TBY talks to Salah Jelassi, Regional Manager, Regional Hub Turkey of Islamic Development Bank (IsDB) Group, on the COVID-19 pandemic, energy projects in Turkey, and financial product development.

IsDB has responded to the COVID-19 pandemic with a USD2.3 billion package for its 57 member countries. Can you outline the global objectives of the package?

The IsDB Group management prepared an emergency response program called the “Triple R" (Response, Restore, and Restart) devised to support Member Countries (MCs) with prevention, containment, mitigation, and recovering from the impacts of COVID19 pandemic with science and technology playing a key role at each stage through online country platforms in close cooperation with almost all development partners, a task facilitated by the IsDB Group President's present Chairmanship of the world's Multilateral Development Banks as His Excellency is also conducting close networking with other major partners and senior officials within G20, the Organization of Islamic Cooperation (OIC) and the Arab Coordination Group. The “Triple R" package's “Respond" track delivers immediate actions through South-South and North-South Reverse Linkage operations focused on most urgent needs in healthcare. The “Restore" track deals with medium-term actions through lines of financing for trade and SMEs to sustain activity in core strategic value chains. And finally, the “Restart" track delivers long-term actions to build resilient economies on solid foundations and catalyze private investments. In line with the above, the IsDB Board of Executive Directors has approved a USD2.3 billion financial emergency package for various member countries hardest hit by the pandemic. So far, IsDB has received 39 requests from MCs for assistance and the process of providing financial and other modes of support to these MCs is already in progress. In the meantime, the Bank has launched a blockchain based online country platform that facilities more efficient aid from production and procurement to end-user delivery.

A high-speed train funded by the IsDB as a part of its development of the Ankara-Konya High Speed Railway Project

How has the Group's COVID-19 response directly impacted Turkey?

As for Turkey, we are happy to see that the new Okmeydanı hospital in Istanbul, which was funded by the IsDB, opened its doors to COVID19 patients on 31st March 2020 providing more than 600 beds and 99 intensive care units (ICUs). The IsDB Group is also availing USD250 million to Turkey to deal with the challenges of fighting COVID19. Additionally, the Bank will also expedite the effectiveness and utilization of a USD100 million facility that was approved for Turk Eximbank in December 2019 for the benefit of exporting companies that are affected by COVID-19 pandemic.

IsDB has financed a wide range of projects in Turkey—most notably large-scale energy and transport projects as well as smaller-scale investments in the export sector. What role does the export sector play in IsDB's strategy in Turkey?

Turkey's growth strategy relies on transforming its economy into a high-tech export-oriented private sector-led competitive one, as outlined by the 11th Development Plan of Turkey (2019-2023). In order to help Turkey achieve its development targets, IsDB approved a USD270 million Line of Financing Facility (LoF-I) under the Restricted Mudaraba modality to Turk Eximbank to finance capital expenditures of SMEs and middle capitalization companies in 2015. This facility was fully disbursed in less than 18 months and contributed to creation of more than 1,000 jobs and facilitated an increase in revenues of end-beneficiary companies by more than USD1 billion. Due to success of this facility, a new facility (LoF-II) was approved by IsDB amounting to USD100 million in 2019. This new facility will be extended under Murabaha financing mode for a tenure of 10 years. Financing facilities targeting the promotion of exports and SMEs have great potential to create development impact for Turkey. Turk Eximbank has also cooperated with Islamic Corporation for the Insurance of Investment and Export Credit's (ICIEC) and concluded three projects with ICIEC (approximately USD411 million) to support Turkish contractors for their construction projects in Cameroon and Senegal. ICIEC also provided an insurance coverage for the club loan facility of Turk Eximbank in the amount of EUR180 million in addition to the insurance cover provided for a bilateral loan of EUR100 million finalized in 2016. The objective of those interventions is to support the exports of SMEs as well as the projects undertaken by Turkish contractors in member countries. Going forward, we would like to expand our collaboration with Turk Eximbank and continue supporting Turkish exporters through providing long term financing facilities for their CAPEX requirements, short-term trade finance facilities, and insurance coverage to facilitate financing their projects in other countries and investments in Turkey.

How has the International Islamic Trade Finance Corporation (ITFC) – the trade financing arm of the IsDB Group – furthered the Group's export objectives in Turkey?

Turkey has been one of the largest recipients of the ITFC's trade financing facilities. ITFC has approved 78 financing operations for 30 different clients for a total amount of USD5 billion in Turkey which represents about 10% of total trade financing approvals of ITFC. Supporting SMEs especially for their export financing requirements is one of the strategic pillars of ITFC which has always given priority for partnership with local banks in Turkey for developing export financing facilities for SMEs. In this regard, ITFC's partnership with Turk Eximbank is worth to mention here. ITFC has provided a total of USD3.21 billion export financing through Turk Eximbank for the benefit of Turkish SMEs. Besides Turk Eximbank, ITFC has been collaborating with different banks in Turkey, mainly the Islamic banks and the investment banks, and approved a total amount of USD410 million, so far. Large corporates in Turkey have been benefiting from direct lines of ITFC under the structured trade finance facilities, which provide tailor made solutions for the import or pre-export financing needs. ITFC has implemented 22 operations for several reputable private sector clients for a total amount of USD757 million with an excellent track record. In this model, ITFC purchases agricultural commodities, which are stored in the bonded warehouses, and within an agreed tenor the client purchases those commodities from ITFC.

