One WASH Sukuk Concept note, May 2019 - International Federation of Red Cross and ...
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One WASH Sukuk Concept note, May 2019
1. Introduction
Islamic Finance together with the Humanitarian and Development Sector
The problem
provides a shared foundation for social and economic justice that can contribute
to shared prosperity through the principles of inclusive participation and risk
sharing, and achievement of the Sustainable Development Goals (SDGs).
The Islamic Development Bank (IsDB) and the International Federation of Red
Cross and Red Crescent National Societies (IFRC) have signed an MOU to work
2.3 billion
together to develop a new and innovative approach between development People still lack even a basic
finance, humanitarian aid and private capital to support the Red Cross Red sanitation service
Crescent WASH programes and contribute towards achieving the SDGs.
As a priority the IsDB and the IFRC are working towards the ambitious objective
of contributing to the reduction of Cholera related deaths by 90% in the most
844 million
affected OIC Member Countries, over the next 10 years. This objective also People still lack a basic
contributes to SDG’s 3 and 6 and aligns with the Global Task Force for Cholera drinking water service
Control (GTFCC) ‘Cholera Roadmap’. The funds required for delivering on SDG
6 and 3 and the roadmap will require innovative and transformative forms
of financing beyond traditional humanitarian aid or development finance
responses. 159 million
People still collect drinking
To achieve this vision, IsDB and IFRC are creating an end-to-end partnership water from unprotected
that shall enable them to leverage and create an incremental value of sources
traditional resources to deliver the integrated ONE WASH programs on the
ground. Primarily, the model is an alternate to traditional grant financing
and seeks to raise up to USD150Million globally for One WASH from blended
financing sources, presenting an investment model that would position both
organizations ahead of the innovative financing curve and remedy the overall
perspectives that humanitarian and development organizations have as it
relates to resource mobilisation approaches.
The impact
Economic Environmental Humanitarian
Lack of adequate sanitation Greater risks of epidemics 289,000 children die
and water supply costs and political crises every year from diarrhoeal
$260 billion every year in diseases caused by poor
economic losses WASH
One WASH objective
#ENDCHOLERA related deaths by 90% in the most
affected OIC member countries, by 2030
p.2
2. One WASH Programme
The Red Cross Red Crescent’s Global Water and Sanitation Initiative (GWSI) pro-
motes a common but adaptable approach amongst National Red Cross Red
Crescent Societies to establish large-scale, long-term sustainable water and WASH and Cholera
sanitation programmes. It aims to continue its efforts in scaling up equitable,
sustainable and affordable access to water and sanitation services for all and
thus contributing towards achieving the Sustainable Development Goals.
Every 10 seconds, someone
Having reached over 16 million people between 2005 and plan to reach a min- is infected with cholera
imum of 30 million by 2030.
Over the past ten years, the IFRC and its members have significantly scaled-up
There are 95,000 prevent-
delivery of longer-term water and sanitation programmes, providing equitable, able deaths from cholera
affordable and sustainable solutions to help improve the health and quality of every year
life of vulnerable communities.
GWSI supports the design and implementation of a common integrated ap- Bringing WASH and public
proach, anchored on participatory and sustainable interventions. It aims to im- health together to
prove access to safe water and adequate sanitation, as well as supporting the fight cholera
application of good hygiene practices and community water management.
All GWSI projects meet the following criteria:
• promote equity: target vulnerable communities with significantly low water
and sanitation coverage IFRC Global Water
• sustainable technology: use appropriate, affordable and sustainable tech- and Sanitation
nology options Footprint
• projects at scale: promote large, longer-term projects to achieve economies
of scale and lower the cost-per-person
36 million
• community engagement: leverage community participation and invest in People reached with WASH
health and hygiene promotion infrastructure and services
since 2005
• impact: support greater, more measurable impact and clearly defined impact
indicators
• gender: take gender issues in the planning and implementation process Sustainable
Development
• alignment and integration: align with government water and sanitation pol-
icies, ensure integration between WASH and Public Health components Goals contribution
• environment: ensure that technical options are environmentally sound.
Recognising the continued threat, incidence and severity of cholera in over 40
countries worldwide (many of which are already benefiting from GWSI pro-
gramming) and the fact that RC/RC regularly and often recurrently responds
to cholera outbreaks in the same countries and ‘hotspots’ every year or so, the
decision to use GWSI as a platform for further cholera reduction or elimination
was taken in 2017. This led to the formation of One WASH as a GWSI based in-
itiative to address cholera in ‘at risk’ countries combining WASH programming
with Public Health components.
