- Focus Areas
From Global Trade Review (GTR) | By Sanne WassHSBC is looking to carry out its next trade finance blockchain pilot in the Middle East, according to the bank’s regional head of trade. Speaking to GTR for its upcoming Fintech Issue, Sunil Veetil says the Middle East will be the next region of focus for HBSC when expanding its recently successful trial for a blockchain-based letter of credit solution. The bank made big headlines in May when it announced it had conducted its first live, commercial trade finance transaction on blockchain together with ING for agrifood trading giant Cargill. The deal was completed using the R3 Corda platform, with a cargo of soybeans exported from Argentina to Malaysia. Corda’s letter of credit module, which has been developed by 12 banks, enabled the transaction time to be reduced from a standard five to 10 days, to 24 hours. According to Veetil, the announcement created great interest among clients in the Middle East, some of which HSBC is now looking to involve in the next stage of the trial. He did not give any further information on which clients the bank is in discussions with, but says the Middle East is an “ideal place” for testing blockchain, given the region’s growing importance as a trade hub between the East and West. “If you look at the region, there is a huge reliance on trade, so there are huge benefits that our clients can derive from this technology,” he says. Another “uniqueness” of the Middle East, he explains, is that there’s considerable push for change from the regulators. “There is currently a large focus on blockchain, fintechs are opening up, banks are encouraging fintech and accelerators, and we have our own hubs where we work with locally groomed startups. Definitely I can see that interest is very high in the region, within the government and the regulators. And they are quite nimble, they move quickly,” he says. He adds that HSBC is currently in discussions with UAE regulators, which are keen to provide the necessary support for the bank’s blockchain pilot. The UAE has thrown its weight behind fintech and blockchain more so than any other government in the region. In April, it launched its Emirates Blockchain Strategy, which seeks to transform 50% of government transactions into the blockchain platform by 2021. In doing so it expects to save AED11bn in transactions and documents processed routinely, 398 million printed documents annually and 77 million work hours every year. Meanwhile, Dubai has its own blockchain strategy, run by its Smart City Office. Ideal for trade finance technology HSBC has also had a great focus on the Middle East for piloting other trade and supply chain finance technologies. Last year, when HSBC and IBM introduced an AI solution to automate and digitise trade finance documentation, they selected the UAE as one the first countries (together with Hong Kong) to go live in. The bank also recently rolled out its trade transaction tracker, a smart-phone based application, which was first piloted in Qatar. And it has just launched a new supply chain finance platform in the region together with Kyriba, a financial software provider. HSBC isn’t alone in its quest: a growing number of global banks and software firms are starting to see the Middle East as a perfect location to test and roll out new trade technology. Standard Chartered, for one, announced last week that it had chosen the UAE to kick off an “industry-first client pilot” for blockchain-based smart guarantees in trade finance, together with Siemens Financial Services and blockchain firm TradeIX. TradeIX’s CFO Daniel Cotti specifically quoted the government’s “enormous drive for digitalisation and blockchain” as one important reason for choosing that location over others. This was followed by an announcement by Finastra, one of the world’s largest financial software companies, that it had joined Bahrain’s accelerator programme Bahrain Fintech Bay, with the goal to expand its open innovation platform FusionFabric.cloud to local fintech startups. Finastra went live with the platform earlier in June in order to accelerate innovation for its 9,000 bank clients by allowing them to easily connect to fintech applications within an open marketplace. “Now couldn’t be a better time to be part of this community as the Bahrain Fintech scene heats up,” says Wissam Khoury, Finastra’s managing director for the Middle East and Africa. While it’s still early days for fintech in the Middle East (in fact, the region had as of January 2017 only attracted 1% of the US$50bn raised globally by fintech startups since 2010, according to consulting firm Accenture), it seems that this is set to change. Fintech Hive, an accelerator which was launched last year in Dubai International Finance Centre (DIFC), kicked off its 2018 programme this week, after having received “overwhelming response” from applicants for what will be its second programme. It got more than 300 applications from around the world – three times more than in 2017. According to Raja Al Mazrouei, executive vice-president of FinTech Hive at DIFC, it is a “testament to the increasing demand for disruptive technologies in the region”. As for HSBC, it has not revealed the specific timeline for the roll-out of its blockchain solution for letters of credit. Vivek Ramachandran, the bank’s global head of innovation and growth for commercial banking, told GTR in May that we can expect to see another few live transactions on the platform, as the bank learns how it interacts with the systems of other banks and corporations. Then the primary focus will be on driving industry-wide adoption. “We’ve still got a few