Berkley Center

Background: This exchange between Amadou Cissé and Katherine Marshall took place as part of preparations for a December 17, 2007 conference in Doha on "Global Development and Faith-Inspired Organizations in the Muslim World." An ex-prime minister of Niger, Cissé comes from a long line of local Muslim leaders and is a product of the French colonial education system. In the following discussion, he provides expert analysis on the Islamic Development Bank (IDB), a unique multilateral development financing institution that uses a profit- and loss-sharing basis or fixed fees in order to avoid Islamic law's prohibition on charging interest. Cissé also shares his belief that religious education raises the moral caliber of people and that education is the key to eliminating poverty. He claims that Muslim faith-based institutions can build a bridge between local values and global development policies.

What path has brought you to your current position? How has it involved you in working with faith-based organizations and international development?

I do not know if you are aware that I come from one of the families that was involved in establishing Islam in Niger. Say is my home town, and for centuries it has been renowned as one the most important religious center in Western Africa, famous for the quality of its Muslim scholars and as an Islamic learning center. The Islamic faith and an ancient university were established there from around the sixteenth century. My family has always been in leading positions, both in the university and in Niger's Islamic community: the president of the Islamic community has always been someone from my family.

Both the IDB and my family are much involved with the building of a global Islamic university in Say. It is one of three such universities in Bangladesh, Uganda, and in Niger. In Niger, the university in Say was formally launched in 1986, and my family has played a central role in supporting it.

My father was also one of the very first Nigerian leaders from the 1920s in the French colonial administration. I was educated in the French system, as an engineer of Ponts et Chausses and as an economist.

Thus, I have always lived with the strong Islamic culture on one side, and the French, Western culture on the other. I grew up in Niger but have many years working as an international civil servant, covering many different regions of the world. You and I worked together for many years at the World Bank, where I was involved in several different regions but above all Africa.

My most demanding and exciting years were as a political leader in Niger, a country with rich heritage, but deep poverty also. As prime minister, I could never forget either the political or the economic dimensions of national affairs. And coming to the Islamic Development Bank has opened new and exciting horizons.

How does the Islamic core of the IDB manifest itself, both in terms of politics and ethos?

The IDB is a unique multilateral development financing institution, mandated by its member countries to operate within the framework of the sharia. IDB started its operations in 1975. In the beginning, the IDB faced challenges in terms of financial engineering to develop instruments to finance its operations, knowledge development to show that alternative modes of finance were viable, and also institutional challenges to develop systems to support the architectural and infrastructural requirements of the new financing alternative. We also faced the challenge of meeting expectations from private sector entities that would have the opportunity to replicate the experience of application of Islamic modes of finance, of policymakers who wanted to be convinced about the systematic soundness of the new financial arrangements, of civil society partners who wanted to see the genuineness of the alternatives, and so on.

Nonetheless, these challenges were bundled together with a number of opportunities. As the time has passed, those opportunities have overtaken the challenges and have also motivated diverse participants to come into the area of Islamic finance, which was considered as a niche activity of the IDB and its like-minded institutions. Over the years, the nature of these challenges has changed. At present, the IDB has reached the stage of repositioning itself within the framework of the concept of comprehensive human development through its Vision 1440H. The challenges for the next stage will be for the IDB to meet the aspirations of the millions of the poorest of the poor that fall under the line of poverty, as benchmarked by the United Nations Millennium Goals.

The IDB faces challenges, but at the same time there is a rich treasure of institutions and motivations that are provided by the faith. The key institutions such as zakat and awqaf (compulsory and voluntary charity) will need to be revived to strengthen the role of civil society at the same time as we work to meet the challenges of achieving the MDGs.

The political leadership of the IDB Group members has supported the IDB as a single entity, allowing it to develop as a group of five specialized entities and a number of affiliated institutions. The leadership has also recently established the Islamic Solidarity Fund to support the efforts of the international community in its member countries in achieving the MDGs.

How does the IDB deal with non-state institutions, as a matter of policy and on practical matters?

As a faith-based development financing institution, the IDB understands the relevance of local values for global development. Local values determine the preferences of consumers, households, and business enterprises. The integration of these local aspirations in the process of development is an important challenge of our knowledge-based global economy. In this process, the IDB has to work with civil society institutions, private parties, and national policymakers as the key stakeholders.

