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THE ISLAMIC DEVELOPMENT BANK AND PPP FINANCING OPPORTUNITIES http: //www. isdb. org PAMPLONA CHAMBER THE ISLAMIC DEVELOPMENT BANK AND PPP FINANCING OPPORTUNITIES http: //www. isdb. org PAMPLONA CHAMBER OF COMMERCE & INDUSTRY 25 NOVEMBER 2010 Abderrahman El Glaoui Director, IDB Regional Office of Rabat

THE IDB A QUICK PRESENTATION ______ _____ 2 2 THE IDB A QUICK PRESENTATION ______ _____ 2 2

ISLAMIC DEVELOPMENT BANK § Established in 1975 to foster socio-economic development in member countries. ISLAMIC DEVELOPMENT BANK § Established in 1975 to foster socio-economic development in member countries. § Authorized capital of US$ 45 billion. § Subscribed capital of US$ 22 billion. § Paid-up capital of US$ 5. 3 billion. § AAA rating by Moody’s Investors Service, Fitch Ratings, Standard & Poor’s. § Zero-Risk Rating by the European Parliament. 3

MEMBERSHIP Europe: 2 Asia: 26 Africa: 27 Latin America: 1 A UNIQUE MODEL OF MEMBERSHIP Europe: 2 Asia: 26 Africa: 27 Latin America: 1 A UNIQUE MODEL OF SOUTH-SOUTH COOPERATION 56 MEMBERS SPREADING OVER 4 CONTINENTS 4

PRIORITY AREAS § Human Development (Gender, Health, Education) § Agriculture Development and Food Security PRIORITY AREAS § Human Development (Gender, Health, Education) § Agriculture Development and Food Security § Infrastructure Development § Intra-trade Among Member Countries & Economic Integration § Private Sector Development § Research and Development in Islamic Economics, Banking & Finance 5

NET APPROVED FINANCING IDB GROUP SINCEPTION TO END 2009 Type of Operation US$ billion NET APPROVED FINANCING IDB GROUP SINCEPTION TO END 2009 Type of Operation US$ billion 1 - Development Projects 28. 14 Out of which Infrastructure 15. 52 2 - Technical Assistance 0. 29 3 - Trade Operations 34. 78 4 - Special Assistance 0. 68 TOTAL 63. 90 6 6

NET APPROVED FINANCING IDB GROUP SINCEPTION TO END 2009 : US$63. 90 BILLION Special NET APPROVED FINANCING IDB GROUP SINCEPTION TO END 2009 : US$63. 90 BILLION Special Assistance, $0. 7 bn, (1%) Trade, $34. 78 bn, (54%) Projects, $28. 14 bn, (44%) Technical Assistance, $0. 29 bn, (1%) 7

PUBLIC-PRIVATE-PARTNERSHIP IN IDB ______ _____ 8 8 PUBLIC-PRIVATE-PARTNERSHIP IN IDB ______ _____ 8 8

IDB’s PPP (1) Key elements of PPP in IDB: § Started in June 2006. IDB’s PPP (1) Key elements of PPP in IDB: § Started in June 2006. § Objective: to use PPPs as a major tool for poverty alleviation in MCs. § PPPs are project-based, or contract-based financing alternatives for both economic and social infrastructure (transport, utilities, schools, hospitals etc. ). § IDB created new products to position itself as a catalyst providing financing and risk mitigation and credit enhancement tools/instruments as well as syndication and advisory services. § Objective: to become a major financing vehicle of IDB’s lending business, with up to 30% of the total financing target. 9

IDB’s PPP (2) § No loan to Government. § Borrower is a single purpose IDB’s PPP (2) § No loan to Government. § Borrower is a single purpose business. § Separate legal entity with ring-fenced cash flows. § Sponsor guarantees don’t cover all the risks. § High leverage and long repayment terms. § Contracts with major project parties are a key credit support mechanism. § Sukuk resources available to fund PPPs. § Working closely with other Islamic Finance Institutions and Commercial Banks. 10

IDB’s PPP (3) Appetite for: § Strategically important projects § Strong experienced sponsors § IDB’s PPP (3) Appetite for: § Strategically important projects § Strong experienced sponsors § Experienced and reputable project management company and contractors § Very competitive cost advantage situations § Demand/supply gap in target markets § Robust cash flows and operating projections § Overall risk low – medium – 11

IDB’s PPP: AMOUNTS & DISTRIBUTION PPP Projects - Regional Analysis. CC G 11% Middle IDB’s PPP: AMOUNTS & DISTRIBUTION PPP Projects - Regional Analysis. CC G 11% Middle East South Asia South East Asia East Africa North Africa West Africa Central Asia Regional 1% 3% 3% 4% 29% 11% 34% 3% PPP Projects - Sector Analysis. Infrastructure 3% Health Care 5% 13% 15% 33% 28% Industrial Power Water 3% Petrochemicals Infrastructure Fund 12

PROJECT CYCLE § § § § Financial Advisor introduces the Project. IDB reviews conformity PROJECT CYCLE § § § § Financial Advisor introduces the Project. IDB reviews conformity with strategies and policies. Confidentiality Agreement signed. Provision of necessary information and documents (briefs, feasibility studies etc. ). Upon initial concept clearance, IDB appoints Consultants as needed. Coordination with other lenders. Due diligence. Credit assessment. Negotiation of Project Documents and provisional Term Sheet. Discussion in internal Credit Committees. Report to/Approval of the Board of Executive Directors. Finalization of project Documents and Security Documents. Signing. Satisfaction of Conditions Precedent. Disbursements. 13 Monitoring and supervision (Consultants).

