Empowering social enterprises through the waqf institution: The case of SDG 3 (good health and well-being)

The problems our planet is faced with are complex and all-spanning. Global environmental degradation and climate change are coupled with increasingly alarming social fracture and economic disparities. Governments alone have failed to provide solutions to those wicked and highly interconnected problems.

In the past fifteen years, a new generation of entrepreneurs have attempted to address the social and environmental complexities at local and regional levels through the so-called social innovation. However, these social entrepreneurs face major hurdles including financing and scaling their products and services. On the other hand, the Waqf institution, considered in the past centuries in Islamic civilization as a major enabler of social and economic welfare, has remained relatively disconnected from modern capital markets and their various forms to achieve growth.

In a paper published in the proceedings of the Waqf and Sustainable development symposium held at Istanbul Sabahattin Zaim University last summer, Dr. Fadwa Chaker and Dr. Wail Aaminou demonstrate how the Waqf institution can be placed at the heart of sustainable economic development by bridging the demand and supply sides of social innovation through structured and efficient mechanisms. The authors firstly describe the theoretical grounding behind social innovation and its role in driving large-scale social impact and sustainable growth. Then, they discuss the Waqf institution as an unconventional instrument for wealth redistribution and eventual economic prosperity. Drawing on the preceding literature discussion, they present a conceptual framework that describes the mechanism through which the Waqf institution can boost inclusive growth by bringing together multiple for-profit and non-profit stakeholders. The authors illustrate the presented framework with the case of good health and well-being as one of the important UN sustainable development goals. In doing so, they show how Waqf helps social innovators address the structural challenges of financing and scalability and how this innovative instrument can thus be considered as a paramount lever for achieving sustainable development.

To download the full paper, please click here

“The Future is Now”

Image result for sustainable future

What will the future look like in five years? ten years? A Davos roundtable this January enlightened our minds on the unmistakable tipping points that will shape human history in the near future. For that, it was necessary to have multiple angle views from artists, activists, business people and politicians. In a nutshell, there are some core issues that will structure the depth and scope of the future. Continue reading ““The Future is Now””

Leveraging Income sharing arrangements to finance education

Source : Koç University, Turkey

Providing quality education is a critical goal in the sustainable development agenda. Indeed, when people are able to get quality education they can break from the cycle of poverty and enjoy healthier and more sustainable lives. Education is also crucial to fostering tolerance between people for more peaceful societies.

OIC countries are far from Ensuring inclusive and quality education for all and for promoting lifelong learning. According to the 2018 report “Education Quality in the OIC Member Countries “, these countries have struggled with a lack of progress in improving education quality in the last two decades as shown in international assessments. Furthermore, the gap between OIC and non-OIC countries seem to have widened over time. Mobilizing financings for education is one of the challenges not only in OIC countries but also globally with  education fees on the rise and students struggling with large debt balances. To illustrate, in the United States student debt reached a new height in 2018 — a $1.5 trillion. A typical student borrower will have $22,000 in debt by graduation.

Income sharing arrangements (ISA) seeks to address this issue by providing alternative financing schemes. Students financed through ISA do not pay tuition nor fees upfront. Instead, the financier (the university or any third party) gets a fraction of their salaries after graduation if certain conditions are met (typically, when the salary exceeds a certain threshold).

On paper, interest of all stakeholders in the ISA scheme seem aligned:

Students have incentives to join ISA, especially those from low and middle-income families;

  • Universities using ISA financing are keen on attracting brilliant students who can make it to the job market. In addition, the university will make sure enrolled students are better prepared for the job market;
  • Recruiters hire well-trained students with skills matching their expectations.

ISAs have gained prominence as an alternative to traditional debt schemes, especially in the US where they are provided by academic institutions (eg. Purdue, App Academy…) or financing start-ups (eg. GS2, Align…).

Given the shortcomings in education achievements in developing and developed economies, this product is worth developing by financial institutions along with the nonprofit sector. It will allow a better alignment of finance and SDG #4 (Ensuring inclusive and equitable quality education and promoting lifelong learning opportunities for all) and will provide financial institutions with the opportunity to diversify out of debt-like instruments.

“Sleepwalking” to the dead end?

