Since 1975, the Islamic Development Bank (IsDB), through it is five entities, has made several remarkable achievements in fostering the development of its 57 member nations (nearly one fifth of the world’s population). However, IsDB Countries face currently an unprecedented range of dynamic challenges as they pursue sustainable development. The global development landscape is changing rapidly due to technological advancements, geopolitical circumstances and growing protectionism. The world is struggling with systemic challenges including slow economic growth, lack of infrastructure, inadequate technological development and a growing youth population. IsDB member countries face, moreover, low development of human capital and high levels of unemployment. These issues, along with increased fragility, social disorder and the negative impacts of climate change, further exacerbate these countries vulnerability.
The economic impacts of these developments require targeted responses if countries are to meet their Sustainable Development Goals (SDG) commitments. In fact, the huge financing requirement to implement the SDG has increased from billions to trillions of US$, exceeding the capacity of any single institution or state.
The IsDB new business model is based on strengthening the competitiveness of member countries in the strategic industries in which they have a comparative advantage. More specifically, IsDB seeks to mobilize US$ 1 trillion through five major industries to lead development in its member countries, generating 10 million new jobs annually by 2030. The selected industries are food and agribusiness; textiles, clothing, leather and footwear; petroleum and chemicals; construction; and Islamic finance.
This bold strategic move from IsDB sends a strong signal to the Islamic Finance industry regarding the integration of sustainability in its core business model. Despite the abundant literature on the fit between sustainable development and Islamic finance as well as some successful impact finance initiatives especially in South East Asia, it is clear the market has not yet seen the potential of Islamic Finance industry to drive sustainable development with positive environmental, social and governance outcomes.
In my opinion, the IsDB new business model provides very interesting insights for Islamic finance institutions seeking to adopt a similar approach on impact finance:
- Focus: It is virtually impossible for a single institution to address all sustainable development goals. Choosing specific challenges where the financial institution has a strong competitive advantage is paramount
- Goal setting and impact measurement: Target performance indicators are clearly highlighted in new IsDB business model. Performance measurement is key for any impact finance initiative
- Agility: In order to implement the new business model, IsDB aims at moving towards a leaner organizational structure with simpler business processes. Islamic financial institutions are relatively young with a smaller size compared to their conventional counterparts. Therefore, Islamic financial institutions involved in sustainability should take advantage of this factor
- Involving Stakeholders: Creating 10 million new jobs annually by 2030 requires the active contribution of a several external partners. Impact finance Institutions need to proactively collaborate with relevant stakeholders to further the objectives of any impact finance strategy
NB : This article was initially published in page 20 of IFN Volume 16 Issue 19 dated the 15th May 2019