In the wake of ICIEC signing an important Memorandum of Understanding (MoU) with the Arab Republic of Egypt and the Federation of Egyptian Industries (FEI) to facilitate cooperation and promote trade and investment opportunities for Egyptian industries, it is the right time to profile Eng. Mohamed Zaki El Sewedy, Chairman of the FEI, to discuss his vision and aspirations for Egyptian companies and the opportunities raised in the partnership with ICIEC.

Many congratulations to the Federation of Egyptian Industries (FEI), celebrating its centenary in 2022. Please tell us more about your role at FEI, the importance of the organization in lifting Egyptian companies’ trade and investment domestically and internationally, and its advocacy agenda.

Mohamed Zaki El Sewedy: As the Chairman of the Federation of Egyptian Industries (FEI), with FEI board members and the chairpersons of the 19 industrial sectoral chambers, we advocate for manufacturers’ member interests locally and globally. This year, FEI is celebrating its century as one of the oldest business organizations in the region.

At the end of 2021, FEI proudly ran its first election under the new law which regulates FEI that ensures fair representation of SMEs on the boards of each industrial chamber. That means SMEs are now well represented and in all sectors’ decision-making positions. We are working hard to push forward the industrial sectors of the Egyptian economy by advocating growth and prosperity.

FEI has many responsibilities towards its members. These include strengthening cooperation and alliances with international organizations and institutions. They also support entrepreneurship and initiatives for start-ups and business development needs via our Business Development Service Centre. We help minimize administrative and regulatory burdens and promote economic development, cleaner production, and energy-efficient technologies. On the educational side, we provide access to essential knowledge and information, advice and consultancy services, and extensive training and capacity-building opportunities. All this is done while promoting corporate social responsibility, adherence to UN Sustainable Development Goals (SDGs), and showcasing best practices in different industrial sectors.

On an international level, FEI represents the voice of Egyptian employers with International Labour Organization (ILO) structures as per our membership of the International Organization of Employers (IOE). FEI also serves its members through its strategic relationships with similar business associations in Germany, Italy, KSA, Emirates, Malaysia, India, etc.

Also, being a founding member or member of several other international business platforms, such as COMESA Business Council, Global Business Coalition, BUSINESSMED, ANIMA, etc., provides another domain for strategic international alliances.

As a tool for evidence-based advocacy, FEI has developed a reform agenda for fostering industrial investment and attracting foreign direct investment (FDI).

FEI has given exceptional care and attention to the development of human resources and the TVET system in Egypt [TVET is Technical and Vocational Education and Training] in partnership with relevant ministries.

What are the main hurdles facing Egyptian manufacturers in international trade and investment for the coming century? How are they being overcome?

Mohamed Zaki El Sewedy: FEI is working closely with the government to ease trade regulations through automation and eradicate red tape.

We must admit that the major hurdle facing Egyptian manufacturers in international trade and investment is a lack of information. A proper market intelligence system is needed to help raise knowledge about potential opportunities in existing and new markets.

Another challenge is financial facilities, especially for risky markets. It goes without saying that credit guarantees and investment guarantees are fundamental, particularly in risky markets and particularly for SMEs.

Logistics is another hurdle. Thinking about new solutions to overcome this hurdle is essential. Maybe that could include facilitating logistical solutions in some targeted markets, especially in Africa, such as availing warehouses and outlets to introduce Egyptian products to new markets.

Egypt has an exciting Vision 2030 agenda – particularly concerning climate action. How is FEI assisting in this drive?

Mohamed Zaki El Sewedy: FEI realized the importance of raising environmental awareness among Egyptian manufacturers long ago. We established the Environmental Compliance Office (ECO) under the umbrella of FEI as far back as 2001. ECO provides consultancy services to the industry sector in environmental compatibility, environmental management systems, energy conservation, and renewable energy to improve the efficiency of national industry. It also introduces the principles and technology of cleaner production, strengthens local competencies and capabilities, and supports competitiveness.

You may be interested to know that FEI is playing a crucial cooperative role in setting standards with the Egyptian Organization for Standardization in all sectors, including energy, lighting, and home appliances as subsectors, which we have recommended to enhance and develop these subsectors into using less polluting and lower energy consuming products (for example, for air conditioning and fridges).

To cope with the national climate/environmental strategy of 2030, which requires converting 25-30% into renewable energy, and by 2050, 50% into renewable energy, FEI has started many programmes with development partners (such as UNIDO and the EU) to raise the awareness of using renewable energy by converting to power-saving engines and also increasing the awareness of the Green Economy Initiative and the Green Deal Initiative, among others.

What are your key ambitions for the Framework Cooperation on Trade and Investment Partnership with ICIEC for Egyptian importers and exporters, particularly in terms of increasing trade into Africa?

Mohamed Zaki El Sewedy: First, we need to work on developing a consolidated action plan for this cooperation, with continuous evaluation. This plan should include awareness sessions, mitigation missions to potential markets, etc.

It is essential to develop market studies – including the potential markets’ needs, risks, challenges, and opportunities. If we are talking about increasing trade with Africa, Egyptian enterprises need a clear framework for the insurance of trade and investments.

Together we can create a special programme for Egyptian manufacturers to encourage them to start or increase their imports/exports from/to Africa with risk guarantees or insurance. This could include special programmes to facilitate logistics, especially for warehouses, sea freight, etc. A database of trusted banks and financial institutions in Africa is very much needed.

These are undoubtedly challenging times regarding international supply chain dislocations, inflationary pressures and climate necessities. What constitutes success for Egyptian companies on a five-year view?

Mohamed Zaki El Sewedy: Many factors would constitute success for Egyptian companies. First, Egypt enjoys many other trade agreements that facilitate trade and investment with different regions besides the competitive advantage of diversified sectors and products.

The efforts exerted by the government in developing a national strategy for governance to enhance the business environment in various ways are all critical. These include: ratifying laws and regulations, building free [trade] zones, economic zones to encourage exports, giving investment incentives, giving priority to local industries to obtain and implement tenders in national mega projects tenders, etc.

The latest circumstances of the COVID-19 Pandemic and the recent geopolitical crisis have resulted in many changes that have reflected globally on enterprises. We have noticed many reshoring and offshoring of global investments near their original markets, which has positively reflected on trade and investment in Egypt.

We are happy to develop our cooperation between FEI and ICIEC further to work on enhancing the way Egyptian companies do business across borders. The Framework Cooperation on Trade and Investment agreement [signed on June 3] aims to facilitate cooperation and promote trade and investment opportunities for Egyptian industries. This includes professional representation and advocacy of Egyptian industries’ interests locally and globally, as well as training on the importance of risk mitigation and credit enhancement, exchange of essential information, knowledge, capacity building, and advisory and consultation services.

In this new profile feature, we’d like to introduce you to some of the diverse range of people who work with us at ICIEC and take a look at what they do.

Meet Ms Fatma Gamze Sarioglu, ICIEC’s Türkiye Senior Country Manager. Renewal and regeneration is at the heart of her operations in Istanbul, Türkiye. We asked Gamze five questions to get the measure of what makes her tick in her role for ICIEC.

1. What is it you do at ICIEC, and how did you get here?

I joined ICIEC seven years ago after a 20-year career working for foreign and local banks in Türkiye. I opened the office for ICIEC in 2015 and joined as the Türkiye representative. At first, it was just me in the office, but we’ve expanded the team. Now there are three of us – one colleague who is the Lead of Commercial Underwriting Business Unit and two of us ladies in sales. We’re very much in harmony as a team.

2. What does your typical day involve as a team?

Let’s start with Friday. In Türkiye, we work on Fridays when Jeddah is closed for their weekend. That’s our day for a list of ‘to-do’s’ that we discuss the way forward for the following week when the head office in Jeddah is on its weekend. On Monday we get on with those to-do’s.

