In an exclusive interview, Haytham Elmaayergi, Global Head of Transaction Banking at Abu Dhabi Islamic Bank, talks about Shari’ahcompliant trade finance.
What are your views on the trade finance landscape in the region and how does ADIB play a role in it?
Trade finance plays a crucial role in driving the UAE’s economic growth by boosting the country’s access to goods and services, as well as help achieve the development goals underpinned by job creation, national prosperity, and better living standards.
Trade finance also drives the nation’s economic diversification efforts and fosters the UAE’s goal of becoming a major regional and international trading hub. Currently, the UAE remains the largest exporter and importer in the region, with non-oil foreign trade valued at AED1.63 trillion per annum.
ADIB supports this by providing an extensive suite of Shari’ahcompliant solutions designed to facilitate fast and efficient trade transactions, including financing, payment facilitation, risk mitigation and data management. These solutions help importers and exporters finance their cross-border flows whether on documentary trade or open account trade.
How does the transaction banking needs of various types of clients differ?
As a long-term proponent of the UAE private sector, ADIB provides a broad spectrum of Shari’ah-compliant products that support local businesses, particularly exporters and business customers, allowing them to manage their working capital in an efficient and effective manner.
We have experience working across different sectors, understanding the objectives of the particular client in question and then delivering a tailored package of products which can enable them to meet these goals.
What challenges do you face in conducting the business?
While the trade finance sector has grown over the years, it is still laden with challenges as a result of over-reliance on paper. This includes inefficiencies, high costs and risks associated with manual processes. A lack of standardisation also poses a significant constraint on potential growth, with a lack of appropriate regulations likely to slow progress.
Differences in interpretation and variations in product structures, and reporting standards are areas that still need to be improved. Another point of contention is the shortage of financing available for small to medium-sized enterprises (SMEs). According to estimates from the Asian Development Bank, the global trade finance gap is currently at about $1.4 trillion.
Taking the above into consideration where do you see opportunities?
Banks in the Middle East are set to catch a larger portion of the global transaction banking market set to be worth $509 billion by 2025, given its strategic position as the gateway to international trade.
Trade finance is an area that could reap advantages from blockchain technology as it could reduce paperwork and complexity. Through digitalisation, ADIB sees opportunities to simplify the trade finance process, thereby driving efficiency, reducing time and costs, boosting transparency and mitigating risks, while broadening access to trade finance.
In addition, a harmonisation in standards and regulations will tap into potential productivity and growth in trade transactions. ADIB also recognises the rising demand for Shari’ah-compliant financial instruments.
Export finance and supply chain finance present the greatest opportunities for Islamic banks since these are the areas from which Islamic banks have traditionally been absent. At ADIB, we are developing sophisticated Islamic products that fill these gaps with appropriate Shari’ah structures, technology and an efficient service model to support this.
How does your pipeline look like for the rest of the year and going into 2020?
Global transaction banking is a growth business for ADIB, and the bank is investing heavily in building digital solutions to meet the working capital needs of companies across all industry segments. ADIB’s digital transformation plan will define the tools that can transform the way in which our clients transact.
Through our new online banking platform, clients can now execute transactions and obtain financing against the different trade instruments digitally. ADIB also taps into the huge potential of Islamic trade finance, which is currently under-represented in the global financial system despite the rising demand for Shari’ah-compliant financial instruments.
We recently launched a significant number of products that focus on Islamic trade finance including export financing and trade receivables financing. These trade finance solutions were traditionally missing from the Islamic banking sphere and are the requirements which clients now look for in Islamic trade finance.
What are your expansion plans for ADIB’s trade finance business?
ADIB has joined a consortium of banks led by Etisalat Digital to use technology to improve efficiencies, automation, and transparency in the trade finance process.
Through this partnership, ADIB and Etisalat will develop the UAE Trade Connect (UTC), a nationwide trade finance platform that utilises blockchain, artificial intelligence, and advanced detection tools to validate the authenticity of transactions, and safeguard banks from potential risks related to double financing and fraud.
We believe that a collaborative effort among banks to create a unified network necessary to support global payments is the biggest key in terms of transforming blockchain’s potential into reality. As part of its digital transformation strategy, ADIB is investing $100 million in technology, revamping all delivery channels and banking platforms to enable customers to conduct their banking in a simpler and more intuitive manner.
ADIB’s plan to entirely digitalise Islamic trade finance is set to be completed very soon. When launched, it has the capability to deliver a complete and seamless end-to-end Islamic financing process, thereby driving transformative business value to clients.
What is your outlook on 2019?
We see digitalisation and standardisation as major disruptors in the trade finance sector. Banks will capitalise on advancements in technology, developing their product range to address the everchanging needs of customers. Islamic banks, as well as conventional players, need to be at the forefront of technological developments, exploring new paradigms, such as blockchain, to improve the end-toend client experience.