Abdel-Rahman El-Tayeb Taha, ICIEC's chief executive officer.
Published: Dec 29, 2010 01:10 Updated: Dec 29, 2010 01:10
"There is a real recovery and big increase in business volume. It is a clear indication that trade and investment flows are currently very strong in member countries," Abdel-Rahman El-Tayeb Taha, ICIEC's chief executive officer, said in an exclusive interview to Arab News.
ICIEC, which was established in 1994 by the Islamic Development Bank (IDB) group and member countries of the Organization of the Islamic Countries (OIC) has a mandate to help increase the scope of trade transactions of member countries, to facilitate the flow of foreign direct investments into these countries, and to provide reinsurance facilities to their national export credit agencies.
The global economic turmoil and the resulting shrinkage in the flow of international trade and investments adversely affected ICIEC's volume of business insured for the year 2009. But with the beginning of 2010 it recovered as the global economy started showing signs of recovery.
Taha said ICIEC has continued to provide strong support for exports from and investments into its member countries. Based on third quarter results, by the end of September the new insurance commitments have nearly doubled to reach $2.54 billion compared to $1.2 billion in the same period in 2009. "This is an important achievement considering the global financial crisis and the subsequent economic recession that caused a worldwide decline in trade and investment flows," he said, adding that we expect this trend to continue and the new insurance commitments will reach $3.5 billion by the end of the year.
He said the big increase will definitely constrain our insurance capacity, which is determined by leveraging capital resources in addition to what we can cede to the reinsurance market. "Very soon we will be exhausting our insurance capacity. We will no longer be in a position to meet the explosive demand for credit and political risk insurance in member countries."
He said stakeholders of ICIEC will have to increase capital resources to meet the rising demand. "This matter is currently under discussion in our board of directors," Taha said, adding that there is a lot of demand for export credit insurance coming from Saudi Arabia. More than 30 percent of ICIEC's business comes from the Kingdom. There is a big demand for credit insurance because people are more risk conscious after the recent financial crisis. Also, competition is intensifying in international markets forcing exporter to sell on open account basis, which expose them to the risk of buyer default, and credit insurance is proven to be an effective risk mitigant. About $1.4 trillion of international trade is covered by credit insurance.
"We are also introducing new products, such as the non-honoring of sovereign obligation, but we don't have capacity to meet the demand. So it is critical that capacity should be increased for honoring obligations," Taha said.
As a result of the financial crisis, banks have become more risk averse. For a while they stopped lending. As the global economy is recovering slowly, now they will lend but with heavy stringent conditions. They require strong security and deal only with their best customers. They appreciate the role of credit insurance as an effective risk mitigant. Now, half of our top customers are banks, Taha said.
Taha added that ICIEC is also expanding rapidly. Earlier this year ICIEC opened its representative office in Dubai International Financial Center (DIFC). ICIEC's office will be marketing its Shariah-compliant export credit and political risk insurance products to banks and corporate operating in Dubai and neighboring countries.
Taha said part of ICIEC's mandate is to expand awareness of export credit risk insurance in its member countries. ICIEC organizes seminars to explore the ways in which financial institutions can utilize export credit and political risk insurance tools to mitigate risks in cross-border trade and investments.
He said the number of countries joining ICIEC is increasing rapidly. Recently, Albania and Cote d'Ivoire joined ICIEC, which bring the number of member countries to 40 compared to nine members at the time of its establishment. According to him, several member countries from OIC are in the process of completing the membership requirements and they will join ICIEC soon.
Commenting on an Aa3 rating from Moody's, which has been recently confirmed, Taha said it was indicative of confidence placed in ICIEC's risk management capacity and its sound insurance financial strength.
ICIEC, which was established in 1994 by the Islamic Development Bank (IDB) group and member countries of the Organization of the Islamic Countries (OIC) has a mandate to help increase the scope of trade transactions of member countries, to facilitate the flow of foreign direct investments into these countries, and to provide reinsurance facilities to their national export credit agencies.
The global economic turmoil and the resulting shrinkage in the flow of international trade and investments adversely affected ICIEC's volume of business insured for the year 2009. But with the beginning of 2010 it recovered as the global economy started showing signs of recovery.
Taha said ICIEC has continued to provide strong support for exports from and investments into its member countries. Based on third quarter results, by the end of September the new insurance commitments have nearly doubled to reach $2.54 billion compared to $1.2 billion in the same period in 2009. "This is an important achievement considering the global financial crisis and the subsequent economic recession that caused a worldwide decline in trade and investment flows," he said, adding that we expect this trend to continue and the new insurance commitments will reach $3.5 billion by the end of the year.
He said the big increase will definitely constrain our insurance capacity, which is determined by leveraging capital resources in addition to what we can cede to the reinsurance market. "Very soon we will be exhausting our insurance capacity. We will no longer be in a position to meet the explosive demand for credit and political risk insurance in member countries."
He said stakeholders of ICIEC will have to increase capital resources to meet the rising demand. "This matter is currently under discussion in our board of directors," Taha said, adding that there is a lot of demand for export credit insurance coming from Saudi Arabia. More than 30 percent of ICIEC's business comes from the Kingdom. There is a big demand for credit insurance because people are more risk conscious after the recent financial crisis. Also, competition is intensifying in international markets forcing exporter to sell on open account basis, which expose them to the risk of buyer default, and credit insurance is proven to be an effective risk mitigant. About $1.4 trillion of international trade is covered by credit insurance.
"We are also introducing new products, such as the non-honoring of sovereign obligation, but we don't have capacity to meet the demand. So it is critical that capacity should be increased for honoring obligations," Taha said.
As a result of the financial crisis, banks have become more risk averse. For a while they stopped lending. As the global economy is recovering slowly, now they will lend but with heavy stringent conditions. They require strong security and deal only with their best customers. They appreciate the role of credit insurance as an effective risk mitigant. Now, half of our top customers are banks, Taha said.
Taha added that ICIEC is also expanding rapidly. Earlier this year ICIEC opened its representative office in Dubai International Financial Center (DIFC). ICIEC's office will be marketing its Shariah-compliant export credit and political risk insurance products to banks and corporate operating in Dubai and neighboring countries.
Taha said part of ICIEC's mandate is to expand awareness of export credit risk insurance in its member countries. ICIEC organizes seminars to explore the ways in which financial institutions can utilize export credit and political risk insurance tools to mitigate risks in cross-border trade and investments.
He said the number of countries joining ICIEC is increasing rapidly. Recently, Albania and Cote d'Ivoire joined ICIEC, which bring the number of member countries to 40 compared to nine members at the time of its establishment. According to him, several member countries from OIC are in the process of completing the membership requirements and they will join ICIEC soon.
Commenting on an Aa3 rating from Moody's, which has been recently confirmed, Taha said it was indicative of confidence placed in ICIEC's risk management capacity and its sound insurance financial strength.
Source : http://arabnews.com/economy/article225544.ece - Dec 29, 2010