We have three pillars of our work. The first of those is relationship management. We keep very busy with physical meetings, online, networking and phone calls as it’s really important to be in touch with existent clients and follow up with them. Sometimes they call us too with questions about projects. Remaining in touch with clients is the most important thing to us.

The second pillar is reaching prospective clients. We create new lists every week, following up on items in the press and financial magazines and we also talk to current clients and ask them about their current partners in the projects they are working on, which is an important resourcing channel for us. We report all this to head office and have weekly meetings with our managers in Jeddah.

The third part is following up on deals we are already working on, whether that be in Türkiye or another member country. That’s not only following up on the deal policies we are issuing, but also the proposals that we are working on. Issuing proposals takes time as well and there’s a complex process behind that. You need to follow up the process to find out who is keeping the proposal, in the back office and queries from the head office, from legal and underwriting. A lot of time is dedicated to explaining projects.

3. How does your role empower renewal and regeneration for your clients?

ICIEC is all about renewal and regeneration. We’re relatively new in the market in Türkiye, only starting here seven years ago, and most companies were still unaware about what we do. ICIEC had several successful deals before we had presence here, but now with presence we were able to talk about our priorities and decide where we are going to start in the market.

In terms of our product offering, we have two pillars. One is exports and the other is investments and financing investments. For exports, we work very closely with Turk Eximbank, Türkiye’s Export Credit Agency (ECA) as a reinsurance partner.

We aren’t competing with them, but rather supporting by offering reinsurance capacity and discussing how we can help reach out to international financiers for Turk Eximbank and support financing to ICIEC member countries. Turk Eximbank can provide MLT financing for Turkish EPCs for projects outside the country. We increased the level of support in an accelerated way through reinsurance and supporting Turk Exim’s borrowing from global banks and lending in terms of buyer’s credit loans for sovereigns.

The second pillar is equity investments and financing.  There we needed to collaborate mainly with the large Turkish contractors and have successfully completed multiple deals including PPP hospital deals – supporting EPC contractors and covering international banks’ risk.

We have spent a lot of time educating the market on our products and how they can use them. ICIEC has been paving the way for contractors to access international financial markets and showed new ways of securing their investments in terms of mitigating political risks and also being able to reach out to several different kinds of structured financing methods using ICIEC assistance in Türkiye and in other member countries. This was really new to the market.

4. What is the most interesting project you have worked on at ICIEC that has fostered renewal and regeneration?

Most interesting? I’ve got at least two! The first was the Canakkale Bridge in 2018. It was a monumental PPP project – the longest suspension bridge in Europe and it was important as a transportation link. And it was important for ICIEC as we dealt with more than 20 financial institutions involved in the deal and we had several tranches, one of which was specific to ICIEC as the only multilateral institution in the financial structure. We covered ING Bank loans, and the deal won multiple awards.

The second two were in Cameroon and Senegal. Both of these were with Turk Eximbank but they were also supporting ICIEC members. One was the first time the Turkish ECA was using insurance coverage of a multilateral for a loan granted under a buyers’ credit structure to the government of Cameroon in 2016 for a stadium deal (Japoma-Douala Sports Complex). The sports complex was important for Cameroon as it was set to host the Africa Cup of Nations.

And in Senegal, two projects were closed in 2017. One was the Dakar Market of National Interest and the Truck Station and the second was a congress centre, sports complex (Business Hotel of CICAD, Expo Centre of CICAD, Diamniadio Multi-Functional Sports Centre). The Market of National Interest and Truck Station deal was important as it was the first time Senegal was building a central truck station and a technologically-advanced market (for the storage of fresh fruit and vegetables) and the government was helping support the adjacent transportation and distribution of them.

5. Finally, what is your ‘superpower’, or one thing that people might find unusual about you?

I’m a Mum of two, that’s my superpower! Maybe from a work perspective, if a meeting gets too serious, I always try to make people laugh for a while. Not for every serious meeting – I don’t do it every time!

In this briefing, we look at the development of the private trade and political risk insurance market in the Islamic world and MENA. It has been a story of evolution. How best can it work in partnership with public credit insurers to improve sustainable growth?

The private market in the Islamic world for private credit and political risk insurance (CPRI) is very much a work in progress. That progress has not always been linear, but there are positive signs.  ICIEC provides insurance and reinsurance solutions for the private sector which help it unlock transactions that may not otherwise get over the line. Nonetheless, partnerships with the private sector are going to have to be a key driver for the market if capacity is to be improved, and ESG goals met.

Looking at the positive, policy numbers for the region have seen significant ongoing increases since 2014, according to statistics provided by BPL Global, the world’s leading insurance broker specializing in credit and political risk insurance (CPRI). After a small stagnation/hiatus mirroring the trend across the entire market through the early impact of the pandemic in 2020, 2021 witnessed an unprecedented 70% increase in policies bound for transactions in ICIEC Member States.

According to BPL data, this trend is continuing into 2022 with a new policy count in Q1 alone already at 55% of the entire 2021 year total.

Exposures represent over 20% of BPL’s worldwide portfolio with the vast majority of this being medium-term non-payment cover with tenors averaging beyond five years. This is mainly in support of trade and export contracts but there is also support for inward investment in infrastructure with political risk coverage being provided to a total of $2.7 billion as of April 2022. Tenors on this investment piece are longer, as is to be expected, averaging approximately 7.5 years.

Capacity constraints persist

BPL data is positive, with the underlying figures showing an upward trend for MENA and for the OIC members in general. This shows that CPRI as a product is well supported by the market generally but there remain significant capacity constraints in a few countries such as Côte D’Ivoire and risk appetite issues in others. Nonetheless, private insurers will look to the micro-level of the risk in those countries, and not solely reject writing policies based on the macro situation.

Others are less sanguine about the progress of the market so far. The Middle East, for instance, is still considered to be a new market for CPRI and is considered to be an emerging market with a high degree of volatility.

The Islamic world has well established Property & Casualty (P&C) national insurance companies, yet none of them has been able until now to write CPRI business on a ‘follow the fortune’ basis. To clarify, the follow the fortunes doctrine provides generally that a reinsurer must follow the underwriting fortunes of the reinsured company. That means it is bound by the claims-handling decisions of the insurer before it so long as there is no evidence of fraud or collusion with the insured or bad faith. The principle treats the insured as if the reinsurer were a party to the original insurance.

There remains a clear cover gap, that has encouraged many governments in the region to invest more resources to build this capacity internally. Many public insurers in the region are now evolving quickly to achieve more independence in their underwriting process and provide wider products coverage to their underserved markets. Sometimes, that means going beyond the traditional limits of ECAs in OECD countries.

The scope for partnership in MENA

How about the private market? Are private insurers seeing export credit agencies and public insurers in MENA as threats or allies? “First and foremost, the private insurance market is complementary,” says one private broker. The Lloyd’s insurance market, for instance, opened up its platform within the DIFC in 2015, and provided a clear boost to the private market in the region where personal relationships are seen as vital.

Relationships are important, and memories are long. One of the drags on the MENA private insurance market dates back to the beginning of the decade when a private insurance cover failed to pay on a local risk. It’s a cautionary tale.

“Export Credit Agencies are very good at holding people’s hands through this situation, but having wording that works specifically for your deal is so important,” one broker says. “Unfortunately in this instance the local banks were hoodwinked into being given an off-the-shelf product which the insurer knew wouldn’t pay out in the event of a fraud.”

What is the solution to problems like this? “Have a policy that says non-payment for whatever reason. And it is absolutely critical. I spend a lot of time trying to say to clients or prospective clients, ‘Please don’t go at this blind and think that an off-the-shelf product will work for your specific risk. It doesn’t always, and you have to be extremely careful about the conditions of the policy’.” Naturally, that is why that broker is keen to stress, having a broker to hold your hand can be helpful.

That also is a constraint to digitisation in this particular part of the market. Bespoke products tend to be off the shelf, specific to individual risks and are less able to be digitised (though, of course, digitisation of certain elements will naturally evolve).

