Arab Trade Finance Programme to relax credit terms

08 July 1994

The Abu Dhabi based Arab Trade Finance Programme (ATFP) is to relax its credit terms and set up a regional data base to encourage inter-Arab trade, chairman Jassim al-Mannai says. This follows a marked increase in credits approved by ATFP after it introduced relaxed terms in the second half of 1993.

'The board agreed to reconsider its terms to be more flexible. It is considering lightening the interest rates which will differ according to the time period,' Al-Mannai said after an ATFP board meeting on 27 June. Interest rates already vary according to the repayment period, following a decision to make rates more flexible in September 1993. The interest rate for a six-month credit facility in a best risk country is 0.125 per cent over the London interbank offered rate (Libor).

Other programme elements to be reviewed in the coming months are

The appointment of national agencies. ATFP wants the power to appoint the financial institutions authorised to deal with it, trade finance department director Abdul Rahman Taha says. The institutions are now appointed by each national authority. 'We are losing a lot of business because of the existing system,' Taha says.

Credit ceilings. Credit ceilings applied to each country are to be linked to risk assessment. At present, the ceiling for each country is determined by the contributions made by that country to ATFP and the Arab Monetary Fund (AMF), which owns 50 per cent of ATFP, and its share in inter-Arab trade. The introduction of a risk factor will lift the ceiling for some countries and lower it for others, Taha says.

Guarantees. The aim is to increase the availability of export credit insurance. 'The capacity of the system is far below demand,' Taha says. 'Something has to be done in this area, but we don't know exactly what yet.' Any new measures will be taken in co-operation with the Kuwait-based Inter-Arab Investment Guarantee Corporation, the regional export credit agency. The only countries with national export credit agencies are Morocco, Tunisia, Oman and Egypt.

The changes will be aimed at increasing inter-Arab trade, which represents only 8 per cent of total Arab trade. 'Arab trade is so deficient mainly because the economic environment is unhealthy and we are not producing sophisticated products,' Al-Mannai said.

A scheme to link Arab exporters and importers through a regional data base is to start operating by 1995. 'We are trying to fill the information vacuum about what goods Arab countries have available to trade,' Al-Mannai says. A pilot programme is under way to link Tunisia, Egypt, Saudi Arabia, the UAE and Jordan.

Since more flexible credit terms were introduced in September 1993, there has been a jump in the amount of credits approved. From January to May, ATFP approved $72 million in credit lines, compared with $94 million in 1993. Total financing requested this year is expected to reach $220 million, Taha says.

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