New Sukuk Insurance program could spur development in ICIEC member countries

Analysis of the ICIEC sukuk insurance plan, discussed in the IFG Weekly Briefing (subscribe here), has focused primarily on the benefit for issuers in accessing capital markets with new sukuk issuance, but there may be a greater benefit from modifying the incentives facing lower-rated sovereign issuers that can increase both the quantity of foreign investment they receive, as well as promoting fewer instances of default by mitigating a moral hazard problem facing low-rated sovereigns where insurance is not available.  Combined with more project-based sukuk like is proposed in Egypt’s sukuk law, could provide a way for sukuk to be used to promote development more effectively than conventional debt has in the past.

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