CONTACT Dr. Walid Abdelwahab Director, Infrastructure Department waw@isdb. org +966 2 646 68 14 CONTACT Dr. Walid Abdelwahab Director, Infrastructure Department [email protected] org +966 2 646 68 14 Mr. Irfan Bukhari Manager, PPP Division [email protected] org +966 2 646 68 30 Islamic Development Bank http: //www. isdb. org P. O. Box 5925 Jeddah, 21432 Saudi Arabia 14

SOME APPROVED PROJECTS ______ _____ 15 15 SOME APPROVED PROJECTS ______ _____ 15 15

DORALEH CONTAINER TERMINAL (1) § Country: Djibouti § USD 397 million greenfield container terminal DORALEH CONTAINER TERMINAL (1) § Country: Djibouti § USD 397 million greenfield container terminal Project § Joint venture between the Djibouti Government (Port Autonome International de Djibouti) and DP World § First ever PPP financing in Djibouti § 30 -year concession § Djibouti port has a monopoly position for Ethiopian imports and exports + also strategically situated for transhipment traffic § Syndication: Islamic and conventional financing 16

DORALEH CONTAINER TERMINAL (2) § Project financing of USD 263 million § 7 financing DORALEH CONTAINER TERMINAL (2) § Project financing of USD 263 million § 7 financing institutions have committed to support the project (commercial lenders, multilateral financing institutions and development finance institutions) § Islamic Tranche: USD 160 million (Islamic Development Bank, Bank of London & The Middle East, Dubai Islamic Bank, Standard Chartered Bank, West. LB AG) § Conventional Tranche: USD 103 million (African Development Bank, Proparco) § IDB : USD 67 million (USD 15 m. sold down to OFID) § Tenure: 10 -year term including a 2 -year construction phase 17

DORALEH CONTAINER TERMINAL (3) Government of Djibouti DP World 100% DP World Djibouti Management DORALEH CONTAINER TERMINAL (3) Government of Djibouti DP World 100% DP World Djibouti Management Agreement 100% JV Agreement 33. 3% Port Autonome International de Djibouti (PAID) 66. 7% Concession Agreement Doraleh Container Terminal 18

QUEEN ALIA INTERNATIONAL AIRPORT § Country: Jordan § USD 681 million expansion project for QUEEN ALIA INTERNATIONAL AIRPORT § Country: Jordan § USD 681 million expansion project for the construction of a new terminal and improvement of airport operations § Sponsors: Airport International Group led by Abu Dhabi Investment Company (ADIC) and Aéroports de Paris (ADP) § IDB : USD 100 million § Tenure: 18 years § IFC : USD 120 million § Commercial banks: USD 160 million 19

TUNISIAN-INDIAN FERTILIZERS –TIFERT– (1) § Country: Tunisia § USD 348 million greenfield project for TUNISIAN-INDIAN FERTILIZERS –TIFERT– (1) § Country: Tunisia § USD 348 million greenfield project for the construction of a facility with a capacity of 360. 000 tpa of phosphoric acid and 3600 tons/day of sulfuric acid § Sponsors: Groupe Chimique Tunisien (GCT), Coromandel Fertilizers Ltd. (CFL) and Gujarat State Fertilizers Ltd. (GSFL) § The plant will use the local phosphate rock and imported solid sulfur as raw materials § Production will be sold totally to CFL and GSFC under separate 30 year off-take contracts for 50% of the production each. § Financing Plan: 35% equity and 65% debt § IDB : USD 150 million through Istisna'a (construction financing) and Leasing § Tenure: 15 years § European Investment bank (EIB): USD 130 million 20

TUNISIAN-INDIAN FERTILIZERS – TIFERT– (2) § Security package: typical in project finance (mortgage, pledge TUNISIAN-INDIAN FERTILIZERS – TIFERT– (2) § Security package: typical in project finance (mortgage, pledge over bank accounts, pledge over shares of the project company, direct agreements with the sponsors dealing, inter alia, with stepin/substitution rights) § Presence of some "common security", notably over the cash flow of the Project, whilst some is for the benefit of EIB only (over the assets financed by the EIB facility): it is the quid pro quo of the fact that IDB has full title over the assets it finances) § This difference between the status of the two Banks, inherent to the nature of this co-financing, was addressed in the intercreditor agreement § Under the Istisna'a arrangement, IDB acts as employer and Tifert as contractor to develop and construct certain assets and deliver title to these to IDB § These assets will, after delivery, be the subject of Lease operation 21

