National Bank of Fujairah uses Dubai Commodity Receipt for AED 72 million financing of steel

This was a joint initiative undertaken by National Bank of Fujairah, one of founding members of the DCR, with DMCC, to manage the inventory of steel plates to be utilised in the Fujairah Port expansion.

This is the first time that the DCR has been used in project financing in the UAE. Under the terms of the DCR, members who store their physical commodity assets in a DMCC-approved warehouse - or who assign control over their goods to an approved Collateral Manager - can be issued a DCR against the value of that commodity. The member can then use the warehouse receipt to obtain financing from member banks.

"The DCR facilitates collateralized financing of trade or of projects," said Asad Ahmed, General Manager, National Bank of Fujairah. "The bank may undertake such transactions with confidence because the finance is purpose specific with better controls, smooth contingency procedures, it provides risk mitigation and controls loss in case of recovery."

"The 'DCR Rules' framework has been further strengthened to allow a smoother contingency procedure for banks to recover loans in case of default," said Dr. David Rutledge, Chief Executive Officer, DMCC. "This is a significant enhancement to the existing system, which will lead to increased DCR financing."

DCR transactions are conducted on an electronic, web-based system that ensures real-time efficiency and security. This system also allows the transfer of title of the DCR to other traders who are members of the system, providing members the opportunity to trade their goods with great confidence among a network of approved members.

"Following the recent Textile DCR transaction, this is another innovative operation where we successfully met the challenge of managing the inventory of steel plates stored in an open field warehouse in Fujairah," said Rajiv Bahl, Managing Director, GeoChem Middle East, which is also a founding member of the DCR system, and the provider of the collateral management services for issuing these DCRs.

The UAE is one of just 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.