One WASH SukukConcept note, May 2019

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1. Introduction

Islamic Finance together with the Humanitarian and Development Sector 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 together to develop a new and innovative approach between development finance, humanitarian aid and private capital to support the Red Cross Red 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 affected OIC Member Countries, over the next 10 years. This objective also contributes to SDG’s 3 and 6 and aligns with the Global Task Force for Cholera 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.

To achieve this vision, IsDB and IFRC are creating an end-to-end partnership that shall enable them to leverage and create an incremental value of 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.

2.3 billion

The problem

The impact

844 million

159 million

People still lack even a basic sanitation service

People still lack a basic drinking water service

People still collect drinking water from unprotected

sources

Economic Environmental

One WASH objective

HumanitarianLack of adequate sanitation

and water supply costs $260 billion every year in

economic losses

#ENDCHOLERA related deaths by 90% in the most affected OIC member countries, by 2030

Greater risks of epidemics and political crises

289,000 children die every year from diarrhoeal

diseases caused by poor WASH

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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 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. Having reached over 16 million people between 2005 and plan to reach a min-imum of 30 million by 2030.

Over the past ten years, the IFRC and its members have significantly scaled-up delivery of longer-term water and sanitation programmes, providing equitable, affordable and sustainable solutions to help improve the health and quality of life of vulnerable communities.

GWSI supports the design and implementation of a common integrated ap-proach, anchored on participatory and sustainable interventions. It aims to im-prove access to safe water and adequate sanitation, as well as supporting the 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

• sustainable technology: use appropriate, affordable and sustainable tech-nology options

• projects at scale: promote large, longer-term projects to achieve economies of scale and lower the cost-per-person

• community engagement: leverage community participation and invest in health and hygiene promotion

• impact: support greater, more measurable impact and clearly defined impact indicators

• gender: take gender issues in the planning and implementation process

• alignment and integration: align with government water and sanitation pol-icies, ensure integration between WASH and Public Health components

• 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’.

36 million

IFRC Global Water and Sanitation

Footprint

WASH and Cholera

Sustainable Development

Goals contribution

People reached with WASH infrastructure and services

since 2005

Every 10 seconds, someone is infected with cholera

There are 95,000 prevent-able deaths from cholera

every year

Bringing WASH and public health together to

fight cholera

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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.

One WASH

Why Innovative Finance?

Reaching 5 million people in Phase 1 in the next 5 years expanding to 10 million or more by 2030.

Improving population productivity, reducing drudgery, restoring dignity (especially for women and children).

Getting a return on investment – every $1 spent gives a return of $4.30 in developmental impact.

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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.

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”) 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 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-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.

Fund Diagram

ISFD Guarantee

IsDB

IFRC

Donors Commitments

Outcome Buyers

One WASH Fund

Trustee and Sukuk Manager

WASH Projects Implementation

Traditional Type of Donations

New Type of Donations

Donor

Donor

Financer

Implementing Agency

Implementing Agency pays back

the Financer

At risk communities

At risk communities

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4. Wash Impact Sukuk

The Fund will seek to mobilize resources, principally on commercial basis from the international capital markets. The mechanism for Sukuk issuance is described in this sec-tion.

1. Donors capitalize the fund with a mix of upfront and outcome based commitments.

2. ISFD provide a partial financial guarantee covering some of the risks involved in the implementation of the WASH program.

3. The Fund, issues Sukuk backed by the Fund’s assets (i.e Donors commitments and ISFD Guarantee). These Sukuk pay a periodic return.

4. Social Investors acquire Sukuk and the proceeds are paid to the ONE WASH Fund

5. The Fund makes disbursements to IFRC which imple-ments the projects.

6. In case, some outcomes are fully or partially missed and hence some donor payments are forfeited, the Fund will first use its reserve capital. As a second line of defense, in case of a shortfall of funds of the Fund to meet its commit-ments, ISFD will avail its guarantee facility.

7. Outputs and outcomes are assessed by an independent body on behalf of ONE WASH Fund or on behalf of the out-come buyers, according to a pre-agreed schedule.

8. Outcome buyers make disbursements to the Fund fol-lowing output/outcomes delivery.

9. Fund repays Sukuk holders.

Structure Diagram

What is the value proposition?

For the donorThe instrument allows for greater leverage of donor fi-nancing by crowding in private capital and enabling impact at scale which would not be possible in a normal donor fi-nancing cycle. While there remain questions on the merits of blended finance for donors based on existing evidence, it also clearly indicates that if anything, there is a case for why this needs to happen but with fair caution and dili-gence. This instrument makes fair consideration of the points such as helping invest in the riskiest parts of the capital structure of the investment in the poorest coun-tries (LICs), where the private sector is unlikely to invest on its own. And ensuring that initial donor contributions are used for project preparation and robust research to enable project development.

For the outcome buyerThe instrument provides an opportunity for government donors, philanthropists and philanthropic foundations to ensure 100% returns on the social impact intended through their philanthropic capital with zero risk since commitments made are realised only on the outcomes achieved.

