20 November 2018
Filling the SDG Financing Gap: IsDB Provides New Model of Development Bank
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With 60% of global population growth until 2050 set to come from Africa, the rate of return on foreign investments is higher in Africa than any other developing region.

However, without sustainable development plans, these investments will fail.

The Islamic Development Bank's new development model attempts to address the SDG financing gap in a long-term way through playing the role of catalyst for development, thereby transforming the Bank from on-balance sheet funding provider to a development enabler, market creator, and investment facilitator.

From Addis Ababa to Nairobi, Accra to Bamako, Africa is accelerating. With 60% of global population growth until 2050 set to come from the continent, the rate of return on foreign investments is higher in Africa than any other developing region – 9.3% and growing fast. However, without sustainable development plans, these investments will fail.

All Multilateral Development Banks unanimously agree that development financing needs far outpace their own resources, as well as available public funds. Recent estimates put the annual funding gap in African infrastructure investment between US$87 billion and US$112 billion. The financing gap to deliver the Sustainable Development Goals (SDGs) for the world is estimated at around US$2.5 trillion annually. The conventional approaches to face these challenges are inadequate; a paradigm shift in the development community is clearly needed so that no one is left behind.

All 57 of the Islamic Development Bank’s member countries – 27 of which are in Africa – are part of the developing world. They face disproportionate and complex economic challenges. The current development model, which depends on exporting raw materials, doesn’t create added value in their home market or support much needed employment opportunities. The results have been higher unemployment, especially for young people, and a rise in migration.

The development and donor community should understand that financing is not an end in itself, but a means to empower people to take the lead in improving their lives. With the development landscape evolving, the Islamic Development Bank has re-established its relevance by aligning our development financing model with the changing needs of our member countries.

African governments know better than most that extending aid without a design for impact offers only short-term solutions. In our new strategic roadmap, the Islamic Development Bank has adopted a different development model. This model transforms us from a development bank to a bank for development and developers, with a focus on root causes of development challenges, rather than symptoms.

Our member countries alone need about US$700 billion a year to finance the SDGs. Our new development model attempts to address this gap in a long-term way through playing the role of catalyst for development, thereby 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 by focusing on: partnership, especially with private sector; science, technology and innovation; the global value chain; and making education more relevant to the economy. 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 it. 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.

There are a number of pillars to our new strategy, but I will focus here on three areas that are particularly pertinent to our members in Africa: harnessing the power of the private sector; increasing investment in innovation-led development initiatives; and empowering young people.

Financing for development is a huge challenge that will only be met through dramatic increases in private investment, but trillions of dollars are currently invested in negative or very low-yield assets. As such, the role of the private sector in the economic and social development of countries is gaining more and more predominance globally and we are fully committed to accessing private funds and institutional investors in a variety of ways. For example, we successfully initiated the annual Member Countries Sovereign Investments Forum to build on the growing importance of sovereign investments in our member countries in order to promote and accelerate joint investment. Last year, we initiated the Public-Private Partnership Forum, reflecting our belief of the advanced business model in helping increase private sector investments in economic and social areas, with the objective of meeting the community’s needs for goods and services through innovative financing methodologies.

The Islamic Development Bank has also significantly increased its investment in promoting science, technology and innovation, driven by our commitment to support the investment of human capital. Earlier this year we launched our flagship ‘Engage’ online platform to encourage knowledge transfer between scientists, innovators and entrepreneurs all around the world who are tackling sustainable development challenges. It is supported by our US$500m Transform Fund, which provides seed money for start-ups and SMEs to develop ideas and facilitate the commercialization of technology within our member countries. The Engage platform and Transform Fund focus on accelerating progress towards six SDGs, namely SDG 2 (zero hunger), SDG 3 (good health and well-being), SDG 4 (quality education), SDG 6 (clean water and sanitation), SDG 7 (affordable and clean energy), and SDG 9 (industry, innovation and infrastructure).

The inaugural recipients of the Transform Fund will be featured during the upcoming Transformers Summit, which the Islamic Development Bank will convene for the first time in order to connect entrepreneurs, innovators and global leaders to discuss the role of science, technology and innovation) in achieving Sustainable Development Goal 11 (sustainable cities and communities).

With these initiatives, our aspiration is to help member countries provide the right environment to reduce the brain drain of young innovators and entrepreneurs’ migration to developed countries. Education is the key to unleashing the potential of future generations, and that’s why we fund skills and education training – especially for women and young people in rural areas – that enables access to the labor market and improves their life prospects. For example, the Islamic Development Bank Scholarship Programmes promotes excellence in science within our member countries. To date, we have supported over 13,000 students, with funding of US$133.7 million, and 90% of graduates have returned to their respective countries to join their home institutions.

Ethiopia’s former emperor Haile Selassie once remarked, “We must become bigger than we have been: more courageous, greater in spirit, larger in outlook. We must become members of a new race…owing our ultimate allegiance not to nations but to our fellow men within the human community.” I cannot think of more fitting words to rally our member countries and beyond for the accelerated advancement of all African countries.

Dr. Bandar Hajjar will be speaking at the inaugural Transformers Summit convening in Cambridge, UK, on 10 December 2018.

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