Frayed relations

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Mahan Bolourchi, Euler Hermes.

If the economic downturn has blown a frosty wind into every relationship throughout the IT channel in the Middle East during the last 12 months, nowhere has it been felt more acutely than in the always-sensitive affair between distributors and credit insurers.

A year ago, many distributors were well on the way to being convinced that insurers did have a role to play in keeping the channel's credit lines well-oiled and shoring them up against unpredictable risk. But recession has shifted the dynamics of the relationship yet again.

The rise in reseller insolvencies and trading conditions that change on a daily basis have driven both sides to take a long, hard look at their priorities. For the credit insurers, the IT channel is an altogether more fragile proposition, leading to accusations from distributors of pulled credit cover, hiked premiums and reduced coverage; and for distributors, credit insurance looks like an expensive option that may not even provide the protection they need so badly.

The picture is complex. In the same breath, credit insurers will acknowledge their caution while insisting that interest in their services from the channel has never been higher and that their market intelligence is vastly improved.

And distributors will lament inconsistent coverage and high costs while - albeit grudgingly - acknowledging that credit insurers have had a positive effect in bringing discipline and order to a channel that has often seemed to depend far too much on the secrecy of its financial relationships.

"In my opinion, trading conditions have tightened up due to the erosion of credit in the IT channel," said Leroy Almeida, business development manager at Dubai-based Al Mulla Atradius Insurance Consultancy and Brokerage.

"This was due to the major deterioration in the financial and economic situation worldwide, and contagion risk from the construction sector that impacted on the IT channel. The increasing number of reported payment defaults from the beginning of this year has eroded credit, and insurers are cautious. And recoveries are extremely difficult as the majority of defaulting buyers tend to abscond from the country."

Mahan Bolourchi, head of risk management GCC Euler Hermes, says trading history is no longer a reliable guide to a company's present creditworthiness. But on a positive note, the number of companies in the region now prepared to share financial data with their credit insurers has increased "dramatically", helping to improve intelligence in the market.

"We have had to increase our resources in the region to deal with the unrivalled demand for our product and we now have a team of 27 in the GCC," he revealed. "However, we have not changed our underwriting approach in the market. Our job is still the same: we collect and analyse financial data and provide credit management advice and insurance to our clients. Our role remains to ensure business transactions are possible.

"We still use our local team to seek information from buyers to enable us to offer cover and we are geared up locally to give every company an opportunity to prove they are creditworthy. We are stressing to the sector and banks the vital role credit insurance plays in the economy. In the same way a buyer would not expect their bank to extend them credit without providing them with financial data, we take the same approach."

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