With OIC membership currently spanning 57 countries across Africa, Asia, Middle East and Latin America, ranging from Indonesia to Suriname, the Organisation of Islamic Cooperation (OIC) is a grouping of countries containing diverse economies in terms of structure and size. Amongst these economies, significant volumes of trade and investment flow, with potential for a substantial increase.  The OIC market also provides immense opportunities for trade and investments, given its growing demographics. The current combined population of OIC Member Countries sits at 1.8 billion people. Recent reports suggest that this number will witness population growth across all age groups over the next 30 years, with a crucial increase in the working-age population of 15-64 years (see figure 1).

Figure 1: OIC Member Countries Population by Age Group, 2015 & 2050

Source: UN World Populations Prospects

This key demographic age group is expected to constitute more than 50% of OIC’s population by 2050. It will allow OIC Member Countries to benefit from what is referred to as “the demographic dividend[1]“. Demographic dividend occurs when a country’s population has a low child and old-age dependency ratio and a high working-age population. There is a correlation between creating adequate job opportunities to sustain the working age in countries with a sizeable working-age group and increased income per capita. The increase in income generation would result in increased consumption and higher savings rates, translating into significant economic growth. Alongside a growing population comes the demand for infrastructure development, goods, services and increased food security. This demand presents an opportunity for businesses in OIC Member Countries to grow.

The current snapshot of intra-OIC trade and investments

In alignment with the growing opportunities in the market, the share of intra-OIC trade has also been growing in recent years, from 17.3% in 2011 to 19.6% in 2020 (see figure 2). Intra-OIC export flows have been steadily increasing, from USD 260 billion in 2016 to USD 327 billion in 2019. The top exporters are Malaysia, United Arab Emirates, Saudi Arabia, Türkiye, and Indonesia, collectively accounting for 62.7% of all OIC exports[2].

Although intra-OIC trade has been growing in recent years, the current level of trade integration among OIC Member Countries is still lower than is desired. At the 13th Islamic Summit held in April 2016 in Istanbul, the Committee for Economic and Commercial Co-operation of the OIC (COMCEC) adopted a New Ten-Year Plan of Action to achieve a 25% intra-OIC trade share by 2025. Currently, only 28 of the OIC’s 57 Member States have attained the target of a 25% intra-OIC trade share. Given that the current figure for the OIC is 5% below the target, there is still much room for improvement. Increasing the share of intra-OIC trade is a strategic objective as it allows the region to be more resilient in the face of trade shocks, such as the one engendered by the COVID-19 pandemic. In times of crisis, it is much easier to collaborate with international partners and neighbours committed to your same ideals, customs, economic models and culture. By increasing intra-OIC trade, ICIEC will be able to fortify OIC economies, reduce their exposure to volatility, and better protect the lives and livelihoods of countless people across the Ummah.

Figure 4: Share of intra-OIC trade, 2011 – 2020

Source: Calculated using IMF Directions of Trade Statistics (DOTS)

OIC’s leading exporters and importers are concentrated in these same five countries (see figure 3 and 4). Exports are traditionally concentrated in mineral fuels and non-fuel primary commodities, which tend to involve the least technological intensity. For sustainable and long-term economic development, OIC Member Countries need to diversify exports into other sectors, hedge export revenues against volatile commodity prices.

ICIEC’s role in facilitating intra-OIC trade and investments

ICIEC plays a crucial role in promoting intra-OIC trade and investment through the strategic provision of its insurance cover. ICIEC’s Documentary Credit Insurance Policy, Credit Insurance Products, Bank Master Policy, and other solutions bridge the market failures that often inhibit intra-OIC trade and investments. These instruments catalyze impact for export sector development, Shari’ah compliant financial sector development, and support member country and human development.

In providing risk mitigation instruments and facilitating access to trade finance, ICIEC supports exporters of all sizes to grow their businesses and ultimately supports Member Countries to prosper economically. ICIEC’s presence in the financial market increases the capacity of its partner financial institutions in OIC countries to offer Shari’ah-compliant insurance services and access to finance, further setting an example as the only multilateral Takaful credit insurer. At the same time, ICIEC’s Sovereign Sukuk Insurance Policy aims to strengthen Islamic Finance capital markets and mobilize Shari’ah-compliant capital for strategic investment projects in Member Countries. ICIEC also promotes intra-OIC trade and investments by underwriting investments in strategic sectors, particularly in the least Developed Member Countries that are at higher risk and therefore not as attractive to traditional market players. By facilitating trade within OIC, ICIEC strengthens the organization and provides equal opportunities for all OIC Member Countries to trade.

Since its inception, ICIEC has insured USD 68.5 billion in imports and exports. In 2020 alone, the Corporation insured USD 4.47 billion of intra-OIC trade. ICIEC’s insurance enables Member Countries to import strategic goods such as food, export products that generate foreign currency revenue for the country and strengthen strategic sectors through infrastructure development. ICIEC’s insurance, which helps to catalyze intra-OIC trade, is also critical for assisting Member Countries in reaching the 25% intra-OIC trade target set by COMCEC for 2025, thereby enhancing regional economic integration and resilience.

Looking ahead, ICIEC is continuing to expand its operations in OIC Member Countries to strengthen intra-OIC trade. ICIEC has also instituted several initiatives to support the least developed Member Countries to participate more effectively in trade.

Toward Resilience and Prosperity Across the OIC

Enhancing the quantity of intra-OIC trade has been central to ICIEC’s operations since its inception. 2020 has exemplified just how vital this aim is to every Member Country in the OIC. The year showed OIC economies’ supply chains and trade partnerships with other actors across the globe are more fragile than once believed. There is a growing need to increase the Intra-OIC trade to bolster the resilience and prosperity of ICIEC’s Member Countries’ economies.  The untapped potential of intra-OIC trade and investment can more easily be achieved through ICIEC’s steadfast dedication to ensuring that potential OIC trade partners can engage in trade and investment transactions and by being a powerful risk mitigant. As OIC countries lean on one another to exchange goods and services, the Ummah will be more economically secure, resilient to outside shocks and in harmony with its partners.

[1] https://demographicdividend.org/

[2] https://sesricdiag.blob.core.windows.net/sesric-site-blob/imgs/news/2461-SESRIC-Trade-Goods.pdf

2020 Recap

The year 2020 will always be associated with the global COVID-19 pandemic and the resulting socio-economic fallout worldwide. Like other industries, the trade credit and political risk insurance industry experienced broad and deep impacts financially, operationally, and strategically. Trade credit and political risk insurers had to adapt quickly to mobilize tools and develop policies that would maintain essential trade flows of goods and services and help alleviate the economic impacts of the pandemic. The OECD estimates that 2020 saw a reduction of global GDP by 3.4% and a global trade contraction by 10.9%^[1]. Such negative economic outlooks remain concerning for many governments and businesses.

Aside from the pandemic, other factors were at play in 2020, including macroeconomic conditions, geopolitical developments, and technological advancements, which also affected trends in the insurance industry and forced insurers to rethink their core strategies, including which products they offer, which markets they serve, and how they operate.

Challenges and Risks

 It comes as no surprise that 2020 ranked pandemics and infectious diseases as the top perceived risk in the insurance market worldwide. The pandemic also accelerated the perception of other existing risks, such as public debt, cybersecurity, geopolitical tensions, unemployment, and inequality. Due to the speed and severity of the pandemic, scenarios that would typically have unfolded over many years instead took place over just a few months. These jolts increase the potential for risks to influence each other in unpredictable ways.

The pandemic’s initial shock in early 2020 saw a sharp increase in the number of insolvencies and the number of claims reported by credit insurers, but this decreased later in the year, thanks to the support that governments, and importantly, the coordinated nature of the responses, across the world offered to businesses^[2]. Swift government assistance helped credit insurers improve their resilience to shocks and withstand most of the negative impacts on their business. However, there are concerns that a future reduction in government support could trigger economic instability and a spike in claims.

Overall, in 2020 the insurance industry had to develop innovative ways to mitigate the risks caused and accelerated by the pandemic. Trade credit insurance remained essential in 2020 for supporting trade flows and supply chains that are crucial for economic recovery, providing security to businesses and investors. However, the long-term implications of the pandemic are still ultimately unknown, and caution is still highly warranted going forward.

ICIEC’s Response to the Challenges and Risks

In the face of the global pandemic, ICIEC was fast to respond, forging strategic partnerships, ensuring the continuance of critical trade flows, and creating innovative solutions to help mitigate the fallout in Member Countries. ICIEC had to adapt quickly to the challenges of the COVID-19 pandemic to ensure the economic and social stability of its Member Countries by introducing several measures and initiatives to combat the negative impact of the pandemic on the economies of the member countries. These measures included introducing new products and insurance capacity. ICIEC’s total amount of business insured for 2020 amounted to USD 9.86 billion.

As part of the Islamic Development Bank Group’s ‘Strategic Preparedness and Response Facility’ (SPRF), ICIEC’s COVID-19 response to date reached USD 450 million in insurance, helping to minimize the adverse health and socio-economic impacts of the pandemic in Member Countries, especially for the most vulnerable populations. In addition to the SPRF, ICIEC also collaborated with IsDB on the innovative USD 2 billion COVID-19 Guarantee Facility designed to support the private sector and the Islamic Solidarity Fund for Development (ISFD) to create the ICIEC-ISFD COVID-19 Emergency Response Initiative’ (ICERI). The ICERI is a rapid COVID-19 response and resilience initiative with USD 400 million in funding, supporting import-dependent and developing Member Countries. These collaborative efforts continue to help Member Countries meet their essential import needs of pharmaceuticals, healthcare equipment, agricultural commodities, energy commodities, and other crucial materials and resources necessary to combat the negative impacts of the pandemic.

Successes and Opportunities

The disruptions caused by the COVID-19 pandemic in 2020 also presented opportunities for the export credit insurance industry to position itself in line with new societal realities and market needs. One of the most significant opportunities to arise from the pandemic is the digital transformation’s acceleration in the insurance market that started over the past two decades. At the onset of the pandemic, the industry underwent rapid virtualization of operations to meet employee and client needs. This progression will enable data-driven transformation across the industry and cost-efficient organizational models in the future.

Besides implementing technology for ICIEC’s Business Continuity Management throughout 2020, ICIEC worked on implementing a new IT System to improve institutional performance, capacity, and responsiveness by digitizing its business processes. This new system will play a crucial role in increasing the volume of intra-OIC trade and the inflow of investment into Member Countries, in line with ICIEC’s 10-Year Strategic Plan. Additionally, the IT System will ensure that Takaful products are easier to access and easier to use. The system will improve ICIEC’s customer service experience through shorter processing times and improved information availability, making ICIEC’s products more attractive to prospective customers.

The increased digitization will bring about transformational changes to the industry by reducing operating expenses, automating internal processes, and boosting revenues. While the effects of the pandemic will be felt for years to come, and considerable uncertainty remains, including lingering obstacles to growth and profitability, there are still reasons to be cautiously optimistic for the future of the insurance market.

Early 2021

The 2021 overall outlook for the trade credit and political risk insurance market remains unclear as the effects of the pandemic still need to materialize fully. However, many of the trends witnessed in 2020 are continuing into the new year, presenting continued challenges and abundant growth opportunities. There is a lot of hopefulness worldwide as vaccines and control measures are slowly starting to have positive effects in some regions.

The uncertainty and protectionism in global trade sparked by the pandemic are poised to continue increasing the demand for trade credit products. The rise in focus toward protecting and mitigating risk from non-payment risks and expanding trade into different regions are becoming major growth factors in the market^[3].

