The Islamic Development Bank’s sovereign and political risk insurance business is gearing up for a capital increase as the multilateral bank’s governors gather for the Dakar annual meeting. IDB president Ahmad Mohamed Ali’s bid to raise capital for its growing stable of export finance affiliates has gained fresh momentum in light of their increasing impact on the trade finance and insurance markets, industry leaders said.
The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) comes into Dakar looking to raise its capital from $144 million to $450 million, officials said.
Kimberly Wiehl, secretary-general of the Berne Union grouping of export credit agencies and insurers, told Emerging Markets that ICIEC’s business has “undergone a big shift, moving away from a short-term underwriting basis to a situation where some 30% is now transacted on a medium- to long-term basis as more infrastructure projects are underwritten – which is quite unusual for a smaller agency.”
The Dakar meeting will also allow the IDB’s International Islamic Trade Finance Corporation (ITFC) to raise its profile. ITFC will “provide an important impetus to growing Islamic trade finance in the region. It is a focused, specialized and professional organization, which is set up to serve the interests of member countries,” Ottawa-based International Financial Consulting president Diana Smallridge told Emerging Markets.
According to Smallridge – who has served as an adviser helping to structure the IDB’s more sophisticated approach to export finance – the Jeddah-based bank “recognized that it could better serve the needs of member countries’ exporters and importers by spinning off their trade finance operations into a separate entity.” This follows the model established by political risk insurer ICIEC, she says.
ICIEC has substantially upped its profile, having announced in April a record $1.4 billion in export credit and investment insurance commitments for 2006, up 70% on 2005. The institution is now looking to expand its products base. According to a Jeddah-based official, it is “working to develop special insurance funds to meet the increasing demand for its insurance services”. These funds would come from member countries, as now, but also from private-sector institutions.
ICIEC, which plans to open its first foreign representative office in Dubai, has deepened its ties with the global export finance community, Wiehl said. Since it joined the Berne Union’s Prague Club of newer members in May 2001, its delegates “have been strong contributors to the technical discussions”, she added.
According to Wiehl, the staff is “very well-qualified, and ICIEC’s business is growing quite dramatically. Over the 2004-05 period, ICIEC’s export credit insurance business grew by around 90%.” Wiehl added: “The ICIEC team has given our members some excellent information about countries and regions where it is most active – Asia, Africa and the Middle East. Our members are less represented in these regions than elsewhere, and very much appreciate the underwriting insights provided by ICIEC.”
Smallridge is convinced that Islamic institutions can play a much bigger role in global trade finance. “Islamic finance is a wonderful concept that essentially puts the banks in a position of partners with the exporters/ investors, rather than lenders,” she observed. “If you understand the basic meaning of what sharia law is saying, the Arabic words to describe the structures are straightforward.”