Lecture given at Oxford Center for Islamic Studies, by His Excellency Dr. Bandar Hajjar, OXFORD UNIVERSITY, 13 November 2018
In the name of Allah, Most Gracious, Most Merciful
Praise be to Allah, the Lord of the worlds; and blessings and peace be upon His Prophet Muhammad and all Profits whom they were sent for Guidance, Truth, and Mercy to all humankind.
Dear Dr. Nizami, Director of the Oxford Centre for Islamic Studies, Your Excellencies, Distinguished Guests, Ladies and Gentlemen:
السلام عليكم ورحمة الله وبركاته
It is indeed a great honor to be invited to deliver this lecture at the Oxford Centre for Islamic Studies, which has, over the years, invited many distinguished world leaders and high-profile thinkers who are associated with the promotion of understanding, tolerance, dialogue, and cooperation. I am extremely grateful to have this opportunity to share with you a journey of hope, solidarity, and achievements.
I am here today to speak to you in my capacity as the President of the Islamic Development Bank, which has emerged as a noble idea initiated by the late King Faisal Bin Abdulaziz, peace be upon his soul, to establish a South-South multilateral development financing institution for cooperation and solidarity between the Member Countries of the Organization of Islamic Cooperation (OIC). His idea blossomed into reality with the agreement of the OIC member countries to establish the Islamic Development Bank (IsDB), on the principles of the Islamic Sharia, with the purpose of contributing to the economic and social development of Member Countries, and Muslim Communities in Non-Member Countries.
The IsDB visions, goals and practices are inspired by, and consistent with, the enduring moral values and principles of Islam.
The Islamic socio-economic principles strike a balance between spiritual and material needs. They promote social justice and equity, and the value of knowledge and work as a means to development. They provide general rules that encompass the allocation of resources, management, production, consumption, capital market activity and the distribution of income and wealth. All components and systems are integrated and inter-correlated, forming the comprehensive Islamic system. For example, Zakat is based on faith and it is part of Ibadat (worships) but also strongly related to economics, social, civic, and political systems.
As a former professor at King Saud and King Abdul-Aziz Universities, I have the desire to elaborate more on this subject but let me go back to the core of this lecture, the IsDB and its roles and goals. So, let me say in brief, the Islamic financial system that IsDB is guided by, is not only the prohibition of riba (interest), gharar (deception), and maysir (gambling); or avoidance of production of non-halal commodities. It is not only about risk-sharing partnership, or asset-based/asset backed transactions. It is much more than that. It is the adoption of the entire Islamic values, principles, and practices, which maintain and dispense justice and equity, and promote development and welfare to all.
Since its inception in 1975, the IsDB membership has increased from 22 countries in two continents to a 57 countries spanning four continents, Africa, Asia, Europe, and Latin America. The Member countries map is stretched from Indonesia in the East to Suriname and Guyana in the West, from Kazakhstan in the North to Mozambique in the South. We are involved in improving the quality of lives of 1.7 billion people around the world (1 out of 5 of the world population).
The IsDB’s authorized capital figures increased from about US$3 billion at its inception to over a US$150 billion today.
The IsDB has evolved from a single entity into a group of six entities, namely: the Islamic Development Bank (IsDB), the International Islamic Trade Finance Corporation (ITFC), the Islamic Corporation for the Development of the Private Sector (ICD), the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the Islamic Research and Training Institute (IRTI), and the Islamic Solidarity Fund for Development (ISFD); in addition to several other funds, initiatives, and affiliates.
Since 1975, the IsDB has been promoting social and economic development in its member countries with total financing of about US$131 billion, in addition to US$48 billion business insured by ICIEC.
Our main objective is to help our Member Countries empowering people to build their own future through Islamic finance innovations, partnership, Science Technology and Innovation and global value chain.
Ladies and Gentlemen
Our 57 member countries, as part of the developing world, are facing disproportionate, complex, economic and social challenges due to their diverse economies. Some of these challenges and constraints are structural in nature such as less-than-ideal social and physical infrastructure, lack of entrepreneurial infrastructure, and governmental red tape practices. Other challenges facing many developing countries is corruption, nepotism, and bribery that do not allow efficient utilization of resources. Ecological issues are slowly beginning to turn center stage. Budget deficit has been increasing in the majority of our 57 member countries exceeding two digits in some cases, and General Government Gross Debt has recorded an increase of 47% during the last 6 years and exceeded 100% in some countries. Public health and education are of utmost importance for growth and development.