Education and relationship building

Education is key to getting more understanding of the products available. “That was exactly the reason why we had a representative in Dubai from 2019. In this region face to face meeting is important. This is not only facilitating, it’s building business,” says one senior European ECA official based in Dubai before the pandemic hit. “We have already concluded some smaller facilities in different industries and this has a catalyst effect. There are green shoots of hope in this region. Also, banks have started to employ dedicated insurance purchasers too, which helps to have that specialism.” The pandemic may certainly have put constraints on that face-to-face dimension, but the trend will remain.

Gaining local experience – whether that be through feet on the ground, or relationship building through networks, will continue to be important in order to understand the markets.

ICIEC has been a trusted partner in the political and credit risk industry for almost three decades, relied upon for its regional risk expertise, product understanding, and diverse network. In recent years our focus has evolved to additionally meet the growing demand for sustainable investments, so that we can strive to ensure that all economies thrive together. Evolving private partnerships in the CPRI markets will be important to keep capacity strong in emerging markets.

How has ICIEC helped export credit agencies and banks support sustainable growth across Sub Sahara Africa, enabling projects that will benefit local communities? Guarantees from international export credit agencies and insurers are often the first step for doing business in Africa. A partnership model is an important way forward. This article outlines progress.

Supporting sustainable economic growth in Sub Saharan Africa has never been more important amid the pandemic, global geopolitical issues and climate change. Africa’s infrastructure needs are large but putting too much pressure on sovereigns with rising debt burdens that cannot be matched by GDP growth is a risk that lenders need to be very conscious of. Importantly, though, as Africa generally is short on equity financing, taking debt and its allocation needs to be smarter to support effective resource mobilisation.

ICIEC has been working in partnership with banks and export credit agencies (ECAs) to support their work in healthcare, renewables, sustainable transport, water, and power grids, and modernisation of electricity systems. ICIEC provides insurance and guarantees in general to support resource mobilisation. “We’ve provided insurance support to banks so that they can finance African sovereign states with some degree of comfort,” says Raphaël Fofana, Sovereign Underwriter Africa & CIS at ICIEC.

Timely support in Côte d’Ivoire: Underpinning SDGs

One case in point has been in Côte d’Ivoire, where ICIEC has supported the construction of hospitals and medical facilities. “That project was timely as we closed it just before the pandemic started. We did the due diligence two months before. And then the project itself started with all the challenges of the lockdowns, etc. But the project has been a success because they met the construction deadlines,” says Fofana. “These are the types of projects we support in Africa, socially driven ones that are also commercially driven. We tend to encourage those projects because we believe that this is where revenues can be generated which can mitigate some of the increasing debt levels.”

ICIEC is a developmental institution. “Our first mandate is to support developmental projects,” Fofana says. “So there must be at least two or three UN Sustainable Development Goals (SDG) in a project for it to be able to benefit from ICIEC’s insurance. We’ve supported a lot of projects such as the construction of those two regional hospitals and five medical units throughout Côte d’Ivoire. In the beneficiary communities, the closest hospital was more than 30 kilometers away.

Along with many other developmental agencies and export credit agencies, supporting environmentally sustainable projects is important. “On E&S (Environmental and Social Impact Assessment), our approach is to try and conform to the international performance standards such as the IFC’s, etc., and we follow the laws and regulations of the host country in our underwriting process.

“This year, Dr Muhammad Sulaiman Al Jasser, the President of the IsDB, came up with the motto, “let’s go green”. Right now we are doing our best to support all projects, not only in the ‘green’ sector, but also in all othESG-relatedted ones, for example, in water supply management, wastewater collector pipes, etc.. We’ve done projects in Senegal, in Côte d’Ivoire, in Benin, in Egypt among others, where we have supported developmentally impactful projects in terms of sustainability and economic development.”

Sustainability-linked lending? ICIEC is already there

In terms of international finance, Sub-Sahara Africa is yet to benefit, on a grand scale, from sustainability-linked loans, which have been recently popular with some international bank issuers. That means that when projects in specific sectors meet pre-agreed targets/milestones after a specific time (such as measurable improvements in water access, education, etc) the terms of the loans can be modified in favour of the borrower. However, ICIEC is already pursuing some of these types of incentives in its insurance support to project lending. “All the loans that we support naturally must have this element,” says Fofana.”

Credit substitution affect benefits

“Everything that we do in ICIEC is to provide relief to our Member States among which are the African countries. We noticed that when we go, for example, on missions in some of our member states, there is a misperception about the role of insurance providers. They perceive insurance as an additional cost, whereas in reality, it is not. Right now, many of them have a better appreciation of the mechanics and positive contributions of a guarantee/insurance. Normally if a guarantee is provided by a multilateral insurance company, then the overall cost of financing should be lower.

This is what we should experience with the loan insurance. When we insure a loan, we achieve (to some extent) credit substitution. This means, for example, a country that is rated B [by Fitch] can benefit from the promotion in international capital/loan markets of a B-rated country paper being supported by ICIEC’s Aa3 rating.

This enables savings to be made. “What we’ve calculated so far is that countries can achieve between 200-300 basis points in savings for longer maturities,” says Fofana.

And in an environment of rising debt levels, the IMF has warned that a careful watch should be made on risks presented by elevated public debt (asserting that low-income countries were already reaching 50% debt as a percentage of GDP (and emerging economies 65%) in 2021, and many countries are already higher than that).

“Knowing this, these types of structures should be really encouraged,” Fofana asserts. For example, there are other interesting funding projects being undertaken in Sub Sahara Africa such as the African Development Bank (AfDB)’s ‘Room2Run’ securitisation (which was issued in 2018). This is a synthetic securitisation Risk Protection Agreement related to a $1 billion portfolio of seasoned African non-sovereign loans held by the AfDB. The securitisation has freed up space for the AfDB to make more than $650 million in additional loans, without needing further capital from its shareholders.

“AfDB has done a great job which enabled them to unlock some additional funding to finance additional socially driven projects in Africa,” says Fofana. “I believe that African decision makers already know what they can do to improve their sustainability and their growth and are better placed to understand what is good for them. From the lenders’ and insurer’s perspective, instead of giving lessons, we should develop structures that are interesting and that will decrease the overall cost of financing, that for example will encourage PPP (public-private partnership) types of transactions.”

A call for more concerted action

In an ideal world, the most straightforward answer to improving infrastructure finance would be that projects that are commercially driven, that are generating cash flows, should be financed by international commercial banks, and projects that are socially driven should be financed by multilaterals with grants and concessional financing. However, that has not been the case in Africa, but with more cooperation, ECAs, DFIs, MDBs and commercial banks should also come up with some solutions to foster those types of complex structures like PPP to enable a balance to be struck for a more sustainable Africa.

ICIEC is not yet providing a guarantee for commercial banks against non-payment of project companies (non-recourse Special Purpose Companies) in PPPs, which is what international commercial banks are searching for, as there are complications for disputes and arbitration. Nonetheless, there should be ways for multilateral development banks (MDBs) and developmental financial institutions (DFIs) to step up and fill the void. In the G20 Eminent Persons Group (EPG) Report, there was a call for a switch from direct lending to more unfunded types of structures. At the moment, MDBs in Africa barely provide an estimated 5% of the financing needs of the continent.

“If you tap into the funding of institutional investors, international commercial banks, etc., we can do a lot more than 5%. Our role is to really provide some solutions to these African countries, some structured solutions with MDBs that can take the risk that some international commercial banks wouldn’t want to take. And this is the role of the MDB, because they understand the risk in these countries,” says Fofana.

All that speaks well for the good cooperation opportunities within the community of ECAs, DFIs and international banks.

This is a digest of ICIEC’s contribution to a prestigious panel of representatives from the Swedish Export Credit Agency, EKN, Deutsche Bank, and SERV Swiss Export Risk Insurance at TXF’s Middle East and Africa conference in Dubai in March 2022. Here they discussed, among other issues, the role of those organisations’ development of Ghana Western Railway amid Ghana’s high (78%) debt to GDP ratio, and ICIEC’s involvement in healthcare in Côte d’Ivoire stimulating the local job environment and ensuring new and timely treatment of healthcare.

