ITFC: Ways to support economic development, energy security and infrastructure in Azerbaijan will be explored - INTERVIEW

Against the background of the global processes taking place in the world, the economy of Azerbaijan continues to maintain its growth rate. New infrastructure projects are being implemented, which requires the attraction of private investments. From this point of view, international organizations are actively working to support projects in our country, and state institutions are actively working for investment.

Hani Salem Sonbol, the International Islamic Trade Finance Corporation (ITFC) CEO, who visited Azerbaijan last week, spoke about the application of Islamic financing in the country, the areas that attract the attention of ITFC, and the projects that can be supported, in his interview with Report:

- Global Islamic Finance assets are forecast to reach $3.7 trillion by 2024, according to the 2020 Islamic Finance Development Report released today by Refinitiv and the Islamic Corporation for the Development of the Private Sector (ICD).. What is the reason for this? How do you assess the current state of Islamic finance implementation in Azerbaijan? What support can be provided for its realization? What are the expectations regarding tools in this field in our country?

- Azerbaijan, as a Muslim-majority country with a robust economy and a dynamic private sector, is primed to harness the significant potential of Islamic finance. This burgeoning sector offers diverse financing mechanisms and Sharia-compliant investment opportunities.

In light of our overarching strategy to Advance Trade and Improve Lives, the International Islamic Trade Finance Corporation (ITFC) is actively engaged in facilitating the growth of Islamic finance in different member countries, including Azerbaijan. Our comprehensive approach includes not only trade development initiatives but also a strong focus on capacity building and advisory services that can propel Azerbaijan's Islamic finance sector to new heights.

One notable example of our commitment to capacity building is the upcoming Islamic Finance Workshop, in Baku from September 12th to 14th. This collaborative effort between ITFC and the Ministry of Economy of Azerbaijan brings together around 40 participants from both the public and private sectors. The primary objective is to enhance their knowledge and skills in Islamic finance, empowering them to contribute to the development of the Islamic finance industry within Azerbaijan.

Furthermore, within the realm of advisory services, ITFC stands ready to collaborate with financial institutions to establish Islamic windows and create innovative Islamic finance products and services tailored to the local market needs. This approach is not only in line with the global trend towards sustainable and ethical finance but also reflects our unwavering commitment to fostering economic growth and prosperity in our member countries.

As we look ahead, we hold high expectations for the evolution of Islamic finance tools and practices within Azerbaijan. With the combined efforts of ITFC, the government, and the private sector, we envision a vibrant Islamic finance ecosystem that not only stimulates economic growth but also promotes financial inclusivity and stability, ultimately improving the lives of the Azerbaijani people. Together, we are poised to tap into the promising future of Islamic finance in Azerbaijan, realizing its full potential and reaping the benefits of a more diverse and ethical financial landscape.

- Considering that the financial needs of SMEs in Azerbaijan have exceeded $6 billion, is there a plan to expand activities in support of small and medium-sized enterprises in accordance with the institution's mandate?

- Azerbaijan holds a significant position as one of our valued member countries within ITFC. In full alignment with the national development vision of the Azerbaijani government, we recognize that supporting the private sector and small and medium-sized enterprises (SMEs) stands as a paramount priority for ITFC. Between 2009 and 2013, ITFC’s total approvals in favor of Azerbaijan equaled to $83.4 million. This financing was extended to support private sector entities and SMEs in Azerbaijan. This financing helped the partner banks to offer Sharia-compliant trade solutions to their clients and enabled the SMEs to access alternate modes of financing.

It's crucial to acknowledge that, the global trade finance gap reached a staggering $2.5 trillion in 2022. This wide chasm in trade finance availability poses substantial challenges to sustainable economic growth and development on a global scale. The adverse effects of this trade finance gap are most acutely felt by SMEs, who often encounter significant hurdles in accessing the financial resources necessary for their growth and expansion.

