BAKU, Azerbaijan, June 19. The Islamic Development Bank Institute (IsDBI) is working with Azerbaijan on Sukuk framework development.
Acting Director General of IsDBI Dr. Sami Al-Suwailem said in an exclusive interview with Trend on the sidelines of the Islamic Development Bank Group Annual Meetings in Baku that the Institute will be working closely with the authorities of Azerbaijan.
“For example, we are already working closely with the Central Bank to help and to support the development of a framework for Sukuk issues, for developing rules and regulations for Islamic banks, Islamic financial institutions in general that would facilitate the intervention of the Islamic Development Bank through these Islamic financial institutions to support ultimately the development and progress of the Azerbaijani economy. As I mentioned, we are closely working with the Central Bank of Azerbaijan to support the development of the Sukuk in terms of capacity building, in terms of supporting the development of rules and regulations for this Sukuk. As for how Sukuk could support the Azerbaijani economy, they provide an additional source of funding for supporting the progress and expansion of projects in Azerbaijan. From that perspective, Sukuk will offer an additional source of funding and resource mobilization for the country,” he added.
The joint report of the Islamic Development Bank Institute (IsDBI) and the International Islamic Trade Finance Corporation (ITFC) titled “Islamic Finance in Azerbaijan: Breaking New Ground” forecasts that Azerbaijan could see the first sukuk issuance of up to $500 million by 2030.
“We project that by 2030 (5-year projection), a debut sukuk issuance in Azerbaijan in the range of USD 500 million could reasonably take place as well, given its good sovereign credit profile and existing fiscal headroom. One key qualitative assumption is that the ecosystem factors fall into place (e.g. enabling regulatory support, legal amendments or reforms, etc),” says the report.
Islamic finance approach to sustainable growth
The report reveals that under a base-case scenario, Islamic banking assets in Azerbaijan could reach approximately USD 2.7 billion by 2035 representing 5 percent of total projected banking assets in 2035. Under a best-case scenario, assets could reach USD 3.6 billion (at 10 percent penetration rate).
Sami Al-Suwailem pointed out that Islamic finance integrates finance with the real economy, and the real economy by design is limited by the available resources.
“Therefore, production and trade and wealth creation is essential from an Islamic finance point of view. The way to make the economy sustainable is through wealth creation, improving productivity, improving trade, and helping redistribute the wealth among the members of the society. These are essential elements for sustainable economy. Why or how does Islamic finance encourage innovation? Islamic finance requires taking on the ownership risk of the goods and services, and this essential risk-taking would encourage people to find ways and means to minimize and manage this risk through wealth creation. In this manner, Islamic finance encourages productivity, innovation, and wealth creation at the same time,” the acting director general explained.
Key sectors for Azerbaijan-GCC collaboration
According to the report, the Gulf Cooperation Council (GCC) represents the most probable source of foreign direct investment in Azerbaijan’s emerging Islamic banking sector. It says that Azerbaijan’s strategic location at the crossroads of the Caucasus, its hydrocarbon-based economic ties with the Gulf, and its growing geopolitical alignment with GCC states position it as a natural destination for Islamic banking FDI.
Sami Al-Suwailem believes that there is more than one sector in Azerbaijan that could benefit from the Gulf Cooperation Council.
“Azerbaijan is an oil-producing country, so from that perspective, there are good opportunities to share experience in the petrochemical industry and to help support and expand the production of oil countries in the GCC as well as Azerbaijan. Azerbaijan has a unique position within Asia and Europe, so this could be a window for the Gulf countries to export goods and products and services to the rest of Asia and to Europe as well. Tourism and education could also get benefits. I think there are many good opportunities for both sides to benefit from each other,” he added.
Why Takaful could succeed in Azerbaijan
The IsDBI acting director general noted that Takaful as a cooperative arrangement would be quite successful in the country because it is based on social solidarity.
“Takaful is based on cooperation or cooperative arrangements. An insurance company is more viewed as managing the process, more than making money from selling the insurance, as the case with commercial insurance. Based on my limited experience and understanding, the community here in Azerbaijan is well established. I think from this perspective, Takaful as a cooperative arrangement would be quite successful in the country because it is based on social solidarity, which is already strong and healthy in Azerbaijan,” he added.
Further, Sami Al-Suwailem said that the IsDBI will be continuing the collaboration with fintech and startup companies of Azerbaijan.
“IsDBI is working with Azerbaijan on capacity development, training, Islamic finance. We also had an artificial intelligence competition just before the Annual Meetings, and we had the competition between startups in the Azerbaijani economy. There were three winners that we honored during our global forum on the 17th of June,” he concluded.