In a survey conducted by Trade Finance Global of trade credit members of the International Credit Insurance & Surety Association (ICISA), most respondents anticipate an increase in demand for credit insurance cover in 2021, and growth is expected for political risk underwriters in OECD countries. This survey also saw the majority of underwriters expecting an increase in claims paid, as well as the expectation that payment defaults will rise sharply this year^[4]. Pricing is also likely to be affected by the COVID-19 pandemic. New types of covers will likely be developed this year in response to the pandemic, such as the launch of more parametric policies.

While the pandemic continues to dominate the policies and strategies of the insurance market in 2021, we can expect related and unrelated trends to make an impact. Environmental, social, and governance (ESG) concerns will likely take centre stage, focusing on promoting sustainability and the continuing digitization of the industry.

Looking Ahead

The long shadow cast by the pandemic will impact the assessment of future risks and opportunities when looking forward to the rest of 2021 and beyond. For the coming year, political decisions on COVID-19 and climate change will significantly impact risk. The biggest challenge is the ability to prepare for many unknowns as economies struggle to recover and the distribution of vaccines continue across the globe. Even as world economies recover their footing, it is unlikely that the market will go back to the previous ‘normal’ with the end of the global outbreak.

Due to the challenging economic conditions ahead, insurers should adopt strategies and policies to accelerate long-term recovery and growth. How insurers’ respond not just to the impacts of COVID-19 but the longer-term shifts in technology, the economy, and consumer preferences will be critical. Generating continuous innovation in insurance policies, strategies, operations, products, and customer experience could turn out to be the biggest differentiator in 2021 and beyond.

Despite all the uncertainties, the outlook for the years to come still shows growth opportunities. According to the Global Opportunity Analysis and Industry Forecast, 2020–2027, the compound annual growth rate (CAGR) of the trade credit insurance market estimated to grow at 8.6% from 2020 to 2027, and the market value of the trade credit insurance market projected to reach USD 18.14 billion by 2027^[5].

The Islamic Finance Market

The COVID-19 pandemic caused many challenges for the Islamic finance market, especially with the current volatility in oil prices and the uncertain macroeconomic environment. Islamic finance also has a much larger exposure to SMEs, microfinance, and retail lending, exposing it to a greater risk of client default or increased claims entering 2021. However, the outlook for Islamic finance remains promising in the new year, as it has proven to be resilient to previous crises due to the nature of its offerings and instruments.

Islamic banks encourage transparency between institutions and their customers, and they continue to provide interest-free services and prohibit unethical and high-risk transactions. In addition, all cash flows are tangible assets in the economy, which makes it very difficult to create unsustainable levels of debt, unlike conventional banking, where debt is created without much of a limit. These principles will likely insulate Islamic finance institutions from the risk of bankruptcy in the coming year, even in the face of so much economic uncertainty.

The impacts of COVID-19 are also creating new opportunities by forcing the Islamic finance industry to adapt to rapidly evolving market conditions and speeding up the pace of emerging trends in socially responsible investing, sustainability, and digitalization to mitigate the impact of the outbreak. There is ample room for Islamic banking solutions to become critical in aiding the recovery following the crisis, aiding in the industry’s growth. The ultimate outlook will depend on the longevity and severity of the COVID-19 pandemic and its effects – particularly in OIC countries.

ICIEC’s Focus for the Year

As a leader in multilateral Shariah-compliant insurance solutions, ICIEC has been working to mitigate the effects of COVID-19 in Member Countries. The Corporation stands ready to unite with relevant partners and continue to grow the Islamic finance industry throughout 2021.

ICIEC continues to serve its mandate of promoting cross-border trade and support foreign direct investment (FDI) by providing risk mitigation and credit enhancement solutions to Member Country exporters selling to buyers across the world, to investors from around the globe investing in Member Countries, and to international exporters selling to Member Countries in transactions for capital goods and strategic commodities.

ICIEC’s promotion of intra-OIC relationships will remain essential in the year to combat the rise of protectionism as a trend in global trade. Many nations turned inward and implemented protectionist policies throughout the pandemic, especially regarding medical supplies and essential commodities. Several ICIEC’s Member Countries, classified as Low-Income Countries (LICs), has been hit the hardest by these protectionist policies. ICIEC will continue to address the effects of protectionism throughout 2021 by facilitating trade among businesses in the OIC and beyond. One such example is ICIEC’s support of the Arab-Africa Trade Bridges (AATB) Program. AATB is a multi-donor, multi-country, and multi-organizations program designed to leverage new trade partnerships, strengthen existing ones, and increase trade and investment flow between the Arab and African regions. ICIEC supports the AATB Program with investment and export credit insurance for Islamic Countries to strengthen the economic relations between OIC member countries.

ICIEC will also continue to support its Member Countries by continuing its COVID-19 funds and initiatives, aiming to mitigate challenges while also delivering development impact. One of ICIEC’s key strategic priorities is to support Member Countries in achieving their development agendas. ICIEC continues as well to support the achievement of the UN’s Sustainable Development Goals (SDGs). ICIEC continues to act as a catalyst for private sector capital to be mobilized and directed towards the achievement of the SDGs, which will have profound positive impacts in the OIC region and the rest of the world as they recover from the fallout of the pandemic. The pandemic provides an opportunity to recover more sustainably by growing economies, job creation, combating climate change, reducing inequality, and improving public health. ICIEC remains committed to prioritizing projects in Member Countries to build a more vital, resilient and inclusive ecosystem.

^[1] https://www.oecd.org/coronavirus/policy-responses/trade-finance-in-the-covid-era-current-and-future-challenges-79daca94/

^[2] https://www.moodys.com/research/Moodys-affirms-the-ratings-of-five-trade-credit-insurers-with–PR_1000004086

^[3] https://www.alliedmarketresearch.com/trade-credit-insurance-market-A08305

^[4] https://www.tradefinanceglobal.com/posts/what-does-2021-hold-in-store-for-credit-insurance/

^[5] https://www.alliedmarketresearch.com/trade-credit-insurance-market-A08305

An interview with ICIEC’s Head of Reinsurance, Rahmatnor bin Mohamed

ICIEC was established in 1994 under the Islamic Development Bank Group to promote international trade and facilitate foreign direct investment in OIC countries through the provision of Shari’ah-compliant trade credit and investment insurance. For over 27 years, ICIEC has built its trusted reputation as a leading multilateral insurer, catalyzing trade and investments in its Member Countries. ICIEC aims to bridge market gaps and step in where the private market capacity and risk appetite has limitations. In addition to serving corporates and banks across ICIEC’s Member Countries, the Corporation also works with national, regional, and multilateral Credit and Political Risk insurers to create additional insurance capacity for mega and higher-risk projects through active use of reinsurance.

Reinsurance has become one of ICIEC’s staple products. Through its reinsurance solutions, the Corporation offers risk-sharing support to Member Country ECAs and enhances their capacity to catalyze development. To provide deeper insight into the Corporation’s reinsurance activities, ICIEC’s Head of Reinsurance, Mr Rahmatnor bin Mohamed, responded to some questions regarding the use and provision of reinsurance and the future of the reinsurance market.

Since taking on the role in 2008, Mr Rahmatnor bin Mohamad has led ICIEC’s reinsurance team and is responsible for overseeing all reinsurance activities.

What is reinsurance, and why is it used?

Rahmatnor: Essentially, reinsurance is insurance for direct insurers. It is an enabling partnership with the Reinsurers allowing Insurers to share risk and increase capacity. Reinsurance is a tool used by insurance companies providing them with financial flexibility. Reinsurance, therefore, can be seen as “shadow capital”, extending an insurer’s risk appetite and capacity.

What is the importance of reinsurance for ICIEC, and how do ICIEC’s clients and partners benefit from it?

Rahmatnor: ICIEC is in the business of providing Trade Credit and Political Risk Insurance (TC&PRI). For businesses conducting trade and making investments in an uncertain economic and political environment can be challenging. To manage these risks, companies around the world rely on TC&PRI. Credit Insurance provides coverage for a range of commercial and political risks that might lead to non-payment risk. In contrast, Political Risk Insurance covers political violence, Breach of Contract, War, expropriation, and currency inconvertibility, as well as Non-honoring of Sovereign Financial Obligation. It helps mitigate the financial blow from the loss or damage of commercial assets, income or property due to political events. While commercial and political risks are often difficult to predict, TC&PRI can provide peace of mind for policyholders.

Due to the current global political and economic environment and the higher-risk nature of some of ICIEC’s Member Countries, insurers providing cover for commercial and political risks may be hesitant to cover risks in certain instances.

Multilateral Insurance Institutions like ICIEC can be better suited than private insurers or ECAs to issue an insurance policy covering high-risk investment and trade destinations due to our mandate, political leverage, financial capacity, and ownership structure. As such, ICIEC and other multilateral insurance providers can expand the total market capacity for these destinations by seeking outward reinsurance or providing inward reinsurance to private insurers and ECAs, helping to boost investment and trade in high-risk states and regions. Inward reinsurance for ICIEC refers to when an insurance provider or national ECA seek ICIEC’s support to reinsure a risk they have covered, thus sharing the risk between the insurer and ICIEC as a Reinsurer. Usually, ICIEC shares the risk on inward reinsurance arrangements based on a predetermined agreement in these cases. Outward reinsurance is when the Corporation seeks to share risk or expand its insuring capacity for a particular project or portfolio. When ICIEC pursues outward reinsurance, it then looks for partners from the larger reinsurance market, such as the Lloyd’s of London. With outward reinsurance, we can enhance our capacity to take on additional risk and increase our capacity to insuring significant investments volumes and trade transactions.

When does ICIEC seek outward reinsurance?

Rahmatnor:  ICIEC reinsures all its transactions via a treaty program and facultative arrangement or both. ICIEC seeks outward facultative reinsurance for megaprojects and trade transactions considered too large for ICIEC to undertake alone. This determination is based on actuarial assessment and risk profiling. ICIEC seeks to support these large-scale projects expressly if they deliver significant development impact, enabling the Corporation to fulfil its mandate. ICIEC’s main partners for outward reinsurance are from the European continent and Bermuda. However, ICIEC constantly explores the availability of rated security in non-traditional markets. These non-traditional reinsurance markets provide needed capacity for specific risks that otherwise cannot be insured on the continent and UK. ICIEC enjoys strong partnerships with other multilaterals who share similar mandates with ICIEC and, as such, often share risks. Our Strategy is to pursue all avenues that may secure additional risk capacity for ICIEC and make sure we have several options.

 How is ICIEC benefiting from reinsurance treaties?

Rahmatnor: ICIEC has several treaty programmes covering all lines of business underwritten by the Corporation. Highly rated Reinsurance companies back these treaty programmes. Products included in the treaty programmes are – amongst others – STP, BMP, and FIIP. These treaty reinsurance programmes have provided ICIEC with automatic facilities and additional capacity, reducing the rising transaction costs of setting up facultative reinsurance.

In what cases does ICIEC use facultative reinsurance?

Rahmatnor: While ICIEC typically works with reinsurers on a treaty basis, we remain open to the reinsurance market on a facultative basis. The facultative market helps us stay in touch with the market to understand the current status of risk appetite and pricing. Facultative reinsurance is often used for transactions that do not meet treaty terms and conditions and typically reserved for large-scale transactions with profound development impact. Thanks to ICIEC’s outward facultative partnerships, investors, traders, and banks receive much-needed insurance cover, enabling the execution of trade transaction and inflow of investment to our member countries.

 Can you speak more on ICIEC’s role in providing inward reinsurance?

