Presentation to the 6 th Global Awqaf Conference

Presentation to the 6 th Global Awqaf Conference Islamic Development Bank Experience in Financing Awqaf Projects Achievements and Challenges Islamic Financial Sector Development Department Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 0

Table of Contents 1. Brief on the Islamic Development Bank 2. Current Business Model for Awqaf Financing 3. Sample of Projects 4. Challenges and Way Forward 1 Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 1

1. Brief on the Islamic Development Bank Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 2

Is. DB 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” Expansion of the Islamic financial industry including Awqaf is one of the nine key strategic thrusts of IDB Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 3

AAA Rating Europe: 2 Countries Asia: 26 Countries Latin America: 2 Countries Africa: 27 Countries 1975 22 Countries Capital: ID 2 Billion Now: 57 Countries Capital: ID 100 Billion(authorized) ID 50 Billion (subscripted) Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 4 4

2. Current Business Model for Awqaf Financing “Awqaf Properties Investment Fund” (APIF- started 2001) Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 5

APIF’s Mission To Contribute to the Revival of the Islamic Sunnah of Waqf Through the Development of Awqaf Properties (Lands and Buildings), with the Aim of Increasing their Returns, which May in Turn Be Used for the Socio. Economic Development of the Ummah (Poverty Alleviation, Education, Health, Etc. ) Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 6

2. “Awaqf Properties Investment Fund”- Business Model Participants Capital Share Ø 2 International Org. APIF (Global Awqaf Fund) Ø 5 Awqaf Ministries/ Auth. Yearly Dividends Ø 8 Islamic Banks Ø Others/ NGOs/ Businessmen? ? Ø Managed by Is. DB/Shareholders Ø Financing: over 10 to 15 years US$ 4 to 15 million Ø Capital: US$ 100 million (paid up US$ 78, 4 million ) Awqaf Projects § Development of land (56 Projects) § Purchase of Property (3 Projects) Beneficiaries Ø Awqaf Authorities Ø NGOs/ Trusts/ Foundations Isl. Financing Planned to increase to: $250 m phase-I - $500 m in pahse II Repayments Ø Is. DB Support: § Line of Fin: US$ 100 million § Technical Assistance Grants Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 7

APIF Shareholders & Their Contribution # 1 2 3 4 5 6 7 8 9 10 11 Participants Islamic Development Bank OIC – Islamic Solidarity Fund General Authority for Awqaf Kuwait Awqaf Public Foundation Kuwait Finance House Faisal Islamic Bank Iran Endowment Fund Social Islami Bank Al Baraka Islamic Bank Bahrain Islamic Bank Jordan Islamic Bank 12 Ministry of Awqaf & Islamic Affairs 13 Amanah Raya Berhad 14 Arab Islamic Bank 15 Islamic Tadamun Bank Total Subscription Country International Saudi Arabia Kuwait Egypt Iran Bangladesh Bahrain Jordan Malaysia Palestine Sudan Paid up Capital ($ million) 29. 50 15. 51 7. 50 5. 00 4. 00 2. 90 2. 00 1. 00 % 37. 62% 19. 78% 9. 57% 6. 38% 5. 10% 3. 70% 2. 55% 1. 28% 1. 00 78. 41 1. 28% 100. 0% Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 8

Financial And Social Impact: Financial Returns for APIF shareholders: Dividends distribution: 2. 5% to 5% over the last 10 years Capital Gains/ Share Value: US$ 10. 000 → US$ 11. 400 23 projects supporting various charitable and relief activities 17 projects supporting education (universities and schools) 15 projects supporting religious education and Awqaf Institutions 2 projects supporting youth empowerment 2 projects supporting health sector Financial Returns for the beneficiaries: Transform idle lands to income generating properties Purchase of properties and transforming them to Awqaf After reimbursement of APIF financing, the projects generate an average of $1 million yearly income Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 9

Achievements – 18 years 59 Projects in 18 years 30 Countries 1. 12 IDB Contributions: US$ 495 Total Projects Cost: US$ billion million Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 10

Types of Projects • Residential buildings (residential apartments of high standing/ furnished apartments) • Commercial buildings (office blocks, commercial centres/shopping malls) • Mixed-use development on land that are well located in city centres or CBD in order to maximise the return potential of the project 11 Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 11

MODES OF FINANCING - Leasing - Istisna’a - Murabaha (purchase of existing buildings) - Diminishing Participation - B. O. T. - Other appropriate Islamic modes of financing - Technical Assistance (grant) for Capacity Building, Preparation of Feasibility Studies and Creating Enabling Environment 12 Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 12

Project Financing Process v Stage 1: Project Concept Clearance 1. Official request for Financing 2. Legal Documents (registration certificate and articles of association of the Waqf/charitable organization). 3. Copy of the Title Deed of the Land/ Property 4. Copy of the Waqf deed/Trust deed, if any. 5. Detailed information about the organization & its financial statements. 6. Brief profile of the trustees and members of management v Stage 2: Appraisal & Approval Phase 1. Detailed Feasibility study. 2. Proposed security for the financing; like mortgage, sovereign guarantee, bank guarantee, etc. 3. Recommendations/ No Objection Letter v Stage 3: Implementation Phase 1. Construction of Building (Tendering – Disbursements: 2 to 3 years) Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 13

APIF Corporate Structure/ Governance Is. DB Board of Governors Is. DB Board of Executive Directors APIF Participants Committee Is. DB v Islamic Finance Investment Division v Legal Division v Risk Department v Shariah Auditor v Finance Department v Compliance Division APIF Supervisory Committee Is. DB President Technical Review Committee Management Committee Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 14

