the Regional Offices and establishment of IDB Group Country Gateway Offices (CGOs). Notwithstanding the global economic crisis, during the MTBS 1.0, IDBG succeeded in significantly scaling-up its operations,

1 2

IDB is comprised of the 6 complexes, ISFD and WWF IDB & IRTI BED Nov 11, 2012; 3 S&P, Moodys, & Fitch

Islamic Financial Sector Development

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with IDB itself cumulative approvals and disbursements alone represent 30% of the grand total of ordinary operations since the inception of IDB4. The Member Countries (MC) demands for development assistance continue to rise triggered in part by the recent development in the middle east and resulting altering of the development landscape. The MCs needs are no longer met solely by financial resource transfer alone but also increasing knowledge and partnership services, are essential in addressing issues of unemployment, social care and knowledge-based infrastructure. IDBG, therefore, will need to further intensify its effort to response to the demanded knowledge-based services, innovative products5 as well as facilitating economic cooperation among its member countries in order to address these rapidly changing economic and development environment of the member countries. To better align our response to the needs of our MCs, IDBG Member Country Partnership Strategy (MCPS) will continue to be our strategic engagement instrument with the MCs. Further, given the recent development, it opens-up a new window of opportunity for IDBG to operate as an honest broker on development matters. IDBG will enhance its organizational infrastructure for effective delivery during the MTBS 2.0, by moving from focusing on approvals to disbursement and results on the ground. Further, leveraging on the trusted brand of IDBG and excellent relationship with its member countries, the business strategy for MTBS 2.0 will focus on enhancing connectivity. Connectivity instruments such as the reverse linkage, will be further expanded with modalities for resource mobilization service for Member Countries, Country-based Knowledge Exchanges and promoting new line of business in potential areas such as Halal Industry (Economy) Development, and the Shariah-based Non-banking sector. With the strong support of member states to IDBG at their Extra-Ordinary Summit of 09/1433H6, IDB is proposing for the calling-in of the remaining 4th General Capital Increase and increasing the authorized capital from ID 30 billion to ID 100 billion and the subscribed capital from ID 18 billion to ID 50 billion. The following are the highlights of IDBG MTBS 2.0 (1434H1436H) of the various IDB and entities business and operation plans:

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IDB Medium Term Business Strategy, Presented to BED Nov, 2012 The buy-down arrangement between IDBG and the Bill&Melida Gates foundation, has opened a new window for providing needed financing to member countries through a more affordable arrangements. ICIEC has also introduced Sukuk Insurance, whilst ICD have begun to work with new partners to establish country-based thematic funds 6 http://www.oic-oci.org/english/conf/is/ex-4/is_ex4_fc_en_w_links.pdf, and later further reinforced at the Arab Economic Summit, Jan 2013, Riyadh : http://www.mofa.gov.sa/sites/mofaen/ServicesAndInformation/news/MinistryNews/Pages/ArticleID20131221563 7250.aspx

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With the prospect of the calling-in of the cash callable portion of the 4th general capital increase, IDB operations are planned to grow at around 10% per annum during the MTBS 2.0 period 1434H-1436H. As such, cumulative approvals and disbursements to the member countries at the end of 1436H are projected to reach US$ 52.1 billion and US$ 24.7 billion, respectively. Collectively, the approvals and disbursements made during the 6-year period covered by MTBS 1.0 and MTBS 2.0 would account for more than 50% of the total approvals and disbursements made since the inception of the Bank by the end of 1436H. Accompanying t, this rapid scale-up in financing, greater emphasis on enhancing the quality of IDB interventions in three key dimensions i.e. : a) effective delivery of products and services to strengthen relevance, impact and sustainability ; b) improving organizational capacity to develop relevant products and services to enhance connectivity and value-addition; and c) mobilization of resources for human and capacity development. In addition, IDBG program for Muslim communities globally, which is another key distinctive feature of IDBG, will continue its attractive programs, for which the potential to tap on to external sources of funding and extended partnerships will be explored further during MTBS 2.0 period. ICD will strive to further the objectives of MTBS 2.0 by focusing on strengthening financial institutions as the optimal way to develop Islamic financial channels and compound development impact. Further, ICD is IDBG driver for the cross-cutting strategy i.e. Private Sector Development Strategy and is key contributor to the Islamic Financial Sector Development Strategy. ICD will implement a four-pronged strategy to achieve its objectives during the MTBS 2.0 period. The main pillar of the corporations strategy is to shift focus to developing Islamic financial channels in order to create multiplier impact. ICD believes that strengthening financial institutions in member countries is the most efficient way to help SMEs access to finance. ICD will also provide direct investment on a selective basis especially in countries with less-developed Islamic finance sector. Additionally, during MTBS 2.0, ICD will expand its efforts in setting up SME funds and thematic funds, and providing advisory services to improve enabling environment in member countries. During the MTBS 2.0 period, ICDs approvals and disbursements are expected to grow around 15% per year, with around USD2.1 billion of approvals, and USD1.35 billion in cumulative disbursements. Further, ICD will endeavor to mobilize $3 from other resources for each $1 invested in new projects.
Trade for Development is recognized as the key engine for global economic growth7. ITFC has been at the fore-front in promoting this agenda for the MCs. Already OIC intra-trade is hovering around 17%8 of the targeted 20% by 2015. Further, ITFC is the main driver of IDBG cross-cutting area of the Strategy Framework i.e. Economic Cooperation. During the MTBS 2.0 period, economic cooperation will be further mainstream as IDBG operating modality upon which trade, and therefore ITFC, will be central to
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World Economic Forum, 2013, Davos (www.wef.org) Standing Committee for Economic and Commercial Cooperation of the OIC (www.comcec.org)

