Revitalizing the Islamic Development Bank’s role in human development: A conversation with IsDB’s Rafee Yusoff

The Islamic Development Bank is currently undertaking wide-ranging reforms to develop new instruments to transform the landscape of human development in the Muslim and non-Muslim world and to develop new partnership strategies. The reforms are part of the multilateral development bank’s “Vision 1440H” policy initiative, which sets out goals to be achieved by 2020 to meet development challenges faced by the Ummah (the Muslim World), and to enhance its structure as a world-class development bank, inspired by Islamic principles. Devex spoke with Rafee Yusoff, the Director of Group Strategic Planning Department at IsDB, about the bank’s current strategic reforms and the use of economic development instruments as a means of bolstering human development. What strategic reforms are on the table right now at IsDB when it comes to internal organization, staffing, priorities, etc.? In terms of organizational reform, which is the first strategic thrust of the IsDB Vision 1440H, we recognize that financing is necessary but not sufficient to serve the needs of our member countries and Muslim communities’ economic development. The “business” of development today is also about providing knowledge-based services to serve the varying needs of the economic development actors which are also changing in their form and structure. These economic actors are from the public sector, private sector and civil society or community interest groups. To do this, we need new talents as well as new business processes to offer knowledge-based services. Another key transformative element in our business conduct is to make partnership our core operating or business engine. This is in line with our business mandate of enhancing cooperation among member countries and Muslim communities. So we are now building up partnership instruments. Our notion of partnership is structured on partnership between member countries. Therefore, IsDB plays a role to facilitate to bring in a broader agenda across member countries. In short through IsDB reform, we will begin to position IDB Group as a development bank that offers knowledge-based and partnership facilitation. IsDB allocated funds to support promoting youth employment in some Arab countries through mechanism of microfinance, training programs. Is IsDB changing its funding strategy in light of ongoing unrest in the Mideast and North Africa? We started our organizational reform before the recent development of the Middle East. The reform framework is about getting IsDB Group closer and serving better the needs of the member countries. In framing this, we have to address the peculiarities of our member countries which include the large youth demographics. In our analysis, we need to address this issue from three dimensions. The two more popular dimensions are about employment and wealth inequality. We have also recognized a third dimension, i.e., of inclusiveness. In terms of instruments, we are in the process of addressing the new needs of the member countries. The creation of stronger middle-income economies in this region will become a major issue. So it is not just youth unemployment. It is really about creating middle income where we believe youth will be a major bloc for that. We will need to assist not just in terms of financing, but also in the form[ation] of policy advisory and capacity building. In building youth-centered, middle-income economies, we believe our member country-to-member country modalities will allow us to address the need of the new middle economies in a much more effective – a win-win-win tripartite partnership. We also expect that there be huge amount of infrastructure type program that needs to be facilitated. We will continue to work on a partnership instrument I spoke about earlier that is not about IsDB simply providing money, [but] is also about IsDB sharing, other member countries to help other countries in their transformation process. This is a difficult time. It is not just financing they need. They need policy building, they need institutional building. We need to do this in a concerted manner within the local context. Given our state of economic activities in these member countries, we also need [to] address the need of the so-called “bottom of the pyramid.” Here, from a financing stand point, IsDB Group has its differentiated advantage in the form of the Islamic financing modalities. This is not about microfinancing, but also that of the Wakf, Zakat and Sadaqah, which are really instruments of development targeting the less fortunate. And microfinance, we believe, is one of the key instruments and there are many others that we believe can happen including SME financing as well as building our own brands as sort of public-private sector type financing. What would you say on funding civil society? I have to admit that at this point it is not really strength of IsDB. In our reform process, this is part of what we need to address and position this as a major sector for development. I spoke about the instruments that are financing, partnership, knowledge-based services where we want to move into partnership and knowledge-based services. In terms of market space we have strong government financing. To some extent, we have also strength in private-sector financing, SME [small-medium enterprise] type. But we are still relatively new in civil society type. This is the third sector of the economy that will expect to be of equal importance to the other two sectors. Their need, the culture and their objectives are distinctly different from the other two