The first ever Global Muslim Philanthropy Fund for Children

On 26 September 2019, UNICEF and the Islamic Development Bank (IsDB) launched an innovative fund that aims at reaching millions of children currently in need of humanitarian support in OIC countries. The idea of the fund was first announced last April during IsDB’s 44th Annual Meeting of Board of Governors in Marrakesh (Morocco).

Today, global humanitarian needs are at critical levels and children are especially vulnerable as they face the highest risk of violence, exploitation, disease and neglect. To address this need, the Global Muslim Philanthropy Fund for Children (GMPFC) will mobilize Islamic giving, including philanthropic and Zakat resources, towards humanitarian and resilience development programs that ensure the well-being of children. Projects include support for children in education, health and nutrition, water and sanitation, early childhood development, protection and youth empowerment. The fund will benefit from UNICEF’s on-the-ground presence and experience in all OIC countries.

This move from IsDB did not come as a surprise. It confirms IsDB’s President past commitments to position the bank as a catalyst in the achievement of SDG in OIC countries. The launch of GMPFC is a good news for the Islamic finance industry for two reasons. First, it sends a strong signal about the importance of Islamic finance active involvement in social issues. There no doubt that Islamic social finance has developed during the current decade, however, the industry achievements in the social sphere so far are not enough to address current social issues. Second, the GMPFC initiative confirms the Interest of large international organization such as UNICEF in Islamic finance and demonstrates that synergies with Islamic finance can play an important role in the achievement of SDGs. In the past, UNHCR (United Nations High Commissioner for Refugees) established a Zakat fund to alleviate the suffering of forcibly displaced people in OIC countries.

The fund, that will be administered by IsDB, seeks to raise US$250 million from private and public foundations, Zakat agencies and individuals. Although the fund purpose is clear, operational details have not been disclosed so far. In the coming weeks, the Islamic Finance industry and will be waiting for clarifications on the following questions:

  • What marketing approach will IsDB use to convince individuals to donate to the fund knowing that historically, IsDB has been dealing more with governments and businesses?
  • Which Fintech technologies will IsDB leverage to ensure transparency and efficiency?
  • What would be the fund priorities in the first years and what are the fund commitments in terms of impact (SDGs targets)?
  • What synergies will be built with the impact investing ecosystem in order to make the philanthropic funds more sustainable and more focused on income generating activities for beneficiaries rather than on simple cash transfers?

This article was first published in Islamic Finance news Volume 16 Issue 41 dated the 16th October 2019.

ESG, SRI, Impact investing…: Lost in terminology?

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Despite all the dire consequence of the 2008 financial crisis, it did help to question the paradigms of modern days’ finance especially its role in addressing economic, social and environmental issues. As a result, multi-lateral development institutions, think tanks, academic institutions, regulators and financial players have undertaken various initiatives aiming at integrating sustainability and finance into a unified business model. The central focus has been to move beyond the “do well and then do good” approach as in corporate social responsibility to a “do well while doing good” approach that views sustainability as a strategic competitive advantage. Nowadays, concepts like ESG (environment, social and environment) investing; Socially Responsible Investing (SRI), Impact investing, mission-driven investing and responsible finance are gaining traction both in developed and developing countries and are even promoted by “traditional / orthodox” large financial players !  However, the finance and sustainability hype brought also confusion to investors looking for “double bottom line returns”. Are these concepts similar? If not, what are the differences between them? These questions are critical because the proliferation of terms related to financing and sustainability creates fuzziness that ultimately leads to inertia among investors and other market players. Therefore, clarifying the different concepts is key to the development of the impact finance industry.

In this post, I will focus on explaining the difference between ESG, SRI and Impact investing terms. Although, there are many others similar concepts used in the financial markets, the chosen terms are the most common.

ESG refers to the environmental, social, and governance practices of an investment that may have a material impact on the performance of that investment. The integration of ESG factors is used to enhance traditional financial analysis by identifying potential risks and opportunities beyond technical valuations. However, the main objective of ESG valuation remains maximizing financial performance.