It’s an interesting time to be setting up a new export-oriented development financial institution, but Irfan Bukhari, President, and CEO of EXIM Bank of Pakistan is brim full of enthusiasm about the opportunity and his journey. Bukhari, a former stalwart of the IsDB Group, tells us about his aspirations for the development bank with a mission ‘supporting export growth through diversification’.

You are establishing a restructured export credit agency (ECA) for Pakistan. What is it that an ECA can do to help encourage exporters and help diversify exports? Where are you now in the journey?

Irfan Bukhari: EXIM Bank of Pakistan is not a restructuring, it’s a brand new institution which is undergoing a process of being created/being inaugurated soon. It is a new institution of the Government of Pakistan, and it’s a start up. I’ve been engaged with this institution for the last 18 months or so. When the new management team and the Board took hold of this institution, it had progressed hardly 5%. Eighteen months later we have already applied to the authorities for commencement of business. This could not have been possible without the support of not only the stakeholders in Pakistan but also the support we received from multilaterals such as ICIEC, the IsDB Group, and the Asian Development Bank.

The Government of Pakistan has made a policy decision to set up an EXIM Bank for Pakistan, which is different from an ECA. ECAs only provide only products and are engaged in supporting exports only. On the other hand, an Export Import Bank (EXIM) not only provides insurance products of an ECA, but also provides financing. Also, EXIMs support import substitution projects, with a focus on the ones that are also export oriented.

EXIM banks contribute not only to protecting exporters from the risk of default by a buyer, but also are able to provide financing for working capital and capital investments. The latter helps in increasing the production capacity of exporters – if they can produce, they can export. EXIM’s mandate is the sum-total of the business undertaken by PPP, ICIEC, ICD, and ITFC. Therefore, we are partnering very closely with the IsDB Group as there are many synergies that can be exploited for the mutual benefit of meeting our respective mandates.

Can you tell us a little about your own journey into this role and the general vision you have for EXIM Bank of Pakistan?

Irfan Bukhari: I started my career as a commercial banker in Pakistan some 37 years back, much involved in trade and corporate finance. I attended Queens University in Canada for my MBA – a very educating experience, and thereafter worked with their EXIM [EDC] and learned project financing from very experienced practitioners. I joined the IsDB Group in 2000 and had the most rewarding, exciting and enjoyable next 20 years – undertaking exciting and in some cases, ground-breaking infrastructure projects in Asia, Africa, Middle East and the CIS countries and personally developing many skills and understanding development banking.

Moving from the IsDB was not an easy decision but EXIM was also a great/once in a lifetime opportunity. To be honest, Mr Oussama Kaissi [CEO of ICIEC], was more excited for me than I was at the time! That made things easier for me. I have been in the current role since September 2020, with the grace of God, I have enjoyed every moment of building EXIM Bank of Pakistan – we are a small dedicated, result oriented team. The full support and trust of the board certainly made things much easier. In March this year we applied for Commencement of Business to our regulators, and we expect to be operational soon.

My personal vision for EXIM is 100% aligned with the vision of the Bank, namely to contribute towards a sustainable and positive trade balance for Pakistan. I think our plans on how to reach that is where the operational excitement comes, with many challenges that provide us the opportunity to show our mettle to deliver our products that are unique and much required in the market.

In Pakistan, like in many countries, access to financing for small and medium sized (SME) exporters is relatively limited. EXIM will contribute to changing this by finding the right risk balance in our portfolio between different sectorial, regional and exporters categories (SMEs, corporate, banks, etc) and provide more and more support to SMEs. We have and will continue to invest heavily in technology, risk assessment, impact measurement, and management.

It certainly is a challenging time in the global economic context – what will be the main priorities over the next year? What will constitute ‘success’ on a five year view?

Irfan Bukhari: I think the biggest success would be to launch the Bank within the shortest possible time. We have made a request to our regulator to provide us with commencement of business certification. In order to do that we still need an Act of Parliament.

The Government of Pakistan’s Strategic Trade Policy Framework (STPF) has many aspirations. While EXIM will obviously be supporting traditional export sectors such as textiles, fruits and vegetables etc, it will also have a special emphasis on sectors where EXIM can have the largest impact. We would like to get more and more involved in areas which are new and have a bigger ‘bang for the buck’.

• As an example, software exports have taken a foothold during COVID-19 with some buyers preferring to buy from Pakistan where COVID lockdowns were limited (‘Smart-lockdowns’) and in fact exports increased during the period. Software exports have a high level of local content, and therefore the most direct impact on our vision – they do not need a significant amount of imports to support these exports.

Software exporters’ main asset is their intellectual capabilities, their company balance sheets do not always have significant assets to pledge to any bank, and therefore, do not get bank financing. EXIM will have the capacity to take risks on the international sales contracts of exportersand provide funding against such contracts. EXIM believes that interventions such as these can have a huge impact on export growth of the industry, employment, and entrepreneurship. This Software Export Expansion Program (SWEEP) has already attracted the attention of local and international banks in Pakistan as well as the government-run Software Export Board.

• EXIM would also like to support and encourage Pakistan-based engineering companies to build more bridges, power plants, roads, and dams outside Pakistan, and EXIM will want to assist them in arranging buyers’ credit. ICIEC and its partners such as SMBC, JP Morgan etc, will, we envisage, play a significant role here.
• EXIM will work with multilateral development banks (MDBs) to assist Pakistan in issuing green Sukuk and bonds to enable our exporters to increase the green footprint in their export processes.
• Finally, we would from day minus-one, create a reputation of professionalism, efficiency and be a dependable development bank for exporters with state-of-the-art systems and impact assessments.

Partnerships will clearly be an important area for EXIM Bank of Pakistan to explore – how best can international insurance organizations such as ICIEC and members of IsDB and other global ECAs and DFIs go about finding out about your plans and agenda?

Irfan Bukhari: Partnerships will be an important pillar for our expansion. For EXIM, one of the key areas of support that it will provide is the expansion of manufacturing and production capacity in the country. This is critical as over the last many decades, there has been a steady decline in this area (as a percentage of GDP), while for our competitor nations, the trend has been in the opposite direction.

Pakistan buys a lot of manufacturing equipment from Asia as well as Europe and the US. We will join hands with the EXIMS/ECAs in these countries for them to support their exports of machinery and equipment, assist them in due diligence, perhaps share a portion of their risk and have them take the risk on the Pakistan enterprise. This will increase the amount of risk capital in Pakistan significantly. We also aspire to join hands with some EXIMs to partner in undertaking larger projects in third countries where both countries’ exporters execute projects in partnership.

Relationships with institutions like ICIEC and IsDB are critical. Besides the fact that I feel at home working with the brilliant teams in these institutions, their Chief Executives have in fact introduced EXIM Bank of Pakistan to some of the EXIMs and encouraged them and us to work together. When the President of the Bank does this, it is a support like no other for a young and upcoming EXIM, and an endorsement that only encourages us to be more vigilant and responsible for the relationship

Do you have ambitions on the digitisation and technology agenda with a ‘clean slate’?

Irfan Bukhari: Digitisation and technology are a priority on our agenda. We believe that exporters need timely information to be able to secure export orders and to be able to make informed decisions. The reinsurance arrangements that we are structuring with ICIEC will provide us with access to credit information to some 200 million buyers around the world.

In order to exploit this to the maximum benefit of exporters, we are engaging with the very best (no compromise here) software providers and each one of them is very competitive. With AI integration, we expect to get automated underwriting for a portion of the risk (albeit low to begin with).

Digitisation will also assist EXIM in using the data created for marketing, product development and focused support to exporters.

