Breaking News

Asia Today ISSN 1861-4604 Monday, October 23, 2017

Headline

Islamic trade finance fuels rising Gulf reinsurance demand

Gulf trade credit insurer Euler Hermes says

Share on Facebook June 25, 2014, Reporter : gulfnews.com, Reader : 448

news

Dubai: The spread of Islamic trade finance is boosting demand for Sharia-compliant reinsurance in the Gulf, trade credit insurer Euler Hermes says, predicting the sector could eventually account for over a third of its business in the region.

Islamic finance, which bans interest payments, is used for only a tiny fraction — perhaps less than 1 per cent — of the foreign trade of the six-nation Gulf Cooperation Council, which totalled roughly $1.5 trillion last year.

But in some non-oil areas, such as Dubai’s booming merchandise trade, Islamic finance has been gaining ground, partly because of a jump in trade flows between the Gulf and predominantly Muslim countries in Southeast Asia.

Euler Hermes, part of Germany’s Allianz insurance group, is involved in the business because it is one of the region’s biggest trade credit insurers, offering companies protection from customers’ insolvency or default.

The company launched a Sharia-compliant trade credit insurance product in 2008 and the business began growing substantially three years ago, now accounting for about 10 per cent of Euler Hermes’ total GCC business, said Massimo Falcioni, chief executive for GCC countries.

“There’s a lot of potential — I wouldn’t be surprised if it was 40 per cent of total business eventually,” Falcioni said in an interview.

Euler Hermes’ GCC operations had total turnover exceeding $40 million last year, and exposure to its clients of more than $12 billion. Turnover has been growing at an annual rate of over 30 per cent for the past three years and is expected to continue rising at similar rates for the next few years, Falcioni said.

Islamic trade finance has been hampered by a lack of familiarity with Sharia-compliant structures among both companies and banks, which has tended to raise costs.

Falcioni said demand for Sharia-compliant trade credit insurance began rising when takaful (Islamic insurance) firms in the region became more active in offering the service to local companies.

The takaful firms are now seeking to offload some of their risk to reinsurers, but the industry’s retakaful capacity is limited; laying plans last year to develop its Islamic finance sector, Dubai’s government identified a lack of retakaful capacity as a major constraint.

That leaves an opening for Euler Hermes to market its Sharia-compliant trade credit insurance through GCC takaful companies.

“There is a large amount of latent demand because for small and medium-sized companies doing international trade, 60 to 70 per cent of the firm’s assets are typically trade receivables,” he said.

Trading companies using conventional finance are able to reduce their risk through factoring, in which a business sells its trade receivables at a discount which includes an allowance for expected bad debts.

This arrangement isn’t possible with Sharia-compliant companies and banks because of Islamic finance’s preference for risk-sharing rather than pure debt, Falcioni said. That makes the role of takaful firms more important.

Euler Hermes currently issues takaful policies, which create a cooperative structure to provide financial protection, in the United Arab Emirates and Bahrain. It plans soon to offer them in Saudi Arabia, Falcioni said. (source: http://gulfnews.com)

 

More Euro Asia news of the month

Photos Dubai ranked world’s 20th most expensive city for expats, while Abu Dhabi rises two places from last year

DUBAI, U.A.E. - According to a survey released by Mercer, Dubai has been ranked as the world’s 20th most expensive city for expats...

Photos Sterling falls 0.3 percent after London attacks as oil rises following significant split between powerful Gulf countries

DUBAI, U.A.E. - On Monday, as Saudi Arabia, Egypt, Bahrain and the United Arab Emirates cut diplomatic ties with Qatar, global benchmark...

Photos Dramatic flare up in Middle East as Arab countries turn on each other

DUBAI, UAE - In a shock development Monday the Arab world turned on tiny Qatar in what appears to be an orchestrated campaign to...

Photos Trump tells Arab leaders they should drive Hamas and Hezbollah out of their lands

RIYADH, Saudi Arabia - Visiting United States President Donald Trump, in a surprising move, has called on Arab countries to drive...

Photos Is that a bird? Is that a plane? No, its a taxi, and there shall be more in Dubai skies soon

DUBAI, U.A.E. - Dubai’s transport authorities have confirmed that they have tested a Chinese prototype of a self-driving...

Photos Middle East’s first Legoland park opens its doors for enthusiasts in Dubai

DUBAI, U.A.E. - Dubai is now home to Middle East’s first Legoland park and is said to have recorded an overwhelming response on...

Photos Starting October 3, Emirates to apply new charges for advance seat reservation

DUBAI, U.A.E - Emirates Airline, that has gained popularity for its classy operations and onboard luxuries has now decided to charge an...

Photos Uber, Careem services unexpectedly suspended in Abu Dhabi

ABU DHABI, United Arab Emirates - Private car service companies, Uber and Careem are said to have suspended services temporarily in the...

Photos Emirates flight makes emergency landing, catches fire in Dubai; passengers and crew safe, firefighter killed

DUBAI, U.A.E. - An Emirates flight caught fire while making an emergency stop in Dubai en route from southern’s India’s...

Flying Reimagined

Stock Index

Monday, October 23, 2017

Life Style

Photo Gallery

FEUILLETON