SOCIÉTE NATIONALE INDUSTRIELLE ET MINIÈRE § Country: Mauritania (SNIM) § USD 840 million expansion SOCIÉTE NATIONALE INDUSTRIELLE ET MINIÈRE § Country: Mauritania (SNIM) § USD 840 million expansion § Project description: (1) expansion of iron ore mining capacity in the Guelb region (2) maintenance and modernization of railways (3) building a new Iron Ore Terminal § Sponsor: SNIM § IDB Participation: USD 108 million/Tenure: 15 years § Other lenders: EIB, Af. DB, FDA, IDB, Kf. W, BNP Paribas, BHF, Fortis 22

RAS LAFFAN IWPP § Country: Qatar § Independent Water and Power Production Project (IWPP) RAS LAFFAN IWPP § Country: Qatar § Independent Water and Power Production Project (IWPP) § Description: development, construction and operation of 2, 730 MW of electricity generation and 63 million imperial gallons per day of water desalination in the industrial area of Qatar § Sponsors: Qatar petroleum (QP), Qatar Electricity & Water Company (QWEC), Suez Energy International, Mitsui, Shikoku Electric Power Cy. and Chubu Electric Power Cy § Project Cost: USD 3. 7 billion 23

RAS LAFFAN IWPP § A total of USD 3. 32 billion was raised, making RAS LAFFAN IWPP § A total of USD 3. 32 billion was raised, making it one of the largest non-recourse funding for a Middle Eastern utility § Japan International Bank for Cooperation provided for USD 1. 37 billion § 20 Mandated Lead Arrangers (MLAs) provided for USD 1. 39 billion § USD 250 million Islamic tranche § IDB Participation: USD 150 million/ Tenure: 25 years § Other lenders: Qatar Islamic Bank 24

PROJECT AGREEMENTS STRUCTURE O&M Contract Shareholders Financing Lenders Joint Venture Project Owners Construction EPC PROJECT AGREEMENTS STRUCTURE O&M Contract Shareholders Financing Lenders Joint Venture Project Owners Construction EPC Off Taker KAHRAMAA Gas Supply QP Sea Water QP Government Guarantee 25 25

PROJECT AGREEMENTS § Power & Water Purchase Agreement - 20 Appendices § Connection Equipment PROJECT AGREEMENTS § Power & Water Purchase Agreement - 20 Appendices § Connection Equipment Transfer Agreement § EPC Contract § Project Founders Agreement § Joint Venture Agreement § Government Guarantee § Long-Term O&M Contract § Direct Agreement § Grant of Rights Agreement § Land Lease Agreement § Shared Facilities Agreement § Fuel Supply Agreement § Seawater Supply Agreement 26

PHOSCO (1) § Country: Saudi Arabia § Saudi Fransi Bank approached IDB for participation PHOSCO (1) § Country: Saudi Arabia § Saudi Fransi Bank approached IDB for participation as a Mandated Lead Arranger in the Ma’aden Phosphate Fertilizer Project (Phos. Co) in KSA in March 2008 § Development of a world class fully integrated complex in KSA to produce 2. 9 million tpa of diammonium phosphate fertilizer § Estimated Cost US$5. 526 billion § Equity 30%/Debt 70 % § Sponsors: - MA’ADEN, Involved in mining in KSA 70% Ma’aden Phosphate - SABIC, one of the world’s 10 largest Company MPC petrochemical companies (PHOSCO) 30% 27

PHOSCO (2) FINANCING Debt $3, 868 m 70% Equity $1, 658 m 30% PHOSCO (2) FINANCING Debt $3, 868 m 70% Equity $1, 658 m 30%

PHOSCO (3) PROJECT CONSULTANTS & IMLAS 29 PHOSCO (3) PROJECT CONSULTANTS & IMLAS 29

PHOSCO (4) THE CONTRACTUAL STRUCTURE 30 PHOSCO (4) THE CONTRACTUAL STRUCTURE 30

PHOSCO (5) PROJECT RISKS AND MITIGANTS (a) RISKS MITIGANTS § Experienced sponsors with quality PHOSCO (5) PROJECT RISKS AND MITIGANTS (a) RISKS MITIGANTS § Experienced sponsors with quality Project Management Consultant Worley Parsons. CONSTRUCTION & COMPLETION § 18 month completion (cost overrun + debt service undertaking) support from sponsors. § 70% of capital costs under LSTK/EPC contracts. § Comfortable Project scheduling + adequate contingencies in contracts. § Port and railroad construction being undertaken by Government entities. § Completion tests for Sponsor support to fall away include Port and Railway completion. EXTERNAL INTERFACE § Jubail Port available as an alternative. § Feasible temporary back up plan for railway (trucking). § Sponsor support durations allows for a float time of 28 months for the railway from its scheduled completion date to the long stop date. 31