Rahmatnor: Certainly. ICIEC serves as an essential reinsurance partner for the national ECAs of Member Countries in terms of inward reinsurance. These ECAs are often relatively small and are in need not only of financial capacity but also require technical support. These ECAs reach out to ICIEC for reinsurance to support their countries’ export activities and project financing. For these ECAs, ICIEC provides inward reinsurance agreements through facultative and treaty arrangements covering development impact-oriented projects that might not materialize otherwise.

2020 has been a challenging year for everyone. Besides the widespread hardships COVID-19 created in various capacities, how did the pandemic impact the reinsurance market and ICIEC?

Rahmatnor: 2020 was a challenging year in general for the reinsurance market, with significant concerns and outcomes of non-payment. With such uncertainty in the market for political and commercial risk, underwriters mainly focused on their existing portfolios. They did not have an appetite for underwriting new business. In 2020, ICIEC insured USD 9.9 billion worth of business and secured a reinsurance capacity totalling USD 6.081 billion through our treaties, the facultative reinsurance market and other insurance partners. In terms of inward reinsurance, ICIEC participated as a reinsurer for the Inward Quota Share Treaty programs with Turk Eximbank (Turkey), CAGEX (Algeria), COTUNACE (Tunisia), NAIFE (Sudan), Indonesia Eximbank (Indonesia), EGE (Egypt), JLGC (Jordan) and ASEI (Indonesia). In December 2020, ICIEC notably renewed its outward Quota Share Treaties based on expiring terms and conditions despite the world’s challenging pandemic period. ICIEC is particularly proud of this achievement, as we believe it shows how valued ICIEC is as an insurance partner.

Putting 2020 into the rear-view mirror, what is your outlook on the market for reinsurance entering 2021?

Rahmatnor: In 2021, the political risk landscape is particularly tumultuous. The COVID-19 pandemic continues to wreak havoc across the globe, killing and infecting millions, stressing healthcare systems, straining supply chains, troubling economies, and exposing deficiencies in all levels of government worldwide. Various geopolitical conflicts are causing significant risks, while the deterioration of US-Sino relations is providing concerning risk implications for global security and trade. Meanwhile, domestic forms of political strife are exceptionally high, with large protests and unrest occurring in various states worldwide. Despite the conditions in 2021 being somewhat unpredictable, we expect more reinsurance capacity to be released as vaccines reach those in need and governments slowly open their countries from extended lockdowns. These actions will help boost business going forward and encourage investment and trade in the post-COVID-19 world.

Lastly, what should ICIEC’s stakeholders expect from the Corporation’s reinsurance team in the future?

Rahmatnor:  As we continue to deal with the ramifications of the pandemic, the reinsurance team at ICIEC is working diligently to strengthen our existing reinsurance partnerships and seek new opportunities to enhance ICIEC’s capacity in support of our Member Countries achieving their development vision and programmes. Despite the current difficulties, we are excited and prepared to help enable an insurance market that can assume more risk, further enhance trade and investment, and support life-altering projects for those most in need. We will continue strengthening ICIEC’s reinsurance capacity as we come out of this challenging period, and I am excited for the potential I see in the world post-COVID. Thank you.

Introduction

Collaboration and partnerships are potent enablers of economic development. One inherent and highly influential collaboration for ICIEC stems from being a member of the Islamic Development Bank Group (IsDB Group).  All the 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. Enhancing synergies between ICIEC and the IsDB Group is a strategic priority for the Corporation. It allows ICIEC and its group entities to deliver on both their shared and individual goals more effectively. Partners in the IsDB Group are integral to ensuring ICIEC’s success as the Corporation works to deliver on its mandate to support trade and development throughout the OIC.

The Islamic Development Bank (IsDB) and the IsDB Group:

The Islamic Development Bank (IsDB) established in December 1973 as a Multilateral Development Bank (MDB) under the auspices of the Organisation of Islamic Cooperation (OIC). The Bank commenced business activities in October 1975 with the key objective of facilitating the economic development and social progress of its Member Countries and Muslim communities across the world more broadly. The Bank currently serves 56 Member Countries and is continuously looking to grow its membership.

Since IsDB’s inception, several entities have been launched by the Bank, including ICIEC, the International Islamic Trade Finance Corporation (ITFC), the Islamic Research and Training Institute (IRTI), the Islamic Corporation for the Development of the Private Sector (ICD) and the World WAQF Foundation (WWF). Together with the Bank, these sister institutions make up the IsDB Group and work together to serve OIC member states.

The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC):

The Islamic Development Bank Group established ICIEC in 1994 as the trade credit and investment insurance arm of the IsDB Group. ICIEC is mandated to expand the scope of trade transactions and increase investment flows among OIC Member Countries by providing takaful solutions for cross-border transactions. Specifically, ICIEC provide exporters, investors, and financial institutions with the following services: i) export credit insurance to cover the risk of non-payment in relation to cross border trade and trade finance transactions, ii) investment insurance to cover country risk in relation to foreign investments among Member Countries,        iii) reinsurance of operations covered by export credit agencies (ECAs) in Member Countries, and iv) promotion of Islamic Finance and Takaful.

These services enable exporters, importers, investors, financial institutions and ECAs to transact and conduct business with ICIEC Member Countries by limiting their potential loss.  ICIEC’s takaful solutions limit the potential losses that policyholders can incur by mitigating against certain risks, including the risk of expropriation, non-payment, and many others.

The Islamic Research and Training Institute (IRTI):

IRTI was established in 1981 to ensure that the IsDB could perform its intended functions in conducting research and providing training. IRTI’s core objective is to undertake research and provide training and information services in Member Countries and Muslim communities in non-Member Countries around the topic of Shari’ah-compliant finance. The intention behind this research and the training is to help bring these target communities’ economic, financial and banking activities into conformity with Shari’ah and further accelerate economic development and enhance cooperation amongst them. IRTI’s current activities include producing publications, conducting research projects relevant to Islamic Finance, providing capacity development services, and online training courses.

The Islamic Corporation for the Development of the Private Sector (ICD):

ICD established in 1999 to complement the IsDB through the development and promotion of the private sector as a vehicle for economic growth and development in Member Countries.  The ICD delivers on this mission by providing finance for private sector projects, promoting competition and entrepreneurship, providing advisory services to governments and private companies and encouraging cross border investments.

The ICD’s primary aims are: i) to identify and support investment opportunities in the private sector in Member Countries, ii) to provide a broad range of Shari’ah-compliant financial products and services and iii) to improve the access that private companies have to Islamic capital markets.

The ICD’s activities are wide-ranging, including the provision of lines of finance to financial institutions in member states to promote the provision of Shari’ah-compliant finance, investment into the equity of Islamic Banks, advisory services to financial institutions, asset management services and investing in projects and corporates.

The Islamic Trade Finance Corporation (ITFC):

The International Islamic Trade Finance Corporation (ITFC) established in 2005 with the mandate to promote trade of the Member Countries of the Islamic Development Bank through providing trade finance and engaging in activities that facilitate intra-trade and international trade. ITFC’s trade finance division provides Shari’ah-compliant trade financing for OIC Member Countries, emphasizing financing intra-OIC trade. ITFC considers providing all Shari’ah-compliant modes of trade financing. The three main financing methods under which it currently provides trade financing include: i) Murabaha, ii) Installment Sale, and iii) Istisna’a. In addition to providing trade financing, the ITFC also provides trade promotion and trade facilitation services. Its trade promotion activities include enabling businesses to attend trade fairs, identifying new markets and business opportunities, and establishing trade partnerships with new contacts and financial institutions. Its trade facilitation services include working with international partners to eliminate regulatory and procedural barriers to trade and facilitate knowledge sharing between Member Countries in trade and transport facilitation. Overall, apart from its trade financing activities, the ITFC aims to provide capacity-building tools to Member Countries and their corporates so that they can effectively trade beyond their domestic borders.

World Waqf Fund (WWF):

Considering the need for a global Waqf entity that can collaborate with and connect governments, organizations, NGOs, philanthropists and corporates alike, the WWF was established by IsDB 2001. The WWF has a host of objectives, including i) the promotion of Awqaf for sustainable development, ii) supporting organizations, programs and projects in the areas of education, health, culture and social life, iii) providing support for research conducted in the area of Waqf, and iv) assisting countries and organizations in drafting legislation regarding Waqf.

ICIEC and the IsDB Group

ICIEC’s relationship with the IsDB Group is vital, as ICIEC and the various members of the Group work together to achieve more significant trade and investment volumes into and between OIC countries. As part of the IsDB Group, ICIEC’s mission, vision, and core values were all created to align amongst members.  Enhancing synergies between ICIEC and its partners in the IsDB Group is a crucial priority for the Corporation. Synergies cut across the three strategic objectives of ICIEC’s 10-Year Strategy – enhancing impact, efficiency, and resilience.

ICIEC is working with its sister institutions to support initiatives they are pursuing and is exploring cross-marketing, staff rotation, and undertaking upstream and downstream programs.

Collaboration between ICIEC and IsDB

ICIEC works in the closest collaboration with the IsDB. The Bank and ICIEC have a long history of working together to support strategic transactions and undertake joint initiatives that support Member Countries both in good times and in times of crisis.

An example of this partnership in times of crisis includes the response to the adverse effects of the COVID-19 pandemic. ICIEC is collaborating with the IsDB in several ways. First, ICIEC  provided USD 450 million as part of IsDB’s ‘Strategic Preparedness and Response Facility’ 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). ICIEC serves as the administrator of this facility by deploying its standard credit and political risk insurance solutions through the fund to sustain the import of strategic commodities and protect investments in its Member Countries.

ICIEC has 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, build productive capacities of Member Countries, reduce illiteracy, and eradicate diseases and epidemics. ICIEC has formed a bespoke partnership with ISFD known as the ICIEC-ISFD COVID-19 Emergency Response Initiative (ICERI) throughout the pandemic. ISFD has allocated a funding grant of USD 400 million to ICIEC, used to subsidize the premium charged on the insurance cover ICIEC provides to facilitate the procurement of medicine, medical equipment and other essential commodities to eligible countries. In addition to its collaboration through ICERI, ICIEC is exploring the option of using its insurance/guarantee mechanisms as a tool to mobilize resources for financing ISFD’s One Wash Program to address cholera and sanitation issues in OIC MCs.

Building on the success of the ICERI, further collaborations between ICIEC and ISFD are underway. Through such partnerships, the institutions can catalyze support to LDMCs in strategic sectors, including education, health systems, youth empowerment, and economic recovery initiatives of fragile and conflict-affected. This approach is aligned with ISFD’s mission and will enable ICIEC to boost trade and investment flow in LDMCs of OIC Member States.

During the COVID-19 crisis, ICIEC also hosted and participated in knowledge-sharing events with the IsDB and sister entities. As an example of this, ICIEC participated in the “IsDB Group Private Sector Action Response to COVID-19 Webinar, Launching New Online Initiatives”. The webinar hosted many participants from various industries and discussed challenges facing both the private sector and the global economy more broadly during the COVID-19 outbreak. All IsDB Group members participated and used the platform to discuss investment and trade opportunities in IsDB member countries and outlined various pursued initiatives to withstand the economic effects of the pandemic better.

Beyond the crisis, the ICIEC and IsDB entities have collaborated for the mobilize-to-channel line of financing designed to mobilize private capital and deliver much-needed funding to SMEs in ICIEC’s Low Income Member Countries (LIC). The mobilization of this funding is to be done with minimal utilization of ordinary capital resources through partnerships with regional DFIs.

