If there’s anything guaranteed to arouse interest in the banking and corporate space it’s a secure payment system that eschews documentation.
That is why MENA is now looking favourably at SWIFT’s Bank Payment Obligation (BPO). The BPO is an electronic instrument that can be transmitted between two banks in a trade finance transaction to provide an irrevocable undertaking that one will pay the other on a specified date – after the successful electronic matching of data.
So far, SWIFT’s BPO has attracted significant interest in Asia, and now a positive picture is also emerging in the Middle East, where it is poised to provide a viable alternative to both open account trade and letters of credit.
“I believe that this has a lot to do with the sophistication of corporate customers and also the corporate culture in the Middle East,” said one banker interviewed in our article in this issue. “There is a greater readiness to accept new things within this region.”
It’s felt that the BPO will appeal most to Middle Eastern buyers and suppliers who are regular trading partners and have long-term, strategic relationships.
Already, early bank joiners of the BPO initiative, such as the Qatar National Bank Group, have witnessed interest and enthusiasm from their corporate customers during initial discussions about the SWIFT system.
“Customers are always interested in any potential process or efficiency enhancements offered by the banks. We have introduced this concept to a few of our customers to seek initial feedback, and the response was always positive,” said another banker.
However, he added, “We foresee that the adoption of the electronic-data-matching-concept – instead of physical documents checking – will take a certain amount of time as IT systems and business and operational processes need to be changed, not only on the bank side- but also on the customer side as well.”
Islamic finance is one of the world’s fastest-growing asset classes. But a number of barriers are currently preventing the sector reaching its full potential – particularly the lack of a uniform set of rules and regulations for Sharia compliance, says Carsten Kayatz, of Commerzbank, author of our “guest article” in this edition..
The most recent economic forecasts continue to point towards sustained, rapid growth for Islamic finance – industry estimates suggest this expansion could total up to $5 trillion in Sharia-compliant assets by 2016.
This expansion brings with it opportunities for Islamic and non-Islamic corporates and financial institutions alike. But, in their efforts to gain access to the necessary capital and liquidity to meet the growing demand of their clients, Islamic banks need to be able to access funding (from banks and the global capital markets) in a manner that is compliant with Islamic law.
To date, though, there has been a clear lack of Sharia-compliant instruments meeting today’s needs to manage short-term liquidity. The reason for this is that Islamic finance has yet to become fully established alongside conventional global banking instruments. In order to become more widely utilised internationally there are a number of challenges the sector needs to overcome – particularly in adopting a more standardised financial infrastructure.
Several banks engaged in the crucial sector of trade finance were rewarded for their continued efforts and innovations, by showing double-digit increases on the previous year. The sector’s contribution is even more impressive, as illustrated in the latest UAE Tajara Monitor published by Cash Management Matters (CMM), when set against an overall decrease, of some five per cent year-on-year, in total bank fees and commissions.
Trade finance income has risen in the UAE thanks to a resurgence of both exports and imports. With a majority of reporting banks posting figures far in excess of AED 100 million, trade fees and commissions rose by an average of seven per cent in 2011 in the Emirates.