3. Sample of Projects Financed by Is. DB/ APIF Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 15

APIF – Selected Success Stories v IDBG Input: Financing US$ 13. 40 M v Output: Waqf Office Tower in Dhaka Project 1 - Bangladesh Islamic Solidarity Education Waqf v Beneficiary: IDB- BISEW v Project Cost: US$ 13. 40 + Land v Mode of Financing: Grant and Soft Loan v Outcomes: v Generating annual rentals of US$ 4. 0 million allocated to vocational and educational programs. v More than 12, 000 students have benefited from the Waqf sinception in 1997, most of whom have been placed in the job market. Every year around 1000 new beneficiary. § IT scholarships § Vocational training for Madrasah students § Vocational training for school drop outs § Supporting orphans. Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 16

Project 2 – Al Magzoub Commercial & Residential Complex, Sudan v IDBG Input: Financing US$ 7. 5 M v Output: Al Magzoub Residential Complex Commercial & v Beneficiary: Al Magzoub Organization, Sudan v Project Cost: US$ 9. 5 M v Mode of Financing: Leasing v Outcomes: v Supporting 3, 300 students in memorizing Quran in a scientific manner. v Sponsoring 1, 000 orphans. v 200 Vocational training internees. v Rehabilitation of prisoners. v Medical education. v Impact: Contribution to the socio-economic and human development of the community through education & capacity building. Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 17

Project 3 - Extension and Renovation of Bazerkan Commercial Center in Beirut, Lebanon v IDBG Input: Financing US$ 5. 0 M v Output: Extension And Renovation Of Bazerkan Commercial Center v Beneficiary: Makassed Philanthropic Islamic Association, Lebanon v Project Cost: US$ 21. 5 M v Mode of Financing: Leasing v Outcomes: v Supporting community in education, health and social services: 45 schools, university, vocational college, hospital serving 65, 000 patients annually. v Maintenance of 3 cemeteries etc. v Impact: Contribution to the socio-economic benefits to underprivileged segment of the society. Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 18

APIF – Selected Success Stories v IDBG Input: Financing US$ 6. 0 M v Output: Fujairah Commercial & Residential Building Project 4 - Commercial & Residential Building in Fujairah, UAE v Beneficiary: Fujairah Welfare Association v Project Cost: US$ 20. 0 M v Mode of Financing: Leasing v Outcomes: v Supporting 40, 000 deserving families. v 2339 women benefited from rehabilitation workshops. v 4, 000 students were provided support for studies. v 4. 5 million meals distributed through Food Saving Project. v Impact: Contribution to the socio-economic and human development of the community. Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 19

APIF – Selected Success Stories v IDBG Input: Financing US$ 4. 0 M v Output: Waqf Office Tower in Chittagong Project 5 - Waqf Office Tower in Chittagong, Bangladesh v Beneficiary: International Islamic University of Chittagong v Project Cost: US$ 5. 5 M v Mode of Financing: Leasing v Outcomes: v Financial assistance to 250 students for accommodation, food, books, etc. v 30 university staff already obtained Ph. D degrees. v Impact: Contribution to the improvement of literacy rates in Bangladesh. Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 20

4. Challenges & Way Forward Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 21

Main Challenges 1. Increasing the Size of APIF 2. Increasing the Capacity of Awqaf Authorities/ Trusts/ NGOs 3. Lack of Enabling Environment (Islamic Finance & Waqf Laws) in most countries 4. Foreign Investment and Tax Regulations Challenges Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 22

1. Rationale for the APIF’s Capital Increase to $ 250 m a) Benefit from economies of scale (reduce admin. expenses & enhance APIF returns) b) Allow APIF to fulfill the unmet demand for Waqf Real Estate projects c) Target larger projects d) Build on the accumulated experience of APIF over the last 18 years and its diverse network of participants and beneficiaries e) Benefit from Is. DB’s existence in 57 member countries and its tax exemption f) For investors: US$ Stable Returns Fund with dividends of 2. 5 to 4 % annually – Partnerships for Awaqf development Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 23

2. Increasing the Capacity of Awqaf Authorities/ Trusts/ NGOs Most Beneficiary are receiving financing for the first time a) Changing mindset for Awqaf Projects to business (not charity) b) Training and monitoring c) Use Specialized Consultants/ Construction management firms/ Property management firms for Awqaf Investments Is. DB provides Technical Assistance Grants for capacity building of beneficiaries Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 24

3. Lack of Enabling Environment (Islamic Finance & Waqf Laws) a) Alternatives to Waqf Law: Trust Law – Foundation Law b) Allow Is. DB provides Technical Assistance for capacity building of beneficiaries 4. Foreign Investment and Tax Regulations Challenges a) Selection of appropriate mode of Islamic financing b) Tax exemptions for Awqaf/ charitable activities c) Repatriation of Funds d) Currency exchange risk (APIF is US$ Fund) Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 25

Thank You Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 26

Back up Slides Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 27

Potential of the Awqaf Sector Awaqf Properties worth billions of dollars are underutilized or unutilized Ø Saudi Arabia: US$ 93 billion to US$ 145 billion (US$ 14 billion are managed by the General Authority of Awqaf). Ø Malaysia: 11, 511 hectares of Waqf land worth USD 30 billion, but only 0. 72% of it was developed. Ø Indonesia: around 4. 4 billion sqm with an economic value of US$ 27 billion. Ø Turkey – Egypt – Bangladesh – Indonesia – Morocoo Strictly private & confidential. Not to be disclosed without prior written consent of Islamic Development Bank 28