ICIEC Newsletter

December 2022

Message from the CEO

The energy transition is at the core of what will help drive the global economy in the coming years. Islamic finance should and will play a crucial role in assisting OIC States to transform and mitigate climate risk. As the world’s only Shariah-compliant multilateral insurer, we take our multiple roles promoting ESG-related finance, sustainable investment, and Islamic finance very seriously and believe blended solutions are essential and material in helping climate mitigation and the energy transition.

In this fourth quarter edition of the ICIEC newsletter, we pay particular attention to the state of Islamic development finance and how it can be used in the energy transition. We go into further depth on developments in Southeast Asia, particularly in Indonesia and Malaysia, to see how decarbonisation can work in lockstep with finance.

We also look in greater depth at Indonesia, and how the country is engaging in renewable power (floating solar) and decarbonisation initiatives (such as the recent planned refinancing of coal power aimed to assist the early retirement of coal-fired power plants). We look at how the private sector, export credit agencies, development banks, and organisations such as ICIEC are engaging with the financing energy transition in this OIC Member States.

We learn how the Ministry of Finance has been engaging its bold plans for energy transition with the help of Islamic finance. We are honoured to profile H.E. Suminto Sastrosuwito, Director General of Budget Financing and Risk Management, and discover the practical steps Indonesia is taking to finance its energy transition, which he regards as vital given that the world is currently dealing with the consequences of climate change. Indonesia’s use of Islamic finance to help achieve its goals is ground-breaking, and we hear his valuable advice on how other OIC Members could also look to use some of the tools to support the funding gap.

Keeping with Indonesia, we present another member of the ICIEC family in our “ICIEC in Five” feature. We turn to Jakarta to introduce our Country Manager for Indonesia and learn more about his role, the impactful development work ICIEC is doing to help OIC Members in Asia reach their challenging climate targets, and how ICIEC is assisting in risk mitigation for the energy transition.

I trust you will enjoy this newsletter, and please do let us know if there are any other issues or features you would like ICIEC to focus on in future editions.

Sincerely,

Oussama Kaissi

Chief Executive Officer, ICIEC

News & Events

Sharm El-Sheikh, Egypt. ICIEC is to follow through on its successful COP27 engagement. This comprised three timely side events, three fireside chats, and an MoU signed with the Africa Finance Corporation (AFC) to jointly deliver mark-to-market climate action projects using ICIEC’s de-risking solutions in the African Member States common to both. On one panel discussing the Food Security and Project Bankability Agenda, the IsDB Group US$10.54bn Food Security Response Program (FSRP) was highlighted. Climate risk financing and food security challenges for Member States are large. ICIEC’s support for the FSRP is underpinned by its initial contribution of US$500 million in PRI and credit insurance coverage, of which US$150 million has been disbursed to date, covering several transactions.

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November 8, 2022, Sharm El-Sheikh, Egypt. ICIEC and InsuResilience Global Partnership (IGP) convened a forum at COP27. This stressed the role of partnerships in accelerating climate protection and de-risking credit and political risk through the G7/V20 Golden Shield Initiative (creating a Golden Shield against Climate Risks (GSCR)) in Member States such as Gambia.

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November 9, 2022, Sharm El-Sheikh, Egypt. ICIEC and CIB, joined forces for a COP27 panel discussion on the bankability of climate adaptation projects focused on food security in Africa. The discussion spotlighted Egypt’s National Water, Food, and Energy (NWFE) Program and highlighted the role of credit and investment insurance in helping bridge the climate financing gap.

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November 9, 2022, Sharm El-Sheikh, Egypt. ICIEC signed a landmark MoU of cooperation with the AFC to promote the origination, resilient financing, and execution of climate action projects in the African Member States through ICIEC’s de-risking solutions. This partnership will focus on fostering the growth and development of the global green bond market. The mandate of ICIEC is to promote trade and FDI flows among its 23 African Member States in partnership with peer and specialized institutions.

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November 12, 2022, Sharm El-Sheikh, Egypt. ICIEC and AFC joined forces to convene a forum at COP27 on the roles of renewable energy projects and credit and political risk insurance in climate change mitigation. Highlighting the role of renewable energy in climate change mitigation and the experiences of multilateral financial institutions investing in such projects and how they can be supported by ICIEC’s risk mitigation strategies.

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December 18, 2022. Moody’s Investor Services (Moody’s) has confirmed ICIEC’s Aa3 Insurance Financial Strength Rating (IFSR) for the 15th year in a row and has assigned, for the first time, ICIEC’s ESG Credit Impact Score as neutral-to-low (CIS-2), reflecting a limited impact from environmental and social factors on the rating. The affirmation of the IFSR rating reflects the strong fundamentals, namely ICIEC’s financial position, risk governance, and continued support from its parent, the Islamic Development Bank (IsDB), and multiple sovereign members of the Organization of the Islamic Cooperation (OIC).

