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
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Legal Status:-
Multilateral institution with full juridical personality
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Establishment Date:-
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Capital:- USD 140 million
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Shareholders:-
Islamic Development Bank (50%), & 31 Islamic States
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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
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Export Credit Insurance
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Comprehensive Short Term Policy (2 year max)
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Supplemental Medium Term Policy (5
year max)
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Bank Master Policy (5 years
standard, 7 max)
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Investment (Political Risk)
Insurance
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Foreign Investment Insurance Policy-”FIIP” (15
year standard, 20 year max)
Risks Covered By ICIEC
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Export Credit Insurance
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Commercial:- buyer
insolvency, failure or refusal of buyer to pay for goods/services accepted by
it, failure or refusal of guarantor to honor obligations...
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Non-Commercial:- currency/transfer
restrictions, expropriation, war & civil disturbance damage
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Investment (Political Risk)
Insurance
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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?
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Creates Additional Lending Capacity
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Secures Letters of Credit/Financing Receivables
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Permits More Competitive Pricing For High Risk Credits
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Lowers Provisioning Requirements For Doubtful Assets
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Strengthens A Bank’s Balance Sheet Structure
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Assists in the calculation of a more favorable Risk Weighted Capital
Adequacy Ratio…
Benefits Of Using Sharia-Compliant Products
In Bank Risk Management
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Effective means of doing additional business with clients while
respecting internal control limits (country and credit)
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Effective means of sharing credit / political risks with an outside
partner
Sharia-Compliant
Products As Credit Risk Enhancers
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Viable Alternatives to Bank Guarantees
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Provide (conditional) security for Bank Assets
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Ensure continuous involvement of insured party(s)
CASE STUDIES
CASE NO 1
CONSTRAINT
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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
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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
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Execution of a financing contract
impeded by financier’s concern over the perceived magnitude of the host country
political risks
SOLUTION
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With ICIEC’s
structuring input and political risk insurance cover, financier’s fears were
satisfied, and the contract was implemented...
CASE NO 3
CONSTRAINT
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How can an Islamic Finance
Institution secure credit enhancement for cross-border investment
/ asset securitization funds, and bank
credits?
SOLUTION
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ICIEC’s
political risk Insurance coverage mitigates the transfer and other risks,
thereby paving the way to a “supranational” credit rating.
Contact
Address:
ICIEC
Tel: +966-2-644-5666
Fax:
+966-2-644-3447
Email: iciec@isdb.org.sa