- As UAE businesses restart operations in full swing, companies will put more focus on protecting their main assets – the accounts receivables
- As private insurers become more risk-averse, ECI plays an important role in providing support to businesses in areas that private players cannot or have difficulty in having access
- ECI recovered payments from a leading US firm that filed for Chapter 11, or bankruptcy and restructuring
Etihad Credit Insurance (ECI), the UAE’s federal export credit company, has reaffirmed its commitment to support companies operating in the country in order to help them recover from the implications of COVID-19.
During these challenging times, ECI continues to fulfill its mandate to support UAE businesses as the pandemic has caused financial institutions and private insurers to be more risk-averse and reluctant to provide their services to companies due to an environment that is characterised by weak demand, vulnerable supply chain, tight credit, and a weakened capacity to pay.
Massimo Falcioni, CEO of ECI, said: “We laud the effectiveness and efficiency of the UAE’s leadership in terms of their response to COVID-19, which ranked amongst the top 10 globally. This includes the UAE’s wise resolve to bolster the economic resiliency of the country amidst the pandemic.
“ECI plays a significant role in restoring confidence in the market by protecting companies from commercial and political risks, and increase their access to finance, new suppliers and frontier markets,” Falcioni added.
UAE companies trading in domestic market or exporting in international markets know the importance of insuring their transactions. Through trade risk mitigation tools, they can eliminate the uncertainty in a market that mostly demands for an open credit account transaction, a risky payment option.
Under the open credit arrangement, the products or services are shipped and delivered before payment is due, which is typically in 30, 60 or 90 days. In the unfortunate occurrence of a non-payment – whether the customer is unwilling or unable to pay – insurance will take care of the loss and the company is ensured to receive the payment.
The need for these risk mitigation tools has surged during the coronavirus disease (COVID-19) global pandemic. However, private insurers have become more cautious due to heightened risks. ECI, as UAE’s federal export credit company, plays an important role in areas that the private players cannot or have difficulty in having access.
Recovery from bankruptcy
Recently, ECI has helped a UAE manufacturer recover payments from a leading US firm that filed for Chapter 11, or bankruptcy and restructuring. The UAE-based polyester staple fiber producer was continuously in discussions about new orders and shipments when it learned that the US firm filed for bankruptcy.
Fortunately, the business transactions were already insured by ECI, otherwise, collecting payments would have been extremely difficult due to the complexity of the bankruptcy procedures and the intricacies of the local laws and regulations in a foreign jurisdiction.
In another case, a UAE-based SME that wanted to expand to more export markets found out that the international buyers prefer an open credit set-up, which the company was not confident to provide. To solve this problem, a trade credit insurance policy was put in place with a minimum premium to help against bad debts, buyer monitoring and information. The company then began to extend credit terms to be more competitive in the marketplace and grow in new markets with the support of ECI.
Falcioni said: “As UAE economic sectors restart and borders reopen, more focus will be put on cash-flow by both the buyers and sellers. Buyers will prefer to deal with sellers who can provide more liberal payment terms. Sellers, on the other hand, will also focus on their balance sheets and protect their main assets—their cash receivables.”
“Through ECI, exporters can offer their services on more liberal terms and have the certainty that they will be compensated. I urge companies to reach out to ECI to avoid payment issues and enhance their liquidity position,” he added.
About Etihad Credit Insurance
Etihad Credit Insurance (PJSC) was established by UAE Federal Government and its founders, the governments of Abu Dhabi, Dubai, Ras Al Khaimah, Fujairah and Ajman. The company started its operations in February 2018. ECI plays a catalyst role in supporting the UAE’s non-oil exports, trade, investments and strategic sectors development, in line with UAE Vision 2021 agenda.
It is tasked to accelerate and sustain national economic diversification as well as support the export and re-export of UAE goods, works, services, and the foreign investments of the UAE businesses as well as support the exporters in the domestic trade through a range of export credit, financing and investment insurance products.
To provide UAE businesses with solutions that meet their growth objectives locally and internationally, ECI builds a comprehensive platform of strategic partnerships across government, insurers, re-insurers, brokers, banks and lenders, regional and international Export Credit Agencies, governments and trade promotion agencies in addition to world organisations for economic development.
ECI has also been assigned Insurance Financial Strength (IFS) Rating and an Issuer Default Rating (IDR) of AA- (Very Strong) with Stable Outlook from Fitch Ratings.