ICIEC and the IsDB are also exploring further partnership in several vital areas, including increased access to finance for women-owned enterprises and infrastructure project risk mitigation. IsDB and ICIEC are currently considering a partnership on Affirmative Finance Action for Women in Africa (AFAWA), a women enterprises and women-friendly SMEs support program designed by AfDB and funded partly by the G-7 States. Additionally, there is a proposal by ICIEC to launch the Infrastructure Investment Fund Pool (IIFP) alongside the IsDB. This proposal by ICIEC aims to increase non-funded project support mechanisms such as credit and political risk insurance instruments.

ICIEC is also working towards integrating the IsDB’s policy framework into its mainstream activities. The integrated policies include the IsDB’s sector policies and other policies related to compliance, anti-corruption, integrity and ethics. By doing so, ICIEC will foster greater alignment with the IsDB.

Collaboration between ICIEC and IRTI

ICIEC regularly works with – and benefits from the services of – IRTI. ICIEC has taken part in seminars and events organized by IRTI to improve the understanding of its personnel related to various topics within the sphere of Islamic Finance. ICIEC also uses IRTI’s courses to build the capacity of its people, as ICIEC offers staff the option to participate in the many Islamic Finance courses offered by IRTI. Additionally, ICIEC personnel often uses IRTI’s research and publications to inform its decision-making related to its products, transactions and other components of its operations.

ICIEC has also contributed to IRTI as well. Specifically, senior personnel from ICIEC have acted as trainers for courses offered by IRTI in the past. As such, the relationship between ICIEC and IRTI is one characterized by knowledge-sharing and collaboration.

There is room to expand the relationship, primarily in jointly producing learning material on investment and trade credit takaful, often not well understood across the OIC.

Collaboration between ICIEC and ICD

ICIEC’s relationship with ICD is robust as the institutions share the objective of supporting the private sector in Member Countries by strengthening companies and facilitating infrastructure projects across the OIC through Islamic financing. ICIEC has participated in multiple Sukuk deals led by ICD.

Additionally, ICIEC has participated with ICD in the financing of various projects. For example, ICD and ICIEC supported a power plant project in Mali called the “Albatros Energy Mali (AEM)”. ICD financed part of the project, while ICIEC issued a Foreign Investment Insurance Policy (FIIP) to one of the equity participants in the transaction. With their participation and other DFIs, the project was made financially viable and was able to attract the capital needed for construction.

Increasing collaboration with the ICD is an ICIEC aim. Working more closely concerning ICD’s syndication mandates, its Line of Financing business, and enhancing ICD’s guarantee program for SMEs would prove beneficial for both entities.

Collaboration between ICIEC and ITFC

The visions and missions of ICIEC and ITFC both aim to boost intra-OIC trade through Shari’ah-compliant financial instruments. The institutions have worked together on many initiatives and transactions in the past. Currently, ICIEC is supporting over USD 484 million of ITFC’s finance operations for Member Countries.

The most salient recent initiative that the institutions have worked on is the Arab-Africa Foreign Trade Bridge (AATB) program. The AATB is a regional trade promotion program aimed at addressing some of the challenges of promoting trade between the two regions. The AATB program is essential for ICIEC’s mission and values. It allows the Corporation to more effectively encourage intra-OIC trade and Arab and African inter-regional collaboration more specifically. Thus far, the program has seen a high degree of participation by governmental bodies, trade support organizations and private sector organizations alike. ICIEC has seen the significant potential of the AATB program, as the Corporation has closed upwards of USD 5.6 billion worth of transactions through the program over the last ten years. ICIEC aims to work closely with its partner ITFC to contribute to and consistently grow the program.

ICIEC aims to improve synergies with ITFC by collaborating more closely on the AATB Program, LC Products, syndication enhancements, cross-selling, and incentivized business-level agreements for project referrals. With enhanced collaboration across these elements, the business volumes for both entities would expand.

Collaboration between ICIEC and WWF

ICIEC’s relationship with the fund remains limited. However, the Corporation foresees potential opportunities to explore in the future where the WWF may be able to utilize ICIEC services to support development in strategic sectors.

Conclusion: Coming Together for Growth and Resilience

ICIEC’s partners are critical to the Corporation’s ability to facilitate sustainable economic growth for Member Countries. With this in mind, ICIEC has worked hard to foster strong relationships with its IsDB partners and will continue to strengthen IsDB Group synergy going forward. While ICIEC has a longstanding history with most of its IsDB Group peers, the Corporation is still in the process of exploring deeper collaborative options with others. ICIEC acknowledges the importance of all of its partners in the IsDB Group. The difficulties that have come with the COVID-19 pandemic have shown the Corporation that the Group can only withstand and recover from crises if the members join forces and leverage each other’s strengths. Enhancing the partnership amongst the IsDB Group is a goal that ICIEC remains committed to ensuring that all members of the IsDB Group and our shareholders can achieve their development goals.

The interest rate benchmark LIBOR is being wound down at the end of 2021. End dates have been announced for all LIBOR term lengths and new alterative reference benchmarks have been developed. Firms, financial organizations, insurers and governments should be taking appropriate action to review their operations and transition contracts to the alternative rates to ensure the end of LIBOR does not lead to market disruptions, business challenges, or harm to consumers. ICIEC will be prepared for the transition, will you?

What is LIBOR?

LIBOR is the London Interbank Offered Rate. It was intended to provide the interest rate at which banks could borrow funds from other banks in the wholesale market and since became an important interest rate reference point for contracts and business transactions around the world. LIBOR has been produced in 7 tenors or term lengths (overnight/spot next, one week, one month, two months, three months, six months and 12 months) across 5 currencies – the US dollar, euro, UK pound, Japanese yen, and Swiss franc. LIBOR is managed through regular submissions provided by a panel of 20 banks to a U.S.-based regulatory authority, the ICE Benchmark Administration Limited. These submissions were intended to reflect the interest rate by term and currency at which banks could borrow money on unsecured terms in wholesale markets.

Why move away from LIBOR?

There are a number of reasons why LIBOR has become a problem. First, financial markets have changed, and LIBOR has not been able to keep up. After the 2008-09 financial crisis, banks turned away from accessing funds by using the interbank market, where LIBOR set the interest rate for transactions. Therefore, the international interbank market which underpins LIBOR has since dwindled substantially.

Second, the eurocurrency markets that helped to drive LIBOR no longer exist as a distinct entity. Over time, LIBOR instead has been used to price much of the interest rate derivatives market, even as that derivatives market expanded far beyond the euromarkets. Logically, a risk-free benchmark rate should have been used rather than LIBOR, but that evolution never took place.

Third, banks do not often lend to each other at present on an unsecured basis, and that market is not returning. As a result, LIBOR is no longer measuring anything that resembles real transactions; it has become the rate at which banks are not actually borrowing from one another. This reality raised serious questions about the future sustainability of the LIBOR benchmarks. Both the Bank of England and UK financial regulator (the FCA) noted in 2017 that it was increasingly apparent there was an absence of active underlying markets for actual LIBOR transactions, which undermined the use of LIBOR as a market-based metric.

And fourth, the system for quoting rates, and thus constructing LIBOR, was contained and even fragile, making it more vulnerable to misconduct and illegal activity — as has unfortunately occurred on occasion.

The coming transition

After much discussion among various global banks and national financial regulators, in March 2021 the ICE Benchmark Administration Limited (IBA), the administrator of LIBOR, confirmed that the panels for sterling, euro, Swiss franc and Japanese yen LIBOR will cease operating at end-2021, as well as the panels for 1-week and 2-month US dollar LIBOR. The remaining US dollar LIBOR panels will cease to operate at end-June 2023. The LIBOR panel banks will continue to submit to LIBOR until end-2021, and to end-June 2023 for US dollar LIBOR, to enable time for the market to transition away from LIBOR.

A new representative rate for each LIBOR currency

Working groups in the United States, the EU, United Kingdom, Japan, and Switzerland have been discussing the development of alternatives to LIBOR over a number of years. These alternatives have now been established and, while generally similar, they will have subtle differences among them. The key difference compared to LIBOR is that the new reference interest rates reflect actual transactions in repos, wholesale deposits and overnight call markets in the five currencies being used.

The new reference rates are:

U.S. dollar: Secured Overnight Financing Rate (SOFR): Secured rate that covers multiple overnight repo market segments.

Euro: Euro short-term rate (ESTR): Unsecured rate that captures overnight wholesale deposit transactions.

UK pound: Sterling Overnight Index Average (SONIA): Unsecured rate that covers overnight wholesale deposit transactions.

Swiss franc: Swiss Average Rate Overnight (SARON): Secured rate that reflects interest paid on interbank overnight repo rate.

Japanese yen: Tokyo Overnight Average Rate (TONAR): Unsecured rate that captures overnight call rate market.

Each reference rate will be administered by a national authority for their respective currency –the Federal Reserve Bank of New York, European Central Bank, Bank of England, SIX Exchange for the Swiss franc, and Bank of Japan.

The Federal Reserve Bank of New York was the first institution to begin publishing SOFR data, and SOFR futures made a fast start with about US$5 billion in daily volume of trading in the first year (2017). Interest in the SOFR futures market grew and quickly reached over 12 thousand contracts in the first year.

The first SARON transactions took place on a bilateral basis in April 2017, with clearing of SARON-referencing swaps being established in autumn 2017. While notional volumes were initially small, growth in transaction numbers has been encouraging and is a valuable pre-requisite for transition.

Foundational European financial institutions have taken steps to build the new market segments. The European Investment Bank (EIB) issued an initial £1 billion SONIA-linked bond, the first SONIA floating rate note issued. It was significantly oversubscribed. The European Central Bank’s Governing Council then began publication in 2019 of an overnight euro rate, called ESTR, based on wholesale unsecured overnight borrowing transaction data collected by the euro system.

Overall, significant progress has been made across all five currencies toward implementing the new reference interest rate system administered by a national authority for each currency. The transition away from LIBOR is well under way, and there will be no turning back.

Implications of the transition

At the end of 2021 (and June 2023 for most USD LIBOR tenors), the LIBOR benchmark will no longer be sustained through the current mechanism used by its regulators, and banks on the panels will not be obliged to stay part of the system. Ensuring an orderly transition by businesses, financial institutions and governments from LIBOR to the alternative interest rate benchmarks would minimize disruption and help contribute to financial stability.

At this stage, all market participants will need to take appropriate action to remove dependencies on LIBOR. This means taking reasonable steps to ensure the end of LIBOR does not lead to markets being disrupted, business affected or diminished, or harm to consumers. The smoothest and best pathway for this transition is to move away from LIBOR in all new contracts, instead selecting one or more of the five alternative reference rates.

In terms of legacy contracts (i.e. those still in force at end-2021 and referencing LIBOR), users of LIBOR should be making plans to either switch contracts from the current basis for LIBOR to the new benchmarks, or by ensuring that contracts have robust fallbacks in place that allow for a smooth transition when current LIBOR data points cease to be published. The most desirable approach to transition for legacy contracts would be to amend contracts to reference one or more alternative rates. All firms (even those that are not banks, insurers or asset managers) that currently make use of LIBOR in some manner should be taking action on these fronts.

Ideally, firms, financial institutions, and governments should conduct an end-to-end inventory of their LIBOR exposure. This inventory should cover the full range of processes and systems, including pricing, valuation, risk management and financial accounting. It should cover contracts with clients, counterparties, creditors, employees, suppliers and others. For critical inhouse and contracted financial systems, firms should seek confirmation from their service providers of timely software upgrades in order to be able to use alternative rates.

Where LIBOR transition issues are identified that require amendment or renegotiation, firms should communicate with affected clients or service providers in a timely manner. This communication should describe to the customer or service provider the risks associated with LIBOR ending, recognizing the risk that some customers may not fully appreciate the implications.