Earth danger

« Is the world sleepwalking into a crisis?” This is how the 2019 Global Risk Report starts its summary of the global risks hovering over our planet as seen by chief economists at the World Economic Forum. And this is probably one of the most alarming yet truthful apologies we have ever been confronted with. Yet the stakes are high, at best. The report highlights that 60% of the global risks with both the highest likelihood and the highest impact are related to human-induced climate change. The remaining 40% most likely to hit are technological risks pertaining to cyber-security, data theft and fraud. Failing to mitigate those risks can present an inflection point in mankind’s history. Researchers have set the 2°C threshold for containable damage. Scientists claim that we have trespassed “planetary boundaries” and that we run short of time.

With the acceleration of industry 4.0 and the widening divide it creates between rich and poor countries, global inequality will be on a rise. Migration, poverty and exclusion increase public distrust, pushing for further populism and centroid policies.

But, it seems like there is a way out of this global trouble. And this way is exactly the opposite of what we’re seeing in protectionist regimes. Economists introduced the concept of Globalization 4.0 whereby transnational cooperation for planetary benefit overtakes the narrow view of national interests. In a scheme of an international shared vision, nations are called to join hands in collective action to create fair trade in a safe planet where human beings have equal chances of leading a decent life. Now, theory is good, and even strongly inspirational. But there is a big question which remains unanswered: “who gets their hands in first?” China, who claims its right to mass industrialization after a long era of economic faintness? Europe, who is divided between achieving the sustainability transition and safeguarding economic supremacy? Or the United States where the word ‘climate change’ is taboo in the Oval Office?

In this global geopolitical disorder where economic predation fuels political ambitions, the voices of weak stakeholders can have a weight. When political systems fail, consumers, scientists and business people must act as responsible individuals who owe a debt of gratitude to the planet. For neither false discourses nor disguised handshakes will stop the roar of the chaos ahead.

Corto #1: In Hope We Trust

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Hier, un brillant groupe d’étudiants de différents pays du sélectif Programme Grande Ecole ont pris part à mon cours « Managing sustainably in emerging economies ». Le sujet du cours les intéressait à premier abord dans la mesure où ils apprendraient les concepts et mécanismes liés à la notion du développement durable et sa relation avec le doing business et la croissance économique.

Mais très vite, deux choix ont été faits pour repositionner les cartes et les aider à se faire une opinion :

  • Pour comprendre le présent et orienter le futur, il est indispensable d’analyser le passé. Une vision historique du développement économique mondial est donc nécessaire.
  • L’Afrique, représentant autant de risques que d’opportunités pour un développement planétaire durable est inclusif, est mise en avant-première dans la réflexion.

D’emblée, l’on se retrouve en train de débattre de la géopolitique du développement durable, des enjeux stratégiques nationaux et internationaux, et de l’ultime question « Is sustainable development feasible ? » Les visages s’assombrissent, on pause, on réfléchit, on prend conscience lentement que les enjeux sont complexes, que les conflits d’intérêt sont criants, que le temps joue contre nous.

Et puis, on prend aussi conscience qu’en tant qu’agents du changement, ces jeunes femmes et hommes seront très vite aux commandes de grandes entreprises et multinationales, et qu’ils seront capables de façonner le monde à leurs convictions pour un développement, cette fois, plus équitable, plus innovant car plus soucieux de l’impact écologique et humain qu’il produit.

Les visages défaits, incertains et inquiets ont quitté ce cours avec beaucoup de questions certes, mais aussi avec beaucoup d’espoir et de conviction que le changement est non seulement possible, mais qu’il est aussi entre leurs mains. A suivre…

Espresso : Pourquoi il faut se méfier des sociétés de marketing en réseau !

En quoi consiste le marketing en réseau ? Le marketing en réseau (ou marketing multi-niveaux) consiste à distribuer des produits et services par des commerciaux indépendants qui recrutent (parrainent) d’autres commerciaux qui également font la même chose. Un commercial est rémunéré sur la vente des articles et les recrutements ainsi que sur l’activité commerciale de ceux qu’il/elle a recrutés. Plusieurs sociétés suivent ce modèle d’affaires telles que FOREVER LIVING, QNET et HERBALIFE.

Comment expliquer le succès du marketing en réseau ?  La vente des services & produits en réseau permet d’augmenter la force de vente d’une manière exponentielle. Son succès provient du modèle de rémunération attractif pour les commerciaux qui disposent d’un réseau de commerciaux actifs important. En fait, ces sociétés vendent très bien le rêve de l’indépendance et l’accès rapide à la richesse appuyés par des exemples de commerciaux qui ont réussi (on oublie de dire au passage que ces cas de réussite sont minoritaires et que la grande majorité perd de l’argent où en gagne peu).  C’est pour cette raison que ces sociétés insistent sur le développement personnel ainsi que sur la création d’une forte culture d’appartenance.