PHOSCO (6) PROJECT RISKS AND MITIGANTS (b) RISKS MITIGANTS § Favorable demand/supply scenario for PHOSCO (6) PROJECT RISKS AND MITIGANTS (b) RISKS MITIGANTS § Favorable demand/supply scenario for Phosco’s target markets during the life of the Project. MARKET § Competitive Cost Structure – Phosco will be able to withstand downturns in product prices on account of its strong cash cost competitiveness (expected to be at the bottom of the industry cost curve as a low cost producer) and advantageous logistics to its target markets. § Phosco has executed marketing agreements with SABIC and Ma’aden. OPERATING § Operational and technical expertise of leading companies including SABIC, Ma’aden, Saudi Comedat, YARA, Uhde, Outotec, Litwin, Incro, Hongfu and Dragados. § SABIC and SAFCO, a SABIC affiliate, have entered into a Technical and Training Services agreement with Phosco respectively. 32

PHOSCO (7) PROJECT RISKS AND MITIGANTS (c) RISKS ENVIRONMENTAL LEGAL MITIGANTS § Separate Environmental PHOSCO (7) PROJECT RISKS AND MITIGANTS (c) RISKS ENVIRONMENTAL LEGAL MITIGANTS § Separate Environmental Impact Assessments (EIAs) were prepared for the Al Jalamid and Ras Az Zawr Sites. § Phosco required that the EIAs conform to the highest possible standards. § The EIAs were prepared to comply with the Islamic Principles for Conservation of the Natural Environment, complying with applicable KSA regulations, Phosco’s environmental policy, the Equator Principles, the World Bank Group Standards and World Health Organisation guidelines. § Novation of all contracts has been carried out with the newly formed Phosco (MPC). § Saudi Aramco will provide with new allocation letter six months prior to the start of operations. § Applicable Law : English law. § Arbitration : SAMA Committee. 33

PHOSCO (8) OVERALL LEVEL OF RISK SUMMARY OF OVERALL MAIN RISK ASSESSED LEVEL OF PHOSCO (8) OVERALL LEVEL OF RISK SUMMARY OF OVERALL MAIN RISK ASSESSED LEVEL OF RISK Country Risk Low Transfer Convertibility Low Expropriation and Creeping Expropriation Low Civil Commotion and Terrorism Low- Medium War Low- Medium Market Risks § Demand/Supply Low-Medium § Price Low - Medium Construction Risk Medium - High Operations & Technology Risk Low Legal Risk/Documentation Risk Low OVERALL RISK RATING Low-Medium PROJECT RATING AS PER IDB RISK MANAGEMENT GUIDELINES “A” 34

EXAMPLES OF TERMS & CONDITIONS (1) PROJECT XXX IDB AMOUNT USD 100 MILLION TENURE EXAMPLES OF TERMS & CONDITIONS (1) PROJECT XXX IDB AMOUNT USD 100 MILLION TENURE 12 YEARS DOOR TO DOOR MODE OF FINANCING LEASING COMMITMENT FEES N. A. ONE-OFF MANAGEMENT USD 100, 000 FEE SPREAD 120 bp OVER LIBOR SECURITY PARI-PASU WITH OTHER LENDERS (CORP. GUARANTEE ON DISB. UNTIL PCD/ PROJECT ASSETS/BANK ACCOUNTS/RECEIVABLES/PERMITS, LICENSES ETC. /ALL SHARES OF SPONSORS IN PROJECT/LOSS PAYEE/DEBT SERVICE ACCOUNT 6 MONTHS WITH MARKUP …) 35

EXAMPLES OF TERMS & CONDITIONS (2) PROJECT YYY IDB AMOUNT TENURE MODE OF FINANCING EXAMPLES OF TERMS & CONDITIONS (2) PROJECT YYY IDB AMOUNT TENURE MODE OF FINANCING UPFRONT FEES UP TO COMPLETION DATE FROM COMPLETION DATE TO DATE FALLING 8½ YEARS AFTER SIGNING FROM DATE FALLING 8½ YEARS TO 11½ YEARS AFTER SIGNING THEREAFTER SECURITY USD 100 MILLION 16 YEARS DOOR TO DOOR LEASING 85 bp 80 bp 90 bp 105 bp 115 bp PARI-PASU WITH OTHER LENDERS 36

SOME INTERNATIONAL PARTNERS 37 SOME INTERNATIONAL PARTNERS 37

THE ISLAMIC DEVELOPMENT BANK AND PPP FINANCING OPPORTUNITIES http: //www. isdb. org THANK YOU THE ISLAMIC DEVELOPMENT BANK AND PPP FINANCING OPPORTUNITIES http: //www. isdb. org THANK YOU FOR YOUR ATTENTION

 APPENDIX GENERAL PRESENTATION OF THE IDBG 39 39 APPENDIX GENERAL PRESENTATION OF THE IDBG 39 39

MISSION STATEMENT “ We are committed to alleviating poverty, promoting human development, science & MISSION STATEMENT “ We are committed to alleviating poverty, promoting human development, science & technology, and Islamic banking & finance, and enhancing cooperation among member countries, in collaboration with development partners. ” 40