Implications for Islamic Finance

With the upcoming transition, there are a number of implications for Islamic banking facilities. First, they will need to consider if any fallback provisions that apply after the transition away from LIBOR are appropriate and satisfactory. Second, LIBOR is a forward-looking term rate, whereas the proposed replacement rates are backward-looking. Banks’ operational systems are generally set-up on the basis of forward-looking term rates and may therefore need to be adapted to function effectively. The timing and basis of calculating profit rates will also need to be amended where new rates are implemented. New forward-looking term rates may be developed for some currencies, but it is still uncertain if these will be available prior to the cessation of LIBOR and their use is likely to be restricted to specific markets and circumstances.

A third concern is in relation to value transfer and spread adjustment. The new rates will be based on the overnight deposit rate of the relevant central bank and do not include the term liquidity premium and bank credit risk that are inherent in LIBOR. Simply replacing the LIBOR with the new rate without any spread adjustment would reduce the overall financing cost and reduce the economic value of the financing arrangement to the bank. Where an existing facility will transition from LIBOR to the new rates, it will need to be determined how to build in term liquidity premium and bank credit risk to avoid value transfer as much as possible. This will generally mean that a spread adjustment will need to be added to the existing margin or profit rate to compensate the bank or financier for what is otherwise likely to be a lower overall rate.

A fourth area of concern is the implication of structural issues for Islamic banking facilities. Islamic banks will face specific challenges in adapting to the use of backward-looking rates due to the fact that they typically use cash flows to generate a mark-up, that must, under Shari’ah principles, be determined at the time the provision of services is agreed. One possible solution to this is to calculate the return on a backward-looking basis and add it to the following profit period. However, the general preferred solution is to agree on a fixed rate of return payable in advance for a set contract or calculation period. At the end of each period, the bank would then calculate the actual profit return using the new rates and grant the obligor a rebate of any difference between the fixed profit mark-up that was previously charged and the actual profit determined by the backward-looking rates.

Overall, Islamic banking facilities will need to consider what changes need to be made for their existing or legacy transactions which will continue after December 2021 and on what basis to facilitate new transactions going forward. There is opportunity for the transition away from LIBOR to result in the development of alternative standard benchmarks designed specifically for the Islamic finance market, but development in this regard remains to be seen. Flexibility to accommodate future market consensus will be key for Islamic banks.

Implications for the Insurance Industry

The transition away from LIBOR can have a significant impact on numerous aspects of an insurer’s business if not managed intentionally. As with Islamic banking facilities, insurers should consider if any fallback provisions that apply after the transition away from LIBOR are appropriate and satisfactory. In terms of balance sheet valuation being impacted by the transition, a small change in the discount rate could have impact on long-dated liabilities with a floating interest rate. Insurers should measure and analyze the impact of these changes on their overall capital position. If potential impact on cash flow and liquidity is determined, insurers should revisit their asset and liability matching. LIBOR is also the most used rate for interest rate swap transactions. The decommissioning of LIBOR could present issues for insurers hedging against risk. Additionally, the transition may affect insurers pricing for some of their long-duration products, such as any legacy contracts that are tied to LIBOR.

Regulators and rating agencies may examine insurers’ operational readiness for the transition process and their ability to adjust their products, provisions and contracts accordingly. To mitigate the possibility of negative implications for their ratings, insurers need to plan ahead. They can begin by identifying areas within their products, models, and systems that are affected by the transition and consider the impact. Insurers need to understand the approach needed to address the transition so that clear plan and governance framework for operational readiness can be developed. A plan will help prevent bottlenecks and avoidable delays during the implementation process. Insurers should also keep open communication with their board of directors and senior management throughout the transition. Additionally, speaking with clients and agents early will limit surprises and disruptions in the future.

ICIEC is currently in the process of preparing for the transition, keeping in close touch with clients and the board of directors along the way. An internal study is being conducted to determine the effect of the transition on ICIEC’s products, operations, and existing contracts. Once completed, ICIEC will prepare an action plan to manage and transition operations as necessary.

2020 has been defined by the COVID-19 pandemic, which created life-altering circumstances and presented great challenges for people around the world. However, 2020 was also a year defined by hope and promise, as people, companies, institutions, and governments worked together to tackle these challenges using innovative solutions and strong partnerships. ICIEC has worked to be at the forefront of these innovations and partnerships and is delighted to show the developments of the Corporation in 2020: ICIEC’s Year in Review.

2020 Press Highlights

2020 was a significant year for ICIEC in terms of the events the Corporation both hosted and attended, and awards received. Majority of the events in 2020 were held virtually in response to the COVID-19 pandemic, offering an opportunity for ICEIC to provide leadership, support, and solutions to mitigate the challenges posed by the crisis. Event attendance helped ICIEC to keep stakeholders up to date on its activities and raise awareness of the benefits of Islamic finance. 

On July 6^th, ICIEC participated in the “IsDB Group Private Sector Action Response to COVID-19 Webinar, Launching New Online Initiatives”. Hosting over 700 participants from various industries, the webinar discussed challenges facing both the private sector and the global economy during the COVID-19 outbreak and provided a platform to discuss investment and trade opportunities in IsDB member countries. Learn more here.

On July 13^th, ICIEC and the Islamic Centre for Development of Trade (ICDT) jointly organized a Webinar on the “Impact of COVID-19 on the Insurance of Investment and Export Credit for Strengthening Intra-OIC Trade and Investment”. During this virtual forum, participants discussed the role and experiences of insurance and export credit agencies in OIC countries along with the insurance sector’s response to the pandemic. The webinar highlighted the importance of the investment and export credit insurance sector in covering risks for countries, local companies, and international trade partnerships, both during the pandemic and in the post-pandemic future. Read more about the event here.

On September 14^th, ICIEC was awarded “The Global Islamic Export Credit and Political Risk Insurance Award for 2020” at the 10th annual Global Islamic Finance Awards (GIFA). This marks the fourth time ICIEC has received this accolade since its introduction in 2016 – previous awards occurring in 2016, 2017, and 2018, respectively. Learn more about the award here.

On October 19^th, Moody’s Investor Services (Moody’s) affirmed ICIEC’s Aa3 Insurance Financial Strength Rating (IFSR) for the 13th consecutive year with stable outlook. The report highlighted the significant growth in business during H1-2020 with gross premiums increasing by 21% over H1-2019. Moody’s’ acknowledged ICIEC’s low accumulation of claims, despite negative impacts from the pandemic, as a strength when compared with other global credit insurers that experienced notable weakening in claims performance. Read about why ICIEC received this rating here.

To close out the year, ICIEC was awarded two major awards from the Islamic Finance News (IFN) 2020 Awards. For ICIEC’s EUR20 million cover for the enhancement of a scientific high school in Yamoussourkro, Cote D’Ivoire, the Corporation was awarded the IFN Africa Deal of the Year, showcasing the innovation and importance of development to Ivorian growth. Meanwhile, ICIEC’s EUR142 million cover for the construction and development of hospitals and related health facilities in Cote d’Ivoire was awarded the IFN Sovereign and Multilateral Deal of the Year, as the Corporation worked to support Cote d’Ivoire in its pandemic response efforts. Read more about these awards here.

Publications

2020 was a significant year for ICIEC in disseminating information about the Corporation’s activities. Frequent and informative publications are organizational goals for the Corporation, ensuring transparency for our valued partners and clients. Furthermore, as the only multilateral provider of shariah compliant export credit and political risk insurance, ICIEC believes the Corporation’s publications can help guide other organizations towards industry best practices and innovations.

On May 31^st, ICIEC released its Annual Report and financial statements for 2019. Despite 2019 being marked by the intensification of trade tensions, political instability, and weak global growth, the Corporation raised its business insured by 20% to reach USD 10.86 billion – the highest in the past decade. The Corporation saw an increase of more than 28% over the previous year in total intra-OIC business, insuring a total of USD 5.4 billion, involving 36 member countries. Read more on ICIEC’s impressive 2019 results here.

In July, ICIEC launched the first edition of its revamped quarterly newsletter. The newsletters have been designed to feature updates and announcements, industry insights and success stories from ICIEC and our partners. Re-introducing newsletters reflects the Corporation’s genuine desire for greater engagement with its valued partners, clients, and stakeholders.

On August 19^th, ICIEC released its Annual Development Effectiveness Report (ADER) for 2019. The ADER highlights the impact of ICIEC’s work on furthering human development within OIC member countries, including the Corporation’s impact on facilitating lasting development by providing insurance solutions for imports and exports of essential commodities, and the construction of critical infrastructure. Read more about the report here.

On September 14^th, ICIEC released information regarding its performance over the first half of the fiscal year. The update highlighted that, while the pandemic has provided challenges for a positive financial performance, the Corporation was able to raise its total businesses insured by over 9%. Read more about these positive developments here.

On December 14^th, ICIEC published a stock-take study for the G20 Saudi Presidency on “Best Practices of MDBs and Specialized Multilateral Insurers (SMIs) in Political Risk Insurance for Equity Investments, Medium and Long-Term (MLT) Debt Investments and other Insurance Solutions.” The study analyzes the current state of the political risk and credit insurance market for equity investments and MLT debt investments. It also identifies best practices and potential gaps in the market and provides recommendations on how identified gaps could be filled, particularly for low-income countries and fragile states. Learn more about our work on the G20 study here.

Partnerships

ICIEC understands the value of collaboration in expanding trade, strengthening coverage, and growing economies. This is why the Corporation has made efforts throughout 2020 to forge new relationships and strengthen existing partnerships throughout the pandemic. To do so, ICIEC has signed several new Memorandums of Understanding (MoU), cooperating with national Export Credit Agencies (ECA) to help stabilize OIC states and grow their economic prospects.

On June 30th, a MoU was signed between ICIEC and the Uzbekistan National Export-Import Insurance Company (Uzbekinvest). The partnership advances both parties’ respective operational mandates of providing insurance support for trade and investments. The new MoU will create opportunities for joint strategic projects between the two insurance entities in addition to other forms of cooperation such as technical assistance, training, and capacity building. Read about the ICIEC-Uzbekinvest partnership here.

On July 22nd, a MoU was signed between ICIEC and the Austrian ECA Oesterreichische Kontrollbank Aktiengesellschaft (OeKB). The MoU is an agreement for OeKB and ICIEC to work jointly at increasing projects and investments from Austrian businesses and investors into ICIEC member countries while providing other forms of cooperation such as technical assistance, training, and capacity building. The agreement allows for quick and flexible agreements for risk sharing in the form of reinsurance or co-insurance, encouraging higher risk appetite for trade transactions and investments. Read about the ICIEC-OeKB partnership here.

On August 17^th, ICIEC signed a MoU with the United Kingdom’s ECA, which operates under the name UK Export Finance (UKEF). The MoU allows for both entities to enter co-insurance, reinsurance, or cooperation agreements to engage in strategic joint projects that support exports and investments from the United Kingdom into ICIEC’s member countries. The deal provides potential for UKEF to risk-share with ICIEC and leverage the Corporation’s preferred creditor status across key international markets such as UAE, Oman, and Bahrain – all ICIEC member countries. Read about the ICIEC-UKEF partnership here.

On September 7^th, ICIEC signed a MoU with Compañía Española de Seguros de Crédito a la Exportación, S.A., Compañía de Seguros y Reaseguros, SME (CESCE). The partnership encourages cooperation in supporting trade and investment between Spain and ICIEC member countries through joint export credit insurance provisions, risk sharing, and co-insurance, in addition to promoting other forms of cooperation such as technical assistance and capacity building. Read about the ICIEC-CESCE partnership here.

