Abu Dhabi’s financial free zone and Abu Dhabi Commercial Bank (ADCB) are working to bring a national trade receivables discounting platform to the UAE, having already built and tested a prototype together with India’s M1xchange.

M1xchange, a platform promoted by Mynd Solutions, is already deployed in India for the country’s Trade Receivable e-Discounting System (TReDS).

The UAE-based version of the solution will be named the ‘UAE Trade Receivables Exchange’ and works in a similar way to the TReDS: the online marketplace brings together buyers, suppliers and financiers in one place, allowing MSMEs to post their receivables, buyers to approve invoices, and financiers to bid on them. The idea is that this bidding model will enable MSMEs to access funds at lower rates than available to them today. A fraud check mechanism, meanwhile, will assure financiers that invoices are legitimate, have been approved by the buyer and have not already been used to obtain financing from another lender.

The prototype was developed as part of the 2018 Innovation Challenge by Abu Dhabi Global Market (ADGM) – the emirate’s financial free zone – and KPMG, in which a number of fintech startups were tasked with developing applications that address business issues identified by the initiative’s so-called ‘corporate champions’ – this time ADCB and Etihad Airways.

In the case of ADCB, fintech firms had to devise a solution to help trade finance banks address financing needs for SMEs in “a paperless and secured process”, according to Chris Kiew-Smith, head of fintech strategy at ADGM.

Speaking at the GTR Mena conference in Dubai on February 19, Kiew-Smith shared details of the outcome of the programme, little of which had previously been publicly revealed.

He said M1xchange was selected from 61 fintech firms taking part in the challenge. The prototype was first tested in a proof of concept on September 17, 2018.

“M1xchange has proven that the technology already works in India. It was a tested and already-working solution rather than just some new-fangled thing that some guys in a garage thought would be a good idea,” said Kiew-Smith. “They were able to provide a solution that helped ADCB solve this particular test case.”

TReDs, the implementation of M1xchange in India, is a project approved by the Reserve Bank of India (RBI). It started operating in 2017 as RBI sought to provide small companies with more financing options, with funders including State Bank of India, Union Bank, IDBI Bank, Dena Bank and OBC Bank. The platform has now also implemented a blockchain-based solution developed by US company MonetaGo to help check for double financing of invoices on other exchanges in India.


A case for regulators

While the objective of the UAE Trade Receivables Exchange is to bring more and cheaper financing to MSMEs in the country, Kiew-Smith also spoke of the opportunities that such a solution could provide to regulators.

“There are a lot of strengths to the platform that we as a regulator are very keen on. Every regulator is very heavily focused on anti-money laundering and the trade finance industry is one of particular focus – there’s a lot of potential risks and banks work extremely hard to try and keep those risks to a minimum. So by having trade receivables in one handy place, that can give a level of transparency to regulators,” he said.

He further explained that the more invoices the platform accumulates, the better the fraud checks become, but emphasised that to make this mechanism effective, the platform must be adopted by the wider market.

“If you are trying to track double invoicing, you need a majority, ideally all banks in a given country, to be able to share their invoices, especially on a single given client,” he said, noting that ADGM alone will not be able to facilitate deployment across the UAE.

“To make this work, it should be a federal-level initiative. So we are currently talking to the leadership of the UAE central bank to understand how they want to take this particular project forward. That is currently where this project sits, so it will be the central bank’s decision as to how the project progresses.”

ADGM is also talking to the monetary authorities in Hong Kong and Singapore about making their national trade finance platforms interoperable. It could see the UAE Trade Receivables Exchange interoperate with the Global Trade Connectivity Network (GTCN) in the future, allowing for the sharing of invoices and trade documentation between the platforms. Based on blockchain technology, GTCN is a trade platform for transfer of digital documents, and is scheduled to go live this year.

At ADCB, meanwhile, the people behind project UAE Trade Receivables Exchange also recognise the importance of getting backing from the wider industry and from more banks.

“We would like to see a national trade platform, an industry platform that serves all the stakeholders involved in the trade finance business in the country,” said Samer Younes, lead, digital trade implementation and channel management at ADCB, also speaking at the GTR Mena conference.

“Together with ADGM we have been talking to local banks and international banks that have presence in the UAE. We have received explicit interest from those institutions. At the moment we are waiting for a body to be formed by the central bank of the UAE, so we can go to the next step, which is the live stage.”