A subsidiary of the Islamic Development Bank (IDB) has signed a memorandum of understanding (MoU) with the State Bank of Pakistan (SBP) intended to provide the country's banks with better access to letters of credit (L/Cs).

The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) signed the MoU with SBP earlier this month.

L/C insurance

The MoU calls for the IDB subsidiary to provide Shariah-compliant insurance coverage for L/C issuing banks in Pakistan.

This should help them obtain L/C confirmations at more competitive rates.

Non-payment cover

Under the new arrangement, the ICIEC essentially protects commercial banks against the risk of non-payment of an import L/C issued by an importer's bank.

The policy thus effectively protects the confirming bank against non-payment by the issuing bank.

The Jeddah-based IDB is the only multilateral Shariah-compliant development bank in the world providing Islamic credit and political risk insurance services.

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