On December 10^th, ICIEC signed a MoU with the ECA Eximgarant of Belarus (Eximgarant). The signed MoU promotes collaborative efforts to support trade and investment between the Republic of Belarus and ICIEC member countries, encouraging joint export credit insurance provisions and other forms of cooperation such as technical assistance and capacity building. Read about the ICIEC-Eximgarant partnership here.

COVID-19 Response

ICIEC has been working since the beginning of the pandemic to forge partnerships and find solutions that help mitigate the challenge of COVID-19 in our member countries. ICIEC’s crisis response has brought close collaboration with IsDB and other members of the IsDB Group, ensuring the provided aid met the unique needs of our varying member countries and their citizens. The Corporation is continuing many of these support efforts into 2021.

On July 6^th, ICIEC played a key role in launching IsDB’s Strategic Preparedness and Response Programme (SPRP), a COVID-19 focused innovation allocating USD 2.3 billion of aid to member countries and Muslim communities in non-member countries. This aid package has been crucial to helping member countries respond to the virus, restore normalcy, and restart their economies. The Programme is working to fulfill the IsDB COVID-19 Response “3 R’s”: Respond, Restore, Restart. Of the allocated aid, USD 150 million has been provided by ICIEC for extended insurance cover, facilitating continued trade and investment in member countries. Read about the launch of the SPRP here.

As of October 23^rd, ICIEC continued in its partnership with IsDB by jointly launching the COVID-19 Guarantee Facility, an innovative program providing USD 2 billion to support the private sector. The facility will be implemented by the two entities to support COVID-19 hit industries in the OIC member countries and to attract cross-border investments. Learn more about the partnership here.

ICIEC continued its efforts to support those affected by the COVID-19 pandemic by partnering with the Islamic Solidarity Fund for Development (ISFD), the poverty alleviation arm of the IsDB Group. Together, ICIEC and ISFD launched ICERI, or the ICIEC-ISFD COVID-19 Emergency Response Initiative. The Initiative was created to help IsDB member countries meet their import needs of medicine, medical equipment, food supplies and other essential commodities.

Several strategic projects have already been supported through the ICERI, including ICIEC’s USD 9 million in LC confirmation insurance to BMCE Bank of Africa Morocco to secure urgent imports of strategic commodities to Senegal. The Initiative has also helped ICIEC extend USD 5.5 million in coverage to the State Bank of India’s Singapore branch for the critical importation of wheat to address food security for the citizens of Bangladesh. Read more about ICERI here

Seminal Projects

Throughout 2020, ICIEC provided insurance support for numerous important development projects across its member countries, enabling the development of infrastructure in a wide variety of fields. These ongoing projects are helping to address the unique needs of our member countries, furthering ICIEC’s mission to facilitate long-term and impactful investment. The Corporation made significant contributions to healthcare and medical infrastructure throughout the pandemic, improving the ability for healthcare workers to provide quality care and support to underserved communities.

ICIEC provided a cover of EUR142 million for a project in Cote d’Ivoire, which was financed by Deutsche Bank, helping to build two new hospitals in the south-eastern towns of Adzope and Aboisso. The two hospitals will employ around 600 local people and foster the development of a micro-economy in the areas surrounding them. Additionally, the project will finance five new medical units in existing hospitals across the country. Greatly improving citizens access to essential healthcare infrastructure.

ICIEC has extended more than EUR 143 million in cover toward infrastructure developments in Diamniadio, Senegal. ICIEC’s cover contributes to the construction of a 50,000-seat capacity Olympic football stadium, two training grounds and a system to produce and store the solar energy that will power the stadium, in addition to creating nearly 400 jobs.

ICIEC has issued EUR 50 million in guarantee coverage for a transformational telecommunications project in Indonesia conducted between China’s largest telecommunications equipment manufacturer and Indonesia’s second largest telco operator. By investing approximately USD 2 billion to expand and strengthen its 4G network, the telco operator will ensure 90% of Indonesia’s 267 million people, particularly in rural areas, will have access to reliable voice and data coverage.

ICIEC has provided EUR20 million in Non-Honoring of Sovereign Financial Obligation cover against the non-payment of a loan facility provided to the Government of Côte d’Ivoire. ICIEC’s cover enables the government to move forward with the renovation of the Scientific High School of Yamoussoukro in addition to advancing the construction of 22 new classrooms.

ICIEC covered approximately USD 9.6 million to Boskalis, a leading Netherlands-based maritime infrastructure company, to develop a new contract for the expansion of the Alexandria Port in Egypt. The capacity of the container terminal is on-track to accommodate approximately 1,250 million containers – double the Port’s existing capacity. The project will contribute to the creation of 3000 temporary construction jobs, in addition to the almost 3000 direct and 2000 indirect jobs created for the long-term.

Market Gaps and Risks in Developing Countries

The United Nations Conference on Trade and Development (UNCTAD) estimates that it will take between USD 5 to 7 trillion to achieve the Sustainable Development Goals (SDGs), with an investment gap of about USD 2.5 trillion in developing countries[1], leaving millions of people vulnerable.  This makes increasing financial flows to developing countries essential for building resilience and addressing the underlying causes of instability and underdevelopment.

Developing countries are often characterized by limited financial resources and political instability, leaving citizens vulnerable and investors facing heightened exposure to a variety of risks, including conflict and political crises. With the low capacity of governments in these countries to mitigate, manage, or absorb these risks, the challenge to attract the much-needed private sector investment to overcome chronic underdevelopment can be significant, as these high levels of political risk deter foreign investors from investing in these environments.

Private sector investments are critical for developing countries. They help strengthen an economy’s resilience to shocks, drive structural transformation, support the development of SMEs, and build the necessary infrastructure to deliver crucial services such as water, electricity, and telecommunications. However, the less developed a nation is, the more risk is associated with doing business there and the less attractive it is to foreign investors.

One critical reason for the lack of private investment in developing countries is the high levels of political risk. A study by the Multilateral Investment Guarantee Agency (MIGA) found that investors cite levels of political risk as the single most important constraint for investing in developing countries over the medium-term[2]. Political risk covers a range of perils, including political violence, war, breach of contract, and foreign currency inconvertibility. The economic impact of the COVID-19 pandemic is magnifying these political risks because of increasing unemployment and widening inequality, putting critical investments at risk and threatening to undo many years of socio-economic development. The key tool for investors to manage these political risks is through the use of Political Risk Insurance (PRI), and the demand for PRI has naturally increased following the instability caused by the global pandemic.

ICIEC’s Role in Mitigating Risk through Political Risk Insurance  

PRI is designed to meet the needs of investors and banks by providing protection against negative political impacts on otherwise sound commercial investments and is one of the many insurance products offered by ICIEC for its member countries. As foreign firms invest in OIC member countries they are often faced with new and unfamiliar environments with various risks and uncertainties. ICIEC insures against many of these risks, and its products allow firms to expand in higher-risk countries with otherwise attractive investment opportunities

ICIEC’s insurance products also mitigate the political risks involved in cross-border trade, providing support to exporters and banks, thus facilitating trade between member countries and the rest of the world. ICIEC also aims to facilitate and increase intra-OIC exports, encouraging businesses to take advantage of the diverse resources within the region.

ICIEC’s insurance is not only useful to firms seeking to access new markets but also for firms looking to increase exports and service delivery to their existing markets. Expansion in existing markets can also entail risks given the various economic, political, and social uncertainties, and the insurance ICIEC provides gives these firms the protection they need to expand their market share.

ICIEC’s risk mitigation services are especially crucial for developing countries, where market failures in regard to trade finance are known to be highest. ICIEC has provided much-needed PRI to its member countries that are classified as low Income and least developed through insuring various investments and trade transactions, and by supporting Issuing Banks to access international financial markets and build their trade finance capacity. Insuring transactions in developing countries ensures that businesses can execute their import or export transactions smoothly where foreign buyers or sellers might view them as high risk.  ICIEC also provides much-needed insurance for financing large development projects, particularly in high-risk investment countries where mobilizing large sources of finance can be risky without adequate mitigants. PRI insurance is part of a larger effort by ICIEC to support the development goals of its member countries, especially those that are least developed, and to contribute to the global achievement of the Sustainable Development Goals (SDGs).

ICIEC’s continued support for export transactions and investments in risky markets through PRI and risk mitigation ensures that developing nations have access to quality essential health care services, various employment opportunities, upgraded infrastructure for modern and sustainable energy services, and access to finance for SMEs. At the 10th annual Global Islamic Finance Awards (GIFA) that took place on September 14, 2020, ICIEC was awarded “The Global Islamic Export Credit and Political Risk Insurance Award for 2020”. This award marks the fourth time ICIEC has received this accolade since its introduction in 2016, with previous awards occurring in 2016, 2017, and 2018 respectively.

Supporting Developing Countries through COVID-19

ICIEC also stands ready to support member countries through the COVID-19 crisis, employing new measures to help manage short-term challenges, mitigate risks, and develop foundations for long-term growth. ICIEC’s COVID-19 response to date includes USD 150 million for insurance coverage as part of the Islamic Development Bank Group’s ‘Strategic Preparedness and Response Facility’ (SPRF). The SPRF is helping to curb the spread of the virus, build resilience in member countries response to outbreaks, and minimize the negative health and socio-economic impacts of the pandemic, especially on the most vulnerable populations. In addition to the SPRF, ICIEC has also collaborated with IsDB on the innovate USD 2 billion COVID-19 Guarantee Facility, designed to support the private sector.

The Islamic Solidarity Fund for Development (ISFD), the poverty alleviation arm of the IsDB Group, has teamed up with ICIEC to create a rapid COVID-19 response and resilience initiative focused on import dependent and developing member countries. The ‘ICIEC-ISFD COVID-19 Emergency Response Initiative’ (ICERI) is helping member countries meet essential import needs of pharmaceuticals, healthcare equipment, agricultural commodities, energy commodities, and other crucial materials and resources necessary to combat the negative impacts of the pandemic.

ICIEC’s full suite of PRI and COVID-19 solutions are available to exporters, importers, and financial institutions in its member countries to ensure that supply chains are intact, investments are protected, volatility is minimized, and that the health and livelihoods of citizens are protected.

[1] UNCTAD. (2014). ‘World Investment Report 2014’. https://unctad.org/system/files/official-document/wir2014_en.pdf.

[2] MIGA. (2011). ‘World Investment and Political Risk Report 2010’.

The Kingdom of Saudi Arabia assumed the G20 Presidency in December 2019 and set the theme of “Realizing Opportunities of the 21st Century for All” with a focus on: Empowering People, Safeguarding the Planet and Shaping New Frontiers.

The Islamic Development Bank Group (IsDBG) was invited by the Kingdom of Saudi Arabia’s G20 Presidency to participate as a regional multilateral organization in the 2020 G20 summit. As a member of the IsDB Group, the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) participated and contributed to the G20 throughout 2020.

ICIEC’s involvement focused on the Finance Track, especially the International Financial Architecture (IFA) Working Group. The Corporation supported the IsDB Group and the Saudi Presidency of the G20 by providing its technical expertise in investment and export credit insurance.

The 2020 G20 Summit was defined by the COVID-19 global pandemic and for the first time in the G20’s history, almost all events were held virtually. ICIEC had the privileged opportunity to attend alongside the world’s largest economies and international organizations as they gathered in March 2020, under the chairmanship of the President of the G20, Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud, to coordinate a global response to the pandemic.

In the Finance Track of the 2020 G20 summit, the pandemic’s negative effects on the global economy were addressed in the Framework Working Group on COVID-19 and Recovery. G20 Finance Ministers and Central Bank Governors developed an action plan to ensure that global economic activity continues to recover through financial policies, risk management, and the mobilization of funds.

