As Dubai furthers its position as a trade hub for the flow of commodities between Africa, the Middle East and Asia, the methods of financing these flows are changing.
Over the past two to three years, there has been an increase in the number of financial institutions providing commodity financing methods such as secured lines, prepayment structures and invoice discounting in the region.
One executive at Exporta’s Middle East Trade Finance conference in Dubai said he had seen the volume of structured commodity financing deals at least double in the past three to four years.
Even the traditional letters of credit (LC) financing structures are being adapted, with more banks joining transactions by providing additional silent confirmations, which act as additional guarantees, to a LC deal.
Banks often prefer to lend structured commodity financing to companies rather than unsecured corporate lending as it provides them with some security or collateral in the event of a default on a loan.