UAE’s federal export credit company Etihad Credit Insurance (ECI) on Monday revealed plans to launch a conventional and Islamic export trade credit solution for SMEs.

ECI will launch the conventional version of SME Protect on September 1 followed by the Shariah-compliant solution in November, Massimo Falcioni, the company’s CEO told Salaam Gateway.

“To be Shariah-compliant there are principles we need to apply – not paying a premium but a contribution to a fund,” said Falcioni.

“We need to have a fund where all SMEs can contribute, and the profitability and losses of this fund will be reshared. In the case of losses, the fund will be refunded automatically by ECI,” he added.

The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), a member of the Islamic Development Bank Group, will reinsure the new SME product.

Falcioni added that the product is the first of its kind in the Middle East.

The CEO expects around 100 SMEs to apply for this policy in the first five months, with an average of 20 companies per month.

SME Protect aims to support exporters and re-exporters in their international expansion plans and assist them in entering high-growth markets.

The online solution will help move SMEs from the traditional Letters of Credit and cash-payment terms, towards the most updated sales on open credit terms.

SMEs will be able to provide credit to clients without financial loss by providing guarantees to receivables.

SME Protect is a result of 18 months of discussions and research by ECI to find out where support was needed for SMEs.

The company conducted focus groups with 60 exporters from 13 industries, mostly SMEs, and surveyed 140 exporters in the UAE.

The survey found that 97 per cent of SMEs still prefer Letter of Credit and cash payments whereas a minority prefers selling on credit.

“We found that the mode of payment of SMEs is unique in the UAE. Only three per cent sell on open credit. Most SMEs prefer traditional cash payments and advance payments," said Falcioni.

The survey also showed that SMEs face difficulties in payment collections, tightening liquidity, market slowdown, and an inability to penetrate high-growth markets without risk protection.

These challenges are negatively affecting the confidence of SMEs, which is essential for accelerating trade and export, said Falcioni.

SMEs represent 95 per cent of companies in the UAE, according to the Federal Competitiveness and Statistics Authority (FCSA).

Their contribution to the UAE's GDP is estimated at 53 per cent in 2019, up from about 49 per cent in 2018. The federal government aims to increase this rate to around 60 per cent by 2021.

ECI’s current focus is on exports but it also plans to create solutions for supply financing, which will help importers get funded by banks and have the liquidity to pay their overseas suppliers.

“Supply financing solutions is another element that we’re putting in place and we hope to announce this by the first quarter of 2020,” said Falcioni.

“We’re also thinking of introducing domestic trade solutions, because we’re now focusing mostly on export. Many corporates are asking us to do this,” he added.

“We have a treaty in place with about six major global insurers, including American insurance company Markel, and we’re in talks with them to develop these solutions so that we have proper re-insurance support.”

ECI plans to introduce SME Protect as a best practice of cooperating with a multilateral agency during AMAN Union's next annual meeting in November 2019, which will bring together export credit agencies of Islamic countries and multilateral agencies.

The company announced in December its association with Aman Union, a professional forum for risks insurers and reinsurers in member countries of the Organisation of Islamic Cooperation (OIC).