Socially responsible investing goes one-step further than ESG by actively eliminating or selecting investments according to specific ethical guidelines. The underlying motive could be sharia compliance, personal values, or political beliefs. Unlike ESG analysis, which is valuation-centered, SRI usually uses ESG factors when applying negative screens on the investment universe. For example, an investor may wish to avoid companies engaged in firearms production, child labor or gambling.

Similar to SRI, impact investing also considers social and environmental effects. However, the difference is that impact investments are only made in companies, organizations or funds where the main purpose is to achieve positive impacts, alongside a financial return. In general, SRI is more concerned with negative screening whereas impact investing is more concerned with positive screening.

As part of the current initiatives to bring finance to its natural orientation, stakeholders (especially regulators) should not omit to take active steps to clarify the different concepts under the impact finance umbrella. Although, this effort looks pretty basic but it is much needed to transform the enthusiasm on impact finance into a more meaningful transformation.

This article was first published in Islamic Finance news Volume 16 Issue 39 dated the 2nd October 2019

Growing Social Impact in Africa: Which Solutions?

Image result for growth africaHow may Africa harness the potential of thousands of its young social innovators and social entrepreneurs in an impactful and efficient manner? Which patterns can be envisaged to expand social impact through sound and informed scaling strategies?

These are the questions I investigated during my participation this September 2nd– 4th to the 11th edition of the International Social Innovation Research Conference (ISIRC) hosted by the Yunus Center for Social Business and Health in Glasgow.

Image result for isirc 2019 think globalAs much as I wanted my contribution to solidly draw on theoretical strands –ISIRC being recognized as the world’s leading interdisciplinary conference on social innovation research, I had the explicit aim of contributing to this collective wisdom by exploring practical solutions with an eye on the peculiarities and contextual specificities of Africa and its local economies.

Today, the African economy does not create enough wealth to meet the pressing needs of its societies in terms of job creation, education, healthcare and human development. Despite the steady economic growth of the continent over the past decade, African governments have failed to translate this growth into positive social welfare based on inclusive and sustainable development. The weight of poverty and unemployment is prevalent in most countries, compounded by civil wars and political instabilities. UNDP experts argue that not only do inequalities deprive the poor of the positive effects of growth, but they also undermine efforts to reduce poverty. It is clear today that such macroeconomic indicators as GDP growth rate usually used to describe the situation of African countries do not faithfully reflect the social reality of the continent or the conditions of poverty in which most African citizens are being trapped. A paradigm shift has become necessary to overcome these structural problems. Social innovation can play a key role in supporting national social policy and adapting it to the new societal challenges.

A new wave of passionate, visionary and impact-driven individuals are bravely entering the space vacated by the two historical players: the State and the private sector. These intrepid leaders, referred to as social innovators or social entrepreneurs, are transforming, every day, the way we approach solution design to pressing social problems. But how might innovative but isolated solutions benefit to millions of populations in need of these innovations in the absence of well-rounded scale-up strategies? Which scale-up mode is most preferred and why?

I argue that scaling-up social innovation “inspirers” in Africa will multiply social impact down the value chain. Thus, I present a conceptual framework for scalability under two modes: concentrated vs. fragmented. In the concentrated (or conglomerate) mode, inspirers collaborate under the auspices of a few regional mega-inspirers that coordinate development activities including incubation, financing and capacity building for the burgeoning social enterprises. The fragmented scenario represents a pattern of multiple small and geographically scattered players working and growing independently. I construct a system dynamics model that simulates the two scenarios and measures the social impact created under each of them.

Results suggest that while fragmented scale-up generates higher impact in the first few years thanks to agility and adaptability factors, this trend is quickly overtaken by the concentrated scale-up strategy which yields the highest impact in the medium and long terms. This is explained by the positive loop created through synergy and collaboration between players under the conglomerate mode. In other terms, when synergistic capabilities are low (due to institutional, legal, or governance constraints), it is better to adopt a fragmented scaling approach. However, as regional integration is becoming a priority in the geopolitical agenda of most African countries, cooperation, co-creation and synergy must and will be a driving force of the next growth patterns. Under this high-synergy pattern, concentrated scaling maximizes social impact and becomes, thus, the most preferred route for scaling up social innovation impact in Africa.