CHALLENGES Achieving healthy human development Securing strong and sustainable economic growth Promoting good governance CHALLENGES Achieving healthy human development Securing strong and sustainable economic growth Promoting good governance Strengthening peace and stability Fostering a powerful sense of common identity, consciousness, and empathy § Restoring the Image of Islam and the Muslim world § § § 41

ORGANIZATIONAL STRUCTURE Islamic Development Bank (IDB) Islamic Corporation for Insurance of Investment & Export ORGANIZATIONAL STRUCTURE Islamic Development Bank (IDB) Islamic Corporation for Insurance of Investment & Export Credit (ICIEC) Islamic Corporation for the Development of the Private Sector (ICD) IDB Group Islamic Research & Training Institute (IRTI) International Islamic Trade Financing Corporation (ITFC) 42

ISLAMIC DEVELOPMENT BANK § § § Established in 1975 to foster socio-economic development in ISLAMIC DEVELOPMENT BANK § § § Established in 1975 to foster socio-economic development in member countries in compliance with Shari’ah Authorized capital of US$ 45 billion Subscribed capital of US$ 22 billion Paid-up capital of US$ 5. 3 billion AAA rating by Moody’s Investors Service, Fitch Ratings, Standard & Poor’s Zero-Risk Rating by the European Parliament 43

ISLAMIC RESEARCH & TRAINING INSTITUTE (IRTI) Established in 1981 to undertake applied and basic ISLAMIC RESEARCH & TRAINING INSTITUTE (IRTI) Established in 1981 to undertake applied and basic research in Islamic economics and finance. Activities include: § Research Seminars & Conferences § Training Courses § Publications § IDB Prize in Islamic Economics, Banking & Finance § IRTI Scholarship for Ph. D in Islamic Banking 44

ISLAMIC CORP. FOR THE INSURANCE OF INVESTMENT & EXPORT CREDIT (ICIEC) § Established in ISLAMIC CORP. FOR THE INSURANCE OF INVESTMENT & EXPORT CREDIT (ICIEC) § Established in 1994 to provide Shari’a-compatible export credit insurance, political risk insurance, technical assistance § Capital structure (66. 7% IDB, 33. 3% MCs) : total authorized capital US$ 231 million, subscribed capital US$ 228 million § Business insured cumulatively, as of November 2009 : around US$ 6. 35 billion, in more than 37 member countries § Insurance financial strength rating of Aa 3 by Moody’s Investors Service 45

ISLAMIC CORP. FOR THE DEV. OF THE PRIVATE SECTOR (ICD) § § Commenced its ISLAMIC CORP. FOR THE DEV. OF THE PRIVATE SECTOR (ICD) § § Commenced its operation in July 2000 Mandated to promote private sector development and to offer advisory services to the private sector entities in member countries An authorized capital of US$ 2 billion, paid up capital of US$ 470 million (50% IDB, 30% MCs, 20% Financial Institutions) As of December 2009, cumulative approvals : 185 Projects amounting to US$ 1. 59 billion, in more than 32 member countries 46

INTERNATIONAL ISLAMIC TRADE FINANCING CORP. (ITFC) § Commenced business activities in January 2008 § INTERNATIONAL ISLAMIC TRADE FINANCING CORP. (ITFC) § Commenced business activities in January 2008 § Promotes and enhances intra-trade and trade cooperation among 57 member countries of the Organization of Islamic Conference (OIC) through trade financing and promotion programs § Authorized Capital : US$ 3. 0 billion § Subscribed Capital : US$ 750 million § Managing Funds for other institutions : US$ 1. 0 billion § Year 2009 Trade Finance Approvals : US$ 2. 1 billion § Cumulatively Trade Financing, end 2009 : US$ 4. 6 billion 47

SHAREHOLDERS IN IDB (% OF SUBSCRIBED CAPITAL) Others: 10. 07 Indonesia: 2. 7 Pakistan: SHAREHOLDERS IN IDB (% OF SUBSCRIBED CAPITAL) Others: 10. 07 Indonesia: 2. 7 Pakistan: 3. 05 Algeria: 3. 05 Saudi Arabia: 24. 44 Kuwait: 6. 54 UAE: 6. 94 Libya: 9. 81 Qatar: 8. 61 Turkey: 7. 73 Iran: 8. 58 Egypt: 8. 48 48

IDB GROUP PRODUCTS & SERVICES § Financing of Projects (Public and Private) § Promoting IDB GROUP PRODUCTS & SERVICES § Financing of Projects (Public and Private) § Promoting the Islamic Financial Industry § Trade Finance & Promotion § Capacity Building and Technical Cooperation § Risk Insurance § Research and Training § Fund/ Assets Management 49

NET APPROVED FINANCING IDB GROUP SINCEPTION TO END 2009 : US$63. 90 BILLION Special NET APPROVED FINANCING IDB GROUP SINCEPTION TO END 2009 : US$63. 90 BILLION Special Assistance, $0. 7 bn, (1%) Trade, $34. 78 bn, (54%) Projects, $28. 14 bn, (44%) Technical Assistance, $0. 29 bn, (1%) 50