IDB's partnership with civil society for community development is managed under a program which is known as the Special Assistance Program of the IDB, as well as the Scholarship Program, which is aimed at developing educational and institutional capacities in Muslim communities worldwide to enable them to participate in the development process of their communities and countries. The IDB's activities in the private sector are led by its operations complex, the Islamic Banks Office, as well as specialized groups such as ICD [Islamic Corporation for the Development of the Private Sector] and ICIEC [Islamic Corporation for the Insurance of Investment and Export Credit]. These activities are governed by the principles of socially responsible business and best practices of corporate governance.

Who are your strongest partners?

Our key partners are our member countries, but also regional and international institutions, civil society, and Islamic financial institutions.

Can you highlight any special instances of success?

When the IDB started its operation in 1975, it was the only financial institution whose primary challenge was innovating new modes of financing that can be utilized for financing development projects in the social and private sectors. There are now over 300 financial institutions working in almost all jurisdictions all over the world, managing over a trillion U.S. dollars of assets and providing all types of financial services to various segments of the population. Furthermore, specialized institutions are working on building the architecture and infrastructure that is required for sound financial services and promoting financial sector development. In addition to national institutions, multilateral development financial institutions are also utilizing Islamic financial techniques in promoting financial sector development, policies, as well as in financing their operations.

Thus, the development of the idea of Islamic finance as a financial engineering process has opened up opportunities for economic cooperation between the various business interests of the global economy and promoting investment, trade, and economic development. At this present time in the global economy, the emergence of Islamic finance as a financial innovation enhances the availability of alternatives, promotes competition, and indeed, helps to further the economic and social welfare of the global community. Indeed, the IDB is an AAA-rated institution financing development in compliance with the sharia.

We are both concerned about the problems of poverty that so grip the Islamic world. If this were more recognized, what kinds of policy changes might it imply?

The 56 member countries of IDB also represent half of the world's least developed nations. The eight Millennium Development Goals (MDGs) that are aimed at poverty reduction and improvements in important aspects of human welfare such as health, education, reducing child mortality, etc. are the most critical, perennial issues currently facing the IDB member countries. Many IDB member countries are on the track of achieving major health-related MDGs and reducing the number of people suffering from hunger. However, there is a serious concern about significant gaps in the achievement of the MDGs by the membership from Sub-Saharan African countries. Particularly the target of halving the number of people living below $1 a day is in fact in danger of being missed.

The most vulnerable and fragile population segments are also increasingly exposed to conflicts, natural disasters, and diseases such as AIDS and malaria. There are also special concerns in view of the declining pattern of official development assistance (ODA) flows to these IDB member countries and its direction towards debt relief initiatives instead of the MDGs. Moreover, barely 13 percent of the foreign direction investment (FDI) flowing to developing countries reaches the IDB member countries. A number of other internal and external uncertainties are expected to continue, threatening the stability of these fragile economies and communities. Population pressures, depletion of water resources, pollution, and youth unemployment and restlessness are some of the critical internal pressures that accelerate the challenges. The perpetual rise in energy prices, persistent budget deficits, and lack of access to financial services hinder access to opportunities and perpetuate extreme poverty. This is a partial picture of the complex developmental challenges faced by IDB member countries that we share with other multilateral development banks (MDBs) and national, regional, international, and civil society organizations.

By establishing the Solidarity Fund, member countries have enhanced the IDB's resources for its poverty reduction efforts. However, compared to the colossal nature of the challenges, the resources and technical capacity of the IDB are indeed very limited. Therefore, since its inception in 1975, the IDB has sought close cooperation with other MDBs, United Nations agencies, and national, regional and international organizations. This cooperation has facilitated in the co-financing of development projects, and knowledge sharing and exchange of technical expertise and information in capacity building. The IDB firmly believes that it is imperative to strengthen the vital input of international cooperation in making it certain to attain the MDGs by the target date.

Since there is a great deal of unemployment in Muslim countries and since microenterprises can make a valuable contribution towards the solution of this problem, it is also necessary to make arrangements for microfinance for the poor to enable them to establish their microenterprises. Since the effective rate of interest in interest-based microfinance goes up to as high 30 to 45 percent, it is desirable to link the zakat and awqaf systems with the microfinance industry to reduce the cost of microfinance for the poor.

Governments alone cannot be expected to remove poverty. The private sector has to play an effective role. For this purpose the efforts of all private social service organizations need to be coordinated and properly guided to achieve optimum results. Private social service organizations collect substantial amounts of zakat and awqaf funds. It is, therefore, necessary to monitor and audit such organizations to ensure that the funds they mobilize are properly utilized for the purpose for which they are collected.

How can we get more focus on education, a topic on which we so agree?