It seeks to balance the current practice that while philan-thropic individuals make 5%-20% returns on their invest-ment capital, they get a minus 100% returns of their grant making.

For the investorThis model offers a risk and return match to the investor where they do not absorb any project risk but only credit risk of philanthropic capital commitments. It is particularly attractive for a mixed class of investors who seek not only a financial return but also social impact for their invest-ment.

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 opportunity and allowing them to dial up or down all three elements independently to align with their investment or impact goals.

Donors

1

3

6 8

9

2 7

4

5

ISFD Guarantee Facility

Sukuk Holders

One WASH Fund

IFRC (WASH operations)

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5. 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.

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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

Reduction of cholera and AWD related morbidity and mortality.

Baseline

Baseline

Baseline

Baseline

Year 1

Year 1

Year 1

Year 1

Year 2

Year 2

Year 2

Year 2

Year 3

Year 3

Year 3

Year 3

Year 4

Year 4

Year 4

Year 4

Year 5

Year 5

Year 5

Year 5

Year 8

Year 8

0%

0%

X%

X%

70%

90% less

0% 15%

15%

40%

40%

70%

70%

80%

80% 100%

KPI#1: Proportion of men, women and children in the target population having access to and using safely managed drinking water and sanitation services.

KPI#3: Reduction in chol-era and AWD outbreak In-cidence, severity and scale in the target area within 3 years of One WASH pro-ject completion. (Baseline measured over a period of five years prior to project completion).

KPI#2: Similarly, having benefited from public health interventions in cholera and AWD surveil-lance, awareness, oral rehydration, use of OCV, hygiene promotion and preparedness and re-sponse capacity for chol-era and AWD outbreaks.

KPI #4: Reduction in chol-era and AWD deaths (re-corded and verified offi-cially) in the target area within three years of One WASH project completion (Baseline measured over a period of five years prior to project completion).

6. 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’.

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7. Next Steps

PHILANTHROPIC IMPACTDonors and outcome buyers. Abu Dhabi, London, and Kuala Lumpur1st Half of 2019

8. Country Start up plans 2019-2021

One WASH Sukuk Proposed Country Project Start-ups 2019:

One WASH Sukuk Proposed Country Project Start-ups 2020:

INVESTOR ROADSHOWCloser engagement and dialogue. Commercial and capital markets2nd half 2019

Country

Country

YemenUgandaSomaliaMozambiqueTotals

IraqDjiboutiBangladeshSudanNigeriaCote D’IvoireCameroonTogoGuinea BissauJordanSyriaGambiaAfghanistanTotals

2,000,0006,400,0005,500,0006,500,00020,400,000

1,000,0002,250,00010,000,0004,500,0005,000,0009,400,0005,400,0002,250,0005,850,0004,000,0004,000,0006,300,0004,000,00063,950,000

100,000440,00075,000150,000765,000

50,00050,000400,000100,000110,000450,000120,00050,000130,000150,000150,000140,000150,0002,050,000

6/20196/20196/20196/2019

6/20206/20206/20206/20206/20206/20206/20206/20206/20206/20206/20206/20206/2020

6/20226/202312/202312/2023

6/20246/20246/20246/20246/20246/20246/20246/20246/20246/20246/20246/20246/2024

YesYesYes Yes

TBCTBCYes TBCTBCYesTBCTBCTBCTBCTBCTBCTBC

Indicative Project Value

Indicative Project Value

Start Date

Start Date

Completion Date

Completion Date

Concept Note Available

Concept Note Available

Target Population

Target Population

TARGET SUKUK EXECUTION AND OFFERING4th Quarter 2019 - 1st Quarter 2020

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One WASH Sukuk Proposed Country Project Start-ups 2021:

One WASH Sukuk Proposed Country Project Start-ups 2022:

Country

Country

EgyptIndonesiaSenegalMaliMoroccoChadPakistanGabonBurkina FasoNigerLibyaAlgeriaTotals

KazakhstanSierra LeoneAzerbaijanTajikistanBeninMauritaniaGuineaTotals

5,000,0003,000,0005,400,0002,700,0003,500,0006,000,0002,000,0004,050,0004,500,0004,500,0004,000,0004,000,00048,650,000

4,000,0003,150,0004,000,0004,000,0003,600,0004,000,0005,850,00028,600,000

125,000200,000120,00060,00050,000123,000100,00090,000100,000100,000150,000150,0001,368,000

150,00070,000150,000150,00080,000150,000135,000885,000

6/20216/20216/20216/20216/20216/20216/20216/20216/20216/20216/20216/2021

6/20226/20226/20226/20226/20226/20226/2022

6/20256/20256/20256/20256/20256/20256/20256/20256/20256/20256/20256/2025

6/20266/20266/20266/20266/20266/20266/2026

TBCTBCTBCTBCYesYesTBCTBCTBCTBCTBCTBC

TBCYesTBCTBCTBCTBCTBC

Indicative Project Value

Indicative Project Value

Start Date

Start Date

Completion Date

Completion Date

Concept Note Available

Concept Note Available

Target Population

Target Population

Partners

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