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Establishing a branch of the Islamic bank in Estonia.Feasibility study.
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Establishing a branch of the Islamic bank in EstoniaFeasibility study
Prepared by:
Vladimir Maslov
Mark Maslov
Maslov Consulting LLCFebruary 2014
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Content
1. Idea and goals 3
2. The problem and its solution 4
3. Potential customers 5
4. Preconditions 6
5. Risks. SWOT analysis 13
6. Estonian and Baltic States’ potential 16
7. Next steps 18
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1. Idea and goals
The aim is to establish a branch of the Islamic bank in the Baltic States to facilitate the implementation of creative projects in various sectors of the economy such as industry, agriculture, energy, information and communication technologies.
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2. The problem and its solution
Competitive advantage of Islamic banking in the Baltics:a new, unique and just form of financing in the region.
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3. Potential customers
At the beginning stage, customers of the branch will be companies with a turnover of at least 2 million € and have been running in the market for at least three years. The Baltics is one of the fastest growing region in the European Union. There are suitable promising companies with viable plans and development potential. The approximate quantity of customers can be 2-2.5% of all running companies.
Statistics on companies in 2013
The priorities are: Production companies Agricultural enterprises IT developers Transportation and logistics
Country Number of companies
Estonia 170000
Latvia 265000
Lithuania 181000
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4. Preconditions. What for?
The study of the mechanical engineering sector in Estonia conducted by the University of Tartu in 2011 showed the demand on additional financial instruments. The survey involved 124 production enterprises of which 60% were in favor of the need for new financial instruments.
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4. Preconditions. Why Estonia?
• EU member
• Developed infrastructure (100% fiber optic broadband by 2015, more than 1,150 public wireless access points to the Internet)
• Operating electronic state (voting, tax, health care, etc. Estonian companies are developing similar solutions for the State of Qatar)
• Competitive costs and tax system (1/3 of staff costs compared to Finland or Sweden, simple tax system, reinvested profits are not taxed, online registration of a new company in 20 minutes!)
• Low risk (2nd place along with Denmark regarding the stability index in the EU, the lowest public debt in the EU, low level of corruption)
• Skilled and educated workforce (55% speaks one or more foreign languages, core competence in electronics, transport and logistics, food and chemical industries, engineering and metalworking, information technology)
• Advantageous geographical location (close integration with Scandinavia, proximity to Russia , good connections to Central Europe)
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4. Preconditions. Tax systemIn Estonia reinvested profits are not taxed!
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4. Preconditions. Scandinavian manufacturer`s opinion about business climate in Estonia
Bo Henriksson, ABB Country Manager in Estonia:
The government doesn't meddle. "The climate to operate a business in Estonia is very easy," says Henriksson. "There is very little bureaucracy."
An ample supply of specialists. Even when the labour market has been at its tightest, ABB has been able to recruit and train the specialists it needs. When ABB could not find the specialists it needed to produce turbines for wind generators, it created programs and trained them itself.
A good work ethic. At the level of the assembly line workers, the local labour is consistently praised as honest and hardworking.
Geography. Since as much as 100 percent of some of ABB Estonia's production is slated for other ABB factories, the geographic proximity to Scandinavia is critical. This is true of wind turbine production at the Jüri factory: although thirty percent of the world's wind parks use its products, every generator must journey to another ABB facility before it meets its final user.
Room to grow. ABB is engaged in lobbying work with ABB Corporate to expand production in Estonia. There are case studies which illustrate success in moving entire operations to Estonia, such as in 2006 when ABB moved the compact substation manufacturing facility from Denmark. "It's profitable in Estonia," says Henriksson. "For a variety of reasons, it wasn't ever profitable in Denmark."
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4. Preconditions. Financial sector overview
• Close relationship with the Scandinavian banking system including through ownership
• 7 registered banks. All the rest are acting as branches.
• Relatively small share of the financial sector in the economy as a whole
• The private sector credit load to GDP ratio is relatively low.
• Estonia has a small public debt.