This also aligns with The Global Task Force for Cholera Control (GTFCC hosted
by WHO) launch of the Cholera Roadmap which was developed and launched
in 2017 with IFRC participation and has been adopted formally by many key
humanitarian actors and donors with a target to reduce cholera mortality by
90% by 2030, this by a combination of investment in WASH and public health
interventions especially in recognised cholera ‘hotspots’.
p.3
One WASH
Reaching 5 million people in Getting a return on
Phase 1 in the next 5 years investment – every $1 spent
expanding to 10 million or gives a return of $4.30 in
more by 2030. developmental impact.
Improving population
productivity, reducing
drudgery, restoring dignity
(especially for women and
children).
Why Innovative Finance?
Globally there has been remarkable economic and social progress in the past
two decades. This pros¬perity, however, is unevenly distributed and the next
tranche of gains are threatened by persistent development challenges exacer-
bated by prolonged crisis, climate change and rising inequality. The relative im-
portance of drivers of economic growth and prosper¬ity has evolved over time,
and, for a growing number of countries, innovation in its many dimensions is
emerging as a leading factor.
Governments’ ability to strategically mobilize various sources of financing for
social purposes remains underutilized even though many around the world are
dealing with fiscal crises and rolling back many essential services. Coupled with
the increasing reality of declining ODA, UN estimates suggest that developing
countries will need more than $2.5 trillion a year to fill the SDG financing gap.
Compare this to private capital sources alone amounting to more than $200
Trillion and it is clear that the vast majority of funds to achieve the SDGs must
come from non-government sources.
Much has been written about the urgent need for new sources and forms of
finance for development as a complement to ongoing public financing efforts.
True enough, of recent times, we are finding the emergence of several new
financing models, growing both in terms of their market size, their operations
and the way they serve those in developing countries, as a new alternative.
This is one such model ushering in a new form of development that seeks to
unlock private capital and help further leverage public funding to mobilize var-
ious new sources of investment, while at the same time realigning interests of
various partners and creating new investment opportunities. While the model
is focused on achieving WASH targets, it is designed to be scalable for any form
of public policy, social services and development goals.
p.4
3. One WASH fund
The centre piece of the ONE WASH partnership is the ONE WASH Fund (“the
Fund”). The Fund shall be financial and governance vehicle pooling resources
and overseeing the implementation of the ONE WASH program.
Traditional Type of
Donations
The Fund shall be primarily capitalized with donor’s/funder’s commitments, fol-
lowing two types of modalities captured in the Donor Contribution Agreement:
Donors, and Outcome Funder . For the IFRC Internal Donors (Partner National
Societies), a separate project agreement could be signed.
As the Fund is not fully capitalized upfront WASH Impact Sukuk (“The Sukuk”) Donor
will be issued in amount of up to US$150 million with the objective to secure
the complete pre-funding of the WASH program. The Sukuk shall be issued in
select international capital markets.
The Islamic Solidarity Fund for Development (ISFD) will provide a partial guar-
antee facility mechanism (The ISFD Guarantee) to enable and facilitate the issu-
ance of the Sukuk. The Sukuk will pay an expected return on a yearly basis. The
Implementing Agency
Fund will have a lifespan of [10-12] years and the Sukuk will be redeemable by
the Fund starting [from year 8] as the Fund receives released donations from
the Outcome Funders.
IsDB will act as a trustee for the fund, providing the relevant trustee servic- At risk communities
es vis-à-vis the donors, including financial management, operational oversight
and progress reporting.
IFRC will carry out the primary operational activities by delivering the WASH
program.
New Type of
Donations
Fund Diagram
Donors Outcome
ISFD Guarantee Donor
Commitments Buyers
One WASH
Fund
IsDB
Financer Implementing
Agency pays back
the Financer
Trustee and
Sukuk Manager
IFRC
At risk communities
WASH Projects
Implementation
p.5
4. Wash Impact Sukuk What is the value proposition?
The Fund will seek to mobilize resources, principally on For the donor
commercial basis from the international capital markets. The instrument allows for greater leverage of donor fi-
The mechanism for Sukuk issuance is described in this sec- nancing by crowding in private capital and enabling impact
tion. at scale which would not be possible in a normal donor fi-
nancing cycle. While there remain questions on the merits
1. Donors capitalize the fund with a mix of upfront and of blended finance for donors based on existing evidence,
outcome based commitments. it also clearly indicates that if anything, there is a case for
why this needs to happen but with fair caution and dili-
2. ISFD provide a partial financial guarantee covering some gence. This instrument makes fair consideration of the
of the risks involved in the implementation of the WASH points such as helping invest in the riskiest parts of the
program. capital structure of the investment in the poorest coun-
tries (LICs), where the private sector is unlikely to invest
3. The Fund, issues Sukuk backed by the Fund’s assets (i.e on its own. And ensuring that initial donor contributions
Donors commitments and ISFD Guarantee). These Sukuk are used for project preparation and robust research to
pay a periodic return. enable project development.
