KARACHI: As a member country, Pakistan can borrow through the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) to reduce its cost of financing, said CEO Oussama Abdel Rahman Kaissi.
The ICIEC is a member of the Islamic Development Bank (IsDB) Group, and was established in August 1994 as an international institution with full juridical personality.
The idea for the establishment of an entity to provide investment and export credit insurance for Islamic States originated from the Agreement for the Promotion, Protection and Guarantee of Investment among Member States of the Organization of the Islamic Cooperation (OIC Investment Agreement).
Moody’s Investors Service (Moody’s) has given ‘Aa3’ insurance financial strength rating (IFSR) to the ICIEC.
“The rating affirmation reflects ICIEC’s improvements in the stand-alone fundamentals, as well as, the continued support stemming from its shareholders, the Islamic Development Bank (IsDB, Aaa stable) and multiple sovereign members of the Organisation of the Islamic Cooperation (OIC),” stated Moody’s on its website. Kaissi, appointed the ICIEC CEO in October 2015, said there are times when it is difficult for you to go to private markets in the West to request funding.
“Some of our members have geopolitical issues, some of them have instability and some of them have economic issues stemming from structural issues,” said Kaissi in an exclusive interview with Business Recorder.
Kaissi is also the founding CEO of two publicly-listed insurance companies in the UAE.
“A big part of our economies relies heavily on the flow of foreign direct investment (FDI). In times like these, it is difficult to go to private markets in the West to request funding to come in the form of investment. You will find there is reluctance because of the global economic conditions. Our member countries are (also) not faring well.”
Kaissi said that due to the economic downturn, central banks in the US and Europe have been following fiscal tightening policies.
“Now we are seeing they are increasing prime rates or interest rates in order to curb inflation. Issues like these are affecting our member states including Pakistan.
“This where ICIEC, being insurer of the last resort, enters into agreements with investors — be it through equity or syndicated loans by international banks to execute infrastructural projects or financing for certain projects or machinery to be brought into the country,” he explained.
“This part is extremely important for a member country. Majority of the member countries that we have are either lowly-rated by international rating institutions or are not rated at all. So ICIEC lends its rating to the member countries.
“When Pakistan goes into the international market to borrow, they will utilise the rating of ICIEC in order for them to lower the cost.”
Kaissi mentioned another crucial aspect of this arrangement.
“When we talk about infrastructural projects, they are long-term in nature with respect to repayments.
“This is where ICIEC plays its role — by going to international financial markets and local banks where they cannot go beyond a certain tenor with the loans. When we talk about local banks – they can go to two to three years’ tenor. International institutions go up to five years in financing.
“ICIEC can take that period up to 15 years, 17 and 18 years,” said Kaissi, who is also the Secretary-General of Aman Union, the professional forum assembling Commercial and Non-commercial Risks Insurers and Reinsurers in Member States of the Organization of the Islamic Conference (OIC).
He has also served as a Board member of CIBAFI, The General Council for Islamic Banks and Financial Institutions, several regional Takaful and financial institutions, and Chairman of the OIC Investment Trade and Promotion Agency.
“Infrastructural projects are expensive. Therefore, there is a need for long-term repayments,” he said.
“Projects we intervene in have to be feasible. There should be a commitment from the government of a revenue stream for the repayment. This is when we go to international financial markets and we partner with the government and international financial institutions in order to deliver a credit wrap for the financial solution or the syndication in order to cover that risk deficit.”
Credit wrap is a form of financial guarantee insurance, covering not all debts of the borrower, but a specific loan, debt issuance, or other financial transaction.
Since 1994, the ICIEC has insured close to $5.2 billion for Pakistan. Nearly $2.4 billion were insured for import of strategic commodities — mainly oil and energy products.
“We have insured a billion and a half of exports. The remainder of that number was in support of FDI,” said Kaissi. “It is not to say that there were not opportunities for us to insure. There has to be more engagement on part of the government of Pakistan and ICIEC in order to create opportunities.
“Historically, during the last 30 years, we have insured $95 billion worth of business. 60% of that is in support of trade and the remainder for FDI inflow.”
Meanwhile, he said that ICIEC will also be working closely with the Export Import Bank of Pakistan (EXIM Bank).
“We now have a partner in Pakistan – the Exim Bank – that must be supported by the public and the private sector in order for them to deliver to the people of Pakistan.”
During a week-long visit, Kaissi visited Karachi, Lahore, Islamabad and Sialkot, meeting people from different sectors including the State Bank of Pakistan (SBP).
“The will is here. The momentum is here. There is consensus for this entity to succeed. We are here as Islamic Development Bank group and ICIEC to extend all the support.
“In general, policies by the government should be conducive. People, entities and other countries come here to invest outside their borders; they have to have some sort of security.
“If I invest my money somewhere, I would be concerned if my money is secure. There should be a good revenue stream and movement of that money should not be restricted.
“Challenges should be addressed and I am positive that the government here in Pakistan knows this and it is enhancing the environment to attract FDI.”
Meanwhile, Kaissi said Islamic finance is gaining traction, but has a small share when it comes to the global bond market.
“The growth of Islamic finance is still in its early stages even though it has been there for the last 35 or 40 years. If you compare it with conventional space, it is still extremely small.
“Islamic finance is gaining traction because more and more solutions are being presented in order to compete with conventional offerings of products. When you look at the Sukuk product as a way of financing for the private and public sectors, they are gaining traction, as well. The increase is happening within the sphere of Shariah-compliant Sukuk offering. It still does not constitute even a small fraction of global bond offering.”
Kaissi said there is another aspect of Islamic finance that is gaining traction globally, “which is the Halal market”.
“Halal comes in the form of products, commodities and services, as well. But the fact of the matter is that Muslim countries have lagged behind. Western nations are leading the Halal market — be it services, products or commodities.
“The Western countries have been faster to grab at opportunities. There is a lot to be done in order for us to build this ecosystem within the economies of the Muslim world.”
Copyright Business Recorder, 2022