DMCC extends Dubai Commodity Receipt to finance textile trade

Traders dealing in these commodities can now benefit from commodity financing via the DCR, in accordance with international best practices.

The DCR has been used to finance such non-traditional commodities for the first time in the UAE by the Dubai branch of National Bank of Fujairah. The collateral management services for issuing these DCRs will be provided by GeoChem Middle East.

The UAE is one among 26 countries worldwide and the only one in the Middle East to introduce such a system as an effective risk mitigation tool in commodity financing. Members who store their physical commodity assets in a DMCC-approved warehouse can be issued a DCR against the value of that commodity. The member can then use the warehouse receipt to obtain financing.

DCR transactions are made on an electronic, web-based platform that ensures efficiency, speed and security. In order to transact business on the DCR system, a trader, warehouse operator, collateral manager, inspection-company or bank must first have been approved by DMCC as a DCR Member.

The web-based DCR system also enables the transfer of these receipts among members of the system, providing them global access and straight through processing to a closed user group.

"Secured trade finance is a relatively new concept in the region," said Asad Ahmed, General Manager, National Bank of Fujairah, one of the founding member banks of DMCC's DCR system. "The DCR is a logical step in the move towards secured lending practices in accordance with international best practices. It eliminates the possibility of double financing against specific goods and minimizes possible loss for a financing bank."

He added, "We are actively considering growing the usage of the DCR as an effective risk mitigation tool in the financing of a wider range of both non-traditional and traditional commodities."

"This was a pioneering opportunity for us to be associated as collateral managers for this unconventional DCR transaction," said Rajiv Bahl, Managing Director, GeoChem Middle East, which is also a founding member of the DCR system.

"Access to financing by commodity traders is the key to ensuring the rapid and healthy growth of Dubai as a global commodity trading hub," said Dr. David Rutledge, CEO of DMCC. "Commodities change hands several times before reaching the actual consumer, and the DCR was designed to assist traders in securing finance from financial institutions to support their inventory holdings in the UAE. We are happy to have National Bank of Fujairah taking the lead in partnering with DMCC for promoting the wider usage of the DCR."

Dr. Rutledge added, "The unique flexibility of the DCR system enables it to be adapted to fit the financing needs of both traditional and non-traditional commodities. Experienced professionals at DMCC assist DCR members to structure transactions, manage risk and tailor DCR usage to unconventional situations."

Dr. Rutledge emphasised that as part of DMCC's effort to continuously upgrade its product offerings, it was also working closely with officials from the banks to further strengthen the 'DCR Rules' framework and offer a smoother contingency procedure for loan liquidation. He added that the DCR was expected to witness a significantly broader usage by banks across a wider range of commodities in view of its adaptability to different lending situations.