AYMAN SEJINY

Saudi Arabia 2021 | FINANCE | VIP INTERVIEW

TBY talks to Ayman Sejiny, CEO of Islamic Corporation for the Development of the Private Sector (ICD), about development finance, managing risk, and expectations for the year to come.

How has the pandemic shifted the core priorities of development finance and how has ICD adapted to this new situation?

I think what we are going to emerge from this era with a stronger focus on our business, this means reaching out and understanding SMEs which are the best fit for our resilience targets, and ensuring SDG compatibility. Islamic Development Bank Group (IsDBG) has set a USD2.3 billion of funding target focusing solely on COVID related transactions, of which we as ICD have earmarked a total of USD250 million. This includes our line of finance that are currently being provided as funding for financial institutions for on-lending to SMEs, which have been affected greatly by the pandemic. We believe in partnering with local financial institutions because they are on the ground in the countries that we operate in. In this regard, they do a much better analysis and are more well-versed and equipped in understanding their local markets. These local financial institutions ensure that lending is monitored correctly, undertake collections and facilitate redistribution to other SMEs that can benefit the most from our funding.

How has the attitude towards Islamic Finance changed during the crisis?

Shariah-compliant or Islamic banking has witnessed significant growth over the years and will continue edging toward the mainstream moving forward. There is a growing demand and a pressing need for Shariah-compliant financial solutions in our member countries. Globally, interest toward ethical and impactful investments focused on serving the needs of inclusive and sustainable economic development has also increased, specifically in 2021—in essence, this is the crux of Islamic finance. Increasingly global financial institutions, such as JPMorgan, Citibank, and others, are now also focusing more on SDG- related transactions. Nowadays Green Sukuk are also becoming an attractive source of funding, as the willingness of many investment funds to invest in these instruments confirms that environmentally friendly transactions are gaining popularity. By doing so, they reduce the cost of funding that they are willing to accept, which makes a great difference. Also emerging now is the understanding of how Shariah-compliant trusts work. For example, the city of Riyadh has more than USD100 billion worth of trusts, and this can provide additional support and funding as needed. The other thing is the Zakat, which is the Shariah-compliant taxation is also now becoming more and more active. It will be interesting to see how it could become more of a support during a pandemic as the one we are in the midst of currently in certain member countries.

When you make loans to financial institutions in member countries are those loans to SMEs labeled Shariah compliant financial products?

Yes, our partner financial institutions mainly focus on Shariah-compliant funding. They announce to the client that they are providing the financing as a Shariah compliant structure because that is what clients are demanding in our member countries.

Where does the sukuk fit in your overall financing strategy and how have you planned to use those funds?

The Sukuk which that we have issued recently is the largest in ICD's history. It was successful despite being in the midst of the pandemic, and the demand was high. The book was oversubscribed three times, including orders from joint lead managers. It attracted participation by 37 international and regional investors, and this is a testament to the strength of our business. Investors are confident regarding ICD's credit story and our initiatives in promoting private sector activities, as well as our new strategy which we have been working on diligently over the past three years. Additionally,, the capital raising will support ICD's development activities including advisory projects which create competition, entrepreneurship, employment opportunities and export potential among our 55-member countries; while, encouraging the development of Islamic finance activities such as debt, equity and capital markets. In the future, we look forward to engaging in blended finance transactions, given its potential in supporting the global development agenda. For example, let's say we target USD100 million in funding, and meanwhile a project in a member country required one billion. We would be part of a syndicate and provide one billion to those transactions by issuing a Sukuk. Our USD100 million becomes one of the subscribers and this ensures that the transaction is known globally, and that there is continuity in the relationship, in turn making sure also that we have a bigger impact with our USD100 million. That is what we would like to focus on more in the future, and with that approach we will be increasing our fee income as an institution, and we as ICD also then become much more sustainable.

What are your thoughts as an organization on the rating changes from Fitch, which issued a downgrade recently?

We, as an organization, throughout the COVID-19 Pandemic have been active in providing the right funding. We wanted to make sure that we restructure the credit rating of our clientele base and ensure that we enhance our overall rating. I believe Fitch is comfortable with that approach, and if we can show them a strong outcome next year then they might consider raising our rating. The good thing is that Moody's and S&P have maintained our rating, and that we have been able to ensure that the global view of our organization is stable. On the other side, I personally believe we are in a high-risk business, we are supposed to do our job and we are supposed to go out and provide funding for SMEs and really support the market the way it should be. So, I am not that concerned that we will see a major slide in the rating, although we are not complacent. It is worth taking care of the markets that we are supposed to take care of, but we also plan to continue supporting higher risk SMEs. It is a challenge not just for us, but for the countries that we are active in and for countries all around the world.

Is there a fundamental shift in strategy for managing risk in the future?

Non-performing loans is an important consideration for us and we have enhanced our relationship with institutions that we are dealing with, and who now have a better rating themselves. We remain keen to support SMEs as it is an important part of our mandate and therefore will not shy away from that strategy. It is important for us to look at transactions that are found throughout our member countries, and which are PPP. We also make sure to consider certain beneficial equity transactions. This ensures we are investing our money where we believe it will be a best fit for some of the member countries we operate in. We are more careful now than before by not engaging in greenfield transactions, instead focusing more on brownfield initiatives. This means private equity, where the proposition is proven and sustainable. When we come in, we can quantum leap them to the next level, thereby adding substantial value.

What projects are you looking for and what do you hope to accomplish in the coming year?

We have revisited our business plan and made sure it is aligned with the potential outcomes of the Covid-19 Pandemic, both in terms of the positives and negatives. People think Covid-19 has only been negative but the positive side is also there in cost savings on travel, while we have also become much more efficient, with much more targeted funding and a sharper evaluation of potential transactions to meet actual needs. Our effectiveness, then, is set to increase and reach more of our targets. The pandemic has also advanced ICD's digitalization aspirations, whereby we have meaningfully transformed the way we do business. The post pandemic way of life will involve the continued support of SMEs and we want to make sure that we help those countries which are in greatest need.