At the 52nd International Factors Group (IFG) Annual Meeting, in Malta, at the end of September, Karim Nasrallah, general manager of Lebanese Credit Insurer (LCI), and chairman of the Prague Club, took part in a session entitled Beyond Credit Insurance, which aimed to shed further light on the relationship between credit insurance and factoring. Mr Nasrallah discussed the themes of the session with trfnews, and gave his views on where the two products currently stand in regard to one another.
trfnews: At the Beyond Credit Insurance session and throughout the IFG conference – what did you plan to achieve and shed light on, and were you able to accomplish it?
Karim Nasrallah: The Beyond Credit Insurance session, in my opinion, was important for the industry, as the speakers were aiming to highlight the fact that credit insurance and factoring are not competing products. Rather, they complement each other and should be taken out concurrently. There has been a longstanding misconception that a love / hate relationship exists between the two, however, from our experience in the trade credit insurance industry, and through our factoring partners, we find that there is much room for collaboration between the two.
Ultimately, credit insurance has shown to improve two elements, namely, offering enhanced levels of security for a company’s trade receivables portfolio, in addition to pushing for better terms on a company’s factoring contract. With that being said, where one product lacks, the other fills in.
trfnews: How is the relationship at present between credit insurers and large banks who are underwriting their own non-recourse factoring services?
KN: The usage of credit insurance by banks has been increasing for the past few years, as banks started to understand the importance of credit insurance in enhancing the quality of the receivables they are financing. In addition, when it comes to non-recourse invoice discounting and factoring extended by banks, credit insurance has positively impacted solvency issues.
In the current context of global changes and policies that are being put in place to govern the field of trade credit insurance, I believe that policy makers should make the implementation of credit insurance (ECAs, private market, multilaterals etc) a priority, as the principal sustainable tool for trade promotion and support. In addition, it should be ensured that credit insurance is legally and technically admitted as a trade finance facilitation tool by the central banks within the MENA region.
trfnews: Can you describe the relationship between credit insurance and factoring? How is this relationship being enhanced?
KN: Credit insurers need to gain a better understanding of factoring in general, and how their factoring clients work, in particular. Once this step is taken, there should be closer cooperation between the two, as these two products actually balance one another.
Taking this a step further, for the relationship between credit insurance and factoring to be enhanced, a few areas need to be looked at. Firstly, there should be increased transparency on the factoring deals that are structured, with clear and open communication. Secondly, there should be better disclosure of available information, be it financial or company-related. With heightened transparency and increased disclosure of information, policies can then be customised to suit clients’ needs.
Source: TRF News, Global, 03 November 2014
To read the interview on TRF News, click here.