The current development model of most Member Countries, which depends on public spending as the engine of economic growth, and depends on exporting raw material that does not create added-value, becomes unable to create new jobs to accommodate the new comers to job market annually. The result is higher unemployment and rise in immigration to the Western countries. Unemployment, especially for young people, is one of the largest problems facing member countries. Youth unemployment in our member countries is higher than the rest of the world. For example, ILO estimated that in 2017 about 30% of young people are unemployed in Northern African Member Countries, compared to 25.6% of in Arab Asian Member Countries. Because of its importance, I will re-visit the youth unemployment issue in other parts of my speech.
The above stated problems suggest that these countries should adopt a new development model, and the MDBs should support this transformation.
To add to these complexities in the world, a huge gap exists between actual and potential funding. The total official development assistance (ODA) reached a $142.6 billion in 2016, while the financing gap to deliver the Sustainable Development Goals (SDGs) for the world is estimated at around $2.5 trillion annually. Our Member Countries alone need about US$700 billion a year to finance SDGs. The gap is expected to widen further by 2030, with the population of Member Countries expected to rise from 1.7 billion to 2.2 billion, which means higher demand for energy, water, sanitation, roads, communications, education, health , etc. This means that the main problem is the need for long-term availability of funds.
The problem is not the lack of sufficient funds. On the contrary, there are about US$218 trillion in the global capital markets and in the various investment funds. 1% of these funds will bridge the financing gap in the member countries.
The conventional approaches to face these challenges are inadequate to provide lasting and sustainable solutions. These challenges require innovative solutions, tools, and transformative policies and strategies to address them. We must change the way we think, the way we work including the current development model used by the IsDB and other development financing institutions.
We need to have a paradigm shift in the development community to be able to keep its promise of achieving the SDGs and leave no one behind. The development and donors’ community should understand that financing is not an end in itself, it is just a means to empower people to take the lead in improving their lives.
I am guided here by a story of the Prophet Mohammed (peace be upon him) and a poor man. When a man came to the Prophet and asked for charity, instead of giving him money, the Prophet helped him to sell what he owns and buy an axe to use it for gathering and selling firewood. When the man came after 15 days with some earnings, the Prophet, then, told him, “This is better for you than asking people for charity”.
We can see that Prophet did not aim only to feed this poor man temporarily, but he worked as a business accelerator and attempted to stimulate the entrepreneurial skills of the man. He taught him the value of work and productivity. Extending aid without a 'design for impact' offers only a short-term solution.
As one of the great thinkers in development and a 1998 Nobel laureate in economics, Amartya Sen, argues, “Development has to be more concerned with enhancing the lives we lead”. He explains that “Poverty is not just a lack of money; it is not having the capability to realize one's full potential as a human being”.
Ladies and Gentlemen
With the development landscape evolving, the IsDB has re-established its relevance by aligning its development-financing model with the changing needs of our clients. My Five-Year Program, that I put in place when I came into office introduces a new development model that aims to provide focused, integrated and holistic solutions for our Member Countries, focusing on root causes of development challenges rather than symptoms.
The model promotes a change of narrative for development by adopting a growth mindset focusing on job creation, and building and strengthening national competitiveness and connectivity to global markets.
The objective of the model is to become more proactive in providing development solutions, fast in deploying financial and human resources, and to transition from a Development Bank to a Bank of Development and Developers and to expand and deepen existing partnerships and seek new partners, with a common goal of commitment to a much greater development effectiveness.
The new development model is more sustainable because it is centered around playing the role of catalyst for development, transforming the Bank from on-balance sheet funding provider to a development enabler, market creator, and investment facilitator. It prepares people for the future economy, focusing on partnership, especially with private sector, STI, global value chain, and making education more relevant to the economy.
To implement the new model, we have started re-positioning ourselves by focusing on the following overarching principles:
- All people have the right to live in dignity and prosperity, and no one should be left behind.
- We believe in empowering people and communities. Empowerment to us means building peoples’ capabilities to participate, influence, and control the events that affect their lives; to fulfil their potentials in building a sustainable future for themselves, and their communities.
- We are committed to the implementation of the 2030 Agenda for Sustainable Development (as articulated in the SDGs); and we believe in building strong partnerships to achieve the SDGs.
- We believe that governments should not only play the role of service providers. Governments must see their roles in creating an enabling environment, where all economic agents in the market play a role in development.
To translate these principles into reality, the IsDB has focused its efforts along the following key pillars:
- We recognize the roles of governments in economic and social development. However, governments cannot play the role of markets.
