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By Dr. Abdel-Rahman TahaGeneral Manager, ICIEC

Presented to: Global Sukuk Summit, London, 25-26 June 2008

The Islamic Corporation for the Insurance of Investment and Export Credit

CREDIT ENHANCEMENT AND RISK MITIGATIONFOR SUKUK ISSUES: AN ICIEC PROPOSAL

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ICIEC is the sole multilateral credit and political risk insurer operating in accordance with the Islamic Shariah.

ICIEC is a member of the Islamic Development Bank Group.

The Islamic Corporation for the Insurance of Investment and Export Credit

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IDB Group

AAARatedAa3

Rated

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� Legal Status: Multilateral institution with full juridical personality

� Established: August 1st, 1994

� Capital: USD 255 million

� Shareholders: Islamic Development Bank (50%), & 37 Islamic States

ICIEC- Overview & Objective

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1.1. ALGERIAALGERIA

2.2. BAHRAINBAHRAIN

3.3. EGYPTEGYPT

4.4. JORDANJORDAN

5.5. KUWAITKUWAIT

6.6. LEBANONLEBANON

7.7. LIBYALIBYA

8.8. MAURITANIAMAURITANIA

9.9. MOROCCOMOROCCO

10.10. QATARQATAR

11.11. SAUDI ARABIASAUDI ARABIA

12.12. SUDANSUDAN

13.13. SYRIASYRIA

14.14. TUNISIATUNISIA

15.15. U.A.EU.A.E

16.16. YEMEN YEMEN

1.1. BENINBENIN

2.2. BURKINA FASOBURKINA FASO

3.3. CAMEROONCAMEROON

4.4. CHADCHAD

5.5. GAMBIAGAMBIA

6.6. DIJBOUTIDIJBOUTI

7.7. GUINEAGUINEA

8.8. MALIMALI

9.9. NIGERNIGER

10.10. SENEGALSENEGAL

11.11. UGANDAUGANDA

12.12. NEGIRIANEGIRIA

13.13. GABONGABON

1.1. BANGLADESHBANGLADESH

2.2. BRUNEIBRUNEI

3.3. IRANIRAN

4.4. INDONESIAINDONESIA

5.5. MALAYSIAMALAYSIA

6.6. PAKISTANPAKISTAN

7.7. TURKEY TURKEY

8.8. KAZAKHSTANKAZAKHSTAN

16 ARAB Countries

8 ASIAN Countries

13 AFRICANCountries

37 Member Countries

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� Three MCs have renowned international financial centers

�Bahrain

�Dubai

�Malaysia (Labuan)

International Financial Centers in ICIEC's Member Countries

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ICIEC’s Mission

To Encourage Exports

from Member Countries

to rest of the world by insuring the risks of non-payment by

the overseas buyers.

Member

Countries

To Encourage Flow of Investments into Member Countries by insuring the

political risks of the investment hosting country.

Member

Countries

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Commercial� Insolvency of Buyer� Failure or Refusal of Buyer to Pay

Political � Currency Transfer Restrictions� Expropriation & Creeping� War and Civil Disturbances� Breach of Contract

Export Credit Insurance

Risks Covered

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Foreign Investment Insurance.

(Coverage: 15 years standard, 20 years max.)

Kenena Sugar Factory Expansion Project, Sudan, Covered by ICIEC

Investment Insurance

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� Currency Transfer Restrictions

� Expropriation

� War and Civil Disturbances

� Breach of Contract

Investment Insurance

Risks Covered

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Equity Investments such as:

� Equity Participation

� Ownership rights in other assets

� Finance Lease Transactions

� Loan made for investment purpose

� Guarantees of Loans

Investment Insurance

Types of Investments eligible for cover by ICIEC

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Non-Equity direct Investments such as:

� Productions-sharing contract

� Profit-sharing contract

� Operating Lease

� Subordinated debentures

Investment Insurance

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Relevance of ICIEC Services to The Sukuk Industry

� Credit Enhancement PRI

� Risk Mitigation through Credit Insurance

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ICIEC’s Reinsurance Partners

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The following risks can be identified:

� Underlying assets are subject to the political risks of the country where they are located.

� Underlying assets may not generate sufficient cash to pay Sukuk holders.

� Breach of contract by Sovereign Fund – raiser.

Risks Identified

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ICIEC’s Risk-mitigation tools

�ICIEC can provide both commercial and political risk cover if the pool of the underlying assets consists of future exports contracts;

�ICIEC can provide political risk cover only if the issuance relates to a new investment project or expansion of an existing project.

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Scenario (1)

Covering commercial and political risks(non sovereign fund raiser)

Fund raiser (Petro-chemical

manufacturer)

Insuring non-

payment risks of

buyers

Prem

ium

ClientClient Client

Exports

Exports

Exports

Exports

SPV

Selling his portfolio

Price

Administrator

Assignment of policy

Payment of com

pensation

Sukuk holders

Client

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Covering non payments risks(sovereign fund-raiser)

Sovereign Fund raiser

Land(Property)

Ownership

SPV

Selling Land

Lease back Sukuk holders

Undertaking to repurchase

Proceeds of sale of Sukuk

Covering :� non payments of rentals� non payment of repurchase price (if not token)

Scenario (2)

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Scenario (3)Covering political risks only - Global Sukuk issuance

SPVSukuk Assets Located in a country different from the

country of the SPV

Ownership of Sukuk Assets

Foreign Investment

Insurance Policy

Insure invested assets against the

PRI of the host country

Administrator

Administration

Agreem

ent

Payment of Compensation

Payment of Premium, handling the insurance policy

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Benefits of ICEC’s Risk Mitigation Tools

• Enabling fund raiser to borrow cheaply,

• Enabling unrated companies to have access to the international market.

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Proposed New Product

Having in mind:• The effect of the credit risks of originators on the success of the sukuk issuance,

• The new Shariah standards prohibiting the Manager of sukuk from guaranteeing the Originator.

� ICIEC is proposing to establish a Sukuk Insurance Fund which will step down to pay sukuk holders if the assets are not generating enough cash.

� The policyholders are either SPVs or the Originators.

� The cost : normal rates prevailing in credit & political risk market

� ICIEC will seek reinsurance from major international insurers ofcredit and political risk.

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ICIEC’s Reinsurance Partners

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Let ICIEC carry the responsibility of protecting your Exports and Investments around the world