En quoi consiste la vente pyramidale ? Un modèle d’affaire où les participants sont exclusivement rémunérés sur le recrutement de nouvelles recrues. Cette pratique est légalement interdite.

Pourquoi le marketing en réseau s’apparente à la vente pyramidale ? La similarité entre les pratiques de vente en réseau et les structures pyramidales (basées exclusivement sur le recrutement de nouvelles recrues) est souvent pointée du doigt. En réalité, un commercial qui rejoint une société de vente en réseau n’a pas du tout intérêt à vendre des produits (commission perçue une seule fois) mais plutôt à intérêt élargir et  maintenir son réseau de commerciaux (commissions récurrentes et qui augmentent quand le réseau s’élargit). Ainsi, dans les faits, la vente en réseau s’assimile à un schéma pyramidal avec une focus sur le recrutement, avec une répartition inégale des revenus entre le haut et le bas de la pyramide et avec un grand « Turn over » provenant des commerciaux qui perdent leurs investissements en droit d’entrée (souvent sous forme d’achat de produits).

Vous voulez en savoir plus ? Article rédigé par l’auteur sur le marketing en réseau et ses similarités avec la vente pyramidale appuyé par des simulations multi-agents.

Why should Islamic banks support the Principles of Responsible Banking?

Source : PRB UNEP-FI

On November 26, 2018, at its Global Roundtable in Paris, UN Environment FinanceInitiative (UNEP FI) and 28 banks from around the world launched the Principlesfor Responsible Banking (PRB) for a six-month public consultation. The PRB representa voluntary commitment to a more responsible and sustainable way of bankingthat will contribute to the achievement of society’s goals.

The PRB proposes a framework around six principles:

  • Alignment: Ensuringthat the banks’ business strategy is consistent with individuals’ needs andsociety’s goals, as expressed in the SDGs, the Paris Climate Agreement andrelevant national and regional frameworks;
  • Impacts: Holistically assessing and managing the risks, opportunities and impacts resulting from banking activities. Banks have also to continuously improve their positiveimpacts while reducing their negative impacts;
  • Clients andcustomers: Working with clients to encourage sustainable practices and to enable economic activities that create shared prosperity forcurrent and future generations;
  • Stakeholders: Proactively collaborating with relevant stakeholders to further the objectives of these Principles;
  • Governance and Culture: Implementing banks’ commitments through effective governance processes, management systems and a culture of responsible banking;
  • Transparency and Accountability: Periodically reviewing the implementation of the Principles and being transparent about and accountable for the impact.

Although both conventional and Islamic banks can adopt the principles, I do feel that Islamicbanks can better leverage such principles for at least four reasons:

  • PRB strengthen the value proposition

Today, Shariacompliance dominates the value proposition of many Islamic banks, which makesattracting customers on a non-religious ground challenging for such banks.  Moreover, Islamic banks’ customers expect banks to be strongly involved in economic, social and environmental issues becausesuch a positioning is in line with its core values. With PRB, Islamic banks will integrate sustainability across all business areas, resulting in a stronger value proposition. 

  • PRB offers international recognition  

The PRB frameworkguides Islamic banks in their sustainability journey and allows them to highlighttheir achievements to both a national and international audience. This recognition is particularly valuable when reaching out to new customer segments.

  • PRB is more needed in OIC countries

The scale offunding and technical support required to achieve the ambitious 2030 agenda arefar beyond the scope of OIC governments’ budgets and traditional funding mechanisms. Consequently, there is a vast gap to be filled, and Islamic banking can play a leading role, especially that the industry’s underlying principlesemphasize, among others, the values of social justice, transparency and risk sharing

  • PRB is more effective in agile contexts

In many countries, Islamic banks are relatively young with a smaller size compared to their conventional counterparts. Therefore, Islamic banks are more agile to adapt their business model to the PRB requirements.

To sum up,The PRB framework provides a timely opportunity for Islamic banks to harmonizethe business model with their core values, ensure continued growth and channelfunds for sustainability friendly projects and initiatives.

This article was first published in Islamic Finance news Volume 15 Issue 49 dated the 5th December 2018