Doha should capitalise on supply chain finance, such as factoring, by making it as an attractive asset class for institutional investors to “unlock the full potential” of trade finance, according to the Qatar Financial Centre (QFC).
"The final step in unlocking the full potential of such a trade finance platform lies is enabling supply chain finance (e.g. factoring) as an attractive asset class for institutional and other investors," said the QFC economist in an article.
This broad type of debtor finance would allow financial institutions to use all bits of data, ranging from traders’ payment history to real-time data from logistics firms, to enter a transaction with confidence, it said.
The largest bank in the Middle East and North Africa, QNB, is already active in the space – but focuses its efforts primarily via QNB Alahli in Egypt and QNB Finans in Turkey. Meanwhile, in Qatar, international banks such as ICBC and HSBC are presently operating in the area, while local banks such as Doha Bank and Mashreq Bank also participate, according to the article.
"If these factoring transactions can increase in volume and decrease in defaults, via use of such a trade finance platform, they could in time form the basis of an appealing asset class with abilities to scale," it said.
Qatar, with its strong financial institutions represented across multiple international markets and an emerging trading sector, can position itself well to become a host for such a trade finance platform, according to the QFC.
Qatari firms and many global companies increasingly use Qatari transportation and/or logistics services to move their goods internationally. Qatar is also keen to develop into a trading hub, which would draw on its newly developed air- and seaports as well as the free zones integrally connected to both.
Together, these elements elevate Qatar as a viable host of an efficient and cross-border trade platform proposition.
"If properly constructed, this trade finance platform ought to be lucrative following the sharp recovery in the global trade finance revenue pool," the economist said.
Launching a trade finance platform out of Qatar offers participants the ability to build on accumulated knowledge and connect directly into a wide international network. Existing trade finance platforms, such as Contour, are currently designed to cater to a specific need such as delivering digital letters of credit.
Competitors, such as Marco Polo, instead offer an alternative to facilitate payment commitments. These existing specialised platforms are not interoperable.
"While there could be room for them to coexist, there is also a strong case to be made for an open platform that can easily connect such propositions with one another," it said.
The key advantage of operating a trade finance platform out of Qatar is to leverage operational Qatari transportation and logistics assets with ready access to trade finance.
To mirror a conventional example, while connecting a firms' enterprise resource planning tool is a step in the right direction, joining up its inventory management tools will yield higher returns – and the integration to Qatar Airways cargo route information and trade performance data holds the promise of doing just that.
The cargo division of Qatar Airways maintained its position as the world’s largest cargo carrier (excluding dedicated freight operators FedEx and UPS) handling 2.73mn tonnes in the 2020/21 fiscal year, and as of October 2021 serviced 162 international destinations.
Starting in 2021, Qatar Free Zone hosts the GWC/UPS Logistics Hub that provides direct access to Qatar’s major airport and seaport, full cold-chain capabilities, and customs clearance.
"Together, data from these Qatari logistics and transportation assets can be leveraged to maximise the potential of a considered trade finance platform," the article said.
Should the proposed Qatar-based trade finance platform easily integrate inputs from the financiers, logistics, transportation, and trading companies; it will enable the advancement of real-time pricing and information provision that will drive aggregate costs down.
The QFC has already witnessed interest from European trade finance platform players such as Fineon, which seek to tap into the large existing trade flows between the Middle East and Central Asia.