more steps to do before we get to widespread adoption,” he said. The post HSBC exploring Middle East for next trade finance blockchain trial appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Sanne WassStandard Chartered and Siemens Financial Services, the financing arm of Siemens, are kicking off what they call “an industry-first client pilot” for blockchain-based smart guarantees in trade finance. They will do so in collaboration with blockchain firm TradeIX, a provider of a trade finance specific open-source blockchain platform, which allows financial institutions to develop their own trade finance applications with open APIs. Using TradeIX’s tools, Standard Chartered and Siemens started building the solution in March. It is among a number of proof of concepts that the bank has conducted on the open platform – and one which it has now decided to pilot with the purpose of commercialisation. Built on R3’s Corda framework, the solution will enable Siemens to digitise and automate its guarantee process – a traditionally paper-intensive business – for customers with large transaction volumes, from initiation of the bank guarantee to the claim handling. It utilises a decentralised ledger and auto-executing smart contracts to provides a streamlined communication tool between the guarantee issuer (in this case Siemens), the bank (Standard Chartered), and the beneficiary (Siemens’ customers). The pilot is expected to be fully completed later this year. “Unlike a letter of credit, which involves multiple parties, performance details and over 100 pages of documents, a commercial bank guarantee is a much simpler instrument to digitise,” Standard Chartered says in a statement. According to Michael Bueker, CFO at Siemens in the Middle East, having such a digital trade finance solution “is an important step” toward making the company’s trade finance operations “smoother, faster and more efficient”. “We are delighted to partner with Standard Chartered in leading such a game-changing transformation, which will help our customers go digital in their guarantee and claim processes and achieve higher efficiency,” he adds. The parties will pilot the solution in the UAE, which offers a good location for such an initiative, given the government’s “enormous drive for digitalisation and blockchain”, Daniel Cotti, CFO at TradeIX, tells GTR. He adds that most of the beneficiaries of the guarantees will be government entities. The UAE has thrown its weight behind blockchain more so than any other government in the region. In April, it launched its Emirates Blockchain Strategy, which seeks to transform 50% of government transactions into the blockchain platform by 2021. In doing so it expects to save AED11bn in transactions and documents processed routinely, 398 million printed documents annually and 77 million work hours annually. Meanwhile, Dubai has its own blockchain strategy, run by its Smart City Office. Commenting on the pilot, Motasim Iqbal, Standard Chartered’s head of transaction banking in the UAE, says: “This is an industry-defining solution which we believe will transform the way guarantees are issued and processed in the UAE. Siemens Financial Services has been a key partner for us to build and develop this pilot on the distributed ledger and we believe that this technology can further be harnessed by the Dubai Smart City initiative.” A range of projects are currently being carried out on TradeIX’s platform. The most prominent one goes under the name Marco Polo and is a platform for open account trade developed with R3 and 10 international banks, also including Standard Chartered. Pilots for this project are currently being prepared and are scheduled to begin in October, before being commercialised next year. The blockchain firm has also worked with Standard Chartered and global insurer AIG on a project to develop a blockchain-powered invoice finance programme for DHL. Now implemented by the logistics company, the solution helps its customers extend their payment period whilst maintaining the company’s receivables at current terms. The post Standard Chartered and Siemens pilot blockchain-based trade finance guarantees in UAE appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Shannon MandersTwo weeks after renewed US sanctions against Iran, it appears trade credit insurers are winding down the little business they had reinstated in the country since 2016. US President Donald Trump’s decision to reimpose sanctions for non-US persons doing business with Iran, just over two years after they were officially lifted, came as yet another blow to the hope for commercial normalcy in the country. Since the implementation of the Joint Comprehensive Plan of Action (JCPOA) – also known as the Iran nuclear deal – in January 2016, many global companies worked to resume activities with their Iranian counterparts, and trade insurers reopened their Iranian cover to support this business. Now, reports have emerged about the difficulty in continuing to provide insurance lines for the country. In a Reuters article, Lloyd’s of London chairman Bruce Carnegie-Brown said the re-imposition of sanctions meant insurers “probably” would not be able to process Iran-related business through the Lloyd’s IT platform. Meanwhile, oil tankers have also expressed fears of not being able to access ship insurance. Speaking to GTR, Katayoon Valizadeh, a senior consultant in credit insurance and risk management in Tehran, says she has seen first-hand the withdrawal of most trade insurers from Iran as a result of the sanctions. “After the announcement of the US sanctions, all private credit insurers who had some interests in