As such, the IsDB Group implemented the comprehensive integrated Strategic Preparedness and Response Facility (SPRF) with an initial envelope of USD 2.3 billion. In addition to this initiative, in October 2020, ICIEC and IsDB jointly launched the innovative USD 2 billion COVID-19 Guarantee Facility to support the private sector to combat the pandemic. The Facility is being implemented jointly by IsDB and ICIEC to support COVID-19 hit industries in the OIC member countries and attract cross border foreign and local investments.

ICIEC’s CEO, Mr. Oussama Kaissi, stated that “the framework agreement opens the door for new forms of cooperation between IsDB Group entities. ICIEC is very focused on addressing the challenges our Member Countries are facing in mitigating the repercussions of COVID-19 and we are dedicated to ensuring that the Corporation will meet all the framework’s requirements for the COVID-19 Guarantee Facility to be implemented successfully.”
In the Finance Track’s International Financial Architecture Working Group the G20 discusses the systems and institutions that provide and support international finance institutions (IMF, World Bank, regional development banks and institutions, investment and export credit agencies, and other specialized institutions). In late 2019, Br. Mohamud Khalif, Acting Director of the Underwriting Department at ICIEC, made a presentation on political risk insurance (PRI) and its role in supporting equity and debt investments in the IsDB’s member countries. The presentation spurred a detailed discussion on the subject of political risk insurance and its positive role in facilitating equity and debt investments in low-income countries.

Resulting from the PRI presentation and subsequent discussion, and in recognition of ICIEC’s expertise in Political Risk Insurance, the Corporation was mandated by the G20 Saudi Presidency to develop, in coordination with the MDBs, a Stock-Take on “Best Practices of MDBs and Specialized Multilateral Insurers in Political Risk Insurance for Equity Investments, Medium and Long-Term Debt Investments and other Insurance Solutions”. Br. Djamel Ghrib, former Advisor to ICIEC’s CEO, led the coordination of this exercise.

Political Risk Insurance’s catalyzing effect for private sector investment without causing debt levels to rise makes it a critical tool for advancing economic development in the Corporation’s member countries. ICIEC engaged organizations around the world through an online survey on the demand and supply sides of the PRI market for equity investments and debt investments. This study is a valuable resource for G20 Finance Ministers and Central Bank Governors to guide MDBs on the possibilities of expanding their insurance and guarantee offerings and enlarging their complementary role for equity.

IsDB Group and ICIEC participation proved valuable to the G20 process, as the leading Shariah compliant development finance group and the only Shariah compliant multilateral trade and investment insurer. The benefits of Islamic finance are increasingly recognized in global fora for their innovations and sustainability, particularly in times of crisis when conventional finance fails. For example, during the 2008-2009 financial crisis, Shariah-compliant equities performed far better than their conventional counterparts. Islamic finance is well positioned to finance the recovery from the pandemic, and it is to the benefit of the world that the G20 are starting to explore it. ICIEC had the privilege to spread awareness on Islamic finance at the G20.

ICIEC and IsDB Group’s involvement in the G20 process this year has been pivotal for the voice of Islamic finance to be at the G20 table. Since the IsDB Group is comprised of 57 member countries across four continents – touching the lives of 1 in 5 of the world’s population – IsDB and ICIEC stand ready to serve as advocates for Islamic finance in future G20 presidencies.

Introduction

The COVID-19 pandemic has presented our corporation, and governments around the world with unprecedented challenges. There is much to be learned from this period, as ICIEC strives to deliver on its mandate to facilitate trade, even under the most difficult circumstances. Going forward, it is important that we glean lessons from this difficult period, so that our corporation, and the economies of our member countries, are more resilient and adaptive to such economic shocks in the future. The pandemic has taught us about the importance of ICIEC’s support in periods of trade turmoil, the importance of increasing integration and cooperation among markets in the Global South, the need for prudent risk management in global trade, and the acceleration of the digital shift in worldwide commerce.

Protectionism

Over the course of the COVID-19 pandemic, the many decades of ever-increasing global integration have begun to reverse. The confidence that exporters and importers once had when doing business across borders had dimmed significantly in the early months of the pandemic. As it became clear that the virus would be with us for the foreseeable future, with no easy fix in sight, many nations turned more inward, particularly in regard to medical supplies and essential commodities, as 92 jurisdictions imposed a total of 215 export controls on medical supplies, while 62 jurisdictions had imposed a total of 62 export controls on food exports over the course of 2020.

This protectionism, and general unwillingness to trade essential goods, would hurt the least developed countries (LDCs) the most. These LDCs are often net food importers and do not manufacture the medical equipment necessary to support their needs while the pandemic limited their access to essential goods. As such, over the course of the pandemic-induced trade crunch, ICIEC’s role of facilitator for trade and investment was more important than ever before.

ICIEC’s export credit and investment insurance provides exporters and investors with the confidence to do business across borders. During 2020, our cover provided trust when it otherwise may not exist by providing trade partners with the comfort that the risk of non-payment was mitigated; such comfort is especially important in a time of economic uncertainty. We learned that our role is most critical when the trade atmosphere is characterized by barriers and reluctance to trade. The trade transactions facilitated by our insurance cover promoted development, kept the wheels of economic progress turning, and improved the livelihoods of those in our member countries that would otherwise not have access to the essential goods that they needed.

Trade is the engine of the international economy, and the key mechanism by which we are able to gain access to all of the goods we need. As such, ICIEC will continue to address protectionism and reluctance to trade as it continues to facilitate trade among businesses in the OIC and beyond.

The need for strategic south-south trade

With countries in the Global South struggling to access medical equipment and critical goods such as food from their trade partners in more developed countries, the pandemic highlighted the need for enhanced South-South trade. With nations in the Global North hesitating to sell essential goods to other nations, the pandemic showed that North-South trade could not always be relied upon, and that nations would have to diversify their supply chains in order to have consistent access to essential goods.

At ICIEC, promoting trade and investment within our member countries and within the OIC is among our top priorities. Although recent protectionist measures and the breakdown of supply chains presents serious concerns, the OIC region has the potential to insulate itself from such severe trade shocks going forward by working together. By relying on our partners in the OIC, and in the Global South more broadly, not only do we develop one another’s economies, but we also ensure that they are more resilient and self-sufficient. Over the course of the pandemic, ICIEC worked to deepen regional trade and investment ties, across the OIC. This commitment to deepening south-south and intra-OIC trade and investment led to ICIEC supporting USD 5.1 billion of intra-trade and intra-investment among OIC countries in 2020. Of that USD 5.1 billion, USD 4.5 billion supported intra-trade among OIC countries and USD 588 million supported intra-investment among OIC countries.

Economies in the OIC and the Global South more broadly are growing, increasingly diversified and better able to meet consumer demands than ever before. With increased trade integration among such countries, their resilience will greatly improve. For example, OIC member countries are vulnerable to distant trade partners suddenly refusing to trade certain goods. By trading with their partners in the OIC instead, OIC member countries can build more reliable trade relationships that are characterized by greater cultural, political and economic similarities. Importantly, such trade will spur further development in such countries, allowing them to produce more sophisticated goods, which they often rely on the Global North to supply. As our interests are aligned, the unity that comes from such alignment allows us to much better weather crises as our nations are able to lean on one another, thereby providing greater business continuity and protecting the economic livelihoods of our people in the process.

Cooperation and collaboration

COVID-19 has greatly damaged the global economy. Supply chains have come under pressure, trade has declined, and interest in cross-border investment has waned sharply. All of these factors have greatly hampered the speed of the world economy’s recovery. While some governments have successfully implemented policies to manage the pandemic and protect businesses and citizens, many have found it challenging to keep economic activity afloat while keeping their populace safe. The pandemic has taught us at ICIEC the importance of cooperation and collaboration in delivering health, safety, and economic security to citizens across the OIC. With a crisis such as COVID-19, that can grow exponentially, a coordinated response is crucial. As the presence of the virus expands, so too do the disastrous health and economic implications that come with it. As such, ICIEC has diligently worked with its partners to address the effects of the pandemic in the OIC.

As the multilateral export credit and investment insurance arm of the Islamic Development Bank (IsDB) Group representing 47 countries across the OIC, partnering with our sister institutions in the IsDB Group is a crucial way by which we work to overcome the pandemic. The COVID-19 pandemic decimating economies in the OIC countries has only strengthened intra-IsDB partnerships as our organizations work to protect the livelihoods of the citizenry across the OIC. As an example, ICIEC participated in the IsDB Group’s ‘Strategic  Preparedness and Response Program (SPRP)”, through which ICIEC’s contribution of USD 150 million in credit and political risk insurance is helping to facilitate imports of strategic commodities, protecting investments, and minimizing volatility in member countries. Recently, ICIEC has partnered with the poverty alleviation arm of the IsDB Group, the Islamic Solidarity Fund for Development (ISFD), to establish the ‘ICIEC-ISFD COVID Emergency Response Initiative’ (ICERI). The fund has structured a concessional all-in pricing mechanism to help preserve the flow of essential imports to OIC countries. Through our OIC partnerships, we have ensured that our citizenry has better access to essential goods, and that the business continues flowing, thus softening the blow that COVID-19 has had on our member country economies.

ICIEC not only has worked to mitigate the effects of COVID-19 by partnering with fellow IsDBG institutions, but also by partnering with fellow ECAs. By covering investments in coordination with partner ECAs, ICIEC supports the development of its member countries, thus helping them better insulate themselves from the effects of economic crises as these projects can provide employment, improved infrastructure, and a better quality of life for citizens.

Through close cooperation with national ECAs, ICIEC is able to provide them with additional insurance capacity through facultative and treaty re-insurance mechanisms. ICIEC offers technical assistance and supports national OIC ECAs to launch new insurance instruments by providing tailored co- and re-insurance support and facilitating smart partnerships with other development players. Through expanded trade coverage under coinsurance and reinsurance agreements, firms in member countries can access new markets, grow in existing markets and in the process generate employment and economic growth, giving a much-needed economic boost to ICIEC member countries.

Over the course of the pandemic, ICIEC has made efforts to form new partnerships, while strengthening existing ones. To this effect, ICIEC has signed four new MoUs, cooperating with national ECAs from both MCs and non-MCs. These were with Uzbekistan’s Uzbekinvest, Austria’s OeKB, the U.K.’s UKEF, and Spain’s CESCE. These MoUs provide the opportunity to enter co-insurance, reinsurance, or cooperation agreements, to engage in joint projects that support exports and investment, and to participate in capacity building and technical assistance programs. Such partnerships are crucial for supporting economic interest in the OIC region as they allow both OIC, as well as foreign actors to more safely and easily do business with OIC markets.

Overall, the COVID-19 pandemic has showed us that together we are stronger. ICIEC enacted this lesson by forging new partnerships and participating in strategic initiatives which would allow it to have a greater effect in mitigating the crisis than would otherwise be possible. This direction of increased integration and partnership is one which ICIEC will continue to pursue long after the COVID-19 crisis has been overcome.

Risk Management

ICIEC’s export credit and investment Takaful allows for customers to better manage the risk of doing business across borders, thereby providing them with the confidence to trade and invest with foreign actors. Its cover provides protection against negative political, economic and non-payment risks, on what would be otherwise attractive trade transactions and investments. Over the course of the pandemic, we have learned how crucial the risk mitigation we provide is in order to ensure business continuity. Our cover provides support to exporters, investors and financial institutions as it reduces the downside risk of transacting, thereby increasing these entities’ trust that they will receive the money they are owed. The large degree of demand for our support, despite a challenging economic environment, was exemplified through our USD 9.9 billion in business insured.

