Tackling Poverty Reduction: The Role of the Islamic Development Bank

Poverty reduction is the greatest challenge facing humanity today. An ideological commitment to reduce or eradicate this phenomenon should be contemplated as part and parcel of social moral responsibility and shared human values across countries and generations. Failure to do so will have unprecedented repercussions on human development. Although the Millennium Development Goals (MDGs) have been accepted as a basis for action to free men, women and children from the dehumanizing conditions of extreme poverty, more than 1 billion people are estimated to be in absolute poverty worldwide. Of these, about 40 per cent, or 400 million people, are living in member countries of the Islamic Development Bank (IsDB).

Aware of the need for accelerating progress towards the MDGs and to achieve significant measurable improvement in people's lives in its member countries, the IsDB launched in May 2007 a poverty reduction fund -- formally known as the Islamic Solidarity Fund for Development (ISFD) -- with a targeted capital of $10 billion to be contributed by all member countries of the IsDB. The Fund's main purpose is to contribute to poverty alleviation by reducing unemployment, fighting diseases and epidemics, eliminating illiteracy and building capacities in member countries.

Fighting poverty, however, is not a new concept to the IsDB. It has always considered poverty as a moral wrong that should be fought by all stakeholders as a matter of moral necessity. This is, in fact, as important as protecting human life and dignity. Since it started its activities in 1975, the Bank had provided, as part of its overall financing, more than $5 billion to member countries for pro-poor activities, such as agriculture, education, health, water and sanitation. However, unlike other multilateral development banks, which traditionally have dedicated windows for concessionary financing, the IsDB had been depending upon its ordinary capital resources to provide concessionary financing to those activities. This, by its very nature, was unsustainable. The establishment of ISFD was, therefore, an important step in ensuring a sustainable and expanded social sector and pro-poor financing, leading to the achievement of the MDGs.

In order to formulate and rethink its policy activities to implement this new programme, the IsDB approach to poverty reduction has been based on the notion that human dignity, brotherhood, social equality and justice constitute natural and inviolable corollaries of the status of all human beings. This approach recognizes that the MDGs are at the centre of national development plans and poverty-reduction programmes, reflecting national ownership and consensus-building. The Goals are also directly compatible with the Bank's 2020 Vision and mission to alleviate poverty. Apart from measuring the extent of this social scourge, the MDGs set out a powerful agenda for global partnership to fight poverty, with a vision to create a better world by 2015. The IsDB regards the attainment of these Goals as important benchmarks in the assessment of its poverty-reduction efforts.

Consonant with this and recognizing that poverty is essentially, though by no means exclusively, a rural phenomenon, ISFD will target operations in areas such as agriculture and food security; water and sanitation; education, with special emphasis on primary and girls' education; infrastructure projects, particularly in rural areas; health, in particular combating diseases like malaria and tuberculosis; accessibility to health services; emergency relief and post-conflict reconstruction; and institutional capacity-building. The IsDB will also avoid a "one-size-fits-all" approach and seek to play a catalyst role by using the Fund's resources as seed money to attract more funds for its poverty-reduction programmes from the private sector, as well as other multilateral development banks and development partners. It will also promote the so-called "twinning" arrangements between member countries and institutions, and encourage learning from success stories and good practices of countries and other institutions that are engaged in the fight against poverty. While ISFD will benefit the poor segments or vulnerable groups in all 56 member countries of the IsDB, topmost priority will be given to the least developed members, especially in sub-Saharan Africa, as well as those in conflict or post-conflict situations. The Fund's policy also puts a sense of urgency on achieving social justice through targeting individuals and groups that are socially excluded, marginalized, vulnerable and disadvantaged. There are some broad lessons about poverty reduction emerging from the comparative experience of developing countries, which need to be taken into consideration in implementing the Fund's programmes for a meaningful and effective impact of its intervention. Perhaps, one of the most important messages is that the MDGs can only be achieved if there is political will of the partner countries and commitment by the international development community. Several other enabling policies also need to be put in place, more so by the member countries themselves, among them, to empower women, achieve stable macroeconomic environments and pro-poor growth, and encourage private-sector support policy measures.

With the implementation of the Fund, it is hoped that the IsDB will have a greater impact on the achievement of the MDGs in its member countries. This contribution, however, should be viewed realistically, taking into account the enormity of the needs in these countries and the limitations of the Bank's financing. Overall, it has to be recognized that some important gaps currently exist in the wider development community, in both funding and capacity, which impede the overall progress towards the MDGs. Thus, there is a need for close collaboration between multilateral development banks and other donors to fulfil their promises to achieve the MDGs.

ISFD, which started its operations in early 2008, is not the only instrument that the IsDB will employ to fight poverty. Its ordinary capital resources and those of its subsidiaries, such as the Islamic Corporation for the Development of the Private Sector and the International Islamic Trade Finance Corporation, will also be used to support productive activities in the public and private sectors that generate employment, promote growth and eventually help the poor to break away from the vicious circle of poverty.