sectors and therefore, we need new instruments, new business processes and even new talent to engage this sector. In our reform we do recognize that there are private sector, public sector and community-based financing. We are beginning to measure our program for the community sector with a view to grow them. We are looking at innovative ways of financing. Microfinance is one of the mechanisms if you would like to talk about community-based financing. We also have other financing instruments. As said earlier, we are leveraging on our unique instruments i.e. Waqf, Zakat and Sadaka. All of that is really targeting community-based financing. We are still new in that area but we believe that we have the right environment to deal with that. And of course in that context we will be working with civil society and even with individuals to bring collective effort to talk about community-based development including infrastructure financing based on community financing modalities. Value-based financing will be the underlying driver for this, as oppose to one that is of bottom-line orientation. For rural areas, supporting agriculture, financing poverty alleviation, community-based financing can be very helpful. What kinds of new strategic partnerships are you seeking, eg. with specific multilateral, bilateral, corporate and nonprofit groups? We believe our strength is [our] ability to do matching. When a member country has a service to offer, it is more than just the technology transfer, it is also know-how, management skills and expertise to help them. It is not just partnership to train and then going away, rather [it is about] building capacity and knowledge-sharing. We believe even the poor has something to teach the rich. That is sort of partnership we want to build. We want the partnership to be structured as a partnership among equals. The economic model today is addressing only means but not ends. If we are to dissect the economic drivers, i.e., the economic actors and entities today – what is the overarching objective? We are overwhelmed with the profit motivation. But financial and development institutions like ours are about economic growth, i.e., addressing the growth of the real economy and human development. Financing is really just an instrument, the means to the end. Financing is not the end, and therefore our success should not be measured by our financial growth. We need to make sure we have financial health, but we are only measure the instrument, the means. The end of development to us is human development. Today they are talking about human capital as if human is one source of capital. To us that is not a right view. Economy and institutions are just instruments towards building human development and prosperity. We are offering a different development model. Take another example, popularly promoted in the corporate world, Corporate Social Responsibility. Today, the way it is being framed, it is at the tail end of the corporation program, i.e., if they make profit. We believe this feature should be designed at the front end, as part of its reason for existence. Successful companies, in future, we believe are socially-responsible corporations; they are not profit motivated. Profit is the means, no longer the end. We believe we have something else to offer and that is how we build our partnership whether it is for civil society. If you look at Shariah principle it is all about that. It is not about maximizing your profit but it is on maximizing human development and profit becomes a secondary object. We are promoting this notion of management thinking, we hope to introduce not only new instruments to support this but also new management modalities, tools and talents. We are also trying to build partnerships also with non-member countries including with the emerging powers Russia, China [as well as] Japan, Korea, Americas and European countries. We know there are a lot of opportunities for us to build partnerships beyond member countries. We wanted to apply the same member country-to-member country partnership model to that with non-member countries too. Again, our notion is not only financing, it is about facilitating partnership. How can we be an effective partner to poor countries? Fifty percent of our member countries are poor and in conflict zone. So we want to be an effective partner for countries in transition in the Middle East. We have a specific instrument called Member Country Partnership Strategy (MCPS). And a key aspect of that instrument is what is considered the reversed linkage. We are an actor to facilitate the country’s strategy. Because we are involved in many countries, we do not think of one country, we think regional strategy. This is also a feature we want to induce in the MCPS, to allow member countries to grow and manage external economic opportunities too. At present, in our initial phase of MCPS, we are still in member-country level focus. The next phase will be regional level. In the discussion of member-country strategy, we will bring other partners in the region in formulating a member country strategy. So that is our next phase of our partnership strategy. Could you tell us more about the partnership between IsDB and Asian Develoment Bank on the Islamic Infrastructure Fund? Given the crisis that we see today, after the financial crisis and collapse of many organizations, we all recognize that infrastructure continues to play a major growth. Even without the crisis, we all noticed growth of population and concept of organization of infrastructure is under pressure tremendously. International trade, as an example, has grown threefold as compared to the infrastructure. So