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The approvals increased from US$2.6Bn in 1431H to US$4.5Bn in 1433H, a growth of 73%. Similarly Disbursements registered a growth of 117% over the MTBS 1.0 period, from US41.8Bn in 1431H to US$3.9Bn in 1433H. To finance the increasing activities, resource mobilization, more than doubled, from US$1.4Bn to us$3.8Bn. For 1434H9, ITFC is targeting an increase in approvals to US$5B,disbursements at US$4Bn and resources mobilization about US$4bn. Net income is projected at US$25.6 Million.
the delivery of this strategy for IDBG.

The business of ICIEC proves to provide another window to facilitate cross-border flow of development investment for shariah-based financing instruments, with minimal intervention from IDBG. As such, ICIEC is key to help realized the MTBS strategy for the development of the Islamic Financial Sector as well as the infrastructure core focus area. During the MTBS 1.0 period, ICIEC total new commitments booked during this period amounted to USD 8.89 billion, while the actual businesses insured over the same period reached USD 8.16 billion. Despite the worldwide economic and political crises, ICIEC was able to maintain its respectable Aa3 rating assigned to it by Moody's. During this period, ICIEC was instrumental in successfully launching the Aman Union an association for Export Credit Agencies from the OIC Member Countries. The period also witnessed ICIEC opening its first representative office in Dubai (U.A.E.), to expand its outreach to the Member Countries. Furthermore, the ICIEC authorized capital was increased from ID 150 million to ID 400 million. For MTBS 2.0 period, ICIEC plans to continue with its growth in business volume by maintaining a steady increase of 15% per annum in new commitments (equivalent to approvals in IDB terms). For the businesses insured (equivalent to disbursements in IDB terms). This is based on the recent boost in its insurance capacity, and expected growth in manpower and IT resources
IRTI plays a key role in the process of transforming IDBG into a more effective knowledge-based organization. It is a co-leading the Islamic Financial Sector Development Strategy, one of the 3 core focus area of IDBG Strategy Framework. In facilitating and fostering the development of Islamic

Finance Sector10 (IFS) and comprehensive human capital development, IRTI has transformed itself to provide four value propositions: Relevance, Effectiveness and Efficiency, Accountability and Delivery (READ). For MTBS 2.0, the core of IRTI intercessions will be focusing on 5 research clusters i.e. human development in the light of Maqasid Al Shariah11; financial stability and risk management; Islamic financial products development; economic development in OIC; and finally in Islamic financial institution and financial sector development. Based on that IRTI will be in the position to craft significant impact in Member Countries and Muslim communities
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ITFC Board have approved its business plan for 1434H based on the current 5 year plan ending 1434H. However, ITFC 5 Year 1435H-1439H is planned has yet to be table to its Board for deliberation and approval. 10 IFS is define to include the banking, finance and insurance industry as well as none conventional finance like capital market, currency management, microfinance, cooperative saving, trusts funds, mutual funds, awqaf and sadaqah 11 Dr Umer Chapra, Islamic Vision for Development in the Light of Maq asid Al-Shariah, IRTI Publication

through various interventions such as policy development, applied research, country IFS studies, development of iFSAP12 template, ten year framework and strategies for development of IFS13, innovation in Islamic financial instruments, development of zakat and awqaf, annual report on Islamic social finance, relevant capacity building programs, shariah advisory services, research grants and scholarships. In the coming 3 years, IRTI plans to further strengthen itself as a reference resource center in Islamic finance, with improved statistical information (portal) and the production of 12 country studies on annual basis. So far, in the last 30 years, IRTI has published more than 350 research publications in English, Arabic and French and plans to produce 20 publications annually. In the last three years, IRTI has organized about 94 training programs, which have benefitted more than 2,600 participants and plan to grow at 8%-12% per annum during the MTBS 2.0 period. IRTI will also be venturing into more fee-based programs in order to be self-sustainable. Further, IRTI is exploring the potential to establish IRTI specific waqf fund in the future, to support its expansion activities. To this end, IRTI is targeting to generate USD750,000 for the year 1434H, and increasing it 10% annually. In summary, during MTBS 2.0, IDBG will continue to grow at a rate of 10%-15% per annum, that would require significantly organization capacity, productivity and qualitative (knowledge and partnership facilitation) transformation. IDBG will have to put in place a mechanism to focus on the results in line with the emerging practices of other MDBs. This would further transform the organizational infrastructure to be more responsive and relevant to its clients, through enhanced group synergy. In turn, this will further strengthen IDBG knowledge-based and innovative products and services to its member countries, as IDBG prepares itself to participate in the Post Millennium Development Goals (MDG) efforts (post 2015).

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iFSAP is Islamic Financial Sector Assessment Program (FSAP). FSAP was introduced jointly by World Bank and IFC. IRTI is spearheading IDBG program in collaboration with the World Bank for the Islamic FSAP. 13 http://www.ifsb.org/docs/10_yr_framework.pdf

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