EXIM will digitise each and every part of its business to create opportunities. The objective will be to effectively use state-of-the-art solutions and to integrate them on a real-time basis. This means digitalising the complete customer experience and journey with the EXIM Bank, starting from on-boarding, KYC, AML/CFT checks, compliance/regulatory checks, product offering, relationship management through digital channels, and all other aspects involved in business processes. At the same time, EXIM will ensure that we opt for a ‘pay as you grow’ model and will try to take leverage of ‘cloud solutions’ to ensure that the cost is rationalised as digitalisation is achieved.

How are you planning to align with the broader global sustainable development goals (SDG) agenda in your mission?

Irfan Bukhari: SDG 17 talks about partnerships and 17.11 talks about the growth of exports of developing countries. SDG 5 talks about Gender Equality with emphasis on equality under SDG 5.5. Then there are others such as SDG 1 (no poverty), SDG 3 (good health and wellbeing) SDG 8 (decent work environment) SDG 10 (reducing inequalities) which also impact EXIM’s operations. I am sure there might be others.

Let me focus on the first two.

To contribute towards 17.11, EXIM will focus on the global/local trends impacting exports. Exporters in Pakistan have started focusing more and more on sustainability making significant investments to ensure ‘green-exports’ which not only is good for the environment but also for business and are within the Voluntary Sustainable Standards (VSS) which address some sustainability metrics such as the environment, human rights, labour, or gender equality. Adherence to the above requires capital investment/long-term debt, in most cases.

EXIM plans to work with MDBs such as IsDB/ICIEC to create a pool of long-term financial resources for VSS Equipment Financing, perhaps a Green Bond if there is sufficient volume for green and sustainable exports.

In terms of gender equality, the central bank has taken this issue up under the banner of ‘Equality in Banking’. Given the importance of this issue for sustainability, the Governor of the central bank has taken a lead on this and is assisted by his able deputy Governor. At EXIM, I am happy to state that of the first three staff we bought into EXIM, two were women.

And on the ESG side, there is a lot of overlap with SDGs. In terms of sustainability, our exporters will benefit and be the preferred supplier if they are ESG compliant. That is why slowly but surely exporters have started addressing this. We just want to accelerate that in a big way. As the development bank, we will have the capacity and the capability, and the risk to do this as well, and the partnership angle will come in to play here too, as they will be giving us risk appetite. As I say, we are using our limited resources to show our mettle to leverage in a risk intelligent way and that is where the ‘oh wow!’ factor will come in.

According to the Islamic Development Bank (IsDB), the financing gap for Member Countries to meet the United Nation’s Sustainable Development Goals (SDGs) amounts to USD 1 trillion per year. Official Development Assistance funding only amounts to USD 135 billion global disbursements per year and is finite^[1]. Relying only on public resources to address this gap is not enough. There is a clear call for the development community to consider how best to mobilize resources from the private sector if they are to ever close the financing gap of the SDGs. A shift in even 1.1% of the total financial assets held by banks, institutional investors and asset managers could be enough to fill the financing gap, something that the public sector can’t do alone due to limited resources and available capital. The question therefore remains, how does this get done?

Development Finance Institutions (DFI) play a catalytic role in financing meaningful and often large-scale projects that align with national, regional, and global development goals, including the SDGs. However, there is potential to attract far more international and domestic capital from a variety of private-sector sources, including commercial banks, institutional investors, impact investors and foundations, who themselves are becoming increasingly driven by ESG considerations. The sharper focus on ESG and impact within the private sector is creating an open opportunity for DFIs to seize this momentum and direct it toward achieving the SDGs by drawing in private sector financing for SDG-aligned projects.

To attract the private sector, DFIs must consistently hold the concept of “additionality” as a guiding principle by ensuring their financial interventions seek to be catalytic and go beyond what is available in the market in order to not the private sector crowd out[2].  According to the World Bank, DFIs have played a major role in financing sustainable development because they can take risks (or portion of risks) that the private sector has traditionally steered clear of.

How is ICIEC additional?

A  Specialized Multilateral Insurers (SMIs), such as ICIEC, exist to address market gaps and crowd in the private sector by assuming risks that are not already being taken and offering additionality through their product offerings. In many respects, achieving additionality as a “risk-taker” is much easier than when providing direct financings. A key strategic recommendation of the G20 Stock Take Report is for DFIs to “shift the basic business model of the MDBs from direct lending towards risk mitigation aimed at mobilizing private capital”. The report stresses, inter alia, the catalytic value and additionality of insurance and guarantee products that achieve the outcome of “multiplying private capital by adopting system-wide approaches to risk insurance and securitization” [3].

In order to deliver on their mandates and contribute to the SDGs, most ECAs and SMIs provide Credit and Political Risk Insurance (CPRI) cover for impactful development projects and transactions that would otherwise be deemed too risky for the private sector. When financing projects in high-risk environments, private financiers, such as commercial banks, are able to lower the cost of debt to the borrower when they have access to CPRI. CPRI is, therefore, an instrument with great potential to crowd in the private sector by hedging risk in markets and geographies that would otherwise represent unacceptable risks for lenders who are unable or unwilling to take on high-risk financing. CPRI also allows for the leveraging of debt at a lower risk and margin, which results in more efficient use and allocation of resources and capital. The G20 Stock Take Report prepared by IsDB and ICIEC demonstrates that providers play a critical role in transferring and mitigating the risks for the private sector financiers. Comprehensive insurance provides important capital relief benefits for commercial banks.

The G20 Stock Take Report advances that increasing the provision and diversification of CPRI from MDBs and SMIs is essential to attracting the risk-averse private sector into financing development, taking on the sharing of the risk through system-wide insurance and diversification of risk, to create large-scale asset class.  This can transition countries towards market-based finance rather than being dependent on concessional and nonmarket-based development finance. Insurance is beneficial in mitigating risk, avoiding loss from default, solutions for limits and constraints to borrowers, sectors and countries, and solvency for credit risk. Furthermore, CPRI benefits equity investments by protecting against losses due to political risk events and improving risk profiles of foreign direct investment. ECAs and SMIs need to play complementary roles in providing CPRI and PRI to overcome ECAs limitation to providing equity support to their local investors and limited capital. CPRI providers have a unique opportunity to utilize their mandate to contribute to reaching national development strategy goals, leveraging their expertise in LMIC finance sectors to incentivize private sector financing behavior to align with development goals.

Since the pandemic, uncertainty has been growing around sovereign debt sustainability, which is actually the best argument to sell CPRI. The increase in the demand for this type of guarantee will continue to grow, especially when it comes to financing the SDGs in addressing market gaps within politically unstable and risky economies. CPRI acts as a catalyst for many different reasons. For one, it finances the real economy by enabling trade and supporting growth. Second, it unlocks private capital financing. Third, it protects against non-payment risks. And finally, it supports the economic growth of both emerging and developed markets by enabling market entry and investments[4].

In summary, CPRI is a great tool to address the SDG financing gap and crowd in the private sector. For development finance institutions and commercial banks, risk thresholds are well defined, which limits their capacity to finance projects in high-risk environments and markets. In order to crowd in the private sector, such as impact investors, there needs to be some risk mitigation. This is an incredible opportunity for ECAs and SMIs to offer solutions that transfer the risk. A collaboration between the private and public sectors will be necessary to mobilize the necessary capital for projects that would traditionally not be done, using a combination of credit wraps, funded instruments, and DFI lending into the same project as the private sector. According to the Berne Union Yearbook 2021, there is no doubt that collaboration between private and public institutions will be necessary to increase current levels of insurance support. This requires instruments that are inherently additional.

Additionality is at the forefront of ICIEC’s strategy. By mitigating risks through its CPRI products, ICIEC offers catalytic financial instruments to crowd in the private sector sources of financing in Member Countries. The Corporation works closely with the private sector, cherishing relationships with both its financing clients and the private insurance market – all for the benefit of member countries achieving the SDGs. Credit information reporting systems are a shared challenge within the OIC and ICIEC will have a unique role to play through its accumulated data on credit information after three decades of underwriting processes and assessment of trade transactions. ICIEC’s efforts to build this database will help inform credit decisions which will improve lending and foster economic growth within OIC Member Countries.