CUMULATIVE SECTORAL DISTRIBUTION 51 CUMULATIVE SECTORAL DISTRIBUTION 51

NET YEARLY APPROVALS 8, 000 Cumulative $ 63. 9 billion 7, 000 6, 000 NET YEARLY APPROVALS 8, 000 Cumulative $ 63. 9 billion 7, 000 6, 000 5, 000 4, 000 3, 000 2, 000 1, 000 0 1975 1980 ______ 1985 1990 _____ 1995 52 2000 2005 2009

INFRASTRUCTURE FINANCING (1975 -2010) Net Approvals USD 15. 52 billions ICT, USD 287 m, INFRASTRUCTURE FINANCING (1975 -2010) Net Approvals USD 15. 52 billions ICT, USD 287 m, 2% SMEs, USD 309 m, 2% Water, Sanitation & Waste Mngt. USD 1. 963 m, 13% Investment, USD 200 m, 1% Others, USD 108 m, 1% Transport, USD 5. 431 m, 35% Manuf. & Mining, USD 2. 218 m, 14% Energy, USD 5. 003 m, 32% 53

INFRASTRUCTURE FINANCING (1975 -2010) Geographical distribution Autres, 2% Asie Sud & Est, 12% Afrique INFRASTRUCTURE FINANCING (1975 -2010) Geographical distribution Autres, 2% Asie Sud & Est, 12% Afrique Sub. Saharienne, 16% Moyen-Orient et Afrique du Nord, 51% Asie Centrale, 20% 54

OPERATIONS PLAN OPERATIONS COMPLEX - YEAR 2010 Total Operations Plan : US$ 3. 72 OPERATIONS PLAN OPERATIONS COMPLEX - YEAR 2010 Total Operations Plan : US$ 3. 72 billion: § US$ 39 million grant financing § US$ 381 million concessional loans § US$ 3. 30 billion ordinary financing 55

 THE BASICS OF ISLAMIC FINANCE 56 56 THE BASICS OF ISLAMIC FINANCE 56 56

OBJECTIVES OF THE SHARI’A ﻣﻘﺼﻮﺩ ﺍﻟﺸﺮﻉ ﻣﻦ ﺍﻟﺨﻠﻖ ﺧﻤﺴﺔ، ﻭﻫﻮ ﺃﻦ ﻳﺤﻔﻆ ﻋﻠﻴﻬﻢ ﺩﻳﻨﻬﻢ OBJECTIVES OF THE SHARI’A ﻣﻘﺼﻮﺩ ﺍﻟﺸﺮﻉ ﻣﻦ ﺍﻟﺨﻠﻖ ﺧﻤﺴﺔ، ﻭﻫﻮ ﺃﻦ ﻳﺤﻔﻆ ﻋﻠﻴﻬﻢ ﺩﻳﻨﻬﻢ ﻭﻧﻔﺴﻬﻢ ﻭﻋﻘﻠﻬﻢ ﻭ ﻧﺴﻠﻬﻢ ﻭﻣﺎﻟﻬﻢ. ﻓﻜﻞ ﻣﺎ ﻳﺘﻀﻤﻦ ﺣﻔﻆ ﻫﺬﻩ ﺍﻷﺼﻮﻝ ﺍﻟﺨﻤﺴﺔ ﻓﻬﻮ . ﻣﺼﻠﺤﺔ، ﻭﻛﻞ ﻣﺎ ﻳﻔﻮﺕ ﻫﺬﻩ ﺍﻷﺼﻮﻝ ﻓﻬﻮ ﻣﻔﺴﺪﺓ، ﻭﺩﻓﻌﻬﺎ ﻣﺼﻠﺤﺔ § The Shari’a (i. e. legal principles derived from the Quran, the Sunna and the jurisprudence) encourages thrift, cooperation, responsibility and social and economic justice. § According to Al-Ghazali (Algazel, 450 503 H /1058 1111 G), the objectives (maqasid) of the Shari’a lie in safeguarding the faith, the self, the intellect, the posterity and the wealth of the people. § “Whatever ensures the safeguard of these five principles serves public interest and is desirable, and whatever hurts them is against public interest and its removal is desirable. ” § Ibn Maymun (Maimonides, d. 1286) of Cordova used Al-Ghazali ‘s maqasid. Thomas Aquinas (1225 -1274 G) studied Algazel in the University of Naples. 57

BASIC PRINCIPLES OF ISLAMIC FINANCE (1) The rules regarding Islamic finance can be summed BASIC PRINCIPLES OF ISLAMIC FINANCE (1) The rules regarding Islamic finance can be summed up in the following points: 1. In a loan transaction (qard hassan), any predetermined payment over and above the actual amount of principal is prohibited. Making money from money is not acceptable: money is only a medium of exchange, a way of defining the value of a thing. It has no value in itself, and therefore should not be allowed to give rise to more money. 2. For other transactions, the lender must share in some risks or in the profits or losses arising out of the enterprise for which the money was lent. 3. In debt finance instruments other than loans (such as Ijara or leasing) a markup is charged in representation of the service delivered to the client. 58