Photo: World Bank

J’ai lu : Vers une économie à trois zéros (Zéro pauvreté, Zéro chômage & Zéro émission carbone) du Pr. Muhammad Yunus

L’économiste Muhammad Yunus, prix Nobel de la paix en 2006, commence son livre par la critique du système capitaliste qui en dépit de ses apports est la source de plusieurs externalités négatives notamment l’amplification des inégalités sociales et économiques ainsi que le dérèglement climatique. De ce fait, pour Muhammad Yunus, il est nécessaire de repenser le modèle capitaliste afin de réconcilier les intérêts personnels et collectifs.

Le véhicule mis en avant dans le livre pour repenser le modèle capitaliste est l’entreprise sociale. L’entreprise sociale est définie comme une étant une entreprise qui fonctionne exactement comme une entreprise normale mais qui se distingue par deux caractéristiques :

  • Le but premier de l’entreprise sociale est de résoudre un problème social ou environnemental
  • Contrairement aux organisations caritatives, une entreprise sociale génère des bénéfices et vise à être financièrement autonome. S’affranchir du besoin constant de lever des fonds (comme dans le cadre des organisations philanthropiques) permet aux entreprises sociales de réinvestir leurs bénéfices pour générer un impact durable.

Ainsi, ce type d’organisation, à cheval entre le business et la philanthropie, ne vise pas à enrichir les investisseurs mais à améliorer durablement la vie des gens et à rendre le monde meilleur.

Dans le livre, Muhammad Yunus présente plusieurs exemples d’entreprises sociales opérant par exemple dans les énergies renouvelables, le recyclage, l’eau et plus généralement la capacitation économique. Il insiste par ailleurs sur trois moteurs pour permettre à l’entreprise sociale de transformer le monde : Les jeunes, la technologie et la bonne gouvernance & les droits de l’Homme.

Au-delà des concepts très intéressants évoqués dans ce livre en relation avec l’entreprise sociale, je retiens personnellement trois conclusions :

  • Quel intérêt du savoir si nous ne l’appliquons pas pour améliorer la vie des gens ? Avant de fonder Grameen Bank (littéralement la banque du village) Pr. Yunus était un professeur d’économie à l’université de Chittagong au Bengladesh. Le déclic s’est produit quand il a remis en cause l’intérêt d’enseigner à ses étudiants des théories économiques alors que des villages avoisinants souffraient d’une extrême pauvreté et n’avaient aucun accès aux services financiers
  • Les défis économiques, sociaux et environnementaux que nous affrontons sont complexes, interdépendants et transfrontaliers. Puisque l’intervention des gouvernements n’est pas et ne sera jamais suffisante, il est plus que jamais nécessaire de mobiliser l’ensemble des parties prenantes pour relever les défis y compris les sociétés civiles et les entreprises (sociales et conventionnelles)
  • Comme le dit Muhammad Yunus dans son livre, si nous imaginons un monde idéal, il y a une chance qu’une partie de cet idéal soit réalisée.  Si nous n’imaginons rien, il y a très peu de chance que les choses changent !  Aussi évident cela puisse paraitre, l’espoir est non seulement une cure psychologique mais aussi une condition sine qua non pour espérer de nous en sortir un jour

فعلاً، لا نحتاج إلى “صناعة” كرة القدم

تابعت كالعديد من التونسيين والمغاربة الخلاف الناشئ حول نهائي دوري ابطال أفريقيا وقرار الكونفدرالية الافريقية لكرة القدم إعادة إجراء المباراة في ملعب محايد .شخصياً لا تهمني ملابسات هاته القضية ومن هو على حق، لكن ما أثار حزني من خلال تتبع النقاش في الإعلام وخصوصاً في شبكات التواصل الاجتماعي هو طبيعة الخطاب الذي يتسم بالعنف والإقصاء والكراهية والحقد من شعبين شقيقين يتقاسمان الدين واللغة والتاريخ وحتى طبق الكسكس ويعانيان اليوم من نفس المشاكل الاجتماعية والاقتصادية. ما أثار حزني كذلك حجم المتابعة الهائلة لهذا الخلاف.