4. Social Investors acquire Sukuk and the proceeds are For the outcome buyer
paid to the ONE WASH Fund The instrument provides an opportunity for government
donors, philanthropists and philanthropic foundations
5. The Fund makes disbursements to IFRC which imple- to ensure 100% returns on the social impact intended
ments the projects. through their philanthropic capital with zero risk since
commitments made are realised only on the outcomes
6. In case, some outcomes are fully or partially missed and achieved.
hence some donor payments are forfeited, the Fund will
first use its reserve capital. As a second line of defense, in It seeks to balance the current practice that while philan-
case of a shortfall of funds of the Fund to meet its commit- thropic individuals make 5%-20% returns on their invest-
ments, ISFD will avail its guarantee facility. ment capital, they get a minus 100% returns of their grant
making.
7. Outputs and outcomes are assessed by an independent
body on behalf of ONE WASH Fund or on behalf of the out- For the investor
come buyers, according to a pre-agreed schedule. This model offers a risk and return match to the investor
where they do not absorb any project risk but only credit
8. Outcome buyers make disbursements to the Fund fol- risk of philanthropic capital commitments. It is particularly
lowing output/outcomes delivery. attractive for a mixed class of investors who seek not only
a financial return but also social impact for their invest-
9. Fund repays Sukuk holders. ment.
Structure Diagram There is still a significant way to go before we arrive at the
goal of a mature, liquid market that allows investors of all
types to select investment opportunities based on a ro-
bust data set showing the risk, return and impact of each
ISFD Guarantee opportunity and allowing them to dial up or down all three
Donors
Facility elements independently to align with their investment or
impact goals.
6 2 1 8 7
One WASH 5 IFRC
Fund (WASH operations)
3 9 4
Sukuk Holders
p.65. Operations
One WASH Projects following established best practice in Developmental and
Sustainable WASH Programming will follow the Operational Norms as follows,
however with some country specific considerations according to context. Time
periods mentioned are indicative:
• Initial consultation with Government and other actors and stakeholders and
in agreement with them identify target areas for One WASH Programming in
any given country. This based upon secondary data in the first instance. Once
target areas identified that are considered ‘at high risk’ from cholera/AWD or
are recognised as cholera/AWD ‘hot spots’. Secondary data will not only provide
data on incidence severity and occurrence of cholera/AWD but also on WASH
coverage and access to Primary Health Care. (2-3 months)
• Needs assessments undertaken in selected target areas to identify poten-
tial required investment and refine detailed project plan of action, time scale
and budget. At this time other surveys may be undertaken (e.g. environmental
impact study; ‘willingness to pay’ survey; KAP survey; stakeholder analysis). An
in-depth base line should be carried out if required. (2-3 months)
• Final detailed proposal and budget approved by all stakeholders and pro-
ject inception date agreed upon. (1 month)
• Project inceptions/set-up varying according to context. During this period
staff, volunteers and project team established and first ‘software’ teams mo-
bilised and become active. Local office, logistics and procurement established.
(6 months)
• Primary Project Implementation Period (during which regular finance and
narrative reporting undertaken (every 6 months); Mid-term review; end-line re-
view. Regular steering group and stakeholder meetings undertaken. Combined
‘software’ and ‘hardware – infrastructure works’ delivered and the Operation,
Maintenance and management structures and capacities. Quality assurance
mechanisms. (3 to 5 years)
• Project wind-up and final handover and plans for post-implementation M
& E framework agreed upon. At a later point full ‘Look-Back’ Study. (2-3 years)
Stakeholders will always be encouraged to join field missions, reviews and eval-
uations. Training opportunities generated by the project will not be restricted
to the target population or Red Cross and Red Crescent staff but other stake-
holders especially Government counterparts.
p.76. Outputs and Outcomes
Summary: Note KPI’s are linked to Sustainable Development Goal (SDG) 6 and the Global Task Force for
Cholera Control (GTFCC) ‘Cholera Roadmap’.
By 2030, achieve universal and equitable access to safe and affordable drinking water for all
Proportion of population using safely managed drinking water and sanitation services
Year 1 Year 2 Year 3 Year 4 Year 5
KPI#1: Proportion of men, 0% 0% 15% 40% 70% 80%
women and children in the
target population having
access to and using safely
managed drinking water
and sanitation services. Baseline
KPI#2: Similarly, having
benefited from public Year 1 Year 2 Year 3 Year 4 Year 5
health interventions in
0% 15% 40% 70% 80% 100%
cholera and AWD surveil-
lance, awareness, oral
rehydration, use of OCV,
hygiene promotion and
preparedness and re-
sponse capacity for chol- Baseline
era and AWD outbreaks.
