Tashkent, Republic of Uzbekistan, 2 September 2021 – Realizing the potential of Islamic Finance to have an impact on the poor requires financial institutions to go beyond Shariah compliance. It requires financial institutions to conduct trade and investment by engaging stakeholders in the value chain. They need to develop business models that will be profitable while ensuring that the risks are well mitigated.

This is a challenging notion as it takes financial institution out of their comfort zone of focusing on mitigating only credit risks, and to take into consideration real sector risks when financing their clients. The toolkits were developed mainly to help financial institutions better understand the sectors they are financing, avail the opportunities and mitigate the real sector risks. They would also help financial institutions evaluate their performance and provide advice on how to improve. This will not only create better impact to their clients but also improve their competitiveness and strengthen their overall financial sustainability.

In the light of the above and in conjunction with the side-event on “Reshaping the Paradigm of the Economic Transformation, Empowerment and Inclusion of the Poor in the Post Covid-19 era” organized by the IsDB Economic Empowerment Department, three Economic Empowerment Toolkits were launched during the IsDB Annual meeting in Tashkent, Uzbekistan. They were developed internally with consultation from various stakeholders including financial institutions that have successfully implemented these best practices. The three toolkits that were launched include:

• The Economic Empowerment Design Toolkit which provide guidance and practical tools to embark on the journey to practice the Economic Empowerment Approach. This toolkit will explain how a microfinance/financial institution can implement the Economic Empowerment Approach by analyzing local value chains with the highest potential. The toolkit guides how the value chain analysis will help identify and pursue business opportunities with their clients.
• The Monitoring and Evaluation Toolkit which is a comprehensive guide for financial institutions to monitor their progress and self-evaluate their performance. Measuring and communicating their contribution to poverty alleviation will enhance their ability to demonstrate their success and raise impact funds from donors.
• The Islamic Financial Product Implementation Toolkit which is a step-by-step guide for financial and microfinance institutions on structuring and implementing commonly used Islamic modes of financing. It simplifies adopting Islamic Finance for prospective Islamic financial institutions interested in practicing Economic Empowerment.

During the launch of the toolkits, IsDB President H.E Dr. Muhammed Sulaiman Al Jasser commented that the “toolkits are knowledge products that were developed to serve as industry standards and will be used as guides for financial institutions to practice”. He informed that the toolkits were part of the Solutions Engineering and Entrepreneurial Design (SEED) Program - championed by the IsDB Economic Empowerment Department - which aimed to develop an eco-system that will enable financial institutions to practice and champion Economic Empowerment best practices.

IsDB President further emphasized the need for an enabling eco-system that will support financial institutions to champion the Economic Empowerment approach. “These SEED toolkits that we are launching today are indeed a stepping-stone for the promotion of this approach by the IsDB in its Member Countries,” said H.E Dr. Muhammed Sulaiman Al Jasser  as he encouraged partners to join IsDB in developing this eco-system together.

About the Solutions Engineering and Entrepreneurial Design (SEED)Program

The SEED Program is implemented by the Solutions Engineering and Entrepreneurial Design section of the Economic Empowerment Department of IsDB. The SEED Program aims to develop approaches, tools, manuals, and IT/fintech solutions in collaboration with partners in order to enhance the quality and effectiveness of the design and implementation of Economic Empowerment Operations (Funds, Institutions, and Programs) in IsDB Member Countries. The program is organized into four key components namely: (i) Toolkits and Knowledge Products; (ii) Technology Systems and Platforms; (iii) Training and Advocacy; and (iv) Economic Empowerment Portal.

Economic Empowerment Design Toolkit

The Economic Empowerment methodology embodies the spirit of Islamic finance by promoting risk-sharing through trading and investment transactions. It provides the poor with appropriate access to the required inputs/means to not only achieve their financial inclusion but also enable them to contribute to the economy.

The toolkit explains how a microfinance/financial institution can implement the Economic Empowerment methodology by analyzing value chains with the highest potential. The toolkit provides guidance on how analysis of the value chain will lead to identifying and pursuing business opportunities with their clients. In addition, this toolkit includes detailed case studies that clarify the different business modules for the Economic Empowerment approach. These case studies were taken from previous Islamic Development Bank success stories in selected member countries (Palestine, Sudan, Egypt and Tunisia).

The Economic Empowerment Design Toolkit is an essential resource for client centric financial institutions interested in enhancing the value they provide to their clients. The toolkit is the accumulation of various technical studies, consultancy reports, standard operating procedures, operating manuals and other resources. These documents were consolidated to provide guidance to financial institutions that are interested in going beyond financing/credit operations to strengthening their partnership with their clients by offering them economic opportunities.

Monitoring & Evaluation Toolkit

It is an undeniable that Monitoring and Evaluation is a key tool in any project management and implementation. Monitoring is a process of planning and managing the activities to achieve progress expected by the project stakeholders and to determine where corrective actions are needed. Evaluation, on the other hand, assesses outcomes and impacts of the project relative to expectations and helps formulate lessons learnt for consideration in future projects.

The road to Economic Empowerment is a journey of continuous improvement. This Monitoring and Evaluation Toolkit is a comprehensive guide for the financial institutions to monitor their progress and self-evaluate their performance. Measuring and communicating their contribution to poverty alleviation will enhance their ability to demonstrate their success and raise impact funds from donors.

Donors are interested to support financial institutions that: (i) Are financially sustainable; (ii) Treat their clients in a socially responsible manner; and (iii) Have an impact on poverty alleviation. The Monitoring and Evaluation Toolkit measures the performance of financial institutions on all these three dimensions and provide them a clear understanding on where they stand under each dimension and how they can be more competitive for the benefit of their clients and their own long-term sustainability.

The Monitoring and Evaluation Toolkit is an essential resource on how performance of the financial institution can be measured from the financial and social dimensions. The toolkit also presents an innovative way to measure the impact of the value addition generated by trading and investment activities of financial institutions. These qualitative and quantitative indicators measure the client centricity of the financial institutions as the support they provide to their clients go beyond financial services. This toolkit presents a standard on the performance indicators that should be monitored for the continuous improvement of the Islamic financial institution.

Islamic Finance Product Implementation Toolkit

The Islamic Financial Institution Product Implementation Toolkit is the  byproduct/outcome of the Islamic Development Bank’s efforts to leverage on over four decades of experience in structuring, investing and implementing shariah-compliant financial institutions, products and processes in Member Countries and Muslim communities; drawing on lessons learnt, success stories and especially, on the expertise of its staff and network of partners.

The distinctives features of Islamic Financial Institutions (“IFIs’) carrying out business Shariah-compliance activities with medium, small and medium enterprises (“MSME”) require different sets of product and services. IFIs differ in operations from conventional counterparts in many facets. Based on the Shariah principles, the IFIs provide financing through trading and investments with other parties through three types of financing- a) Benevolent-oriented financing; b) Trade-oriented financing; and c) Investment- oriented financing. It is noted that the product categorization associates with their own legal requirements, and the unique risks and rewards.

The toolkit aims to provide accessible and easy to understand resources that simplifies the processes leading to the adoption of the Islamic modes of finance and shariah-compliant banking, thereby spurring the growth of the Islamic finance ecosystem. It provides a comprehensive step-by-step guide for financial institutions and microfinance institutions on how to structure and implement commonly used Islamic modes of financing. It provides practical examples and templates that can be adapted to various regulatory regimes or jurisdictions. Hence, this toolkit further serves as an instrument to promote Islamic finance and Economic Empowerment - it simplifies the process of adopting sharia-compliant financing for existing and prospective Islamic Financial Institutions interested in practicing Economic Empowerment.