(Sukuk.net - Arab News) Saudi Arabian Monetary Agency (SAMA) Gov. Muhammad Al-Jasser yesterday stressed the role of credit insurance as an important tool for risk management in financial institutions particularly during the current financial crisis which resulted in an increase in credit risks.

Addressing the opening ceremony of a seminar on "The Relation Between Export Credit Insurance and Bank Financing" in the context of Basel II requirements, Al-Jasser encouraged Saudi banks to make use of this instrument which is offered in the Kingdom by the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC).

Export credit insurance though established in the developed economies is a relatively new concept in our part of the world and developing countries, the SAMA governor said. "Export credit insurance is amongst a genre of financial products and services that facilitate and grease the wheels of international trade by protecting the exporters from the risk of payment default by their buyers or importers on one hand, and by offering them a number of indirect and direct financing products on the other hand. This dual solution approach mitigates the principal inherent risks in international trade, encouraging exporters in entering new markets and expanding customer base," Al-Jasser added.

The advent of export credit insurance in our region in general and in Saudi Arabia in particular is a relatively recent tool, spearheaded by the establishment in 1994 of ICIEC by the Islamic Development Bank (IDB) to promote and facilitate exports from and within its member countries to cover the nonpayment of export receivables resulting from commercial or non-commercial risks by the usage of Islamic export credit insurance products on the basis of Takaful, he said.

Al-Jasser added that the use of export credit insurance products by Saudi exporters — particularly those belonging to the small and medium sized enterprises — was augmented by the launch in 2001 of the Saudi Exports Program (SEP) which aims to diversify national income sources.

Since its inception and the launch of the guarantee program in 2003, the SEP has provided financing and issued policies covering exports in excess of SR5.8 billion.

In 2007, Saudi Arabia formalized the export finance sector with the formation of the Saudi Export Development Authority which has been specifically tasked with developing the non-oil exports.

"An important indicator of progress made in diversifying the economy is provided by the growth of non-oil exports. Such exports were insignificant in early eighties, but they have been rising sharply in recent years. They have risen continuously from SR21.8 billion in 1999 to SR115.1 billion in 2008," Al-Jasser said at the seminar attended by senior officials from all the banks operating in Riyadh and major Saudi corporations involved in export and investment in foreign countries.

IDB Group President Ahmed Mohamed Ali focused on the establishment of ICIEC which came into being in the context of IDB strategy to encourage exports and intra-trade between its member countries and help them attract foreign direct investment (FDI). "The services offered by ICIEC complements the wide range of financing schemes and products offered by IDB," Ali said.

Abdel Rahman Taha, general manager of ICIEC, gave summary of credit and political risk instrument products offered by ICIEC for the benefit of banks in Saudi Arabia and other member countries.

He also stressed the bank's master policy designed specifically to ensure credit risk associated with Islamic financial products such as Murabaha, Ijara and Istisnaa and invited Saudi banks to make use of these products.

"As the financial crisis and the ensuing recession continue to envelop economies around the world, the role of export credit insurance is becoming increasingly evident in ensuring the smooth flow of trade and services between economies," Taha said.

Yesterday's seminar took place under the patronage of SAMA represented by the Institute of Banking and was the first in a series of seminars the ICIEC intends to conduct in the Kingdom and other member countries.
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