Education is the key to success for the elimination of poverty. Literacy rates in most Muslim countries are low, and the people do not have the skills in demand. In addition, work ethics are also very poor. Productivity is, therefore, generally low. Therefore, reliance on the provision of only secular education will not do. It needs to be combined with religious education aimed at raising the moral caliber of the people. It is now generally realized that moral uplift and development go hand in hand. Therefore, unless work ethics improve to increase honesty, integrity, fulfillment of promises and contracts, punctuality, and conscientiousness, it will be difficult to create the social trust that is needed for development.

How does Islamic financing work from the perspective of the IDB?

Financial institutions in a modern world cater to the financial needs of people in many different ways. The financial intermediaries, for example, channel funds from savers to entrepreneurs. They enhance efficiency of the saving/investment process and provide liquidity and suitable risk positions for investors. Financial markets, on the other hand, cater to similar needs by providing opportunities of direct fundraising for the businesses and liquidity and suitable risk-taking opportunities for the investors through portfolio diversification. Islamic finance provides all these services in an ethical, moral, and religiously consistent manner. Islamic finance can be thought of as a system which augments and will be augmented by the deeper knowledge and experience of the conventional financial system.

For example, if we take financial intermediation through banks, then an Islamic bank is a deposit-taking institution whose functions include all currently known banking activities. On the liability side, it mobilizes funds on the basis of profit-sharing or by charging a fixed fee as a manager or an agent. On the asset side, it makes finance available on a profit- and loss-sharing basis or through the purchase of goods (on cash) and their sale (on credit) or other trading, leasing, and manufacturing activities. Thus financing needs are met without charging interest, a prohibited charge in sharia. There can be further details on how the accounts are divided between demand deposits and risk-bearing investment accounts.

Islamic finance is part of the Islamic system. It is accompanied by a rich and elaborate set of tenets, which among others, recognizes the right to property supported by elaborate obligations for stakeholders, principles and rules of conduct, a contract system, and institutional framework for its enforcement which collectively lay the foundation for Islamic business and finance. Its preferred mode of transaction—that is profit-sharing—relies on ex post variability rather than ex ante fixity in returns and therefore has built in risk-sharing as a central element of transactions. Contracts on a fixed return basis are also possible, but they should be financing sale and purchase/trade/exchange of goods and services.

While the main driver of Islamic finance is the ideology and faith which shapes it and also distinguishes it from the conventional finance, Islamic finance is not restricted to Muslims only. Its intrinsic stability features, along with emphasis on just and equitable returns, offer opportunity to all without restriction of any faith and creed. Its emphasis on ethical investment—rigorous self-regulation in terms of ensuring the application of sharia rules regarding fair play, justice, and avoiding of interest—attracts everybody as it offers superior consumer protection and induces higher financial discipline on the financial institutions.

As you look at the Berkley Luce FBO project and December conference, what are the issues you would like to see addressed?

Let me list three such issues:

1. Local values and aspirations have become tremendously important for global development, peace and security. Public policymakers, regional and international organizations, civil society, faith-based organizations, and the private sector need to build the required nexus of their policies and strategies with the values and aspiration of the local communities in our global village and local realities.
2. To make finance work for the poorest of the poor, in the first place, finance must also be made relevant for them so that development opportunities can be made inclusive. Faith-based finance addresses this genuine need of a very large segment of the world population.
3. Faith-based institutions and in the Islamic faith in particular, the institutions of zakat and awqaf can play a vital role in building a sustainable, peaceful, and secured world. An example is the role that is being played and can be played by religious educational institutions in a number of countries. A 2005 Educational Census in one of the IDB member countries showed that more than 2.5 million of the poorest of the poor children were registered in the religious educational institutions and financed entirely by charities. Yet, even a small fraction of these young people are not prepared to participate in the development process, contribute to it, and derive benefits from it. This challenge is local in nature but global in significance.

What kinds of questions might this suggest for discussion and research?

Initiatives like the Berkley Luce FBO project and this conference offer an opportunity to address such significant issues in terms of the global development policies in terms of the local beneficiaries of those policies.

I think I have raised very fundamental questions pertaining to the three interrelated areas of barriers to opportunities and inclusiveness of development policies. To address these barriers to opportunities, and inclusiveness of global development policies, there is a need for dialogue and discussion between the stakeholders of global development based on authentic research.

Any concluding thoughts?

In our present time, there is a need for dialogue between civilizations, or as I put it more operationally, between local values and global development policies. Faith-based institutions could play a vital role in this process. I understand that the knowledge and research wing of IDB Group, that is, the Islamic Research and Training Institute, and the Berkley Luce FBO initiatives may consider working on joint initiatives addressing the theme.