Final score

Dubai Computer Group (DCG) has revealed radical steps to counter the growing threat of reseller fraud

Tags: CreditDubai Computer Traders GroupUnited Arab Emirates
  • E-Mail
Final score Sha Mohamed, Sha Computers. (Lubov Galushko/ITP Images)
More pics ›
By  Andrew Seymour Published  August 8, 2009 Channel Middle East Logo

At its annual general meeting last month the newly renamed Dubai Computer Group (DCG) revealed radical steps to counter the growing threat of reseller fraud by launching its own credit rating system. The initiative could prove to be the last throw of the dice for a market ravaged by financial misery.

Certain situations call for drastic measures and that has certainly been the case for the Dubai Computer Group, which used its recent AGM to reveal plans for a credit rating system that it hopes will counteract the growing number of defaults happening in the channel.

Incidences of traders fleeing the market with piles of debt behind them have been on the rise just recently, raising questions over the fragile credit culture that continues to make life unpredictable for wholesalers, re-exporters, retailers and other computer traders in Dubai.

Since the beginning of the year, the Dubai IT industry has recorded more fraud cases than at any other time in the last 15 years, according to the DCG. Total losses as a result of this trend are currently estimated at AED19m (US$5m) with AED14m (US$4m) linked to recent incidents involving just four resellers that left the market - Jebel Hatta, Al Kuwami, Al Huda and Syntax.

Their departures are unlikely to be the last. "The runaway fever has started again," remarked a source at one major distributor with a large customer base in Computer Street, where most of the defaulters have been based. "Four or five companies have already gone and there are rumours of four more on the line this month."

Such speculation is not lost on the DCG. It acknowledges that the credibility of the channel has been badly damaged by talk of traders failing to honour payments, but foresees the situation deteriorating before it gets any better.

"Today, the IT industry is in an unprecedented financial situation where we are seeing one company or another going bankrupt almost on a weekly basis," said Shailendra Rughwani, president of the DCG and CEO of Experts Computer, at the AGM. "This has resulted in acute losses of companies operating and extending credit, as well as creating fear amongst those and other computer companies in the market."

It is this trepidation that has led senior members of the DCG to push ahead with plans to launch a credit rating system aimed at checking growing incidences of fraud and restoring confidence among the IT community in Dubai, including banks and lenders frightened off by the volatility of the market. The group itself admits the initiative is "ambitious", but believes it is the only step to safeguard genuine resellers from falling foul of defaulting creditors.

So how exactly will it work?

Precise details of the way in which the system will be implemented are still being ironed out, but the DCG is proposing that it will start with all members being rigorously screened. That will involve a "panel of experts" - handpicked by the 11 members of the DCG board - cross-checking an applicant's credentials. It will scrutinise personal data from the prospective member's home country, as well as family details, business dealings and financial background. Membership will only be approved after the examiners are confident that the information is credible and the applicant can add value to the group.

The plan is then for members to be assigned credit ratings, starting from A for a company providing basic information to A+++ for a highly credible organisation providing the maximum data requested. The rating will be reviewed to keep the information up to date, although how frequently is not clear.

Aside from the actual management of the system, the key to whether it stands any chance of working hinges almost entirely on persuading enough companies to embrace it - and more importantly convincing them to only trade with fellow channel partners that belong to the DCG.

Judging by the round of applause received by Rughwani when he told traders that "companies should only give credit to members of the DCG", that might not prove to be as difficult as it sounds.

"If any non-DCG member approaches you then it should first be told to become a member and then come back for credit," said Rughwani. "Once a company receives a grade, suppliers here in Dubai, or internationally, can at least gain a basic idea about the standing of a particular company in the Dubai market and then decide the amount of credit it should give them. We've seen from the banks that when a company owner runs away, even the passport copy of that particular owner is not always available or the owner or signatory might be a totally different entity. All these things can be controlled by having a separate database for all the registered companies under the DCG."

Sha Mohamed, owner of Sha Computers, is one of many traders who has welcomed talk of a credit bureau. He believes any attempts to makes business less precarious will earn the support of companies in the channel.

"The market is positive about [the credit rating system] because it will mean more transparency and trust, but the organisation still has to gain everybody's confidence," he said. "There is a long way to go and real effort is required, but everybody wants a solution because they feel the pain and want to grow."

Details of plans to make the market a more open place to operate are also endorsed by credit management specialists. Speaking at the event, Sam Matthew, senior risk underwriter for the GCC at Euler Hermes, said transparency, honesty and commitment were vital for the industry's health.