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December 19, 2022, Karachi, Pakistan. ICIEC signed a cooperation MoU with ICCIA with the aim to promote and support intra-OIC trade and investment, green financing, and the Halal economy in common Member States using ICIEC de-risking solutions.

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December 27, 2022, Jeddah, Saudi Arabia. ICIEC signed an MoU with RAII of Saudi Arabia to promote synergizing coordination, business development, and efficient implementation of projects in the vital agricultural and food security sectors in ICIEC Member States. RAII owns the most extensive organic agriculture projects and one of the largest poultry projects in Saudi Arabia and an integrated poultry project in Egypt. Its products are exported to neighbouring GCC markets, Yemen, China, and Vietnam.

Read more here

Insights

Insights Into Islamic Development Finance on the Energy Transition in Asia and Beyond

Profile Interview: Indonesia’s Suminto on Engaging Bold Plans for Energy Transition with the Help of Islamic Finance

Indonesia Country Profile: Project and Export Finance Enroute to Energy Resilience and Sustainability

Meet the team: ICIEC In Five

Project Highlights

Shifting and Mobilizing Resources for Uganda’s ESG Infrastructure Projects

On December 22, 2022, ICIEC provided EUR 145 million in insurance to support ESG-related projects in Uganda. ICIEC agreed with the government of Uganda, Standard Chartered Bank (SCB), and Société Générale (SocGen) to offer cover on selected projects that are considered key for the OIC Member State. All of the projects selected are related to ESG and will have a significant developmental impact in Uganda. The backed financing will go towards agriculture, solar energy (climate change), water infrastructure, and healthcare. After completion, the projects will immediately improve the lives of millions of people.

The 10-year insurance cover was provided to SCB and SocGen to mitigate non-payment risk and comes under ICIEC’s Non-Honoring of Sovereign Financial Obligations Policy (NHSFO). The Islamic facility (Murabaha) was lent by SCB as the mandated lead arranger (MLA) of syndication in which Société Générale has provided participation.

The challenging backdrop

Uganda has been challenged by the ongoing problems of COVID-19 impacts on real GDP (GDP growth had slowed to 3% year/year in 2020 amid COVID, half the year-earlier growth rate). The severe income losses due to COVID-19 led to lower consumption growth and a 5.2% increase in the national poverty line after the first lockdown in 2020. Both post-COVID supply disruptions, and also the Ukraine invasion, have led to much more expensive inputs such as fertilisers and energy and higher transportation costs which have put pressure on agricultural production inputs and on food security and have dampened household incomes and demand.

According to data on OIC countries quoted in SESRIC [OIC Economic Outlook 2022], Uganda had a fiscal deficit of 7.8% of GDP in 2021.

To help mitigate the effects of imported inflation and help stabilise domestic prices, the Republic of Uganda, SCB, and SocGen agreed on COVID-19 support and a development programme. Within this, ICIEC has agreed with SCB and the government to offer cover on selected projects that are considered key for the member state. Funds will be used in agricultural projects, solar energy (which will work towards mitigating climate change), water infrastructure, and healthcare.

The key positive results of the support are intended to be multiple, including improvement of living conditions, increasing access to safe drinking water to 95%, increasing life expectancy and health adjusted life expectancy, improving food security conditions, increasing agricultural productivity, and promoting the green economy.

Helping to meet NDC goals

Uganda is also committed to its updated Nationally Determined Contributions (NDCs) on climate change to meet its Paris Agreement undertakings. In the updated NDC published in September 2022, Uganda has an ambitious economy-wide target to cut emissions by 24.7% below its Business as Usual (BAU) by 2030 (a target that has been raised from the 22% reduction target made in 2016).

According to the report, Uganda’s number one priority response to climate change is an adaptation in the context of “addressing key vulnerabilities in sectors, building adaptive capacity at all levels, addressing loss and damage, and increasing the resilience of communities, infrastructure, and ecosystems. The sectoral scope for adaptation has been broadened from agriculture, forestry, water, infrastructure, energy, risk management, and health to also include ecosystems (wetlands, biodiversity, and mountains), water and sanitation, fisheries, transport, manufacturing, industry, and mining, cities and built environment, disaster risk reduction, tourism, and education.”

According to the report, these ambitious goals will require considerable financing. The report notes that the total cost of implementing adaptation, mitigation, coordination, monitoring, and reporting of this updated NDC is estimated at US$28.1 billion. While Uganda commits to mobilising domestic resources to cover the unconditional actions to the tune of US$4.1 billion, equivalent to 15% of the total cost of the updated NDC, it will need international support to cover the conditional measures and actions. Several capacity-building and technology needs have also been identified for implementing the NDC. Support by development institutions such as ICIEC will be very important going forward.

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