As companies seek to boost their ability to obtain bank loans demand for trade credit insurance is surging, according to the UAE's only export credit agency.
Demand for trade credit insurance surges
Demand for trade credit insurance is surging as companies seek to boost their ability to obtain bank loans.
The growth comes as companies look to export goods around the world, says the UAE's only export credit agency.
Banks are more willing to provide finance when the risk of exporting has been insured, said Schuyler D'Souza, the chief commercial officer of the Export Credit Insurance Company of the Emirates (ECIC), based in Dubai.
Firms say that with insurance they are able to negotiate bigger and better loans.
"Banks consider our policy as a risk mitigation for themselves," Mr D'Souza said. "With the introduction of new banking regulations, lending is becoming a more stringent practice and they have to make sure the risk is protected when they lend."
Trade credit insurance protects suppliers against the risk of a buyer defaulting on payment for goods and helps suppliers to offer longer payment terms to their buyers.
Officials view the mechanism as a tool to help expand the role of the non-oil private sector through exports.
However, some small businesses are still finding it difficult to obtain finance as bank credit remains tight after the global financial crisis.
Lending has started to pick up, but many risk-averse banks are providing credit only with more stringent conditions attached, analysts say. Small firms are considered a higher risk by many lenders, which believe small operators have a higher probability of failing.
Credit insurance can help companies overcome such hurdles.
ECIC was set up by the Dubai Government two years ago with the intention of helping companies expand their export markets. It is funded by the Government.
In return for a premium, ECIC insures trade deals that otherwise might not be realised.
ECIC expects growth of up to 35 per cent in its customer base this year, faster growth than last year, Mr D'Souza said.
Pranesh Kankanwadi, the managing director of Positive Packaging United, a packaging company and ECIC customer in Jebel Ali, said: "Credit insurance has definitely helped us get better terms and borrow more than what we could normally expect.
"In addition, we have been able to find out more about the creditworthiness of our customers," he said.
The firm aims to use the insurance to boost its exports to the UK and the wider EU this year, where its customers include Unilever and Nestle.
ECIC is licensed by the Emirates' Insurance Authority to offer insurance to companies across the country.
But Abu Dhabi plans to establish an export credit agency to offer financial assistance to traders. The emirate wants to raise the contribution of non-oil exports to Abu Dhabi's GDP to 11 per cent by 2030 from 1.5 per cent now.
Haytham el Maayergi, the managing director and head of transaction banking for the UAE at Standard Chartered, said the bank was usually more willing to offer credit to companies that had backing from credit insurers.
"If the company doesn't have this in place, more work is needed to establish the financial track record of the company," he said.