[1] https://www.oecd-ilibrary.org/sites/6ea613f4-en/index.html?itemId=/content/component/6ea613f4-en

[2] 201809_MDBs-Harmonized-Framework-for-Additionality-in-Private-Sector-Operations.pdf (ifc.org)

[3] https://www.isdb.org/sites/default/files/media/documents/2020-10/G20%20stock-take%20clean%20copy%2015092020%206h53pm.pdf

[4] Berne Union – 2021 Berne Union Yearbook: Adapt, Innovate, Accelerate, Repeat

What is Preferred Creditor Status?

Multilateral Development Banks (MDBs) are essential lenders in international financial markets. Owned by multiple sovereign shareholders, otherwise known as member countries, MDBs raise money by issuing bonds in global capital markets, which are then used towards financing projects within member countries.

Member country governments frequently borrow from their MDBs, as well as private lenders, and others, maintaining multiple creditors concurrently. If a member country experiences financial stress and has difficulties repaying the financings, a hierarchy exists in which certain creditors are prioritized in order of repayment. Those who receive repayment priority are referred to as Preferred Creditors (PCs), having been granted Preferred Creditor Status (PCS) by their borrowers. It is widely accepted that MDBs, amongst other IFIs, maintain PCS. The Islamic Development Bank Group, (IsDB), is one such MDB and, as the insurance arm established under the IsDB group, this PCS is de facto also extended to ICIEC.

According to Moody’s Global Credit Analysis, PCS is defined as an implicit accord between borrowers and lenders that loans made by these institutions receive preferential servicing and repayment treatment above other borrowing-member liabilities such as commercial bank debt[1]. PCS also grants preferential access to a lender of foreign currency in the event of a foreign exchange crisis in the borrowing country (also called an inconvertibility event). PCS thus gives MDBs a high level of assurance that sovereign and non-sovereign loans within a member country are protected against restrictions on foreign exchange, mitigating transfer and convertibility risks, and ultimately resulting in repayment. This same assurance is generally not afforded to private institutions (except when their financings are concomitant with that of the MDB’s in a structure called the A/B Loan)[2].

Since its origins, the legal basis of PCS has been questioned. Currently, general international law contains no compulsory standard of conduct requiring the preferential treatment of any external creditor, including MDBs. Thus, the current imposition of international PCS is de facto, or a matter of fact, rather than de jure, a matter of law. PCS, therefore, is an optional standard of international behaviour that must be affirmed through multilateral and/or bilateral agreements, or through a borrower’s unilateral granting of PCS permissions to an MDB. For many MDBs, PCS is embedded in their articles of association or agreement. Though these articles do not provide legal status to an MDB’s PCS, the principle is instead embodied in the practice of the MDB and its borrowers and granted by member country shareholders.

PCS is a critical tool for protecting the capital of MDBs while ensuring borrowers can still receive favourable credit terms. There are several benefits to PCS, both for MDBs and their clients. Some countries confer PCS to MDBs with the expectation that the MDB will provide credit at competitive rates during times of crisis, despite the higher risk. As default probabilities are often higher during a crisis, private creditors lending to sovereigns experiencing an emergency will raise interest rates as compensation for the assumption of greater risk. However, thanks to PCS, MDBs expect to be repaid regardless of default, thereby lowering the risk for MDBs.

A critical factor with respect to PCS is the mutual ownership structure found amongst MDBs. As member countries hold equity in these MDBs, they are financially incentivized to ensure these institutions are protected from default. Meanwhile, the mutual ownership structure also ensures advocacy from the MDBs and other IFI representatives when discussing and solving any issues or disputes over non-payment. Subsequently, IFIs can help distressed member countries formulate policies that help restore economic stability and improve the debt position while having credibility-enhancing ‘skin in the game’ at lower risk. Thanks to these benefits, MDBs awarded PCS often receive the “Halo Effect”, meaning these MDBs are seen as favourable sources of finance, resulting in increased business volumes.

ICIEC’s PCS

The Islamic Development Bank Group, (IsDB) is an AAA-rated MDB collectively owned by 57 Member Countries (MCs) across the Organization for Islamic Cooperation (OIC). IsDB has PCS enshrined in its articles of agreement, which have been ratified by the governments of all IsDB Group MCs, earning IsDB’s PCS universal recognition and acceptance. Having been established by the IsDB, ICIEC shares similar articles of agreement and is therefore conferred the same PCS from its 48 MCs. Additionally, ICIEC’s PCS enjoys recognition from entities such as bank regulators, rating agencies, and private PRI providers.

ICIEC is considered a Specialized Multilateral Insurance (SMI) provider for export credit and foreign investment. Thus, Preferred Creditor Treatment (PCT) is triggered differently. ICIEC becomes a creditor when the Corporation pays a claim. As ICIEC has PCS embedded within its articles of agreement, the Corporation is first in line to receive repayment.

For ICIEC MCs, maintaining PCS helps investors and exporters receive exceptional security at competitive rates, providing cover against potential risks that lead to barriers for investors and exporters in high-risk markets. With further security on investments and trade provided by ICIEC’s reinsurance policies, ICIEC’s PCS helps attract FDI and trade in critical sectors for the sustainable development and national objectives of ICIEC MCs.

ICIEC is also able to leverage its position within the IsDB group to advocate for priority payment with the MC. There, IsDB representatives highlight the potential ramifications of non-payment in terms of access to future credit. In doing so, the value of PCS is reinforced, and ICIEC policyholders are given a strong voice within high-risk scenarios to receive favourable treatment in the event of non-payment.

ICIEC can also extend its PCS to other institutions such as ECAs. For example, through a Memorandum of Understanding (MoU) recently signed with the United Kingdom’s Export Credit Agency (ECA), UK Export Finance (UKEF), the potential risk-sharing has been emphasized, leveraging the Corporation’s PCS across key international markets for UKEF’s support in ICIEC MCs.

ICIEC’s PCS is an enabling tool to support its partners and its shareholders. It places the Corporation in a special and powerful position as facilitator of trade and investment flows and gives a level of comfort to investors and exporters, financial institutions that support them, as well as partner credit and political risk insurers.

[1] David Stimpson, Global Credit Analysis, (London: Moody’s Investors Service, 1991), 188.

[2] https://publications.iadb.org/publications/english/document/Research-Insights-Why-Are-Preferred-Creditors-Preferred.pdf

Partnerships for the goals

The SDGs are a collection of 17 interlinked global goals designed as a blueprint to achieve a better and more sustainable future for all. The SDGs were established in 2015 by the United Nations General Assembly with the intention to be achieved by the year 2030. In September 2019, it was stated at the United Nations General Assembly that 2020 would be the beginning of the Decade of Action for the Sustainable Development Goals (SDGs). Little did the world know that a global pandemic was about to cause severe disruptions to the global economy.

Before COVID-19, the road to achieving the SDGs was already an uphill battle, with the annual financing gap estimated at USD 2.5 trillion in developing countries[1]. The pandemic has exasperated this gap even further, the OECD estimates an additional increase of USD 1.7 trillion[2]. These consequences have highlighted the need to align global finance mechanisms and incentives with the SDGs to get the world back on track to achieve the 2030 Agenda. It has become imperative that public and private sector actors optimize their efforts towards more sustainable initiatives.

Since their adoption, the financing of SDGs has primarily been done through the public sector, relying heavily on international public financial sources, such as Development Finance Institutions (DFIs), including Multilateral Development Banks (MDBs), National Development Banks (NDBs), Regional Development Banks (RDBs) and further supported by Export Credit Agencies (ECAs), Multilateral Insurance Institutions such as ICIEC. Separately, each institution can contribute significantly to global sustainable development, but by working together, these DFI can catalyze finance for development projects worth billions of dollars throughout the world.

