ITFC and FCI have signed a Memorandum of Understanding (MOU) , to create a new Islamic Factoring Chapter within the FCI network. Chaired by a representative from ITFC, the chapter will include thought leaders from the region, to increase financing opportunities for small and medium enterprises (SMEs) via Islamic Factoring. The chapter will support the growth of SMEs in their domestic and international trade under Islamic factoring rules promulgated by FCI.
ITFC joined FCI recently as an associate member with the aim to promote Islamic factoring within the Chain. The chapter is a result of ITFC’s contribution to the development of the Supplementary Agreement on Islamic Factoring along with Noor Bank and Tawreeq Holding, which was approved in June 2018.
The objectives of the creation of the chapter include enabling the growth of Islamic factoring in the regions, improving regulatory reforms to conduct Factoring in a safe and secure manner, and creating awareness of Islamic factoring.
The chapter will promote factoring as a parallel trade finance instrument, to enable businesses in the Organization of Islamic Cooperation (OIC) member countries to trade competitively and support the participation of SMEs as exporters in supply chains. It will introduce factoring to Islamic banks and non-bank financial institutions (NBFIs) and develop their understanding of pursuing factoring as a line of business to actively promote trade between OIC member countries and beyond.
Commenting on the MoU, ITFC CEO, Eng. Hani Salem Sonbol, said: “The MoU will enable ITFC to work alongside FCI to develop the legal, regulatory and commercial aspects of Islamic factoring and secure its place as an increasingly important element in the finance of intra-OIC trade”.
Peter Mulroy, FCI secretary general, also commented on the MoU: “The Islamic factoring chapter is an attempt to create focus and develop a center of excellence with best practices for the Islamic factoring sector. The idea is to bring a time tested practice of traditional factoring, an open account trade finance solution to Islamic Finance, so they too have solutions to provide their clients, all in a Shariah compliant manner. We are delighted to be working with the Islamic Trade Finance Corporation (ITFC) and the initiative will have the full backing and support of FCI!
FCI and ITFC see opportunities for factoring in the Islamic Countries as the world trade volumes of OIC Countries reached $3.2tr representing 9.4% of the world trade according to the Islamic Centre for Development of Trade annual report.