BASIC PRINCIPLES OF ISLAMIC FINANCE (2) 4. Uncertainty or speculation (gharar) is also prohibited: BASIC PRINCIPLES OF ISLAMIC FINANCE (2) 4. Uncertainty or speculation (gharar) is also prohibited: the rationale behind the prohibition is the wish to protect the weak from exploitation. Therefore, options and futures are considered as un. Islamic and so are forward foreign exchange transactions because rates are determined by interest differentials. 5. Investments should only support practices or products that are not forbidden - or even discouraged - by Islam: trade in weapons, for example would not be financed by an Islamic bank. 6. Shari’a does not prohibit to use interest as a benchmark (what counts for the Muslim scholars is not the method of calculation of the remuneration but the generating element of the remuneration). 59

TECHNIQUES OF THE TRADE Most used techniques used in modern Islamic banking include: § TECHNIQUES OF THE TRADE Most used techniques used in modern Islamic banking include: § Musharaka : joint venture (typically for a specific undertaking) wherein both parties contribute capital and share profits and losses. § Mudaraba : partnership whereby an investor agrees to entrust an Islamic finance institution (IFI), for a specified fee, with the responsibility of managing a transaction. § Ijara : analogous to equipment leasing but the lessor has to retain some obligations and risks associated with ownership. § Murabaha : transaction involving the sale of an asset for a price which includes a stated mark up. § Istisna’a : it is a “build-to-suit contract” in which the IFI agrees to or to build an asset pursuant to the purchaser’s specifications. § Salam : similar to a forward sale contract. § Sukuk Al Ijara : lease participation trust certificates; the investor acquires assets pursuant to Ijara leases for a stated period with an obligation by the lessee to purchase these assets at the end of the 60 60 ______ _____ term.

ISLAMIC FINANCING INSTRUMENTS FOR PROJECTS Debt Finance § Ijara, Leasing (equipment, plant, machinery) about ISLAMIC FINANCING INSTRUMENTS FOR PROJECTS Debt Finance § Ijara, Leasing (equipment, plant, machinery) about 15% of IDB financing § Istisna‘a, construction finance (civil works) about 55% of IDB financing § Installment Sale about 30% of IDB t financing Sukuk (Islamic bonds) § Sovereign Sukuk (by Governments for general budget use) § Corporate Sukuk (by corporations using their balance sheets) § Project Sukuk (by project companies, SPV, to finance specific projects) Equity Finance § Direct equity participation (Musharaka, profit sharing) § Infrastructure Equity Funds Global, e. g. , IDB Infrastructure Funds, I and II Regional, e. g. , IDB-ADB Islamic Infrastructure Fund Sectoral, e. g. , Energy Fund, Telecom Fund 61

HISTORICAL DEVELOPMENT § The 1960 s: In this stage the first step towards Islamic HISTORICAL DEVELOPMENT § The 1960 s: In this stage the first step towards Islamic banking system was taken with the establishment of Mit Ghamr, first Islamic bank, in Egypt in 1963 and Muslim Pilgrims Saving Corporation (Tabung Haji), a saving corporation, in Malaysia in 1963. However, both institutions came into being without projecting their image as Islamic banking institutions. § The 1970 s: The pioneers of modern Islamic banking came into being during the 1970 s. They included the Islamic Development Bank in 1975, Dubai Islamic Bank in 1975, Faisal Islamic Bank of Sudan in 1977, Faisal Islamic Bank of Egypt in 1979, and Bahrain Islamic Bank in 1979. All these institutions focused on building the image of Islamic banks and brought untapped Islamic capital into the banking system. § The 1980 s: During the decade, some Muslim countries attempted to convert their conventional banking system to an Islamic one (e. g. Iran and Sudan) or to introduce a dual banking system (e. g. Pakistan, Malaysia and Bahrain). § The 1990 s and up to now: The 1990 s saw the spreading of Islamic banks from Muslim countries to western shores such as London, Luxembourg, Geneva, etc. These conventional banks also tried to channel the Arab oil revenues via a variety of Islamic banking instruments alongside conventional products. 62

ISLAMIC FINANCE: A SIZEABLE REALITY (1) § There are more than 300 Islamic banks ISLAMIC FINANCE: A SIZEABLE REALITY (1) § There are more than 300 Islamic banks and financial institutions worldwide. § Estimates of total size of Islamic finance market internationally range between US$500 and US$900 billion growing at a rate believed to be between 10 and 20% p. a. § Islamic financial products attract not only Muslim savings, but also other conventional and ethical based investors as well. § Islamic capital markets have taken off quite strongly. Total sukuk (Islamic bonds) issuance is estimated to be over US$50 billion. § There has also been an increase in the amount of Islamic project financing particularly in the Middle East. The Ettihad Etisalat's (telecommunication provider from the UAE) deal in 2007 of US$2. 35 billion is just one example. 63 ______ _____ 63

