IDB Unit Investment Fund (UIF)


Establishment

The IDB Unit Investment Fund (The UIF or the Fund) was established in 1989 under Article 23 of the Articles of Agreement establishing the Islamic Development Bank.

 

Nature & Legal Form

The UIF was established as a U.S. Dollar trust fund managed by the Islamic Development Bank in accordance with the Islamic concept of Mudarabah and the Regulations of the Fund. The IDB undertakes the role of Mudarib acting as Manager and Trustee of the Fund.

 

Shareholders (Unit holders)

Subscription to the Fund’s units is open to institutions in member and non-member countries of IDB such as Islamic banks, financial institutions, charitable organizations, employee pension funds, and investment companies.

 

Objectives and Scope of Activities

The Fund aims at participating in the economic development of the member countries of IDB through the pooling of savings of institutions and individual investors, and investing these savings in productive projects in the member countries and thus providing investors with a profitable and Shariah-compatible investment opportunity.

In selecting the Fund's portfolio, emphasis is placed on investments that are medium to long-term. Short-term investments are made with the sole objective of maximizing the yield on cash balances awaiting suitable medium and long¬-term investments.

The Fund gives preference to expansion and modernization of existing facilities or companies that have proven track record. In general, the investments made by the Fund are restricted to high-grade or commercially profitable companies, and viable projects backed by guarantees from first class commercial banks acceptable to the Fund.



Target Market

The Fund provides financing for both private and public sector in IDB member countries. In addition, it can even consider financing of trade and projects in non-member countries of IDB, if such financing is in line with the principles of Shariah.



Organization Structure

The UIF is managed by the IDB as a Mudarib (Manager). Thus the Board of Executive Directors (BED) of IDB has the overall responsibility for the business of the Fund.

In accordance with the Regulations of the Fund, the business and affairs of the Fund are carried out by an Executive Committee, which sets the strategic direction of the Fund, establishes goals for management, reviews the performance, and ensures that investors are prudently safeguarded.

 

Capital Structure

The authorized capital of the Fund is US$ 500 million of which US$ 325 million has so far been raised so far.

In order to ensure a sound capital structure for the Fund that safeguards the capital of investors and ensures a steady dividend payout policy, the fund has applied two measures. Firstly, it has created a Capital Preservation Account to which 5% of the net income of the Fund (before Mudarib's share) is transferred annually, and secondly, it has also formed a Dividend Equalization Account to which income distributable to the unitholders (in any given year) in excess of the dividends distributed is transferred.

The Mudarib strives to ensure that the dividends distributed to unitholders are commensurate with those prevailing in the market for comparable investments. To this end, it may draw upon the balance of the Dividend Equalization Account, as and when needed, to increase dividends to the required market level.

On liquidation of the Fund, any balance remaining in the Capital Preservation Account and Dividend Equalization Account will be transferred to the Waqf Fund of IDB and will not be distributed to unitholders.

 

Profit Distribution

As indicated above, 5% of the net income of the Fund (before Mudarib's share) is transferred to the Capital Preservation Account.

 

The balance is distributed as follows:

Particulars % of Total
Mudarib (Management) Fees 15%
Distributable Dividends 85%
Total 100%

If distributable dividends are above prevailing market return for comparable investment, then the balance is transferred to the Dividend Equalization Account; if it is below prevailing market return then the Mudarib would draw on the balance available in the Dividend Equalization Account to top dividend distributions to the required market level.

 

Profitability and Income Stability

The Fund evolved as an income fund aiming to distribute a steady dividend that seeks to match and preferably outperform the return of comparable investment instruments of the same asset class.
The Fund has succeeded in achieving this objective because of the following:
Steady income generated from pre-determined repayments of lease and installment sale contracts, mostly selected from the IDB's port¬folio based on, inter alia, proven track record of timely repayment;¬
Regular replacement of matured lease and installment sale contract;
Maintenance of a Dividend Equalization Account.


Exit Mechanism

The Fund was listed on the Bahrain Stock Exchange in 1996 which meets the liquidity requirement of the unit-holders. IDB as the Mudarib performs a limited role of the market-maker through which it provides liquidity to the unit-holders on the terms and conditions laid down in the Fund's Regulations.

 

Security

The Mudarib (the IDB) applies very prudent measures for extending financing out of Fund’s resources. These measures include, among others, the requirement of Government guarantees, first class bank guarantees and insurance cover of renowned credit insurance companies. In limited cases, the Fund offers clean financing with a view of attracting blue-chip corporates. In such cases, very stringent measures are applied to ensure that only large corporates with sound financial position are granted clean financing.

To guard against concentration risk, the Fund strives to diversify its financing portfolio by setting ceilings for countries, sectors, and also companies within a country.

 

Financial Reports

The Fund provides quarterly financial statements that are reviewed by its external auditors in addition to the audited year-end financial statements.

 

External Auditors

The Fund is audited by internationally reputed auditing firms, who provide quarterly reviews and year-end audit of the Fund's financial statements.

 

 

List of Unit-Holders (Amounts in US Dollars)
Participants' Name Country Shareholding % of Total
1 Islamic Development Bank Saudi Arabia     88,178,105 27.13%
2 E-Amar Cayman Island Co Cayman Is.     55,870,960 17.19%
3 IDB Staff Retirement Fund Saudi Arabia     29,213,463 8.99%
4 Shamil Bank -  Bahrian Bahrain     23,510,000 7.24%
5 Dubai Islamic Bank Dubai, UAE     19,000,000 5.85%
6 National Commercial Bank Saudi Arabia     18,472,000 5.68%
7 Islamic Corporation for Insurance of Investment & Export Credit Saudi Arabia     17,224,000 5.30%
8 Islamic Banks' Portfolio Saudi Arabia     15,919,320 4.90%
9 Faysal Islamic Bank of Egypt Egypt     10,000,000 3.08%
10 Direct Aid - Kuwait Rep Office Kuwait       8,224,800 2.53%
11 Beit  Ettamwil  Saudi  Tunsi  ( BEST) Tunisia       7,000,000 2.15%
12 Sudanese African Company for Development & Investment Sudan       4,844,000 1.49%
13 Africa Moslim Agency Kuwait       4,810,000 1.48%
14 Islamic Solidarity Fund Waqf Saudi Arabia       4,684,000 1.44%
15 Lembaga Ursan Dan Tabung Haji Malaysia       3,330,000 1.02%
16 Qatar International Islamic Bank Qatar       2,900,000 0.89%
17 Abaraka Investment & Development Co Saudi Arabia       2,400,000 0.74%
18 Gulf Investment Corporation Kuwait       2,160,000 0.66%
19 Al-Dhafer Textile Company - Abu Dhabi UAE       1,965,520 0.60%
20 BEST Reinsurance Tunisia       1,703,832 0.52%
21 Bahrain Islamic Bank Bahrain       1,000,000 0.31%
22 International Investment Group Kuwait       1,000,000 0.31%
23 Bank Islam Malaysia Malaysia         540,000 0.17%
24 Kuwait Turkish Evkaf Finance House Kuwait         500,000 0.15%
25 Islamic Institute of Technology, Dhaka Bangladesh         300,000 0.09%
26 Accounting & Auditing Org for Islamic Financial Institutions Bahrain         250,000 0.08%
TOTAL   325,000,000 100.00%