dealing with the US stopped their cover on Iran. Now as far as I know, only export credit agencies (ECAs) continue to give cover to Iran,” she explains. Technically speaking, cover cannot be cancelled retrospectively, so companies should be able to use the insurance they have already subscribed to in case of default due to the re-implementation of sanctions. Rob Nijhout, executive director of the International Credit Insurance & Surety Association (ICISA), explains: “As far as I am aware sanctions do not apply retroactively, so any delivery prior to new sanctions is subject to the pre-sanction situation. If goods or services were delivered in line with policy conditions, namely in an insured manner when cover was in place, any non-payment resulting from that is covered and paid by the insurer. If exports are made after cover has been withdrawn, either on a buyer or on a country, these are not insured and cannot be claimed if a non-payment occurs.” Based on local observations, it shouldn’t take too long for insurers to wind down their Iranian business, because they are largely only involved in short-term deals, explains Valizadeh. “Some of the big credit insurers, which had claims on Iran because of the blockage of channels of payments due to ex-sanctions, could all recover all their debts [after the JCPOA]. So they reopened their cover for Iran. But on the whole, both businesses and insurers had a tendency to be involved in short-term, rather than medium and long-term transactions or projects.” Statistics on the amount of trade credit and political risk insurance cover in Iran since 2016 are hard to come by, as insurers do not report country-specific data to a central organisation such as ICISA. Individually, representatives from JLT, Lloyd’s, Marsh, Willis and Gallagher all declined to comment on this story. The reticence could suggest that credit insurers are fearful of Trump’s harsh rhetoric against Iran. Talking to the current levels of insurance cover in Iran, Arash Shahraini, board member and deputy CEO of the Export Guarantee Fund of Iran (EGFI), says that he while he observed the return of large private credit insurers in the past two years, it was “not as fast as expected after the JCPOA”. He believes this is because European banks continued to be cautious of working with Iran, despite – in theory – being allowed to do so under the Iran deal. As a result, there has simply not been much business for credit insurers to cover. According to him, the majority of bilateral finance agreements signed between Iran and other nations since the JCPOA, which totalled over US$30bn, “have not been practically implemented due to banking problems”. Iranian companies that have made use of private insurance will now have to turn to other options, such as ECAs. “Right now, I am in the process of negotiations for some transactions and projects for getting cover from ECAs for Iranian projects and transactions,” notes Valizadeh. And while trade with large corporates with interests in the US will likely be interrupted, trade between smaller regional companies still presents opportunities, albeit banking issues will make this trade mostly cash-based, and a lot more expensive. Valizadeh’s consultancy, for example, is currently working with Iranian SME importers to help them build a credit profile and negotiate credit terms with foreign sellers. On the export side, Iranian credit insurers, as well as EGFI, are still extending cover for transactions, both letters of credit and open account. “Iranian traders will find appropriate ways to continue business with their international counterparts, but the costs of foreign trade transactions are expected to increase considerably,” adds Shahraini. The post Trump’s sanctions halt trade credit insurers’ return to Iran appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Shannon MandersA new sovereign energy trade finance fund – thought to be a world first – is being launched by the International Islamic Trade Finance Corporation (ITFC) and US investment manager Federated Investors. The ITFC Sovereign Energy Fund (ISEF) aims to raise US$300mn for its first close. The portfolio will be a private offering available to ITFC’s qualified investors across the member countries of the Organisation of Islamic Co-operation (OIC) and ITFC’s global partners. It will invest primarily in energy-related trade and export finance, structured trade, supply chain and project finance assets of sovereign entities across the energy value chain in the OIC’s 57 member countries. “From our best knowledge this is the first sovereign energy trade finance fund ever to be raised in the industry globally,” Miloud Boudjemai, fund manager at ITFC, tells GTR. He adds that the fund is currently assessing 10 transactions and that deployment will begin in October. The fund will be sharia-compliant, meaning that investments will be realised through transaction structures that adhere to Islamic principles. It will be sponsored and managed by ITFC with strategic input from Federated Investors’ UK-branch. The investment manager and ITFC have worked together on a broad array of Islamic trade-finance transactions since 2014. The post Energy projects to benefit from new Islamic trade finance fund appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Sanne WassBank of Palestine has secured a €12.5mn credit line from the French development agency AFD for the financing of green and renewable energy projects in the West Bank and Gaza. The facility is aimed at developing a market for green investments in Palestine by giving Palestinian enterprises, in particular SMEs, easier access to green finance. Bank