ما يجري الأن بين الترجي والوداد ليس حالة منعزلة بل نلمسها دائماً في اللقاءات الكروية داخل البلد الواحد وبين البلدان العربية مثلاً: نزاع كأس العالم بين مصر والجزائر سنة 2009.

هنا تطرح مجموعة من الأسئلة: ألا تكرس صناعة كرة القدم انقساماتنا ونبذ الآخر داخل المجتمع الواحد وبين الأقطار في الوقت الذي نحتاج فيه إلى تقارب؟ ألا تستحوذ صناعة كرة القدم على موارد مالية ضخمة نحن في أمس الحاجة إليها لرفع تحديات مستعجلة؟ ألا تشغلنا صناعة كرة القدم عن الإشكالات الحقيقية التي لا ينطبق عليها المثل “كم حاجةً قضيناها بتركها”؟ ألم تصر العديد من مباريات كرة القدم معارك حقيقية تأتي على الأخضر واليابس وتكرس السلوك الهمجي والعدواني؟

في تقديري، مفاسد كرة القدم في الوطن العربي اليوم أكثر بكثير من مصالحها. شخصياً أحب كرة القدم، أحب كرة القدم التي لعبناها في الأحياء التي لا تتطلب شيء والتي تتسم بالندية والمرح خصوصاً خلال شهر رمضان. أحب كرة القدم “الرياضة” التي تعلمنا قيم العمل الجماعي والمنافسة واحترام الآخر وليس “الصناعة” التي لا يهمها إلا المال والتي تجعلنا أكثر تخلفاً وتعصباً وانقساما.

Impact finance: IsDB setting the tone for the Islamic finance Industry

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

Doing well while doing good: Moving Islamic banking beyond the CSR paradigm

Financing the SDG agenda internationally requires trillions of dollars. Obviously, governments’ investments are not enough to provide the needed financial resources. Thereby, the private sector in general and the financial sector in particular are required to bridge the financing gap and support the achievement of SDG’s. To illustrate, Arab countries would need a minimum of 230 billion USD a year to finance sustainable development. Unfortunately, corporate social responsibility initiatives are not only ineffective but also unsustainable because such initiatives approach social and environmental issues from the sidelines. Indeed, when corporate sustainability is managed outside a firm business model, its performance and even its existence tend to rely strongly on the firm’s financial performance. Not surprisingly, financial objectives are usually prioritized when they conflict with other goals.

It is true that many Islamic banking institutions undertake several social initiatives ranging from Qard Hassan and energy conservation to zakat payment and charities support. Yet, on average, Islamic banks’ social and environmental initiatives have been rather weak or poor. Islamic banks’ performance in this field is even lower than conventional banks. Many research reports also point out to the low levels of disclosures of Islamic banks with respect to ethics and sustainability. Today, Islamic banks need a paradigm shift by embedding sustainability into their core business model and reconcile their positioning with their ethical roots. In other words, doing well while good instead of doing well and later doing good (sometimes).

Based on an international benchmark of companies that pursue financial and social goals simultaneously, a recent research article sheds light on key success factors to succeed in this paradigm shift and reconcile profitability and sustainability. The benchmark identified four best practices.

  • Setting goals and monitoring progress: Well-constructed goals are important to for dual-purpose companies. Key performance indicators can be built using metrics developed by international NGO’s such as the Global Reporting Initiative and the Sustainability Accounting Standards Board and B-Lab.
  • Structuring the organization: It is impossible to succeed both on financial and sustainable fronts if the organization structure is not designed to support both perspectives. More specifically, the company has to supplement traditional organizational structures with mechanisms for surfacing and working through tensions created by the economic and social perspectives.
  • Hiring and socializing employees: Embedding a dual-purpose focus in the organization DNA requires a workforce with shared values and behavior. Hiring, training and socializing are crucial to get that right.
  • Practicing dual-minded leadership: The board and the management have to manage the tensions that rises when trying to align impact and finance. The company’s governance and leadership must manage tension proactively while committing to the dual goals

Islamic banks engaged in blending profitability and sustainability need to be aware that tensions and trade-offs are inevitable especially when ecosystems supporting such a transition are embryonic or inexistent. Taken together the four levers presented above can make the endeavor more likely to succeed.