"Your growth rates might be different, but I'm sure everyone starts with the same objective," he commented. "You are all here to make profits, grow stronger and have a good presence and market share, but do not forget the fact that being transparent is the most effective way to do business in this market and gain trust with the insurance companies, distributors, global suppliers and your buyers."

Establishing a workable and reliable credit rating system is unlikely to be easy though, and the DCG will need to answer a long list of questions in the coming months. How will it verify that the data it collects is accurate? How will the information be shared among members of the DCG and other parties? And how regularly will the data be reviewed?

Some sources point out other drawbacks with the DCG's proposals, such as the fact that a credit rating system will only protect them from local transactions. "By and large a lot of trade happens among the dealers and traders, but there are still direct sales into nearby places such as the GCC, Africa, Iran, Iraq, Syria and Jordan that are outside the area of analysis," said one reseller. "That makes it very difficult to get credit ratings so the onus on getting information lies with the person or company that deals with those customers physically."

Question marks also exist over the legalities of running a credit rating system, with one source familiar with the subject claiming there are a number of "rules and regulations" that need to be considered.

"Rating is one thing, grading is another, scoring is another - there are a lot of technicalities behind those terminologies," said the source. "Rating in particular takes into consideration a lot of elements besides financial performance."

Rajesh Keshwani, director at Tiger General Trading, backs plans for a credit rating system to be introduced among traders, but is concerned that large parts of the market will still go unregulated.

"It is a challenging exercise because if some of the dealers don't become a member they may not necessarily impart information," he explained. "The DCG has got to come up with an intelligent plan for designing some kind of format or mechanism that gives us access to whatever the required information is. Those who are members will willingly share the information, but those who aren't may not. Yet they are still part of the market so we need to know about them."

The DCG's response to such fears is to point out that the more companies that come onboard, the easier it will be to persuade traders to disclose financial details.

Rakesh Bohra, head of PR at the DCG and managing director of the Trinity Group, told each of the 150 members in attendance that bringing "two good members" to the group would give DCG the platform it needed to make a credit rating system feasible.

"Once we have a group of 500 good traders in this market, distributors will help us," he insisted. "They will not sell outside the group of members, which will ensure that the syndicate of certain non-professional business groups that are formed only to run away will be eliminated because the cargo will not come into the market."

Indeed, distributors have as much to gain from efforts to stamp out rampant credit fraud as anybody, particularly as they are often accused of creating the problem by implementing reckless credit provision policies.

Senior representatives from Ashley, Redington and Empa were on hand at the AGM to hear Bohra claim that distributors would reap immediate benefits if the DCG reached the 500-member mark.

"Typically in a year, a distributor loses more than AED1m (US$270,000) and it spends a few million dirhams on insurance," he told the audience. "I'm not trying to take away the business of the insurance companies, but I want to make sure that our businesses don't lose money. Getting 500 members in the group is enough to protect ourselves."

He also urged traders to take heart from other industries that have overcome similar problems, citing an arrangement between 200 Deira-based construction materials traders that involves only selling between authorised members to cut out incidences of rogue traders damaging the market.

"Today, the problem facing our business is that we are losing money so first you need to get united and, once you get united, secure yourself with a ring around you," declared Bohra. "Once you get a ring around 500 members, profitability will grow from the 2% or 3% - or minus 3% - that we are making today to 10%. The integrity will automatically go up too because people will say, ‘okay, I want to be A+ or A++.' After reaching 500 members we won't need any new companies to join our group unless they have the credentials to be part of it."

Mohamad Jomaa, business development manager - commercial at information services outfit Emcredit, believes the significance of using credit information to develop a scientific approach to credit risk management is even more pertinent given the current economic environment. He says that dilvulging credit and payment experiences can create a favourable trading environment, although he points out that credit information sharing is a highly specialised service that requires vast expertise and appropriate legal and technical infrastructures.

"Sharing credit experiences and payment behaviour records will enable businesses to measure their customers' historical payment behaviour," insisted Jomaa. "Through this insight, companies can perform accurate credit assessments and cash flow forecasts. Sharing credit information will also guide companies to invest in customers with well-regulated business practices."

The DCG's plans for a credit rating system rest on multiple factors that will be severely tested in the months ahead. But if it proves workable then it could clean up a market that doesn't know where the next piece of bad news is coming from at the moment.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code