all in all, infrastructure in terms of market need is huge. And what we did with Asian Development Bank is an obvious need. There is a huge amount of demand to build up new infrastructure in Asia. That is why the Infrastructure Fund is to facilitate member countries in Asia to finance infrastructure program. What advice do you have for a consultancy or other aid implementer who wants to partner with IsDB? What’s the best way to get in touch, network and establish a presence? I would like to promote the notion of IsDB as a partner for development. Everybody comes to IsDB as a financing institution only. That is not the best way to leverage on IsDB. Its best asset is its trusted brand. If you do have a project that is supposed be a development project that is sustainable financially, IsDB partnership can further enhance it with its network, value-driven business model and world-class talents-knowledge resource. It does not mean we will provide you money. Our best asset is really our brand and ability to bring a lot more people on the table. So there is the notion of soft power of IsDB that we can offer to others. Unfortunately, many come to IsDB just purely for money. I hope this will change soon. Our aim is development i.e. human development and not about profit maximization. But we are a bank, nonetheless, therefore finance is the main instrument. So you are looking at the quality of their projects? Yes. And whether the project is financially viable. Perhaps, all the project promoter need from IsDB is a boost and maybe knowledge that we will be able to bring others to the table and enhance the project. But you have an idea how to finance the project and we are not the only financer and maybe not even a financer. But the project is a project that is viable for the community. And IsDB becomes a partner in whole initiative, otherwise in my mind IsDB will not be able to solve the problems of Ummah today. We will not have the amount of money required to solve everybody’s problem. Look, the development agencies have been addressing this for so many years and still have not solved the problems. How are we going to be able to solve the problems, if we adopt more of the same style? It does not work. The only way we believe it will work is that everyone is in empower all the people to do something for the Ummah and we will just be partnering in that. We cannot simply impose the “big brother approach.” This is a short-term solution. Of course we have the bigger picture of development – I spoke about human development, which makes economic development also as a mean. I hope people will come to IsDB with a different mindset. It is best when a project promoter has a project and ready to do it with or without IsDB. But with IsDB, [we] will give you the boost for growth. I think it is better to solve the Ummah’s problem, by ourselves, but we invite others to be our partners, as it will also enrich them in the process. To do this, we must not just address this from the thinking and doing and not just in the doing. Is IsDB doing anything in particular to attract non-member country firms as implementers, such as consultancies from Europe or the U.S. that have a strong presence in the Middle East and North Africa? We are interested in doing that. We are also aware that whatever works in U.S.-Europe does not necessarily mean works in our member countries. We believe member countries should not simply be reactive and just subscribing to products, services, ideas from the West. It has to have its own capacity to talk about what it wants to do especially on culture and local environment; that is an important element in our strategy. So how do we do this differently? We do not allow in our engagement of consultant to be imposing a prescription. To us the process is equally important. We prefer a facilitation mode and not an advisory mode. It is harder as it takes longer to see result and it depends on the effective transfer or capacity building. We want like a workshop they give us experience and we facilitate among local. We are already doing this in areas of Knowledge Economy-Society and soon on sector-specific focus areas. Another differentiation we want to bring to this process is its value dimension. Because we believe in at the end of the day, it is about human development not economic development. Most western consultants with a prescribe economy development on maximizing profit and all these indicators. But with soft power of value is not that. What do I mean? Family values, spiritual values, all of that mean to us important elements of development. Therefore, our engagement, although dependent on external expertise, have a common framework. We are already working with foreign consultants. For instance, we have many consultants coming from the World Bank, Asian Development Bank, African Development Bank. We have also engaged both the big consulting firms as well as smaller member-country consulting firms. So, we do indeed work with external experts and consultants. We want to get benefit from their experience. But we are also sharing our value dimension. To us, even consultants are our partners in development, they will also learn from us. These experts and consultants are not just from our member countries or that of the West only. We are also interested partner with the emerging economies. We are for instance, working with Korean experts. So we are not just interested in U.S.-European experts. We are also interested in Eastern Model on how they have transformed. Korea as an example has transformed its economy. Today they are among the developed countries. Read more international development business news.