Role of Islamic International Rating Agency Role of Islamic International Rating Agency Developing Sukuk Hubs in Islamic Countries and Facilitating Cross‐border Transactions Developing Sukuk Hubs in Islamic Countries and Facilitating Cross‐border Transactions May 6, Muscat Faheem Ahmad, IIRA
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Conventional rating products do not sufficientlyaddress acknowledged differences between Islamicgbanking and conventional banking
Available rating products are primarily focused oneither credit risk or corporate governance
Need for an analytical framework thataccommodates the unique features of IFIs andaccommodates the unique features of IFIs andrecognizes the mutually dependent nature ofcredit and fiduciary risks in an IFI
Objective:RatingIslamicFinancialInstitutions–withadifferenceFiduciary Rating SystemUnique two-dimensional framework that comprehensively covers the
l f M d ib li i i i l d li i helements of Mudarib quality, institutional governance and compliance withShari’ah principles adopted by an institution.
H ll k f Fid i R ti S t T diHallmark of Fiduciary Rating System ‐ Transcending National Borders
Elements of fiduciary score will set benchmark for CorporateGovernance, Shari'ah Compliance and Asset Manager Quality, p g yacross different countries.
National scale ratings provide useful information to the local capitalmarkets and help investors compare domestic issues and issuers in localp pcurrency
Particularly, in cases were sovereign rating of the country on thei t ti l l i i th ‘BBB’ l ti l l ti i
Turkey India
international scale is in the ‘BBB’ or lower, national scale ratings gainmore importance
• As IIRA is planning to assign ratings on a national scale inIslamic countries; rating benchmarks for institutions withinIslamic countries; rating benchmarks for institutions withinIslamic countries will be developed.
• These benchmarks may be distinct from conventionalbenchmarks and thus, allow assessment of entities/issuesincorporating the essence of Islamic Finance.
• With greater penetration of national scale rating andsufficiently developed Sukuks market, transition to cross-border trading will be possible.g p