(Reuters, Sydney, 9 May 2013) A unit of the Jeddah-based Islamic Development Bank, a multilateral lending institution, has launched an insurance product designed to boost the credit ratings of sukuk (Islamic bonds) for sovereign issuers. Governments would buy the product in order to enhance their credit profiles; they would contribute to a common pool of funds that would be used to indemnify investors in their sukuk in cases of default. Soua said the product was fundamentally different from credit default swaps (CDS), which are commonly used in conventional finance; in those, investors pay a premium to buy cover against default risk, and the instruments can be traded. The expectation is that ICIEC could insure $300 million in the first year and $600 million in the year after, although the figures are not binding, said Soua. “For larger issuance, we would seek reinsurance or insuring a tranche of the issue.”