of Palestine will on-lend the money to projects related to environmental efforts and renewable energy. It will also target retail, industrial, tertiary and agricultural sectors in order to replace high energy consumption equipment. This includes supporting hotels, offices, hospitals and supermarkets in saving energy and reducing water consumption. In the agricultural sector, it will promote energy efficiency in irrigation and biogas technology. A focus on green and renewable energy is essential to secure future energy sources in the Palestinian territories, which today rely heavily on Israel for their electricity imports, and energy costs more than anywhere else in the Middle East. Researchers have found Palestine’s main renewable energy sources to be solar energy, wind energy and biomass, which could significantly reduce the energy dependence on neighbouring countries. The green credit line was agreed under AFD’s green finance programme Sunref, a scheme that provides local banks with long-term loans on favourable terms. It also offers technical support, assisting banks in project financing and helping companies implement green strategies. Bank of Palestine has previously partnered with AFD under the Ariz loan guarantee programme, an instrument by which AFD provides up to 50% credit risk cover on corporate loans. Starting in 2014, the programme has so far financed 255 projects worth a value of between US$20,000 and US$300,000. Bank of Palestine is the West Bank’s largest financial institution and lender to SMEs, a sector that represents 90% of the Palestinian economy. In the last 10 years its assets have grown from US$500mn to almost US$5bn, according to the bank. The post New deal to bolster green investment market in Palestine appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Sanne WassA project to build a seawater desalination plant in Oman has secured US$114mn from a number of Japanese banks with cover from Japan’s export credit agency Nexi. MUFG Bank, SMBC and Shinsei Bank will extend the loan to the Al Asilah Desalination Company in the form of project finance. Currently under design, the project is expected to launch operations in 2021. Thereafter it will sell approximately 80,000m³ desalinated water a day for over 20 years to the Oman Power and Water Procurement Company, the single buyer of power and water for all IPP/IWPP projects within the Sultanate of Oman. Al Asilah Desalination Company was founded in November as a joint venture between Japanese JGC Corporation (75%), Oman’s United Infrastructure Development Company (20%) and Korea’s Doosan Heavy Industries & Construction (5%). The firm will own and operate the project, which will be located at a coastal site near Asilah, in the governorate of Southern Sharqiyah in eastern Oman. In a statement, Nexi says the facility comes as part of the Japanese government’s decision to strengthen its support for water business overseas. It is the first time that Nexi has provided insurance for a seawater desalination plant project. The post Japanese players enter debut facility in Oman appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Shannon MandersThe International Islamic Trade Finance Corporation (ITFC) and the University of Cambridge Institute for Sustainability Leadership (CISL) have unveiled the first details of a plan to work towards a sustainable trade and innovation hub in Dubai. As a first step, the partnership will see the two organisations reach a grant agreement in which the ITFC will finance a feasibility study conducted by CISL and the subsequent development of a blueprint for the hub. Further details and a project timeline have yet to be revealed. “This is just the start – we will definitely have more to work on together after the study is finished. We have spoken about how to expand our co-operation with the institute,” ITFC CEO Hani Sonbol told GTR in Abuja last week. “The ultimate goal is to have a tech hub for Organisation of Islamic Cooperation member countries in Dubai.” The ITFC hopes the initiative will explore and raise awareness about the contribution of Islamic finance instruments to sustainability and its overlap with sustainable conventional finance. Other areas of common interest include green trade fintech solutions, research and publications, training and education. Thomas Verhagen, senior programme manager at CISL, tells GTR that the study will be based on CISL’s previous work on fintech for sustainability. This will include learnings from a report published last year entitled Catalysing fintech for sustainability: Lessons from multi-sector innovation, which presents recommendations on how to design collaboration between multinationals, financial institutions and startups in order to better harness fintech to help solve sustainability challenges in the real economy (an area of increasing interest to GTR readers). The ITFC is a member of the Banking Environment Initiative (BEI), set up some eight years ago by the chief executives of some of the world’s biggest banks to lead the industry in collectively directing capital towards environmentally and socially sustainable economic development. “In terms of sustainability, today we have bigger obstacles and challenges that have to be met,” Sonbol said. CISL is an academic institution within the University of Cambridge. It builds sustainability leadership capacity to tackle critical global challenges, and engages in partnerships for shaping the future of sustainability through innovation, policy advancement and technology development. The post Plans unveiled for Dubai sustainable trade and innovation hub appeared first on Global Trade Review (GTR).