Companies in the MENA region are looking for maximum security in trade transactions having been shaken up by the global financial crisis and the Arab Spring.
Although seen as being in better shape than their European counterparts, GCC companies and banks are being extremely cautious when arranging trade transactions, and this has resulted in increased demand for confirmed letters of credit (LCs), trade credit insurance and warehouse receipts.
These points were made at Exporta’s Middle East Trade Finance Week in Dubai. Khemais El Gazzah, director of operations at the Islamic Corporation for the Insurance of Export and Credit (ICIEC), said that even in countries not directly impacted by the Arab Spring there was now a much stronger need for the confirming of LCs, and that political turmoil in MENA countries had raised the profile of credit insurance in the region.
Hani Salem Sonbol, deputy CEO at the International Islamic Trade Finance Corporation (ITFC), added, “MENA firms have been dramatically affected by the crisis, which is forcing a trend in bank appetite towards more secure financing and supply chain finance.”
All speakers at the event agreed on the renewed popularity of LCs, despite a desire to move to open account for larger corporates.
In the meantime, Islamic finance products are said to be growing in popularity. ITFC has approved the opening of its first regional branch in Dubai, and the number of Islamic finance transactions is expected to double by 2015.
ITFC, which sponsored and participated in the event – organised by Exporta and Global Trade Review – took a delegation led by Eng Hani Salem Sonbol, deputy CEO, who was also a speaker at a panel discussion that asked: Is Islamic finance reaching its potential in trade?
The questions raised were as follows:
- Is pricing still the fundamental issue when it comes to wider uptake of Islamic trade finance?
- How wide has been the adoption and demand for products to be made available across the region?
- With most large institutions now having Islamic finance divisions, what role is there for more specialist providers?
- How can Islamic finance structures be developed as a way of extending access to liquidity in certain transactions?
- Has increased growth of Islamic finance across Asia and Africa broadened its appeal to international corporates?
As one of the longest-running and most established fixtures on the MENA calendar, the event is said to have built an unrivalled reputation for bringing senior business leaders together to discuss the most pertinent issues impacting on the regional trade landscape.
Following a period of unprecedented change within MENA, delegates devoted particular focus to “how change has impacted on regional and global trade flows”. With around 300 in attendance, including companies of all sizes and from all manner of sectors, attention was also given to how financial institutions were serving their funding needs and how they would cope with financing the exponential growth expected in coming years. n