Governments alone cannot address development challenges. The main challenge for any government nowadays is how to “make markets work for development”; how to be an enabler and facilitator, which creates the right business climate for its people to engage in the economy, and for markets to be dynamic, inclusive, and sustainable.
Governments, therefore, must address constraints that lead to market failure, enhance comparative and competitive advantages of the economy, make markets benefit from economies of scale, economies of scope and positive externalities, and improve the quality of education and training to provide the right skills that match market needs and help people reach their potentials.
- Private Sector is the driving force to short and long term development.
The role of the private sector in the economic and social development of countries is gaining more and more predominance globally. The public-private partnership (PPP), for example, will lead to higher quality, efficiency, and job creation. It will also reduce the burden on the State budget and optimize the distribution of risks between the two sectors.
Success in stimulating the private sector and mobilizing financial resources requires a healthy investment climate that mitigates and promote governance and transparency. It also requires a variety of incentives and effective policies for entrepreneurship and SME, and to attract Foreign Direct Investment (FDI).
To support Member Countries in enhancing the role of private sector in economic and social development of the country, IsDB facilitates, coordinates, and participates in financing when needed, through its various programs and products aiming at building capacity, supporting the development of laws, and overcoming obstacles.
For IsDB to play a positive role to enhance private sector involvement, it created two investment Funds to finance PPP projects, one in Africa and one in Asia, and established a Fund to finance economic feasibility studies and provide consultancy and training for PPP projects implemented by the IsDB.
- IsDB has a strong engagement and investment to promote Science, Technology and Innovation (STI), driven by our commitment to support investing in Human Capital.
People living in the developing world need more than just grant funding. They need sustainable solutions to help them build their own way to prosperity. With the right tools and a supportive environment, innovators and businesses can harness the great potential of STI. Several countries in the developed and developing world have been successful in spurring their social and economic development through investing in STI and human capital, despite their limited natural resources.
IsDB considers STI as key enabler for sustainable socio-economic development. As part of our new strategy, we will integrate science, technology and innovation into all IsDB programs, projects and businesses. In this regard, our flagship STI programme Engage – launched earlier this year at Bloomberg HQ in London and the supporting Transform Fund are two important initiatives. Engage is an online platform that connects scientists, innovators, entrepreneurs from all over the world. The platform focuses on accelerating the progress towards six SDGs, namely SDG2- Zero Hunger, SDG3- Good Health and Well-being, SDG4- Quality Education, SDG6- Clean Water & Sanitation, SDG7- Affordable and Clean Energy, SDG9- Industry, Innovation and Infrastructure.
The Transform Fund is a $500 million fund, created to provide seed money for start-ups and SMEs to develop their ideas and facilitate the commercialization of technology within IsDB Member Countries. Innovators, scientists, SMEs, private companies, NGOs, Governments, and academic institutions from anywhere across the world are eligible to apply for funding from Transform Fund.
With these initiatives, our aspiration is to help Members Countries provide the right environment to reduce the brain drain of young innovators and entrepreneurs’ migration to the developed countries in the West.
- The concept of making markets work for development revolves around how development can be driven by competitiveness of industries that are connected to the global market value chain.
To maximize their benefits from global value chain, Member Countries should drift away from focusing only on exporting raw materials that does not create added values and new jobs. They must involve in exporting manufactured products that create added value and jobs at home. For example, the export of raw materials does not only create jobs in importing countries at a time when unemployment is increasing in raw material exporting countries, but also results in deteriorating the terms of trade for Member Countries, and increasing their needs to borrow from IMF and international Banks due to lack of sufficient foreign currencies.
Transforming raw materials into manufactured goods requires a range of technological, managerial and institutional abilities and industrial capabilities to help countries create markets and increase the local content for their exports. Member Countries, therefore, should prepare long-term policies and plans designed to promote labor-intensive high added-value industrialization, and at the same time, improve the quality of education to create a new generation of skilled and semi-skilled workers. Countries should also have incentives to attract companies and investors from industrialized countries, which allows developing countries to benefit from their sophisticated technological know-how and industrial capabilities. The expected outcome is creating decent and highly paid job opportunities in developing countries and, at the same time, reducing the illegal immigrants to the Western countries. A win-win scenario to all parties.
The IsDB’s new development model is adopting a value chain based approach to build on the country’s inherent competitive advantages to accelerate growth, improve productivity, and foster decent work. The focus on value chain would allow the Bank to prioritize its projects in areas where impact is the highest, bringing development partners to work together, and participate in mobilizing financing for specific industries to create an enabling environment to transfer technology from advanced nations to these countries.
