The Road to the SDGs

T H E R O A D T O T H E S D G s | P R O G R E S S A N D A C H I E V E M E N T S the potential of our MCs. Hence, developing the Islamic finance industry is one of IsDB's key strategic areas as stated in the P5P and IsDB's 10-years strategy (10YS). Unlike the conventional finance industry, Islamic finance is rooted in ethics and in a particular understanding of the economy that only supports transactions that are asset- backed. This feature makes Islamic finance capable of producing a sound economic policy that restores fairness to the financial system, where equity and inclusiveness would be prime, ultimately leading to financial stability. Such characteristics encouraged MCs and quite a number of non-MCs to consider Islamic finance as an industry which complements conventional finance in terms of products, services and institutions, and as a promising empowerment tool to eliminate extreme poverty and promote common prosperity. IsDB has consistently been responsive to requests from those countries to help them develop the necessary legal and regulatory framework to establish this industry. The new business model provides us with three historic opportunities, namely mobilizing and investing US$ 1 trillion annually in 5 industries in the 57 MCs to create 10 million jobs. That is what is meant by 1/5/10. Our MCs form a broad market that would give rise to significant mutual benefits once it engages itself in those 5 industries and taps into their products. Each country would use its comparative advantages to serve other countries. As such, IsDB would be assuming its role as a catalyst to provide opportunities to integrate local value chains all over the world, which would allow expanding those markets and realising sustainable empowerment. The Gabonese Republic was chosen to be the first country where the new business model would be applied. A technical team from IsDB, jointly with the public and private sectors in Gabon, identified two sectors where the country has competitive advantages: the manganese and timber industries. Accordingly, IsDB conducted an economic and financial feasibility study, designed the local value chains of these two industries and linked them to global value chains. Preliminary studies indicate the possibility of creating 27,000 jobs and up to US$ 11 billion of added value in manganese casting, as opposed to the mere US$ 1 billion in the case of producing raw manganese. There is enormous untapped potential to extend activity downstream in the value chain, thus creating additional jobs and further stabilizing the economy. We currently have requests from 17 MCs to sign Member Country Partnership Strategies (MCPSs) applying the new business model. This model has made IsDB proactive in identifying the needs of countries and prioritizing the projects it finances. The developmental impact manifests itself clearly in creating jobs, increasing exports and attracting investments, thus forging a viable economy. In contrast, merely financing scattered projects in various fields exclusively dominated by the government or the public sector as sole player will not enable us to achieve the required developmental impact. That is why we must “make markets work for development”, being aware that these markets involve many stakeholders, each having a role from which a developmental impact is expected. However, in some countries there is only one stakeholder, which is the government or public sector. QUESTION: How did MCs react to IsDB's new business model? ANSWER: The Board of Governors, which comprises MC ministers of finance and planning, and the Board of Executive Directors praised the new business model. IsDB has received requests from a number of MCs expressing their desire to join the second generation of Member Country Partnership Strategy (MCPS 2.0) applying the new business model. These include Guinea, Indonesia, Malaysia, the Maldives, Niger, Nigeria and Turkey. IsDB intends to implement MCPS 2.0 over the next five years, delivering 11 MCPSs a year. QUESTION: Is it easy and feasible to mobilize US$1 trillion of investments in MC projects? ANSWER: Mobilizing the financial and human resources needed to implement projects in MCs is not an easy task, but it is doable. The difficulty is not in the availability of funds; there are approximately US$ 300 trillion in the global capital market awaiting investment opportunities and projects that are feasible in terms of profitability and developmental impact. The real difficulty is twofold: the lack of well-studied projects that would clearly inform the investor of the underlying risks and opportunities, and the lack of a regulatory environment enabling profitable investments. Our new business model focuses on sectors where MCs have a competitive advantage. It prepares projects that are ready for implementation within the relevant value chain, cover all fields (e.g. infrastructure) and are suitable for all partners. The role of IsDB, as mentioned earlier, is not limited to that of a financier, but also a catalyst and guarantor. IsDB will establish an investment body with a board comprising all project co-financiers, and that body can issue Sukuk to finance projects for each industry. [ 7 ]