Contributed by ITFA Middle East Regional Committee

The ITFA Middle East Regional Committee was pleased to host its fourth Trade Finance Forum (TFF) in collaboration with the DIFC Academy on 29th September 2022. This was the first in-person TFF event held since May 2019 and was attended by over 80 participants from financial institutions, insurance companies, corporates, fintech’s and others. Sponsored by Emirates NBD, Cut Water, Clear Eye, Cargoes and DP World the forum was structured into two panel events. The first focused on the macro-trends in the world of trade finance, and the second on digitization. The event opened with a keynote speech by Baris Kalay, EMEA Head of Corporate Sales – Global Transaction Services at Bank of America.

• Mr. Kalay touched on the hot treasury topics of the moment: working capital management and efficiency, the impact of the rising rate environment on liquidity management, digitization, and supply chain sustainability, highlighting that the GCC region has been slightly more sheltered from macro events, with anticipated GDP growth rates which are substantially ahead of their more developed peers.

• He also spoke about data and digitization, defining it as not only the change from paper to electronic, but on connecting the data points to make more informed and real-time decisions to manage risk and create opportunities more effectively.

• He went even further, pinpointing how the industry must move to unlock balance sheet inefficiencies and progress towards a better, more sustainable (focusing on ESG) and data driven trade finance ecosystem. The first panel explored all relevant topics surrounding the global economic environment. Led by Maninder Bhandari from GTR MENA (moderator), Motasim Iqbal (Managing Director, Standard Chartered Bank), Meriam Charraji (Regional Head of GTRF Legal for MENA, HSBC), Staney Pullolickel (Commercial Treasury Executive, GE) and Dan Georgescu (Business Restructuring, PWC) shared their insight on the overarching theme of “treasury transformation” being tackled in the GCC.

• Specifically, as Staney (GE) highlighted, banks must “come up with value added solutions addressing the entire trade ecosystem”. Banks should work with fintech’s to provide a holistic overview of the trade transaction end-to-end, to enable treasurers to find efficiencies in addressing their cash conversion cycles and focus on liquidity management, which, given the impending global economic slowdown, is at the forefront of any treasurer’s agenda today.

• With that comes an increased focus as well on the monetization of receivables and payables: Dan (PWC) indicated that “corporates have moved from bilateral self-focused discussions with funders to looking at financing their trade ecosystem more holistically”. However, he stressed that the determining factor for a successful SCF program is the engagement with the corporate client’s procurement team, a conversation which is often overlooked or left too late.

• The speakers also addressed sustainability of the supply chain. Motasim (SCB) stated that in the GCC, the focus is on “nearshoring and on shoring as much as possible. The conversation we are having with our corporates is that, while they may have to pay more warehousing cost, at least we don’t see a stoppage in the production cycle.” Resilience is also being achieved via diversification of the supplier base, moving from “single source to multiple source suppliers.”

• All panelists agreed that underlying all aspects within the working capital space is the topic of ESG. Meriam (HSBC) stated that “the evidence to me suggests that ESG is here to stay, it’s something that the market is asking for, and thus, ultimately, the industry will have to agree on a cohesive set of standards eventually.” While a lot of work has been carried out, LMA, IFRS along with rating agencies such as Ecovadis and Sustainalytics working with financial providers and regulators are all working together to build that framework. The second panel, focused on trade digitization in the MENA region, was moderated by Naura Hussain (Head of FI, United Bank Ltd) and attended by Andre Casterman (Casterman Advisory and Chair of Fintech Committee, ITFA), Sinan Ozcan (Senior Executive Officer & Board Director for DP World Financial Services / “Cargoes Finance”), Mrityunjay ‘Jay’ Singh (ADCB) and Vishnu Purohit (Group Head Trade Product Management, ENBD).

• Calling it a “team sport”, Sinan (DP World) affirmed that “trade transformation not only requires innovation but also collaboration simply cause the scale and the complexity of the global trade is huge” given the involvement of the various funders, third party providers, regulators, data security and complexity of the underlying transactions (cross currency etc.). • Scalability is necessary for digitization to be successful, but while many advents have been made with the introduction of MLETR, e-BL recognition (in some markets), URDTT to name a few, standardisation and consolidation are far from being achieved (Vishnu – ENBD).

• Andre (Casterman Advisory) stressed that while standards are very important (MT 700, MT 100, the ISO 20022, the UCP 600 MLETR), they are not sufficient to achieve the full internal operability requirement.

• The latter though is being addressed by initiatives on the fintech side, such as the DNI initiative and TFD initiative, the latter attempting to create a bridge between the trade finance space and the originators, the funders, and the institutional investors with, a multi-bank, multi-investor, repackaging entity.

• The appetite for trade assets globally has grown, with non-traditional players such as insurance companies, NBFIs and others entering the trade distribution market, especially with the increase of securitization in the trade space.

• Tokenization was also underscored as a tool to widen the investor base and allow for a larger segment of the corporate population to be banked and address the trade finance gap: inherently however, the issue of transparency, mark to market and secure data sharing have yet to be fully resolved.

• Jay (ADCB) emphasised the added compliance angle needing to be tackled as well: he sighted that UTC is one such example where banks are collaborating via blockchain to control double financing of invoices. While trade remains an attractive, short term self-liquidating asset, a substantial amount of work must be carried out to ensure control of fraud risks. The panel concluded with assessing the various Proof of Concepts currently being tested, and all agreeing that in a utopian world, all stakeholders involved in a trade finance transaction would use a public network underpinned by blockchain technology to carry out the execution end to end, as it would address the fragmented world of trade finance as we know it today. Achieving that ultimately comes down to one critical ingredient: collaboration.

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