Gaps in Islamic finance a pressing issue, says ICIEC

The Islamic Corporation for the Insurance of Investment and Export Credit is engaging with a number of central banks to increase liquidity

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The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) is trying to fill a gap in the absence of third-party guarantees, which has affected liquidity and hindered growth of Sharia-compliant financing.

Having a third-party guarantee on a transaction makes it more attractive to investors because it assures them the investment will be repaid in the event that the borrower cannot make payments on time.

The group is engaging with central banks of several countries including Saudi Arabia, Malaysia and Turkey, to find ways to increase liquidity for Islamic financing and allow more third-party guarantees, Oussama Kaisi, the head of ICIEC, said at London Sukuk and FinTech Summit in London on Tuesday,

“These are the most vibrant economies in the member states,” said Mr Kaisi.

“There is a lack of knowledge that we need to address and we have to learn from the West,” he added.

Established in 1993, ICIEC provides investment and export credit insurance for Islamic countries, with a goal of strengthening economic relations between different member states of the Organisation of Islamic Co-operation (OIC). The organisation consists of 57 member states – including the UAE – and is based in Jeddah.

Mr Kaisi said by accessing the Shariah-compliant bonds market, or sukuk, companies can increase their investor base through stronger ratings, raise loan tenors and decrease borrowing costs.

The value of sukuk issuance in 2018 was $115 billion (Dh422.33bn) and the market looks set for a similar amount this year, according to ratings agency Standard & Poor's. The Islamic bond market has grown over the past few years due to increased issuance from GCC states.

S&P says the UAE, the second-biggest GCC economy, may sell $8bn worth of sukuk this year, slightly lower than $9.1bn recorded at the end of 2018, with private-sector corporations dominating the issuances.

Due to the structure of sukuks, they cannot be guaranteed by issuers but can be backed by third parties.