MOSTADAM: More Than Just Finance

The banking sector in Egypt represents 57 percent of the private sector’s overall capacity. The sector’s capacity and capital enable a drive for change and make an industry movement possible. Only four banks in Egypt are state-owned, whereas others are joint ventures. Since 2004, privatization and economic reforms, especially in the banking sector, have spurred active engagement and responsibility toward communities and in the country at large. The banking sector’s current capacity and capital remain significant when comparing its role in social and environment development. The Arab African International Bank (AAIB)’s experience offers a successful trendsetting model concerning the role of banks in affecting the growth of new industries and the economy at large.

Pioneering a decade plus of sustainability

In 2003, AAIB adopted and pioneered the first strategic corporate social responsibility (CSR) strategy within the banking sector in Egypt and has maintained it ever since. The bank’s drive to empower Egyptian youth has been reflected in the launch of various community initiatives focused on health and education.

At the same time, AAIB has been keen on developing its internal systems and operating processes by embedding social and environmental indicators into the bank’s business operations, risk assessments, and lending practices.

By 2013, AAIB completed a decade plus of sustainability measures that illustrate many distinguished accomplishments and innovative practices in Egypt and the MENA region, paving the way for “sustainable finance” among banking industry professionals.

Cooperation by governments, businesses, and civil society

Collective action and partnerships can bring about comprehensive change. In 2012, AAIB realized the significance of discussing its experiences and practices concerning sustainable finance with banking sector professionals to promote the concept.

The banking system is very rigid, which affects the economic growth and potential development of a nation. Banking has been focused on economic growth, with new economic, social, and environmental challenges appearing, but a new business approach is required to adapt to these changes.

AAIB made a breakthrough while collaborating with the United Nations Development Programme and the Egyptian Corporate Responsibility Centre to create an industry movement calling for change in the financial system: MOSTADAM. It is the first platform of its kind in Egypt that will establish Egypt as the groundbreaker in sustainable finance.

Mobilizing capital toward a green and inclusive economy

Through sustainable finance, MOSTADAM plans to establish the connection between finance and the three extra-financial pillars of sustainability: the environmental, social, and governance (ESG) aspects within the bank’s core business operations of lending, products, and services.

The focus of MOSTADAM is three-pronged

FIRST: Capacity-building – Training banking experts and professionals is the primary step in effecting a shift in mindset.

SECOND: A research and innovation hub is needed to promote the development of new banking products and services within the banking sector that serve current and future economic challenges such as microfinance, banking for small and medium-sized enterprises, and clean energy finance.

THIRD: Regulatory engagement – In order to empower the banking sector to create this change, systems and processes need to be developed that create a platform of incentives and a framework operation. Hence, MOSTADAM aims at establishing the first blueprint for sustainable finance, which will serve as a guide to the banking sectors in Egypt and the Middle East for embracing the concept within their operational systems.

Eleven certified banks in Egypt

Preparing potential leaders to change an influential industry is a challenge. Creating an industry movement requires believers, potential leaders, and ambassadors of change. Engaging banks to incorporate ESG issues into their management decision-making as well as daily business operations ensures that new opportunities and growth will be available. MOSTADAM’s first focus – capacitybuilding through training – was enacted with the launch of the first certified training program on sustainable finance on November 16, 2014, in Cairo. The program started with the first round of training that introduced the concept to the banking sector in Egypt.

AAIB invited 30 participants representing 11 banks from countries such as Lebanon (Blom Bank & Audi Bank), Greece (BNP), the United Arab Emirates (Abu Dhabi Islamic Bank & Emirates NBD), Kuwait (National Bank of Kuwait), Libya (Arab International Bank), and Qatar (Qatar National Bank), Egypt-Kuwait (AAIB), Egypt (Suez Canal, Alex Bank) & more than one Arab country (SAIB).

The event aimed at introducing the attendees to sustainability ideas and related concepts. The sessions covered CSR and sustainability-relevant topics such as: introduction to sustainable finance; Fair Trade; financial inclusion; Sustainability KPIs; socially responsible business; CSR vs. philanthropy; microfinance; social and environment risk assessment for project lending operations; ESG indicators; and sustainability reporting.

Indicators of success

As AAIB is keen on achieving the maximum impact and output of the MOSTADAM Platform, the Sustainability Unit at AAIB conducted a survey to discover the feasibility and expediency of the program for the banking sector in Egypt. The majority agreed on the practicality of acting on the information. The feedback represents AAIB’s attempt to ensure that banks are inclusive, develop the necessary policies and procedures, and adopt sustainable finance.

Why sustainable finance?

Sustainable finance is finance that considers more than just immediate financial performance or the “bottom line.” Whereas previously financial institutions had a narrow focus on operations and results (profitability), sustainable financial institutions recognize that extra-financial ESG issues have multiple impacts on operations and financial results, the societies in which the organization operates, and its stakeholders.

Sustainable finance recognizes the complex structure of the internalities and externalities of financial institutions. Ignoring these factors results in an inefficient, outdated, and simplistic business model. Conversely, the careful analysis and effective management of these internalities and externalities bring both internal and external benefits to the financial institution.

To learn more about MOSTADAM, please send all inquiries to: mostadam@aaib.com