Islamic Credit and Political Risk Insurance

“A Useful Risk Management Tool For Banks”

 

 

 

Presentation by Dr. Abdel Rahman Taha

General Manager

 

The Islamic Corporation For The Insurance of Investment And  Export Credit “ICIEC”

 

Outline

1). ICIEC In Brief

2). Islamic “Takaful” Insurance: An Overview

3). Islamic Credit and Political Risk Insurance As a Tool For Banks

4). Case Studies

 

ICIEC IN BRIEF - Background

u         Legal Status:- Multilateral institution with full juridical personality

u         Establishment Date:-  August 1st, 1994

u         Capital:-  USD 140 million

u         Shareholders:- Islamic Development Bank (50%), & 31 Islamic States

u         Mandate:-  Provision of Export Credit & Political Risk Insurance Services to its member countries and their nationals

 

ICIEC’s Place in the “AAA”-Rated IDB Group

 

ICIEC’s Products

u         Export Credit Insurance

4         Comprehensive Short Term Policy (2 year max)

4        Supplemental Medium Term Policy (5 year max)

4        Bank Master Policy (5 years standard, 7 max)

u         Investment (Political Risk) Insurance

4         Foreign Investment Insurance Policy-”FIIP” (15 year standard, 20 year max)

 

Risks Covered By ICIEC

u         Export Credit Insurance

4         Commercial:- buyer insolvency, failure or refusal of buyer to pay for goods/services accepted by it, failure or refusal of guarantor to honor obligations...

4        Non-Commercial:- currency/transfer restrictions, expropriation, war & civil disturbance damage

u         Investment (Political Risk) Insurance

4         Non-Commercial:- currency/transfer restrictions, expropriation, war & civil disturbance damage, breach of contract

 


ISLAMIC “TAKAFUL” INSURANCE:  AN OVERVIEW

What Is Islamic Takaful Insurance??

Takaful the act of a group of people reciprocally guaranteeing each other”

Takaful Credit / Political Risk Insurance “An Islamic alternative to conventional credit / political risk insurance based on Islamic (i.e. Sharia-compliant) principles”

 

 

 


ISLAMIC CREDIT AND POLITICAL RISK INSURANCE

AS A USEFUL TOOL FOR BANKS

Why Use Credit and Political Risk Insurance?

4        Creates Additional Lending Capacity

4        Secures Letters of Credit/Financing Receivables

4        Permits More Competitive Pricing For High Risk Credits

4        Lowers Provisioning Requirements For Doubtful Assets

4        Strengthens A Bank’s Balance Sheet Structure

4        Assists in the calculation of a more favorable Risk Weighted Capital Adequacy Ratio…

Benefits Of Using Sharia-Compliant Products In Bank Risk Management

4        Effective means of doing additional business with clients while respecting internal control limits (country and credit)

4        Effective means of sharing credit / political risks with an outside partner

Sharia-Compliant Products As Credit Risk Enhancers

4        Viable Alternatives to Bank Guarantees 

4        Provide (conditional) security for Bank Assets

4        Ensure continuous involvement of insured party(s)


CASE STUDIES

CASE NO 1

CONSTRAINT

+      A regional Islamic Bank requires a sharia-compliant means of covering the risks associated

   with a “murabaha fund” for which it is the primary funder!!

 

SOLUTION

+      By providing direct credit and political risk cover  against the buyer and “security” risks inherent in the fund, ICIEC gives the Islamic Bank the sharia-compliant risk management tool it required

 

 


CASE NO 2

CONSTRAINT

+      Execution of a financing contract impeded by financier’s concern over the perceived magnitude of the host country political risks

 

SOLUTION

+      With ICIEC’s structuring input and political risk  insurance cover, financier’s fears were satisfied, and the contract was implemented...

 

 


CASE NO 3

CONSTRAINT

+      How can an Islamic Finance Institution secure credit  enhancement for cross-border investment / asset  securitization funds, and bank credits?

 

SOLUTION

+      ICIEC’s political risk Insurance coverage mitigates the transfer and other risks, thereby paving the way to a “supranational” credit rating.

 

 

Contact Address:

ICIEC

P.O. Box 15722, Jeddah 21454

Kingdom of Saudi Arabia

Tel:  +966-2-644-5666

Fax: +966-2-644-3447

Email: iciec@isdb.org.sa