2019 Global Citizenship Review
Man walking camel in desert

A healthy bond

Innovative Islamic finance fund scales up the fight against cholera

Through its One WASH (Water, Sanitation and Hygiene) program, the International Federation of Red Cross and Red Crescent Societies (IFRC) has an ambitious goal to reduce cholera by 90 percent by 2030 in at least 18 of the Organisation of Islamic Cooperation countries most affected. This effort requires significant funding, but for many humanitarian initiatives, fundraising can be difficult in the early stages.

This is an innovative and new approach not only for IFRC & IsDB but also for the humanitarian sector. It also suggests a new model for cooperation between the public, private and third sectors.

Dr. Jemilah Mahmood, Under Secretary General for Partnerships, International Federation of Red Cross and Red Crescent Societies

The IFRC, in partnership with the Islamic Development Bank (IsDB), hypothesized that it could scale the project more quickly using a multimillion-dollar Islamic fund initially seeded from a combination of initial unconditional charitable donations and the proceeds of an impact sukuk (a Shari’ah-compliant bond), which would make it accessible for Islamic private investors. The proceeds of the impact sukuk are applied by the fund to finance the One WASH projects globally, with sukuk investors being repaid when donations of contingent donors—motivated by (and contingent upon) the program achieving pre-defined results—come in.

As a longstanding pro bono client, the IFRC called on us to help design and develop this global first. Led by partner Debashis Dey (London and Dubai) and counsel Xuan Jin (Dubai) in the Firm’s global Capital Markets practice, our team tapped into our Islamic finance and sustainable finance experience and history of innovation in capital markets to assist in three primary ways.

First, we outlined the implications and considerations of Shari’ah compliance, including the structural issues and governance processes involved. Next, we offered legal advice on how the fund and sukuk could be structured to ensure the new concept was workable and bankable. And finally, we introduced the IFRC and IsDB to investment banks in our network that took on the commercial side of the concept.

The outcome is a unique fund that innovatively blends Islamic social finance contributions and private capital with traditional philanthropy. The project was launched at the High-level Dialogue on Financing for Development during the 74th session of the United Nations General Assembly in New York on September 26, 2019.

“This is an innovative and new approach not only for IFRC & IsDB but also for the humanitarian sector,” said Dr. Jemilah Mahmood, Under Secretary General for Partnerships at the IFRC. “It also suggests a new model for cooperation between the public, private and third sectors. Delivering the size of funding required for One WASH meant developing a new instrument that could work at sufficient scale. The support of White & Case, and Debashis in particular because of his experience in working on innovative Islamic structures, was invaluable.”

How a sukuk works

A sukuk (or “Islamic bond”) is a fixed income capital markets instrument that is structured to be Shari’ah-compliant (principally to address the Shari’ah prohibition of riba or interest in finance transactions) in a manner that enables investors to still receive an economic return on investment similar to that of a conventional bond. Sukuk are typically structured to provide investors with returns based on the performance of underlying assets originated by the sukuk issuer that support the transaction. Such assets (and the recourse of investors to such assets and/or the issuer) vary depending on the Shari’ah structure chosen for any particular transaction. In the case of the One WASH sukuk, the assets underpinning the sukuk will be the One WASH projects together with the donations received by the fund from “contingent” donors who accede to donation commitments upon pre-agreed One WASH program performance and impact milestones being met.

The IFRC’s global One WASH program supports UN Sustainable Development Goals 3, 5, 6 and 17.

Image: // Wadi Rum, Jordan, is a World Heritage site that protects carvings and petroglyphs
from 12,000 years of human habitation. 2019 © Steve McCurry / Magnum Photos


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