- Enhance the Bank’s relevance, effectiveness, and visibility by moving staff and authority to the field.
Decentralization is one of the key elements of my Five-Year Program - it aims at increasing the Bank’s footprint across member countries. It is cost-effective and would result in better responsiveness and relevance to member countries. A new decentralized and empowered structure was introduced in January 2018. These decentralized offices will work together with the host countries to develop and implement important and high impact projects that maximize socio-economic impact in the countries.
The IsDB has already established seven regional hubs, in Morocco, Turkey, Indonesia, Kazakhstan, Senegal, Nigeria, and Bangladesh. The regional hub of Egypt is planned to be inaugurated in 2019; and 3 other hubs in Dubai, Uganda, and Suriname are going to be established over the next three years. We are also establishing a Center of Excellence in Malaysia to focus on STI, Islamic Finance, Resource Mobilization and Halal Industry.
- The IsDB recognizes the critical role of capacity development to empower people.
One of the great commitments of the Sustainable Development Goals is to “leave no one behind.” Achieving that level of inclusion however, depends at least in part on recognizing that empowering people with the skills, knowledge and resources would improve their own social circumstances and make development more inclusive, effective, and sustainable.
The IsDB is engaged in capacity building and development on several fronts and from different windows. Let me share with you some initiatives and programs that we use at the Bank to support Capacity Development to empower people and institutions in our Member countries:
The Technical Cooperation Program (TCP) and Reverse Linkage
IsDB formally launched the “Technical Cooperation Program (TCP)” in 1983. The TCP provides grants for short-term interventions addressing instant capacity development needs of member countries. It has promoted cross-country connectivity among institutions and individuals, bridged cultures and improved the appreciation of knowledge in providing developmental solutions.
IsDB recently scaled-up its Technical Cooperation experience and introduced a result-oriented capacity development modality known as Reverse Linkage. This new modality enables IsDB to be a facilitator of a win-win South-South cooperation engagement whereby member countries exchange their knowledge, expertise, technology and resources to develop their capacities and devise solutions for their own development. The Reverse Linkage modality fits with my five year program of transforming IsDB to a Bank for developers and a knowledge broker through the transfer of relevant development solutions from one Member Country to another. It also fits well with the 2030 agenda and, particularly, the SDG-17 that calls for the revitalization of a global partnership.
Youth Empowerment through Promoting Entrepreneurship and Innovation
There are more than 1.2 billion young men and women between the ages of 15 and 24 in the world as of 2017. This huge number of young people represents the true wealth of their nations if they are empowered to make a true difference in their communities. Certainly, one of the most binding constraints facing young people is lack of education relevant to market needs and unemployment.
IsDB is providing solutions that improve the quality education, help in creating employment opportunities for young people in our member countries, and providing them with an innovative and enabling environment that attracts them to stay and contribute to socio-economic development in their own countries. An example of these solutions include the Youth Employment Support Program and the Education for Employment, Engage, and Transform Fund. These programs support start-up accelerators designed to empower the entrepreneurs, innovators, and SMEs and contribute to the development of the start-up ecosystem.
Another unique example of how the Bank supports the youth is the Scholarship Program, which is a way to empower young people to become agents of change and development in their countries. As of today, IsDB has offered 15,724 scholarships. Of these 9,931 students have graduated and 2779 students are currently studying in 878 universities spread over 75 countries world-wide.
In partnership with the World Academy of Sciences, the Bank is redesigning scholarships to include sustainable science to serve development in climate change, the impacts of plastics on the environment, quality of education, smart agriculture, renewable energy, and finding solutions to water pollution and universal health.
IsDB also continues to reinforce its support for Women Empowerment through targeted interventions in Member Countries
We believe in unleashing the potential of everyone in combatting poverty and boosting development. That’s why we’re committed to empowering Women and Girls. We do this by targeting access to financial, and non-financial services, such as business skills, financial literacy, and project management skills. Women and girls must be offered quality education, good health, and economic and political opportunities to participate in the development of society.
The Bank offers an annual Economic and Finance Prize for Women Contribution to Development aims to celebrate, recognize, encourage, inspire and reward women’s participation in the economies of their communities.
IsDB is committed to a strong collaboration with development partners and international community to improve people’ lives in fragile and post-conflict countries to achieve the SDGs.
