The initial phase of capitalisation of the Islamic Investment Insurance & Export Credit Guarantees Corporation is poised for completion, opening the way for the new agency of the Islamic Development Bank (IDB) to begin work.

IDB chairman Ossama Faquih said in late August that the corporation could now be established as 11 of the IDB’s members had ratified the agreement and paid their contributions. It will be based, like the IDB, in Jeddah.

Under the structures set up to create the new agency, half the Islamic dinar 100 million ($145 million) capital will come from the IDB, and the rest from 30 of its 51 member states. The IDB stake can only be paid-in when half of the capital due from member states is fully committed. Eleven countries – including Saudi Arabia, Kuwait, Egypt, Tunisia, Pakistan and Jordan – have now paid, Faquih says. Once 75 per cent of the capital is paid in, the corporation can open for business.

The corporation will initially provide short-term export insurance for trade between IDB member states. It will cover both political and commercial risks for public and private-sector buyers. Later, it plans to expand its operations to cover longer-term trade transactions and investment insurance.

The $145 million capital gives the agency considerable scope to provide insurance given the low levels of regional trade, analysts say. It has not any immediate need to finalise reinsurance arrangements.

The corporation will work under the rules of sharia (Islamic law), with profits to be divided among the insured.

The corporation has been established as part of the trend towards creating regional trade finance institutions to stimulate inter-Arab and regional trade (MEED 12:8:94, Trade Finance Special Report). The IDB has received technical advice on the project from the London-based Investment Insurance International, part of the Bain Hogg Clarkson group.