Although DFI and public sources of funding are instrumental to financing SDGs, they can’t fill the overwhelmingly large SDG financing gap alone. Collaborations between the public and private sectors are also critical for catalyzing efforts to achieve the SDGs. So much so that the call for collaborative efforts has been inherently built into agenda 2030 via SDG17: partnerships for the goals. The intention of this goal is to strengthen the means of implementation and revitalize the global partnership for sustainable development.

ICIEC’s partnership landscape

The SDGs are influential signposts for ICIEC’s continuing development journey as they play an important role in shaping the Corporation’s strategy and development outcomes. ICIEC has always considered collaboration as an important catalyst for its strategy and operations, marking SDG17 as one of the six SDGs where ICIEC’s development role is most relevant. The Corporation has long pursued partnerships with banks, investors, corporates, and national ECAs, among others, both within and beyond its 48 member countries.

When working jointly with ECAs, banks, and the reinsurance market, ICIEC’s insurance solutions can be bolstered to reduce the risk for larger and more impactful sustainable development projects. For example, through partnerships with banks, ICIEC plays a key role in mitigating risk to mobilizing private sector resources to develop medical infrastructure in its Member Countries. When working with ECAs,  ICIEC’s reinsurance solutions offer risk-sharing support that enhances their capacity to insure sustainable development projects. Together, the Corporation and its partners increase the reach and depth of their service offerings, encouraging critical financing for meaningful projects that would otherwise be deemed too risky.

Additionally, ICIEC is a specialized institution inherently established by the Islamic Development Bank (IsDB) to be a partner in the IsDB Group.  Other members of the Group include the International Islamic Trade Finance Corporation (ITFC), The Islamic Development Bank Institute (IsDBI), the Islamic Corporation for the Development of the Private Sector (ICD) and the World WAQF Foundation (WWF). All IsDB Group member institutions work together towards the same goal – delivering economic prosperity across the OIC by supporting sustainable development through Shari’ah-compliant solutions. Synergies between ICIEC and the IsDB Group strategically allow the entities to deliver on both their shared and individual goals more effectively.

ICIEC’s SDG synergy: Turning Partnerships into Action

Partnerships are integrated into almost all of ICIEC’s activities, and the SDGs are always an underlying consideration in the projects that the Corporation chooses to undertake. By underwriting investments in strategic sectors and projects in coordination with governments, banks, and ECAs, ICIEC supports the development agendas of its member countries.

For example, ICIEC provided USD 20 million in credit enhancement cover to its partner, BMCE Bank of Africa, to rehabilitate a centre for disabled individuals in Cameroon. The rehabilitation project facilitated the modernization of the centre’s technical facilities, the renewal of essential equipment, and the extension of healthcare facilities to accommodate a broader range of disabilities. The rehabilitation also supported expanding the centre’s services, focusing on socio-professional reintegration and empowering people with disabilities to participate in various socio-economic activities. The project contributes to the government of Cameroon’s policy to fight against social exclusion and meet the demands of the sub-region. The project is also contributing to the achievement of multiple SDGs, including SDG 3: good health and well-being, SDG 8:  decent jobs and economic growth, and SDG 10: reduced inequality. The project’s impact reaches beyond Cameroon as the centre provides needed medical services to patients from Chad, Central African Republic, Gabon, Congo, and Equatorial Guinea.

In response to the global coronavirus pandemic and OIC countries facing economic, humanitarian, health, political, and environmental crises, ICIEC tightened its efforts to collaborate, working closely with its partners – both within the Islamic Development Bank Group (IsDB Group) and beyond — to develop and implement innovative and effective solutions to offset the negative short-, medium-, and long-term impacts of the pandemic. Fortunately, most of these efforts also easily align with the achievement of the SDGs.

From the immediate onset of the pandemic, all partners in the IsDB Group unified to take broad and decisive action to protect OIC citizens, committing a total of more than USD 2.4 billion of aid to Member Countries and to Muslim communities in non-Member Countries. In the short-term, ICIEC provided USD 770 million as part of IsDB’s ‘Strategic Preparedness and Response Program’ to ensure the continuous flow of strategic imports, protect investments, and minimize economic volatility. Later, the two entities established a collaborative USD 2 billion credit guarantee facility known as the COVID-19 Guarantee Facility (CGF) to continue their support throughout medium and long-term recovery.

ICIEC also worked particularly closely with the Islamic Solidarity Fund for Development (ISFD) during the crisis. The ISFD sits within the IsDB and works to reduce poverty (SDG1: no poverty), build productive capacities of Member Countries (SDG8: decent work and economic growth), reduce illiteracy (SDG4: quality education), and eradicate diseases and epidemics (SDG3: good health and well-being). ICIEC has formed a bespoke partnership with ISFD known as the ICIEC-ISFD COVID-19 Emergency Response Initiative (ICERI), in which a funding grant of USD 400 million is being used to subsidize insurance premium, facilitating the procurement of medicine, medical equipment, food supplies, and other essential commodities to eligible member countries.

More recently, ICIEC’s ability to bolster support for the SDGs through a partnership with associations was highlighted when the Corporation signed a Memorandum of Understanding (MoU) with the Islamic Organisation for Food Security (IOFS) and a Strategic Partnership Agreement (SPA) with the Islamic Food Processing Association (IFPA), focused on achieving SDG 2: zero hunger. The entities will collaborate using their respective strengths in providing insurance in support of trade and investment towards promoting food security, sustainable agriculture, and rural development. The agreements between the institutions provide a general framework for collaboration, including attracting and promoting investment in agribusiness and food security; promoting best practices in food safety and Halal products to boost intra-OIC food trade in the private sector; promoting South-South Cooperation; and boosting the involvement of SMEs in agri-food business.

Partnerships continue to be a priority for ICIEC and the Corporation seeks to enhance synergies with all of its partners wherever possible towards the faster and more effective achievement of our mutual goals.

[1] https://www.oecd-ilibrary.org/sites/6ea613f4-en/index.html?itemId=/content/component/6ea613f4-en

[2] https://www.oecd-ilibrary.org/sites/6ea613f4-en/index.html?itemId=/content/component/6ea613f4-en

What is an INFF?

The United Nations Development Programme (UNDP) is helping countries to meet their Sustainable Development Goals (SDGs) by encouraging the adoption of an Integrated National Financing Framework (INFF).

An INFF[1] is a planning and delivery tool developed by UNDP to provide a policy focus to financing the SDGs at the national level. The INFFs spell out how the national strategy will be financed and implemented, using a variety of public and private financing sources. Many developing countries are choosing to adopt INFFs in order to help strengthen their planning processes and overcome existing challenges to financing sustainable development.

An INFF lays out the full range of potential financing sources, primarily domestic and international sources from both public and private sectors, to help to increase investment in a country’s SDG priorities. The INFF also sets out a plan for managing risks and provides a governance framework for enhancing accountability. In a nutshell, an INFF has four key building blocks: assessments and diagnostics; financing strategy; monitoring and review; governance and coordination.

The INFF is helping alignment of different types of finance (domestic, international, public, private) with national priorities and needs. It also helps them to enhance coherence across different financing policies, aligning them to medium and long-term sustainable development priorities while better managing risks in a complex financing landscape.

How National Export Credit Agencies (ECAs) play a key role in financing the SDGs.

Most ECAs around the world serve a general mandate to support national exports and foreign direct investment. As such, they generally do not have an explicit mandate to support the SDGs. However, even though they may not have the direct objective to support the SDGs, the trade transactions and projects they support, are likely already well-aligned with the SDG objectives and can be enhanced even further.

As critical policy instruments, ECAs fundamentally – if not intentionally – help achieve SDGs by supporting job creation and the generation of foreign exchange for countries (SDG 8–Decent work and Economic Growth), increasing competitiveness of industries (SDG 9 – Industry, Innovation and Infrastructure), and giving countries balanced access to international trade (SGD 10 – Reduced inequalities). Additionally, as ECAs have the function of providing financing through loans and other credit to consumers who may not be able to access these through traditional banks, they are uniquely placed to finance investments that directly meet any of the 17 SDGs.