In keeping with our mandate and objectives, ITFC is fully committed to supporting Azerbaijani SMEs within the framework of our Integrated Trade Solution approach. This approach signifies a holistic strategy where trade finance operations are complemented by trade development and capacity-building initiatives. As part of this strategy, ITFC has launched an ambitious trade development Flagship Program known as Trade Connect Central Asia+ (TCCA+). Among the foremost priorities of the TCCA+ Program is extending support to export-oriented SMEs.

The application of Islamic finance-compliant trade solutions represents a pivotal aspect of our strategy. These solutions are designed to empower SMEs in Azerbaijan by granting them access to Sharia-compliant trade finance resources and facilitating their engagement in regional and international trade activities.

In this context, we have initiated a process to rekindle our partnerships with commercial banks based in Azerbaijan. Under the Line of Trade Financing facilities, ITFC is set to provide both funded and unfunded Sharia-compliant solutions to cater to the trade finance requirements of SME clients in Azerbaijan. As a notable milestone, ITFC will be signing an agreement with Rabitabank for a $10 million LC Confirmation facility. This facility has been designed to streamline and expedite the trade finance needs of SME clients in Azerbaijan.

This collaboration with Rabitabank is a revitalization of our journey, as we are committed to forging partnerships with other local banks in Azerbaijan. Through these partnerships, we aim to offer a comprehensive suite of trade finance solutions and actively promote the principles of Islamic finance within the country.

In conclusion, ITFC is fully dedicated to supporting the SME sector in Azerbaijan, contributing to the realization of the nation's development objectives, and mitigating the adverse effects of the global trade finance gap on SMEs. Through our integrated approach and partnerships, we aspire to make a meaningful impact on the growth and prosperity of Azerbaijani SMEs and the broader economic landscape.

- Azerbaijan is a participant and initiator of numerous international projects in the transportation, oil, and gas sectors. Do such projects attract the attention of the institution?

- Azerbaijan's active participation and initiation of international projects in the transportation, oil, and gas sectors indeed draw our keen attention at the Islamic Trade Finance Corporation (ITFC). These sectors play a pivotal role in the economic development and energy security of our member countries, including Azerbaijan.

Energy security stands out as one of the primary pillars of our corporation's focus. While we strongly advocate for the transition of economies toward greener and more sustainable energy sources, we acknowledge the immediate and critical energy needs of our member countries. For many nations, including Azerbaijan, oil and gas resources remain vital components of their energy mix until they can economically and feasibly shift to renewable energy alternatives. In this context, we are prepared to consider supporting the oil and gas sector of our member countries as a means to ensure energy security and meet their developmental requirements. Our objective is to strike a balance between addressing immediate energy needs and facilitating the transition towards more sustainable energy practices.

Turning to the transportation sector, it's worth noting that the Islamic Development Bank (IsDB) actively engages in infrastructure investments within this domain. We recognize the potential for complementarity between our organizations in this regard. While IsDB focuses on infrastructure development, we can contribute by supporting the maintenance of transport infrastructure through the extension of working capital financing to relevant sectors. Furthermore, our collaboration can extend to the enhancement of soft infrastructure within vital transport corridors, streamlining logistics and trade facilitation.

In essence, the active participation of Azerbaijan in international projects related to energy, transportation, oil, and gas aligns closely with our mission at ITFC. We are committed to exploring avenues for collaboration and support that can foster economic development, enhance energy security, and optimize transportation infrastructure to benefit not only Azerbaijan but also the broader region and our member countries. Our aim is to ensure a harmonious balance between immediate needs and long-term sustainability, ultimately contributing to the prosperity and stability of our member nations.

- There are plans to attract private investments into several state institutions in Azerbaijan, such as "Azerbaijan International Bank," "Azerbaijan Caspian Shipping Company," "AzerGold," and some institutions related to the digital and oil sectors. Do you have experience in investing in state institutions or issuing joint bonds?

- ITFC is authorized to collaborate with both public and private sector entities. Over the years, we have established a commendable track record of successful partnerships with state institutions in various member countries, delivering tangible results that have contributed significantly to economic growth and development.

