Dubai channel lauds Al Etihad Credit Bureau creation
New credit bureau to assess individual and corporate credit-worthiness
The Dubai IT channel has welcomed the formation of Al Etihad Credit Bureau, the UAE's new assessor of individual and corporate credit-worthiness.
The new body, which aims to coordinate data on loans, credit cards and other lending by the country's 52 banks and other financial lending firms, in a bid to cut down on excessive borrowing, is to be introduced later this year.
For the Dubai IT channel, the announcement that the credit bureau is nearly ready is good news as the sector has in the recent past experienced an increase in the level of defaults with reseller company owners fleeing the local market after failing to meet their debt obligations.
Industry pundits are upbeat the establishment of Al Etihad Credit Bureau in the UAE will go a long way in helping the Dubai channel to reduce reseller runaways.
Dr Ali Baghdadi, president, Middle East, Turkey and Africa (META) at Ingram Micro's Aptec, said this is a positive step for the business community in the UAE and it will definitely help both creditor and customer to have a fair evaluation process.
Baghdadi said information on working capital, net worth, owner's business interest, years in the business and other vital data would become readily available thereby enhancing transparency. "These are far more accurate measurement numbers instead of relying on the annual financial statements and trade references of a reseller's business. The result is faster decision making for both business partners," Baghdadi said.
Mahan Bolourchi, head, Risk, Information & Claims -Middle East at global credit insurer Euler Hermes, said the absence of a credit bureau has in the past been highlighted among limitations for banks, financial services and SMEs to lend prudently. Bolourchi said such a new foundation and establishment will only be positive and help financial sector firms to get access to information about an individual's credit-worthiness.
"As we got to know the initial phase of Al Etihad Credit Bureau in the UAE will focus on consumer reports, we believe that this will provide banks and commercial companies an effective access to a high level of company credit-worthiness and increase transparency in the market," Bolourchi said.
Sainath Menon, head, Credit Control Department at Dubai-based IT distributor Asbis Middle East, agreed and added: "We always lacked a credible and dependable credit agency in the UAE. There were many attempts to start such a bureau in the past, but then there was very little support as people feared sharing critical credit information, which they felt could be misused by the credit agencies," he said.
Menon pointed out that once the bureau becomes operational later this year, it is imperative that all stakeholders in the local channel work closely to make this a success. "A very effective credit bureau in the UAE is going to be a great boon to credit lenders and businesses in the market," he said.
Rohit Bachani, a Dubai Computer Group (DCG) board member and director at consumer electronics maker Merlin Digital, said this is what the channel has been waiting for as resellers in the local market have in the past, been duped by unscrupulous agents. "Most of the time there is criminal intent to run away after getting goods on credit terms. Once we have an understanding how much a particular dealer or customer is exposed with the help of the new bureau, we will be able to really limit reseller runaways in the market," Bachani said.
He pointed out that one of the main initiatives that the DCG is currently working on is to control and avoid any runaways from happening in the market as such developments have a negative impact on the channel as a whole. "We plan to work closely and align DCG and its entire ecosystem with the Al Etihad Credit Bureau," he said.
That alignment is what regional VAD Aptec is also intending to do once the bureau becomes operational towards the end of 2014.
Baghdadi added: "Our plan is to work closely with the bureau. We also hope the Al Etihad Credit Bureau will be rolled out to other GCC countries to have better benefits for the business community in the UAE and region."
He was optimistic that a healthy business environment can be expected once the bureau is operational leading to enhanced transparency and confidence in the local IT sector. "Once we have studied the Al Etihad Credit Bureau portfolio, a natural process would be to sensitise our channel partners in the region. We already have a due diligence process in place for on boarding resellers and assigning credit terms," Baghdadi said.
Asbis' Menon concurred and said there is need for more interaction among IT bodies such as the DCG and Al Etihad Credit Bureau, showcasing the importance of such a bureau and how it would help the entire group. "A seminar or a series of workshops would go a long way in that regard," he noted.
However, Menon said as in every country there exists credit defaulters who default knowing they are not going to cope with payments on their borrowings. "There also exist a section who become victims of the system. When people see lenders queuing to lend them it sometimes becomes too difficult to resist. If there is a credible credit bureau which lenders can depend on to get useful reports on individuals or companies about their credit worthiness, it makes things easier for all concerned parties," he said.
While reseller runaways have been a perennial challenge in the Dubai channel, industry experts say the formation of a credit bureau is only the beginning of a process that will help in curbing careless lending on the part of vendors and distributors, and excessive borrowing from resellers.
Euler Hermes' Bolourchi said unfortunately, a credit bureau alone will not influence directly the end of reseller runaway cases in UAE. "The main reason for such acts is because of tight liquidity, cash flow problems, negative working capital or simply fraud," he said. Therefore, Bolourchi added that Euler Hermes will continue to provide its clients and the whole IT industry in the region with insurance coverage and required knowledge in order to monitor payment records and mitigate risk.
Baghdadi agreed and said there are no guarantees in terms of reseller runaways, but the establishment of the bureau will go a long way in minimising the menace in the channel. "Most customer runaways are due to lack of working capital, dependence on vendor and distributor credit lines and bad cash flow management. There are many resellers in the market whose annual financial statements are not satisfactory," Baghdadi observed.
DCG's Bachani added: "I don't think it [credit bureau] will spell an end to reseller runaways as those who have criminal intent to runaway have always found ways to dupe people."
He explained that there is no substitute for good business conduct and businesses shouldn't offer too much credit to an individual customer. "Experience plays a big part and the credit bureau will help limit the occurrence of reseller runaways in the local market," he said.
Bachani reiterated that resellers that maintain good accounts and were previously not able to get decent credit terms from distributors, will get rewarded for their good behaviour by having respectable credit ratings and have more access to finance, which will also be a big boost for the local market.