Reduction of cholera and AWD related morbidity and mortality.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 8
KPI#3: Reduction in chol-
era and AWD outbreak In- X% 70%
cidence, severity and scale
in the target area within 3
years of One WASH pro-
ject completion. (Baseline
measured over a period of Baseline
five years prior to project
completion).
KPI #4: Reduction in chol-
era and AWD deaths (re- Year 1 Year 2 Year 3 Year 4 Year 5 Year 8
corded and verified offi-
cially) in the target area X% 90% less
within three years of One
WASH project completion
(Baseline measured over
a period of five years prior Baseline
to project completion).
p.87. Next Steps
PHILANTHROPIC IMPACT INVESTOR ROADSHOW TARGET SUKUK EXECUTION AND
Donors and outcome buyers. Closer engagement and dialogue. OFFERING
Abu Dhabi, London, and Kuala Lumpur Commercial and capital markets 4th Quarter 2019 - 1st Quarter 2020
1st Half of 2019 2nd half 2019
8. Country Start up plans 2019-2021
One WASH Sukuk Proposed Country Project Start-ups 2019:
Country Indicative Target Start Date Completion Concept Note
Project Value Population Date Available
Yemen 2,000,000 100,000 6/2019 6/2022 Yes
Uganda 6,400,000 440,000 6/2019 6/2023 Yes
Somalia 5,500,000 75,000 6/2019 12/2023 Yes
Mozambique 6,500,000 150,000 6/2019 12/2023 Yes
Totals 20,400,000 765,000
One WASH Sukuk Proposed Country Project Start-ups 2020:
Country Indicative Target Start Date Completion Concept Note
Project Value Population Date Available
Iraq 1,000,000 50,000 6/2020 6/2024 TBC
Djibouti 2,250,000 50,000 6/2020 6/2024 TBC
Bangladesh 10,000,000 400,000 6/2020 6/2024 Yes
Sudan 4,500,000 100,000 6/2020 6/2024 TBC
Nigeria 5,000,000 110,000 6/2020 6/2024 TBC
Cote D’Ivoire 9,400,000 450,000 6/2020 6/2024 Yes
Cameroon 5,400,000 120,000 6/2020 6/2024 TBC
Togo 2,250,000 50,000 6/2020 6/2024 TBC
Guinea Bissau 5,850,000 130,000 6/2020 6/2024 TBC
Jordan 4,000,000 150,000 6/2020 6/2024 TBC
Syria 4,000,000 150,000 6/2020 6/2024 TBC
Gambia 6,300,000 140,000 6/2020 6/2024 TBC
Afghanistan 4,000,000 150,000 6/2020 6/2024 TBC
Totals 63,950,000 2,050,000
p.9One WASH Sukuk Proposed Country Project Start-ups 2021:
Country Indicative Target Start Date Completion Concept Note
Project Value Population Date Available
Egypt 5,000,000 125,000 6/2021 6/2025 TBC
Indonesia 3,000,000 200,000 6/2021 6/2025 TBC
Senegal 5,400,000 120,000 6/2021 6/2025 TBC
Mali 2,700,000 60,000 6/2021 6/2025 TBC
Morocco 3,500,000 50,000 6/2021 6/2025 Yes
Chad 6,000,000 123,000 6/2021 6/2025 Yes
Pakistan 2,000,000 100,000 6/2021 6/2025 TBC
Gabon 4,050,000 90,000 6/2021 6/2025 TBC
Burkina Faso 4,500,000 100,000 6/2021 6/2025 TBC
Niger 4,500,000 100,000 6/2021 6/2025 TBC
Libya 4,000,000 150,000 6/2021 6/2025 TBC
Algeria 4,000,000 150,000 6/2021 6/2025 TBC
Totals 48,650,000 1,368,000
One WASH Sukuk Proposed Country Project Start-ups 2022:
Country Indicative Target Start Date Completion Concept Note
Project Value Population Date Available
Kazakhstan 4,000,000 150,000 6/2022 6/2026 TBC
Sierra Leone 3,150,000 70,000 6/2022 6/2026 Yes
Azerbaijan 4,000,000 150,000 6/2022 6/2026 TBC
Tajikistan 4,000,000 150,000 6/2022 6/2026 TBC
Benin 3,600,000 80,000 6/2022 6/2026 TBC
Mauritania 4,000,000 150,000 6/2022 6/2026 TBC
Guinea 5,850,000 135,000 6/2022 6/2026 TBC
Totals 28,600,000 885,000
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