Ways to boost Arab African trade and investment and the role for Islamic finance has featured strongly in recent months. In Cairo in early March 2022 the Third Board of Governors Meeting of the Arab Africa Trade Bridges (AATB) Programme, host Dr Hala El Said, Minister of Planning and Economic Development of Egypt and Chairperson of the AATB, stressed the opportunity “to enhance our efforts to develop trade and investment flows between African and Arab countries. We hope to continue and intensify this cooperation in the coming phase.”
During the same meeting, ICIEC, the export credit agency of the Islamic Development Bank (IsDB) Group, signed a wide-ranging MoU with the premier multilateral African trade finance institution, Afreximbank.
One institution whose relationship with the IsDB and Islamic development finance goes back to 1979 is the UN agricultural agency, the International Fund for Agricultural Development (IFAD). An IFAD delegation visited the IsDB in Jeddah in late 2021with the aim of mobilizing funds to address food security challenges, building up resilience against climate change as well as enhancing market accessibility in rural areas of member developing countries common to both institutions.
“IFAD and the IsDB,” explained Gilbert F Houngbo President of IFAD, in an interview, “have a long history of collaboration. Our two institutions both strive to improve the lives of those we serve and contribute to ending poverty. We have multiple areas of common interests, including agricultural and rural development, improved access to markets and rural financial services, climate resilience, technology and innovation. These are all entry points to jointly promote sustainable food systems transformation, in line with commitments made at the UN Food Systems Summit, G20 and COP26.”
Houngbo says that IFAD’s partnership with the IsDB Group is strong and becoming
even stronger. The signing of a new Cooperation Framework Agreement between the two institutions in 2021 provides new opportunities to strengthen the partnership through co-financing and other non-financial (technical, knowledge, advocacy) cooperation. “We have committed to jointly finance priority projects over the next five years with a target of US$500 million (US$250 million from each institution), focusing on priority areas including support to agribusiness and farmers-market linkages, improved access to markets and rural financial services, water for rural development and South-South and Triangular Cooperation (SSTC),” he added.
To achieve the Sustainable Development Goals (SDGs) by 2030, IFAD needs to mobilize innovative forms of financing and deliver on the UN Secretary General’s call to deepen the transformation of development finance systems. Recent estimates suggest that transforming food systems to deliver healthy people, a healthy planet and a healthy economy will require an extra US$300–US$350 billion per year for the next decade.
“If we are to meet this need,” stressed Houngbo, “we need to maximize all sources of finance for development. According to recent OECD estimates, Islamic finance represents US$2.5 trillion – a share of which could potentially be mobilized for development. There is significant scope to leverage several Islamic finance concepts and tools, notably some of the most promising ones such as zakat, awqaf/waqf, Sukuk and Islamic microfinancing to accelerate the SDGs. Recently, IFAD has taken steps to expand our financing mix, creating new instruments to engage with the private sector and expanding IFAD’s lender base and the borrowing instruments at IFAD’s disposal. Moving forward, we welcome opportunities to partner with the IsDB in exploring innovative forms of financing, including Islamic finance.”
IsDB and IFAD signed a new $500m Cooperation and Co-financing Framework Agreement (CCFA) for the next five-year period in April 2021. Houngbo further explained that the Framework Agreement with the IsDB aims to scale up co-financing and knowledge sharing in areas of mutual interest in a structured and predictable manner. Both IFAD and IsDB have recently undergone restructuring and decentralization, establishing major hubs and regional offices in Africa and Asia. This provides significant opportunities for exchange at country level. Several projects are under various stages of implementation under the CCFA.
“We have both developed new instruments to engage with the private sector and are increasingly focused on climate resilience. In October 2021, our regional teams had the opportunity to discuss collaboration at country level. Further exchanges will take place through a follow up mission from IsDB to IFAD. This will enable our technical teams to finalize an action plan for implementation over the coming years, including a pipeline of joint activities in our common 57 Member States. We will then have opportunities to assess results from our joint activities on an annual basis and take course corrections as needed,” confirmed Houngbo.
IFAD is seeking to leverage and enable more private sector investment and involvement in the small-scale agricultural sector. With the establishment of IFAD’s new instruments and the Islamic Corporation for the Development of the Private Sector’s long history of working with the private sector, Houngbo believes the two institutions can explore how to jointly encourage private sector investment in agriculture and rural development.
Climate change is one of the most pressing challenges, having significant impact on critical and vulnerable communities, particularly rural people and ecosystems around the world. Both IFAD and IsDB seek to address challenges related to the impacts of climate change. Recently, IFAD launched the Enhanced Adaptation for Smallholder Agriculture Programme (ASAP+) – a 100 percent climate financing mechanism, which IFAD is upscaling to make it the largest fund dedicated to climate finance for small-scale producers.
“Through this programme, we aim to channel US$500 million of additional climate finance, targeting more than 10 million rural people by increasing the resilience of small-scale food producers as they adapt to the changing weather patterns. In addition to our core operations, ASAP+ provides significant scope for collaboration with the IsDB around climate change,” he added.
IFAD is strongly committed to SSTC. Over recent years, it has mainstreamed SSTC in its operations, with 22 projects with SSTC components currently under implementation. The Fund is now developing a new Strategy on SSTC. Its objective is to contribute to doubling and deepening IFAD’s impact. This provides opportunities for collaboration with the IsDB.
Houngbo also stressed that IFAD is exploring the idea of raising funds from the market through a debut Sukuk issuance. IFAD received its first-ever credit rating from Fitch Ratings and S&P Global in 2020 and has also taken steps in recent years to strengthen and diversify its resource base to maximize its investment impact. IFAD is the first fund in the United Nations system to receive a public credit rating. This credit rating adds momentum to international efforts to catalyse additional financing to achieve the SDGs by 2030 and ensure no one is left behind.
“As I mentioned previously, meeting the needs of all our Member States requires that IFAD develops a diversified, broader and more predictable funding base so that we can expand our financial offer for the benefit of our borrowing countries. We have had some experience in exploring various innovative Islamic finance approaches and Sharia’a compliant instruments such as zakat, waqf and Sukuk, for instance in Indonesia.
“Given the increasing pressure on ODA resources, Sukuk and other instruments could help tap into a new source of financing for sustainable food systems transformation. In partnership with the IsDB, we welcome opportunities to learn more about this instrument; and then to engage with our Member States about potentially using this instrument to support our mandate.”