Wars and conflicts have resulted in mass displacement of populations. About 68.5 million people are now among the forcefully displaced people classified as refugees, internally displaced and asylum seekers. Out of those 25.4 million are refugees, among them more than 80 percent are from our Member Countries. Most of the total world refugees (85 percent) are now living in other Member Countries. In addition, there are more than 40 million people who are internally displaced due to wars and conflicts hence forced to move and live without proper facilities in other regions of their own countries. It is particularly depressing that over half of the world refugees are under 18 years old, making their education and human development critical for their own future and the future of the countries they live in and for the whole world.
It is essential for us to have a strong collaboration with development partners, philanthropists, civil society, and international community to address fragile, post-conflict and humanitarian challenges as a priority for joint work to achieve the SDGs.
- IsDB aims to mobilize financial and human resources through crowdfunding and crowdsourcing platforms
There is an abundant liquidity in global capital markets including Sovereign Wealth Funds, Pension funds and Investment funds among others that may help to bridge the financing gap in our member countries. Across the world, there are many Sovereign Wealth Funds with total assets of US$7.8 trillion. Of these funds, 29 are owned by our member countries totaling US$3.4 trillion, representing 44 percent of the total assets held by Sovereign Wealth Funds worldwide.
The IsDB is exploring innovative resource mobilization solutions such as crowd-funding and crowd-sourcing. One success story of crowdsourcing and empowering people to take the lead in changing their lives is the “Polio eradication Program” in Pakistan. The Bank has partnered with the Bill and Melinda Gates Foundation, to strengthen the healthcare system for the eradication of polio from Pakistan. The IsDB invested US$ 327 million to the program. With this partnership, the Bank did not bring only financial resources to the country but it has also mobilized the civil society organizations, local leaders, and religious scholars to play active and crucial roles in raising public awareness and involvement in the program and beyond.
The Bank has sponsored annual Member Countries Sovereign Investments Forums in order to promote and accelerate joint investments, which would enhance the socio-economic development in Member Countries. In its future orientation, the IsDB will expand its partnerships to a host of new developers, with public outreach activities and the establishment of a network of development actors, through online platforms. Such platforms will enable the utilisation of crowdsourcing and crowdfunding.
- Islamic finance has a strong track record in promoting financial, social and economic stability, as well as financial inclusion and shared prosperity - in line with the UN’s Sustainable Development Goals (SDGs).
The Islamic financial services industry has grown steadily over the last two decades with estimated $2.2 trillion global Islamic financial assets. They have also evolved in terms of capacity and depth, with more innovative enterprises and products, and wider geographical coverage. For Islamic finance to be effective in addressing the long-term financing gap there is a need to strengthen the financial system by developing legal, administrative and regulatory environments that support the principle of risk sharing.
For over 44 years, the IsDB has been practicing Islamic finance and seeking to promote economic development through its operations. The IsDB is a regular issuer of Sukuk in the global financial markets, with an issuance of more than USD19 billion Sukuk in different currencies and maturities, to finance large-scale development projects and to promote socio-economic development in our Member Countries.
Other products of Islamic finance that IsDB is promoting include Waqf and Zakat. The charity which is of obligatory nature is called zakat; the charity that is voluntary in nature but done in a form that results in perpetual flow of benefits is called waqf. Zakat has earmarked uses, while waqf can be dedicated for any good purpose by the donor. As compared to other forms of charity, these two are substantial, persistent and sustainable financial sources for their respective uses. Hence, if appropriately directed, they can positively contribute and supplement the public-sector efforts in achieving socio-economic development.
Excellencies, Distinguished Guests, Ladies and Gentlemen
Let me conclude by stating the IsDB’s new development model is about a new chapter in the IsDB journey, transforming the IsDB into a future-facing institution ready to embrace new challenges and opportunities of the modern world, offering fast and adaptive solutions to address some of the most daunting challenges facing Member Countries, such as creating an enabling and productive environment to fit in the global value chain, increase employment, transfer technology, build 21st century skills, empower innovative and talented human capital to make markets and economies work for inclusive, sustainable and lasting development for their own countries. The main aspiration of this new development model is not how much we spend in terms of dollars and cents, but how to improve people’s quality of life by helping them to empower themselves to maximize the benefits of their potential resources and capabilities.
I will end this speech by asking: what are the consequences if the Bank and other MDBs, and other donors have not adopted this new model?
I will not answer this question directly but I can assure you that I am committed to work with all development partners to reduce poverty, enhance food security, support job creation, and a contribute to stability, which will not only impact less developed countries but the entire world. So let us work together for better future for all for all people over this beautiful planet.
Finally, I wish to extend my sincere thanks to Oxford University and its Centre for Islamic Studies for giving me this opportunity to shed light on IsDB and its new business model to empower people to lead lives that they value.