x Abu Dhabi, UAEWednesday 17 January 2018

Plastic bottle that reveals a subtle trend

Banks and Sharia scholars see huge opportunities for Islamic finance in corporate banking, especially for funding trade between Asia and the Middle East.

For a growing number of businesses in the Middle East, the difference between Islamic and conventional finance is so slight as to be imperceptible. To illustrate the point, one need look no further than the humble plastic bottle.

Emirates National Factory for Plastic Industries (ENPI), which supplies plastic bottles to Pepsi and other drinks companies, has just struck a deal that will change the shape of drinks to come.

The fact that the deal was funded through Islamic finance is easy to miss on the company's bottom line.

ENPI has received a Dh250 million (US$68m) syndicated Islamic finance facility, led by Abu Dhabi Islamic Bank, part of which will help pay for a recently completed plastic bottle factory with a crucial difference - the bottles it produces will have a shorter neck than usual.

"For the end user, it doesn't matter if the neck is long or short," says Nizar Rajoub, ENPI's chief executive, but it brings substantial cost benefits as the price of oil spirals higher.

"We're launching and starting the latest technology by reducing the weight of the bottle, which is obviously helping the environment."

Bottles from the Dh100m factory, which started production three weeks ago, should start appearing in the shops alongside internationally produced bottles within three months. "As a businessman it doesn't matter for me," says Mr Rajoub regarding Islamic finance. He deals with a number of conventional and Islamic banks for his trade financing needs.

"I will look to flexibility if the bank supporting [me] handles my business in the proper way."

His point underscores a growing orthodoxy among businesses in the UAE: Islamic finance is starting to garner sufficient demand to become competitive with conventional finance.

It's a point that Yakub Bobat, global head of commercial banking at HSBC Amanah, insists on. "It's a fallacy to believe that Islamic finance is more expensive or cheaper." Commercial Islamic lending as a business is heavily underbanked, he says. "We're seeing a huge demand for the Sharia-compliant segment."

Trade finance is regarded by both banks and Sharia scholarsas a huge opportunity, especially for companies opting for Islamicfinance to facilitate trade between Asia and the Middle East. "It may be done as a matter of faith, it may be done as a matter of connectivity and business relationships," Mr Bobat says.

But Abdulkader Thomas, the president and chief executive of Shape Financial and the director of the American Journal of Islamic Finance, says demand from this sector is not being matched by supply of credit in some areas.

"The problem that many [smaller, medium] and larger companies are complaining about is they know that their bank is liquid and has excess cash. If they're Islamic, they cannot access liquidity at any price at all," he adds.