ISLAMIC FINANCE: A SIZEABLE REALITY (2) § The world’s first Islamic bond, issued by ISLAMIC FINANCE: A SIZEABLE REALITY (2) § The world’s first Islamic bond, issued by a Government took place in Malaysia in July 2002. HSBC was the lead arranger for this US$ 600 million issue. § In July 2004, the central German state of Saxony-Anhalt issued the first European-based and backed sukuk. The 5 year 100 -million-euro transaction was listed on the Luxembourg Stock Exchange. § Similarly, a growing mergers and acquisition, management buyout and venture capital activity is taking place in Islamic banking sector. § In 2009, France has put in place Islamic finance regulation with a view to attracting Islamic funds and to working with Islamic funds on international finance markets. ______ _____ 64

REGULATORY AND INDUSTRY FRAMEWORKS As IFIs gain critical mass, a number of initiatives have REGULATORY AND INDUSTRY FRAMEWORKS As IFIs gain critical mass, a number of initiatives have emerged to develop a body of standards. Several institutions have been established such as: - Accounting & Auditing Organisation for Islamic Financial Institutions (AAOFI), established in Bahrain in 1990 to develop accounting and auditing standards. - Islamic Financial Service Board (IFSB), established in Malaysia in 2002, by the IDB and several central Banks, to harmonize the standards, regulations and best practices. - International Islamic Financial Market (IIFM), jointly established by Bahrain and Malaysia to develop new Islamic instruments and build the Islamic debt market. - Islamic International Rating Agency (IIRA), established in 2000 in Bahrain by the IDB and other sponsors. - General Council for Islamic Banks and Financial Institutions (CIBAFI), established 3 years ago in Bahrain to promote Islamic banking. 65

TAKAFUL, THE ISLAMIC FORM OF INSURANCE Conventional insurance is considered by many scholars not TAKAFUL, THE ISLAMIC FORM OF INSURANCE Conventional insurance is considered by many scholars not to be in line with Shari’a. As Prof. Mahmoud Amin El-Gamal put it: - “First, the high-quality debt instruments in which insurance companies normally invest their premiums (e. g. bonds, mortgage backed securities, etc. ) are deemed forbidden based on riba. - Second, the insurance contract itself is deemed by those jurists to be a form of gambling (since the insured pays a premium, but knows not whether he will ever file a claim), and hence forbidden based on the canonical prohibition of gharar. - To solve both problems, providers of a cooperative insurance or takaful have emerged. - To solve the first problem, premiums are invested in Islamic variations on bonds, asset-backed securities, etc. , like the ones discussed earlier. - To solve the second problem, the relationship between insurer and insured is not viewed as a commutative financial contract (in which the uncertainty associated with claims would deem the contract impermissible). Instead, the takaful company is said to pay claims based on voluntary contribution tabarru’, as a form of social cooperation”. 66

RECENT TRENDS § The Islamic market, is witnessing an increasing level of competition. As RECENT TRENDS § The Islamic market, is witnessing an increasing level of competition. As a result, product offering has become much more sophisticated. New and innovative products are being developed. Structures have become much more complicated. § Structures are getting sophisticated and complex to accommodate fiscal and monetary regulations in different countries and to better manage risks or enhance them or change their maturity profiles. § Islamic investment banking is making a major in-road into project financing providing both equity and debt to major projects inside and outside the Islamic world. § Some western regulators have started to align the local rules with a view to accommodate for the specificities of Islamic Finance: this is the case for the Financial Services Authority (FSA) and the Bank of England, the US Treasury and US regulatory bodies, the Banque de France etc. 67

IMPORTANT PLAYERS (1) Private IFIs § Al Rajhi Banking & Investment Corp. , KSA IMPORTANT PLAYERS (1) Private IFIs § Al Rajhi Banking & Investment Corp. , KSA § Kuwait Finance House, KSC, Kuwait § Dubai Islamic Bank, UAE § Shamil Bank of Bahrain, Bahrain § Bankislam, Malaysia § Qatar Islamic Bank, Qatar § Faisal Islamic bank, Egypt § Jordan Islamic Bank, Jordan § Gulf Finance House, Bahrain Public Sector IFIs § Islamic Development Bank § Islamic Corp. for the Development of the Private Sector § Bank Melli, Iran § Bank Saderat, Iran 68

IMPORTANT PLAYERS (2) Some Conventional Banks in the ME with IF Windows § Arab IMPORTANT PLAYERS (2) Some Conventional Banks in the ME with IF Windows § Arab National Bank § Banque Misr, Egypt § Bank Muscat International, Bahrain § Saudi American Bank, KSA Some Western Banks having IF Windows or IF Subsidiaries § UBS (Noriba Bank) § HSBC § Bank of America § BNP Paribas § Citigroup § Crédit Suisse § Deutsche Bank § Goldman Sachs § Standard Chartered § CALYON 69