These collaborations have often played a pivotal role in ensuring food and energy security, which are critical components of socio-economic stability. By partnering with state institutions, ITFC has been able to facilitate the flow of essential commodities and energy resources, thereby supporting the development aspirations of member countries.

In light of this, ITFC is open to exploring potential cooperation with state-owned enterprises (SOEs) and state institutions in Azerbaijan, as the government seeks to attract private investments into institutions such as "Azerbaijan International Bank," "Azerbaijan Caspian Shipping Company," "AzerGold," and other entities in the digital and oil sectors.

For example, Azerbaijan International Bank, being the largest and systematically important bank in the country, could be an ideal partner for ITFC in Azerbaijan. Such collaboration could pave the way for the promotion of Sharia-compliant trade solutions and the facilitation of trade activities in line with the principles of Islamic finance.

In essence, ITFC stands ready to study the feasibility of partnerships with state institutions in Azerbaijan, leveraging our expertise and experience to contribute to the country's economic growth and development goals. Our ultimate aim is to enhance trade and promote sustainable socio-economic development within Azerbaijan, in alignment with our core mission and the priorities of our member countries.

- In Azerbaijan, which sector do you see having development potential, and what advice can you offer for the development of these areas?

- The Government of Azerbaijan has made significant strides in diversifying its economy, recognizing the importance of nurturing sectors beyond traditional domains. Among the sectors that hold immense development potential, the agriculture sector stands out as a strong candidate. This sector plays a pivotal role in not only ensuring a steadily growing economy but also in fostering competitiveness on a global scale. Further enhancement of the competitiveness of agriculture sector products will open new markets and export destinations. Examples of these enhancements are modernization and expansion supply chain to increase productivity and yields to increase the supply capacity. Moreover, improved knowledge of international markets particularly within IsDB Group countries such as GCC, Asian and African market could lead to the growth of exports in the food and agriculture sector. International Trade will play an important role in this regards. Further enhancement of transport and trade infrastructure, logistics and trade policies and procedures are all important in helping Azerbaijan in becoming the regional trade and transit hub.

- What new projects is the International Islamic Trade Finance Corporation interested in supporting in Azerbaijan?

- ITFC is committed to aligning its projects and interventions in Azerbaijan with the country's National Priorities for socio-economic development, particularly focusing on fostering a steadily growing and competitive economy.

ITFC encompasses support for both the public and private sectors, enabling us to engage with a broad spectrum of entities and clients in Azerbaijan. In the public sector, ITFC is keen on exploring mechanisms to finance state-owned enterprises, spanning various sectors such as oil and gas, telecommunications, and transportation. This strategic approach is designed to bolster the government's efforts in enhancing the performance and sustainability of key state institutions.

In the private sector arena, ITFC has ambitious plans for the coming years. We are dedicated to expanding our network of partner banks in Azerbaijan, reinforcing our commitment to facilitating trade finance for the private sector and small and medium-sized enterprises (SMEs). Through our Line of Trade Financing facilities extended to banks and financial institutions, we will play our role in addressing the trade finance needs of private sector clients, thereby supporting their growth and expansion.

A notable aspect of our approach is our adherence to the principles of Shariah, ensuring that the financing provided is in compliance with Islamic finance principles. This commitment not only promotes the development of Islamic finance in Azerbaijan but also offers alternative modes and sources of financing, particularly beneficial for SMEs that are often underserved by traditional financial institutions.

Furthermore, ITFC places great value on Azerbaijan's continued support and contribution to the Trade Connect Central Asia+ (TCCA+) Program. This program serves as a catalyst for intra-regional trade and investment, aiming to connect the region's markets, including Azerbaijan, to other international markets. By participating in TCCA+, Azerbaijan can harness its strategic geographical location to strengthen its position as a key player in regional and international trade dynamics.

In essence, ITFC is poised to play a pivotal role in supporting Azerbaijan's economic development by collaborating with both public and private sectors, offering Sharia-compliant financing, expanding our network of partner banks, and actively participating in transformative programs like TCCA+. Our goal is to contribute to the sustainable growth and prosperity of Azerbaijan and its people, in line with the nation's development aspirations and priorities.