Lives and Livelihoods Fund approves US$243 million for anti-poverty projects

Source: Islamic Development Bank. Second Lives and Livelihoods Fund meeting in Riyadh, KSA.

Representatives from KSA, Qatar, the UAE, the Bill & Melinda Gates Foundation, the Islamic Solidarity Fund for Development, and the Islamic Development Bank (IsDB) have approved several development projects for 2017 under the US$2.5 billion Lives and Livelihoods Fund (LLF). The fund is the largest multilateral development initiative in the Middle East and North Africa for poverty alleviation in member countries of the Organization for Islamic Cooperation (OIC).

Major donors to the LLF include the KSA-based King Salman Relief and Humanitarian Aid Center (KS Relief), the Qatar Fund for Development (QFFD), Abu Dhabi Fund for Development (ADFD), the Bill & Melinda Gates Foundation, and the Islamic Solidarity Fund for Development (ISFD).

US$242.6 million was approved in financing for health, agriculture, and rural infrastructure development projects in eight member countries of the IsDB. The projects are scheduled to be implemented in Tajikistan among other countries.

Maher Al Hadhrawi, Assistant Supervisor General for Operations and Programs at KS Relief, and Chair of the LLF for its first year of operations, commented: “The second meeting of the Lives and Livelihoods Fund Impact Committee marks an important milestone in the fund’s progress.


“Over the next five years, the Lives and Livelihoods Fund will make US$2.5 billion available for anti-poverty projects in health, agriculture and rural infrastructure in Islamic Development Bank member countries. US$363 million has been approved for the Fund’s first operational year, and all the donors are working closely together to ensure that it is allocated most effectively.”

HE Dr Bandar Hajjar, President of the IsDB, commented: “The Lives and Livelihoods Fund is now making progress in its mission to help the poorest people in the Muslim world live healthier, more productive lives through investments in health, agriculture, and rural infrastructure. By innovatively combining grants from donors with loans from the Islamic Development Bank, we are able to leverage more funding than grants can alone to fight disease and poverty across the Muslim world.”

Dr Waleed Alwohaib, Director General, ISFD, said: “Through the grant contributions of the LLF, our aim is to protect communities from the risk of preventable diseases, improving reproductive, maternal and child health, increasing access to sanitation and primary healthcare, and supporting rural
development, we are empowering some of the poorest people in the world, and giving them the chance to live healthy and productive lives.”

Khalifa bin Jassim Al-Kuwari, Director General of QFFD, added, “The Lives and Livelihoods Fund is the first multilateral partnership of its kind in this region, and demonstrates the benefit of partnering with other donor organisations and regional governments. By pooling our resources together, and combining grants with finance from the IsDB, we are able to increase our impact and ultimately save more lives. At Qatar Fund for Development, we are proud to contribute to an initiative that is going to have such a massive impact on the lives of millions of people across the Islamic world.”

HE Mohammed Saif Al Suwaidi, Director General of ADFD, said: “Our contribution to the Fund articulates the development agenda pursued by the UAE government that aims to promote inclusive social and economic development through working with our partners from other development agencies to ensure the effectiveness of our aid programs. We are proud to be a founding member of the largest multilateral development initiative in the Middle East and look forward to devoting all our resources and expertise to ensuring improved livelihoods for the people of developing countries. This approach aligns well with Abu Dhabi Fund for Development’s aim to use innovative finance to support developing countries achieve their own development goals.”

Hassan Al-Damluji, Head of Middle East Relations for the Bill & Melinda Gates Foundation, noted: “Of the more than 1 billion people in the world facing extreme poverty, 400 million are living in the Islamic Development Bank’s member countries. These countries urgently need access to finance for development projects that eradicate disease, provide basic healthcare, and invest in agriculture and critical infrastructure. The Lives and Livelihoods Fund was only established in late 2016, but already it is filling this gap by supporting projects that will enable people to lift themselves out of
poverty.”