The IsDB Group Regional Hub Turkey co-organized a "Reverse Linkage Training" in Ankara for agriculture experts from select Central Asian IsDB Group member countries

IsDB Group is notable for its financing of energy projects in Turkey. Can you outline IsDB Group's involvement in the sector and how its facilities have been necessary for its development?

During the last five years, IsDB Group has provided almost USD740 million for energy infrastructure projects of the private sector, facilitating almost USD3 billion worth of new investments. These investments were generally in renewable energy (RE) sub-sectors such as hydro, wind, solar, geothermal, and waste management to improve energy efficiency in industrial facilities and upgrade and modernize electricity and natural gas distribution infrastructure. As a result of these investments, around 1,340MW of new RE power generation capacity was introduced. The energy efficiency investments also resulted in around 2,170 GWh/year of energy savings, almost equivalent to the annual generation of 1,000MW of solar power. These investments, altogether, helped the elimination of more than 3.2 million tons of CO2 greenhouse gas (GHG) emissions. Hence, IsDB is significantly contributing to Turkey's efforts toward reducing energy import dependency and current account deficit as well as tackling GHG emissions. The high cost of financing is a significant challenge facing investors. Hence, to support new investments, we aim to leverage our financing and mobilize private sector funds through market-based structures. IsDB's AAA rating provides a significant opportunity to help Turkish energy investors access relatively lower cost funding.

Similarly, IsDB Group has been instrumental in financing transport projects in Turkey. Specifically looking to the rail sector, what projects has the IsDB funded?

During 2015-2019, IsDB contributed USD1,120 million in seven transport projects. Until 2019, three transport projects with USD609 million IsDB financing have been completed, and four projects worth USD511.3 million are under implementation. Looking to rail, currently, IsDB is contributing EUR312 million to the 10 high-speed train sets projects and EUR150 million for the urban transport program. Overall, the transport sector projects have enabled enhancement of inter and intra-connectivity and inter-modal shift toward safer, more reliable, and more efficient rail transportation system while increasing connectivity within and between major urban centers and with the industrial zones, thus fostering economic growth and employment generation in related sub-industries. IsDB looks forward to contributing in the development of fuel-efficient, sustainable, and environment-friendly future initiatives.

From both a financial product development and equity standpoint, how has IsDB been involved in the development of the participation banking sector in Turkey?

IsDB Group has been closely supporting the Islamic finance industry in Turkey since the establishment. We support the development of regulatory frameworks and enabling environment, facilitation for launching innovative Islamic finance products, and the creation of a fully Islamic tranche allowing participation banks to support infrastructure projects. One of our achievements is the listing of IsDB Sukuk on Borsa Istanbul, which enabled IsDB to diversify its investor base and reinforce its presence in an important financial center. There are also ongoing efforts to develop Islamic capital markets further. IsDB Group is currently working with the Ministry of Treasury and Finance to make the necessary legal and regulatory changes to structure an Ijara-based project sukuk modality. As a direct consequence of mobilizing Islamic resources via innovative modalities, IsDB will be able to expand its interventions and fund the infrastructure assets in a more impactful manner. IsDB's support for the Islamic banking sector is also in the form of equity participation in Islamic banks and financial institutions.

How has IsDB Group worked to create joint-financing opportunities for participation banks in Turkey for infrastructure projects?

In its intention to streamline part of globally available resources for infrastructure development of its member countries, IsDB has introduced the A/B financing structure. The structure envisages financing of projects in two tranches: A-tranche, the IsDB Group's direct exposure, and B-tranche, a syndication from other market participants (B-Participants). Both tranches are implemented on pari passu basis. B-participants benefit from IsDB Group's preferred creditor status in all of its member countries. As per our preferred creditor status, our member countries acknowledge IsDB as the lender of record and honor the preferential treatment by allowing foreign exchange convertibility and transferability in priority. Our A/B financing structure is the only Islamic A/B-product available in the market. We would like participation banks to be involved more in infrastructure projects. They can be part of city hospital projects, transport or energy related ones. Recently, we have witnessed announcement of large-scale manufacturing projects of strategic nature in Turkey. Participation banks should support those initiatives and demonstrate the added value of Islamic finance in development of Turkey. In order to facilitate this, IsDB Group can support participation banks here through the A/B financing structure as we have done previously. IsDB also stands ready to support the capacity of participation banks in Turkey through workshops, seminars, training programs, and conferences. Eventually, we would like to promote Islamic banking and see Islamic institutions in Turkey in the ranks of major financial players.

Over the next 12 months, what are the IsDB Group's most important plans in Turkey?

Over the next 12 months, IsDB Group will continue supporting Turkey in its strategic priority sectors. This continued strategic and programmatic support is meant to particularly: ensure Turkey's energy supply security through building underground gas storage capacity through BOTAS, help Turkey develop more seismic resilient infrastructure through ISMEP, and support upgrading of Turkey in global value chains through PPP projects such as Ceyhan Petrochemicals Plant Project. IsDB Group would also be working closely with the government of Turkey to come up with a response package to support the country to mitigate the adverse impact of COVID-19. This includes providing lines of finance to public sector banks to support private-sector companies in the priority industrial sectors as well as providing risk insurance to investors in the country as well as enabling access of Turkish investors to other markets.