2. International and Regional Rating Agencies
International Rating Agencies like Standard & Poor’s, Moodys
and Fit h h
d Fitch have a hi t
history of at l t 100 years.
f t least
To reduce the dependence of member countries on three
international rating agencies, European countries are
endeavoring to establish a rating agency. Initial cost of setting up
a rating agency in Europe has been estimated at around 300
million Euros
Euros.
3. IIRA – A Regional Rating Agency
Based in Bahrain, The Islamic International Rating Agency (IIRA)
started operations i J l 2005
t t d ti in July 2005.
IIRA is sponsored by multilateral development institutions,
leading banks, other financial institutions and rating agencies.
Shareholders of IIRA operate from eleven countries.
p
Member countries of Islamic World are fortunate to have Islamic
International Rating Agency (IIRA) to represent dynamics of
Islamic Financial System.
4. Objectives of IIRA
Rating Islamic
Financial Institutions
differently
1
Primary
Facilitate Objectives Mapping of
Development of of IIRA Ratings by IIRA
Sukuk market
Sukuk market and Cross‐border
d C b d
through National Transactions
Scale Ratings 2 3
5. Objective: Rating Islamic Financial Institutions –
with a difference
Conventional rating products do not sufficiently
address acknowledged differences between Islamic
g
banking and conventional banking
Available rating products are primarily focused on
either credit risk or corporate governance
Need for an analytical framework that
accommodates the unique features of IFIs and
recognizes the mutually dependent nature of
credit and fiduciary risks in an IFI
7. Objective: Rating Islamic Financial Institutions –
with a difference
IFI 1 IFI 2 IFI 3
Credit Rating AA‐ Credit Rating A+ Credit Rating A‐
Sovereign Rating BBB Sovereign Rating A Sovereign Rating BB+
nance, 88
nance, 82
nance, 85
hariah Compliance, 74
hariah Compliance, 78
hariah Compliance, 80
As Managemen 90
As Managemen 85
As Managemen 85
nt,
nt,
nt,
orporate Govern
orporate Govern
orporate Govern
sset
sset
sset
Co
Co
Co
Sh
Sh
Sh
Fiduciary Score, 86 Fiduciary Score, 83 Fiduciary Score, 84
10. Objective: Facilitate development of Sukuk Market
through National Scale Ratings
National scale ratings provide useful information to the local capital
markets and help investors compare domestic issues and issuers in local
p p
currency
Particularly, in cases were sovereign rating of the country on the
international scale i i th ‘BBB’ or l
i t ti l l is in the lower, national scale ratings gain
ti l l ti i
more importance
Turkey India
Global Scale Global Scale
Ratings Ratings
National Scale National Scale
Ratings Ratings
BBB‐
BBB‐
BBB‐
AAA
AAA
AA+
BB+
AA
BB
BB
A
A
A
A
B
B
B
B
B
B
Sovereign T.C. Ziraat Creditwest Sovereign Bank of Baroda Industrial
Rating Bankası Bank Ltd. Rating Development
Bank of India
12. Objective: Facilitate development of Sukuk Market
through National Scale Ratings
Why Domestic Debt Global Debt Markets Volumes*
7,000 32,000
Market? 6,000
6 000 30,000
Confidence in debt markets
5,000
28,000
has been recouped at a faster
,
4,000
Bn
USD B
pace i relation t equity
in l ti to it 26,000
market, subsequent to Global 3,000
24,000
Financial Crisis. 2,000
1,000 22,000
Against market capitalization
of around $ 55 trillion of 0 20,000
Global equities market, global 2005 2006 2007 2008 2009 2010
bond market totaled $ 95 EMEA Americas Asia Pacific # of Deals
* Source: Dealogic; Only transactions with book runners are included
trillion in 2010.
13. Objective: Facilitate development of Sukuk Market
through National Scale Ratings
Value of bond market based in issuers country of
250
residence as % of GDP, 2010
Why Domestic Debt
71%
24% 2%
Market? 21%
200 98%
Leading global economies 38%
76%
have highly developed 150 79%
42%
debt markets even with 62%
30%
100
sound access to funding in
g 70%
58%
the international markets. 50 29%
0
UK Italy US Japan France Germany World
Domestic International
Source: Bank for International Settlements; IMF
14. Objective: Facilitate development of Sukuk Market
through National Scale Ratings
Why Domestic Debt World bond market
90,000
Market? 80,000
30%
With greater depth in 70,000
60,000
domestic debt
USD Bn
n 50,000
50 000
market, cross-border
40,000
transactions have 30,000
13%
70%
increased.
increased International 20,000
87%
debt market represents 10,000
0
30% of overall debt
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
market in 2010 from
Domestic International
13% in 2000.
* Includes bonds, notes and money market instruments. Source: Bank for
International Settlements
15. Objective: Mapping of Ratings by IIRA and Cross‐
border Transactions
• As IIRA is planning to assign ratings on a national scale in
Islamic countries; rating benchmarks for institutions within
Islamic countries will be developed.
• These benchmarks may be distinct from conventional
benchmarks and thus, allow assessment of entities/issues
incorporating the essence of Islamic Finance.
• With greater penetration of national scale rating and
sufficiently developed Sukuks market, transition to cross-
border trading will be possible.
g p
17. IIRA’s vision dovetails IDB’s Vision
IDB’s Vision
‘To be the leader in fostering IIRA’s Vision
socio-economic
socio economic development in ‘To foster growth in Islamic
To
member countries and Muslim Capital markets, as a rating
communities in non-member agency that stands for
countries in conformity with
y trust, transparency, fairness
, p y,
Shariah and independence’
