Companies in the Middle East are looking for maximum security in trade transactions after being doubly hit by the financial crisis and the Arab Spring.

Despite being in better shape than their European counterparts, GCC companies and banks are being extremely cautious when arranging trade transactions, which has resulted in increased demand for confirmed letters of credit (LCs), trade credit insurance and warehouse receipts.

Speaking at Exporta’s Middle East trade finance week in Dubai, Khemais El Gazzah, director of operations at the Islamic Corporations for the Insurance of Export and Credit (ICIEC), said that even in countries not directly impacted by the Arab Spring there is now a much stronger need for confirming of LCs, and that the political turmoil in Mena countries has raised the profile of credit insurance in the region.

Hani Salem Sonbol, deputy CEO at the International Islamic Trade Finance Corporation (ITFC), added: “Mena firms are dramatically affected by the crisis, which is forcing a trend in bank appetite towards more secure financing and supply chain finance.”

All speakers at the event agreed on the renewed popularity of LCs, despite a desire to move to open account for larger corporates.

They explained that the region is emerging as a global hub for commodity trade, with increasing diversification from oil products and a number of trading houses setting up offices in the likes of Dubai, Abu Dhabi and Doha.

In the meantime, Islamic finance products are also growing in popularity, a trend reinforced by Sheikh Mohammed’s announcement that Dubai was to become the global Islamic finance hub. Consequently, the ITFC approved the opening of its first regional branch in Dubai, and the number of Islamic finance transactions is expected to double by 2015.

However, bankers in the market have told GTR that there is still a degree of apprehension surrounding Islamic finance products as their efficiency in times of crisis has not yet been tested. Moreover, pricing and understanding of how the products are structured remain challenging.