The Lives and Livelihoods Fund will make US$2.5 billion available over the next five years on projects that help the poorest people in 30 of the poorest Muslim countries lead healthy and productive lives. Administered by the IsDB, the fund combines US$2 billion of IsDB financing with US$500 million in grants from donors. So far, US$400 million in grants have been committed by the Bill & Melinda Gates Foundation (20% of the total up to US$100 million), the Islamic Solidarity Fund for Development (US$100 million), the Qatar Fund for Development (US$50 million), the King Salman Relief and Humanitarian Aid Center (US$100 million), and the Abu Dhabi Fund for Development (US$50 million).

In September 2016, the Lives and Livelihoods Fund’s Impact Committee approved projects worth US$363 million for the first of the five years that the fund will be operational.

OIC, IsDB launch Islamic microfinance initiative in Indonesia

The Organisation of Islamic Cooperation (OIC) and IsDB Group have launched the Islamic Microfinance for Poverty Alleviation and Capacity Transfer (IMPACT) Program in Bogor, Indonesia, in mid-May 2016.

The programme provides a platform for experts to share and deepen their understanding of the Islamic microfinance models and to create tools and infrastructure to disseminate best practices.
The programme was launched during the Seminar on Islamic Microfinance for Poverty Alleviation in OIC Member Countries hosted by Bogor Agricultural University.

Islamic microfinance institutions (IMIs) differ from conventional microfinance institutions as they do not charge interest and work on a profit- and risk-sharing basis. Their relationship with the client is thus not based on a traditional creditor-debtor relationship. The central premise of IMIs is that social networks among partners have value. The social capital resources inherent in social relations help facilitate collective action for a common purpose.

IMIs engage and treat their clients as business partners. As a business partner, they add value in the relationship and provide ‘smart finance’. This allows IMIs to create sustainable jobs even in difficult and fragile situations. “Islamic microfinance is about economic empowerment of the poor,” said Anas El Hasnaoui, CEO of IBF International Consulting, a Brussels-based organisation that works on development aid projects financed by international organisations. Hasnaoui explained how the Bank of Khartoum in Sudan invested US$4 million in venture capital in the Abu Halima Greenhouses Project. The initiative provided low-income graduates and their families, 600 people in all, with smart finance products to enable them to work in the modern agricultural sector.

“IMIs treat their clients as business partners, not as debtors,” said Nasser Faqih, Team Leader of the Deprived Families Economic Empowerment Program (DEEP) in Palestine. He compared how two women with similar small sewing businesses were treated after they were hospitalised. One had borrowed under the Islamic microfinance window while the other borrowed from the conventional window of the same monetary financial institution (MFI).

When the woman who borrowed from the Islamic microfinance window was hospitalised, the MFI hired a replacement and ensured her business continued to run while she recuperated. Her payment schedule to the bank was frozen until she returned to work. The woman who borrowed from the conventional window was required to continue making her payments, and interest compounded as the payments were delayed. After some time, when it was clear that she would not be able to make her payments, the MFI took her to court.

The innovations in Islamic microfinance and its ability to generate employment and alleviate poverty through trading and investing with their clients makes it possible for microfinance institution to do business with poor people. However, such good practices are not well known and expertise and experience gained from innovative pilots are scattered in various countries.

The IMPACT Program was created in response to a call from the President of IsDB for experts in Islamic finance to take advantage of existing technologies and business approaches and develop smart Islamic microfinance. The programme will promote Islamic microfinance in a way that puts poor clients' needs at the centre, providing an enabling environment and tools for microfinance institutions to do business with and help them thrive. Financing provided will therefore help poor clients find their way out of poverty, instead of perpetuating the cycle of poverty through debt.

The five pillars of the IMPACT Program are:

Technology: To develop a one-stop portal on Islamic microfinance that provides all the necessary knowledge and tools needed for a microfinance institution to understand and implement Islamic microfinance. Knowledge generated from various pillars will be disseminated through the portal. The information portal will also include key applications that will be useful for IMIs.