ICIEC insures against a range of commercial and political risks which would lead to non-payment, such as insolvency of the buyer, currency inconvertibility and transfer restrictions, contract frustration etc.. This carries a number of benefits for exporters, including balance sheet protection, increased international sales, improved access to working capital, and many others. Over the course of COVID-19, with insolvency rates high and rising, and with the risk of non-payment looming, such risk mitigation was essential. By covering such risks, ICIEC was able to support trade and investment in 34 member countries, while having its products utilized by a total of 764 entities.

By reducing the risk of international trade and investment transactions, ICIEC has been able to facilitate business that otherwise might not have taken place over the course of the pandemic. Of course, this benefit is of value to businesses and governments alike, especially while their economies are suffering against the backdrop of the COVID-19 pandemic. By spurring such business, ICIEC is able to ensure a better quality of life for the citizens in its member countries.

Shifting to a digital economy

The COVID-19 pandemic has greatly accelerated the digital transformation in business, with companies increasingly moving their services, products, and operations online in order to adapt to the new normal that is imposed by the pandemic. ICIEC has worked to support economies in the OIC as they make this digital shift.

As governments have sought to minimize infection risk by enforcing social distancing measures – and in some cases lockdowns – citizens and businesses have been relying on technology, to continue essential tasks, stay connected with each other and to do business across borders. Through ecommerce, companies and consumers have been able to avoid the risk of infection that exists when shopping at a brick-and-mortar storefront. To illustrate the extent of the digital revolution catalyzed by COVID-19, in Saudi Arabia, the value of the ecommerce market in 2020 amounted to USD 5.5 billion, as compared to USD 3 billion in 2017. Across the Middle East more broadly, the value of the ecommerce market was valued at USD 17.1 billion in 2020, as compared to USD 10.3 billion in 2017. Many corporations have transitioned to allow employees to work from home with videoconferencing platforms. These platforms have become a mainstay for businesses and households worldwide, allowing for a continuity in business and communication that would otherwise not be possible.

In order to take advantage of these technologies, the surrounding telecommunications infrastructure must be in place. ICIEC understands the importance of developing the technical infrastructure needed to facilitate the adoption of digital technologies by businesses across the OIC. In 2020, ICIEC provided nearly USD 586 million toward supporting telecommunications infrastructure, which is necessary to facilitate the digital shift. This included EUR 50 million in cover for a telecommunications project in Indonesia that was intended to expand access to 4G coverage from 40% of the population to 90%. The completion of this project ensured that more businesses and citizens located in rural areas had the necessary access to internet and data coverage in order to do business online. Through such support, Indonesian businesses had access to new international markets, while consumers had access to goods that may be challenging to find locally especially in the presence of the COVID-19 environment.  Additionally, such access to digital mediums and platforms gives both businesses and consumers greater access to large volumes of data, which helps to inform better decisions in both their selling and buying.

The digital shift during COVID-19 has not only been characterized by the marketplace moving online, but also by the increased importance of having access to large and accurate volumes of data. With COVID-19 restrictions imposed, consumers and businesses often cannot assess counterparty risk in-person. If you are a consumer, you cannot assure the quality of a product you are buying online from a manufacturer that may be thousands of miles away, while at the same time, if you are an investor, you cannot visit a host-country to see the business conditions firsthand. Digital platforms and databases can alleviate these risks as they are able to store large aggregations of datapoints that can help a business or consumer determine whether a transaction is risky. Such a function is especially important for bolstering the volume of lending, and thereby spurring development in most OIC countries. Many OIC countries struggle with insufficient credit information. Large and reliable volumes of credit data are instrumental for gaining an understanding of the state of business activity in any country. Inspired by the successful databases that ICIEC helped develop in cooperation with the Aman Union, ICIEC is in the process of developing an OIC Business Intelligence Center (OBIC) to provide comprehensive credit information for OIC member countries.

The OBIC will harness AI and blockchain technology in order to deliver credit information that is more accurate, convenient, predictive, and quickly accessible. The center will be a significant value-add to ICIEC’s mission of enhancing trade and investment across the OIC. The OBIC will provide meaningful benefits to member countries, including an increase in intra-OIC trade and investment volumes, along with greater financial inclusion for MSMEs and the unbanked citizens across the OIC. The OBIC is slated to boost private sector lending in the least developed OIC member states by an estimated USD 670 billion a year.

COVID-19 has dealt severe blows to the global economy. Supply chains collapsing, international trade sharply declining, and global investment appetites drying up have further exacerbated the challenges for recovery. Essential workers have been forced into unsafe conditions, while many others have found themselves unemployed. While some governments have successfully implemented policies to manage the pandemic and protect businesses, many countries have struggled to keep economic activity afloat. The pandemic has exposed deficiencies in both national economies and the global economy, while highlighting the importance of mutual coordination and strategic multilateral responses to ensure the health, safety, and economic security of citizens worldwide.

The economies of ICIEC’s Least Developed Member Countries (LDMCs) have been particularly affected by the pandemic. A primary driver of the affects being the striking drop in foreign trade. World trade had already slowed prior to the COVID-19 pandemic due to geopolitical tensions, regional conflicts, and trade wars, with both exporters and investors feeling cautious regarding trade in uncertain conditions. This slowing of trade advanced to a near halt when crisis mitigation efforts led to disruptions to economic activity such as closed borders and fractured supply chains, plummeting the value of the international trade in goods by 27% as of April 2020 according to UNCTAD figures.

ICIEC LDMCs have seen particularly poor economic situations, highlighted in UNCTAD data showing exports from regions well represented by ICIEC members such as the Middle East and South Asia, Africa, and Central Asia, declining by 40%, 36%, and 27% respectively as of April 2020. Greatly contributing to this decline has been the drop in oil prices, as trade in energy products declined by 39%, sharply contracting the economies of energy-export reliant countries. Meanwhile, imports in these regions dropped by 23%, 21%, and 18%, limiting access to crucial goods and supplies for citizens and businesses.

Partnering with IsDB peers

As the multilateral Export Credit Agency (ECA) representing 47 countries across the OIC, and a member of the Islamic Development Bank (IsDB), ICIEC is a key player in many IsDB Group initiatives and often partners with peer IsDB members for events, cooperative agreements, and a number of other strategic initiatives. The COVID-19 pandemic wreaking havoc in OIC countries has only further encouraged intra-IsDB partnerships in efforts to strengthen the organization’s response to the crisis.

ICIEC’s immediate response to the pandemic was to participate in IsDB Group’s ‘Strategic Response Preparedness Fund”, where the Corporation’s contribution of $150 million in credit and political risk insurance is helping to sustain imports of strategic commodities, protect investments, and minimize volatility in Member Countries.

ICIEC also partnered with the Islamic Centre for Development of Trade (ICDT) to co-host a webinar to disseminate information from OIC ECAs regarding their local situations and their institutions approach and actions in response to COVID-19.

More recently, ICIEC has partnered with the poverty alleviation arm of the IsDB Group, the Islamic Solidarity Fund for Development (ISFD), to establish the ‘ICIEC-ISFD Covid Emergency Response Initiative’ (ICERI). The fund has structured a concessional all-in pricing mechanism to help preserve the flow of essential imports to OIC countries.

Partnering with National ECAs

Another essential means by which ICIEC is catalyzing trade and investment in a sluggish global market, strengthening coverage for struggling businesses, and facilitating economic recovery from the pandemic in MCs is through strategic partnerships with national ECAs. ICIEC has long pursued partnerships to meet the UN Social Development Goal (SDG) number 17, the purpose of which is to foster partnerships that help achieve the goals. To achieve this goal prior to the pandemic, ICIEC created agreements with banks, investors, corporates, and national ECAs that encourage investment and exports in unlikely and risky markets, having as of 2019 secured 82 partnerships to insure USD8.4 billion in exports and USD1.6 billion in national ECA business.

Through partnerships and agreements ICIEC’s insurance products reduce export risks and provide financial space to large firms, as well as small and medium enterprises (SMEs), to obtain access to working capital while minimizing lending risk. For SMEs, financial risk of lending is significantly reduced, and access to much needed investment capital allows the SME to expand and grow into new markets. Furthermore, by underwriting investments in strategic sectors and projects in coordination with national ECAs, ICIEC supports the development agendas of its member countries. The investment projects often provide employment, enhanced, modern and efficient infrastructure, and a better quality of life for citizens.

Through close cooperation with national ECAs, ICIEC is able to provide them with additional insurance capacity through facultative and treaty re-insurance mechanisms. ICIEC offers technical assistance and supports national OIC ECAs to launch new insurance instruments by providing tailored co- and re-insurance support and facilitating smart partnerships with other development players. Through expanded trade coverage under coinsurance and reinsurance agreements, firms in member countries can access new markets, grow in existing markets and in the process generate employment and economic growth, giving a much-needed economic boost to ICIEC member countries.

The pre-pandemic partnership between ICIEC and Turk Eximbank exemplifies the benefits of ECA cooperation. In 2019, ICIEC and Turk Eximbank signed a Memorandum of Understanding (MoU) which allowed risk sharing between institutions, credit enhancement of Turk Eximbank’s financing and borrowing, increased information sharing, joint marketing efforts, and cross-training. The partnership between ECAs has been highly valuable for Turkish businesses, allowing them greater access to transactions with ICIECs African MCs. Furthermore, the partnership is providing long-term economic prospects for Turkey’s growth through SMEs by enhancing loan coverage, exemplified in ICIECs EUR 180m cover for a loan to Turk Eximbank which the bank is using to expand the SME sector.

Forging New Relationships in Response to COVID-19

Understanding the value of partnerships in expanding trade, strengthening coverage, and growing economies, ICIEC has made efforts to forge new partnerships, in addition to strengthening existing ones, throughout the pandemic. ICIEC has signed a number of new MoUs, cooperating with national ECAs from both MCs and non-MCs. The Corporation’s CEO, Mr. Oussama Kaissi, addressed the importance of fostering partnerships during the pandemic, stating:

“During this time of economic uncertainty, ICIEC has placed high importance on building relationships with peer ECAs. Despite, or perhaps due to the troubling times we are living in, demand is growing for guarantees in OIC markets where credit and political risks pose a greater challenge. By working jointly, the Corporation and its partners can increase the reach and depth of service offerings, therefore enabling all parties to provide the best support possible to our member countries”.

Four MoUs have been signed by ICIEC the pandemic began with non-MC national ECAs, including Uzbekistan’s Uzbekinvest, Austria’s OeKB, the U.K.’s UKEF, and Spain’s CESCE. The MoUs provide benefits to the agreeing entities such as the opportunity to enter co-insurance, reinsurance, or cooperation agreements, to engage in strategic joint projects that support exports and investment, and to participate in capacity building and technical assistance programs. Of the opportunity to partner with European ECAs during the pandemic, Mr. Kaissi proclaimed “The partnerships are a critical move to demonstrate the dynamic and growing market potential that exists in the OIC despite perceived risk, thus incentivizing more western countries to consider the OIC region for foreign direct investment and trade.” Much like the pre-pandemic partnerships, these partnership advance both parties’ respective operational mandates of providing insurance support for trade and investments and will foster jobs and projects to boost the economies of ICIEC member countries.

While the world is in a state of uncertainty, ICIEC is using successfully tested methods to help stabilize OIC states and grow their economic prospects. There is ample room for future partnerships between ICIEC and national ECAs, and the success of these partnerships will be critical to economic recovery following the pandemic. While the longevity of the crisis is a great unknown, and further issues could arise that change the economic landscape once again, ICIEC will continue to seek intuitive solutions and work with strategic partners to protect and develop the economies of the OIC states.