Credit protection

Can the regional channel survive without the generous credit facilities and terms that distributors offer?

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Credit protection Mahan Bolourchi, Head of Risk, Information & Claims – GCC/Middle East, Euler Hermes GCC.
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By  Manda Banda Published  February 25, 2014

Can the regional channel survive without the generous credit facilities and terms that distributors offer? Channel Middle East looks at one of the most controversial and divisive issues, its impact on the regional channel and why distributors need to work closely with credit insurance firms to overcome the financing schemes challenges they face.

Most IT distributors in the Middle East region offer credit terms to partners or have developed channel financing schemes as a way of mitigating challenges that reseller companies may encounter when financing big technology projects.

However, developments that have happened over the past few years in the region have prompted distributors to reconsider how they extend credit facilities to channel partners.

According to global credit insurance company Euler Hermes, that offers a range of bonding, guarantees and collections services for the management of business-to-business trade receivables, the global economy will this year witness a modest recovery.

“Euler Hermes forecasts a modest global economic recovery in 2014 at 3%, with brighter prospects in all regions,” said Ludovic Subran, chief economist at Euler Hermes. “As a consequence, most countries should see a drop in the number of insolvencies, although the decline will nevertheless remain limited at -1%, as measured by our Global Insolvency Index.”

For IT distributors in the Middle East region though, they are concerned by the fallout from the Arab Spring of 2011 and the continued internal conflict in countries like Syria, Egypt and Iraq.

Many say the continued upheaval has made it difficult and in most cases, impossible for them to offer credit terms to partners that serve markets in conflict countries.

Mahan Bolourchi, head of Risk, Information & Claims – GCC/Middle East at Euler Hermes GCC, said there are a number of reasons why financial institutions might change their lending activities, therefore the availability of credit will be affected automatically.

Bolourchi said for instance, inadequate information about the financial position of borrowers can lead to a boom in lending when financial institutions overestimate creditworthiness, while full disclosure of information suggesting that borrowers are less creditworthy can lead to a sudden contraction of credit.

He pointed out that access to credit for IT companies is not a major issue in the Middle East region especially with the attractive demographics supporting the growth of this sector. However, Bolourchi pointed out that some of the main challenges restricting credit are transparency of financial information when it comes to privately held companies and quality of available audited financials. “At Euler Hermes, we provide credit for the IT channel once we have looked at their audited financial statements and business structures,” he said.

Bolourchi explained that in case the quality of financial statements affects the credit worthiness of a company, Euler Hermes takes it up to investigate with the in-house specialist credit analysts through a direct dialogue with the company or organisations involved.

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