• The financial sector is stable compared to other EU countries
• Highly developed system of Internet banking
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4. Preconditions. Market shares of Estonian banks
Bank %Balance volume
1000 EUR
BIG 1,52% 346 544
SAMPO 9,37% 1 641 204
DnBNORD 1,29% 315 746
Krediidipank 2,39% 396 301
LHV 0,79% 282 689
NORDEA 13,54% 3 167 452
CITADELE 0,75% 264 329
SEB 19,16% 3 614 192
SWEDBANK 46,50% 7 844 040
UniCredit 1,65% 261 166
ÄRIPANK 0,73% 165 010
POHJOLA 0,02% 142 325
не входящие в союз банков 2,29% 297 763
Всего 100,00% 18 738 761
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List of institutional investors in EstoniaACCOUNT OPERATORS
• Avaron Asset Management AS http://www.avaroncapital.com
• Hansa Investeerimisfondid AS http://www.swedbank.ee
• Kawe Kapital AS http://www.kawe.ee
• LHV Varahaldus AS http://www.lhv.ee
• SEB Ühispanga Fondid AS http://www.seb.ee/fondid
• Trigon Alternative Funds AS http://www.trigon.ee/en
• Trigon Funds AS http://www.trigon.ee
• ERGO Varahalduse AS http://www.ergofondid.ee
• Danske Capital AS http://www.danskepank.ee
• IPS “Hansa Fondi” AS
• EVLI Fund Management CompanyLtd
• East Capital Asset Management
AB
INVESTMENT COMPANIES
• KIT Finance Europehttp://www.kfe.ee
• Evli Securities AShttp://www.evli.com/pub/web/EE/ee/index
• Cresco Väärtpaberite AShttp://www.cresco.ee
• Lõhmus, Haavel & Viisemann AShttp://www.lhv.ee
• Trigon Securitieshttp://www.trigoncapital.com
• East Capital Asset ManagementAB http://www.eastcapital.com
• Privanet Eesti
• T. Rowe Price Global InvestmentServices
INVESTMENT BANKS
• United Partners Group
http://www.unitedpartners.ee/
• Trigon Capitalhttp://www.trigon.ee
• Evli Securities AShttp://www.evli.com/pub/web/EE/ee/index
• Nordic Financial Serviceshttp://www.nordicfinancial.com
• Cresco AS http://www.cresco.ee
VENTURE CAPITAL
• Ambient Sound Investments OÜhttp://www.asi.ee
• MTVP AShttp://www.martinsontrigon.com/
• BaltCap http://www.baltcap.com
• Redgate Capitalhttp://www.redgatecapital.eu/
PRIVATE EQUITY
• Alta Capital Partnershttp://www.altacapital.ee
• BaltCap http://www.baltcap.com
REAL ESTATE INVESTORS
• Eften Capital -http://www.eften.ee
• AS Eastern Europe Real EstateInvestment Trusthttp://www.eereif.com/
• Metro Capital Management AShttp://www.metrocapital.eu
• Redgate Capitalhttp://www.redgatecapital.eu/
• Trigon Property Advisorshttp://www.trigoncapital.com
MEZZANINE FINANCING
• Balti-Ameerika Ettevõtlusfond
• Hanseatic Capitalhttp://www.hanseaticcapital.net/
• Baltic Mezzaninehttp://www.balticmezzanine.ee
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5. Risks. Religious risk is avoidable
The leaders of the Christian churches recognize the morality of Islamic banking compared to traditional banking system.
The Vatican has put forward the idea that "the principles of Islamic finance may represent a possible cure for ailing markets.“**Lorenzo Totaro (2009-03-04). "Vatican Says Islamic Finance May Help Western Banks in Crisis". Bloomberg L.P. Retrieved 2009-04-13.
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5. Risks. SWOT-analysis
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0
1000000
2000000
3000000
4000000
5000000
6000000
BIG DANSKE DNB EKRE HANDELSB LHV VERSO NORDEA CITADELE SCANIA SEB SWED ÄRIP POHJOLA FOLKIA
Loans 288073,92 1057140,029 493606,389 131349,3 112497,159 163545,48 23647,16 2269959,96 47665,51 39459,61 3162635,29 5371607,91 27568,31 94073,82 2309
Deposits 238231 1475535 221564 206542 76375 272370 88406 844296 85443 0 2420111 5059805 135699 2981 0
Loans and deposits correlation of Estonian companies to 30 September 2013 (thous. €)
6. Estonian potentialIf we consider that by the end of the first year the new branch will capture 0.5% of the market and further annual growth will be at 12.5%, the potential of Estonia can be estimated within a needed investment of € 31 million and € 2.3 million income.
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Total investment - 149.5 million €
Income – 11.2 million €
6. Potential of all Baltic states
17
33213
49819
66426
2491 3736 4982
0
10000
20000
30000
40000
50000
60000
70000
Estonia Latvia Lithuania
First year result in Estonia, Latvia and Lithuania (thous. €)
Investment Income
7. Next steps
Discussion and approval of the terms and objectives of the branch
Registration of the branch
Start!!!
Achievement of objectives
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Contact:
Mark Maslov
GSM: +372 5129624
Linkedin profile: here
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