ECAs are often supported by the governments of the countries they support through various models, supporting businesses across various industries. As several of these governments (193 Member States of the United Nations) have also adopted the “Transforming Our World: The 2030 Agenda for Sustainable Development’’, which includes the SDGs, there is increasing opportunity for global ECAs to align their mandates with the SDGs.

ICIEC’s role in supporting national ECAs and the INFF

ICIEC’s mandate is to promote trade transactions and facilitate the flow of foreign direct investment for projects that contribute to the socio-economic development of its member countries. The Corporation fulfills these objectives by providing Shariah-compliant credit and political risk mitigation and credit enhancement insurance and reinsurance solutions. ICIEC is at the nexus of global relationships and networks that are essential for fulfilling its mandate and achieving sustainable development outcomes. ICIEC’s support encourages the participation of national ECAs along with banks, investors, and corporates in transactions involving risky markets.

By necessity and design, ICIEC works closely with partners to share information and risk, provide additional insurance capacity, and promote trade and investment in its member countries. One of ICIEC’s important roles in this regard is strengthening its member countries’ export finance systems and providing Shariah-compliant reinsurance to the national ECAs. It also cooperates with non-member country ECAs to facilitate strategic investments for its members’ economies.

ICIEC’s reinsurance solutions are particularly pertinent to the role it can play in supporting national ECAs and the implementation of INFFs. ICIEC is empowered to reinsure the commercial and political risks on national ECAs in its member countries. By doing so, it enhances their financial capacity to support national exports that themselves are aligned with SDGs. By reinsuring a national ECA, it takes the risk off the balance sheet of the national ECA – and hence national government – and does not add to the debt burden of the country, which in many of ICIEC’s members is already elevated and, in some cases, becoming unsustainable. This frees up more fiscal space for the central government to invest in other SDG-aligned activities.

ICIEC is strategically placed to provide capacity-building, joint marketing, and technical assistance to ECAs in member countries, while serving as a credit services information hub. It is also uniquely placed to help ECAs in non-member countries to cover projects in member countries.

Conclusion

The INFF is a guide for countries to use in sourcing and utilizing finances for meeting the SDGs. ECAs support a country’s export and cross-border investment initiatives, including projects and trades that are aligned with the objectives of the SDGs. ICIEC plays a role in providing additional capacity to ECAs so they can insure against risks that arise from member countries and, in turn, helps member countries meet the objectives of the SDGs. As such, ICIEC, plays a vital role in ensuring that the sources of finance (international public and private sources) that form the framework of the INFF are protected against insured the risks of market failures and non-repayment of debt, which would otherwise limit the financing of the SDGs.

[1] https://inff.org/about

Claims are inherent to insurance and fundamental to its value. When losses occur – and they inevitably will at times – policyholders want their insurer to pay out any legitimate claims. However, fraudulent or illegitimate claims require insurers to be vigilant and, as the world continues to grapple with the Covid-19 pandemic, a pattern of fraud in trade transactions has remained. This article peeks into year-end expectations for the claims landscape and how insurers are insulating against fraud.

Experiences from COVID and post-COVID

The beginning of 2021 was essentially a continuation of 2020, as lockdown measures were reintroduced in many countries, border-crossings were once again limited, and businesses were forced to continue operating amongst restrictions and remote working. Trade credit insurers also had to accept that 2021 was an extension of the status quo regarding emerging claims and claims paid.

At 2020’s end, the expectations for claims throughout 2021 were mixed. A significant increase in volume was expected for the first quarter of the year, followed by a projected decrease in the second quarter, anticipating a rebounding global economy. Despite the earlier predictions for a rise in claims, particularly in credit and political risk insurance (CPRI), there has yet to be a notable uptick in the claims reported amongst the members of the Berne Union, the International Association of Credit Investment Insurers[1].

What is notable is that according to the Berne Union, claims so far in 2021 have been at pre-pandemic levels, with insurers’ risk appetite for new business remaining robust.  However, insurers are generally cautious about the expectation for claims volumes going forward. Given the potential impact of the pandemic continuing to influence the risk environment unpredictably, some insurers now fear the bulk of bankruptcies will emerge in late 2021 and into 2022, while others are predicting a more gradual flow for claims based on a potential link between the extension of government pandemic response programs and financial support, and the elongated claims cycle. This theory suggests that Covid-19 related claims may gradually emerge over several years going forward.

Many public insurers widened their mandates in 2020 to support businesses, including those industries most severely impacted by Covid-19. Naturally, being more exposed to these industries, SMEs, and more vulnerable risks, in general, maybe the reason why public providers continue to expect increasing claims going forward. However, these updated predictions are still nowhere near the tsunami expected at the start of the year.

While the overall volume of claims has not yet been disrupted in COVID and the CPRI market remains healthy, a pattern of fraudulent claims has emerged, requiring the industry to take a more careful stance to ensure that claims lodged are indeed legitimate. With the potential for claims volumes to rise as governments withdraw support measures, we may witness a corresponding influx in fraudulent claims.

What are Fraudulent Claims?

What does a fraudulent insurance scam look like in the credit insurance market? Fraud can be committed by either the buyer or the seller or when they both collude to swindle the credit insurer.

A common way of committing fraud as a buyer is by purchasing goods or services on an open account with the sole intention of not paying. An example might be when they conduct the first few deliveries against cash to gain the seller’s confidence. Over time, now with a track record, the seller may be willing to ship a larger order or to grant credit by selling on open account terms, for 30 or 60 days, for example, during which time, the buyer could receive the goods, re-sell the goods and then disappear without payment.

In other cases, fraudulent sellers intentionally misstate overdues, establish fraudulent payment schemes, or present audited financial statements based on false information.

Collusion between the buyer and seller can look like each legitimate establishing company in their respective countries. These companies would undertake several smaller transactions over a period to create a payment track record and get a credit risk assessment. With this in hand, the buying company will make a big order, which is insurable given the payment history. The seller creates false documentation showing that goods were supposedly shipped or exports bogus goods via ports that have poor adherence to international standards. When the underwriter becomes suspicious, the fraudulent buyer is long gone.

How to spot fraud as a credit insurer?

Of course, fraud has been around since the beginning of time, usually driven by greed or fear. Both characteristics are in play during a pandemic, and unfortunately, trade credit insurers have not been very successful in countering fraud with traditional instruments. Advancements in technology have made fraud easier for scammers to conduct, so insurers have had to become much more diligent in spotting fraud cases, implementing better fraud prevention policies and guidelines than ever before by focusing on the fundamentals at an early stage.

Fraud detection is most successful when suspicious patterns are discovered early.  For example, underwriters need to pay attention to an increase in the number of credit limit applications above a defined threshold or outside an approved period and undertake regular screening of the ownership relations between policyholders and buyers. Where the seller ships 80% of its product to one seller, the risk of fraud might be higher.

When examining financial statements to issue a credit limit, underwriters also need to look for clues in the financial statements. The company’s behaviours and life cycle of its production – from orders at customer service to fill the orders through manufacturing and shipping to invoicing – should be understood to ensure that the process matches the cash cycle and the generated receivables are generated related.

Ultimately, there is no better defense than maintaining thorough Know Your Customer (KYC) or Know Your Transaction (KYT) policies. Nor is there a substitute for an underwriters’ common sense, curiosity, and a good dose of skepticism. At ICIEC, we’re sure to ask the right questions and are confident in our due diligence process before we bind a policy. Insurance is inherently meant to cover the risk of lost payment, and as a leading multilateral ECA, ICIEC ensures that all legitimate claims are honoured and paid. After all, this is why our customers value our insurance.

[1] Berne Union, Business Confidence Index Q4.21. https://www.berneunion.org/Articles/Details/625/Business-Confidence-Index-Q4-21-Published