Operations: To develop an operational toolkit that includes standard operating procedures, policies, contractual document templates, feasibility study templates and other operational documents. The toolkit will be developed for MFIs that are already operating but are interested in implementing Islamic microfinance, highlighting what they need to do to be shari'ah-compliant as well as lay out an incremental approach that will develop their capacity to engage in the value chain through practical
methods.
Monitoring and evaluation: To develop a monitoring and evaluation framework, including a rating system combining areas of financial sustainability, governance, social performance. In addition, the framework will highlight approaches on how to determine the impact of the MFI on its beneficiaries through measuring its value-add to its client through its engagement in the value-chain. The framework will be summarised in a logical framework with key indicators for each project stakeholder.

Policies and standards: To identify and promote key policies and standards (including accounting and governance standards) that facilitate the growth of Islamic microfinance. This will include a framework for Islamic microfinance law highlighting key policy requirements needed to facilitate the industry, simplified accounting standards for MFIs as well as governance structures for various organisation structures such as cooperatives, companies, funds and NGOs.

Advocacy: To develop and promote Islamic microfinance in IsDB member countries and beyond by building awareness, exchanging experiences and reverse linkages through collaboration among different stakeholders, including governments, regulators, private sector, practitioners, networks, developmental organisations and financial institutions.

Implementation arrangements: The programme will be implemented by stakeholder teams identified under each pillar. OIC General Secretariat and IsDB Group will identify key experts to participate in each team. Additional experts may be engaged when required. Experts/stakeholders may be engaged through partnership or consultancy agreements. All five pillar teams will constitute the Program Management Team (PMT) that will be led by Senior Specialists from IsDB Group and OIC General Secretariat who will report to the Leadership Committee on the progress of the IMPACT Program.

SESRIC publishes study on reducing poverty with waqf and Islamic microfinance

Source: SESRIC.

Integration of Waqf and Islamic Microfinance for Poverty Reduction: Case Studies of Malaysia, Indonesia and Bangladesh, edited by Professor Savas Alpay, Director General of the Statistical, Economic and Social Research and Training Centre for Islamic Countries (SESRIC), and Mohamed Aslam Haneef, Professor at the International Islamic University of Malaysia (IIUM), presents the outcome of a two-year research collaboration between SESRIC and the Centre for Islamic Economics at IIUM. 

The research project covered three Organisation of Islamic Cooperation (OIC) countries, Malaysia, Indonesia and Bangladesh, and aims to develop an integrated waqf-based Islamic microfinance model to optimise the use of combined resources of waqf and Islamic microfinance institutions in OIC countries. It is anticipated that such an optimisation will ultimately enhance the effectiveness of IMF and waqf institutions in addressing the socioeconomic needs of the society, particularly through effective poverty alleviation programmes.

The report consists of four main sections, starting with a brief overview of poverty in OIC countries, poverty alleviation programmes in Malaysia, Indonesia and Bangladesh and then discussing the potential of waqf as another viable source for financing microfinance institutions in these three countries. 

Section two presents the Integrated Waqf-based Islamic Microfinance (IWIM) model, which comprises six components, waqf, Islamic microfinance, human resources, takaful, project financing and poverty alleviation, plus relevant hypotheses. In order to test the hypotheses of the IWIM model in the three countries, the next section discusses research methodology while the last section focuses on the empirical findings and policy recommendations.

The conceptual IWIM model treats the waqf institution as the “funding agency” and the Islamic microfinance institution as the “implementing agency” that is offering microfinance services together with takaful services and financing human resource development programmes. A fifth component, project financing, to which is be provided by the Islamic microfinance institution, was added to the model. 

According to the report, there is strong indication that the IWIM model can be a viable alternative model for poverty alleviation. The report reaffirms that microfinance is an important institution in the fight against poverty and that Islamic microfinance provides additional value in the context of riba-free financing. Furthermore, the report says that the IWIM model can successfully help microfinance institutions to overcome two major challenges, the provision of financing at lower cost and the facilitation of human resource development programmes.

View the online version here.