Sustainable Supply Chain Finance Gains Traction in MENA

Supply chain financing is going green as businesses worldwide work toward their sustainability goals.

The increasingly popular practice, known as “sustainable supply chain finance,” entails assessing and providing loans that take into account suppliers’ environmental, social and governance (ESG) performance.

For large corporations, it is an increasingly important part of their wider ESG efforts and helps them ensure sustainable sourcing and reduce the carbon footprint of their supply chains.

But to pull it off, businesses need the help of banks. After all, banks provide the capital for most supply chain financing, not buyers themselves.

For example, multinational bank Standard Chartered recently partnered with Middle Eastern retail giant Majid al Futtaim, which operates the Carrefour brand in the MENA region, to incentivize the retailer’s suppliers that meet sustainability criteria with more favorable financing terms.

Producers and merchants that use more energy-efficient equipment and vehicles, and minimize landfill waste will also be rewarded, helping to boost the rollout of more sustainable business practices within Carrefour’s MENA supply chains.

And by attaching ESG considerations to its finance solutions, Majid al Futtaim, which has said it sources 80% of its products from within the region, can help empower MENA suppliers to invest in more sustainable technologies while accelerating the region’s transition to a greener economy.

In a press release announcing the news, the retail firm said the program is the first of its kind in the region, following on from the success of similar partnerships like the Tesco and Santander deal in the U.K.

Funding SMBs’ Green Transition

While giant multinationals have the resources to adopt sustainable business practices, many of their suppliers are small and medium-sized businesses (SMBs) that often need the proactive support of banks and other lenders to fund their sustainability initiatives.

Among Gulf Cooperation Council (GCC) countries especially, empowering more sustainable SMBs is an important part of the region’s economic diversification efforts.

In the United Arab Emirates (UAE), for example, lenders have been critical in driving non-oil trade. And as credit moves both up and down supply chains, initiatives to finance buyers and sellers are equally important.

Just last week (Dec. 15), the UAE’s Federal export credit company, Etihad Credit Insurance (ECI) signed a Memorandum of Understanding (MoU) with Ras Al Khaimah Economic Zone (RAKEZ) to support the Emirate’s path toward economic diversification by stimulating non-oil foreign trade.

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Through the partnership, ECI will provide businesses in the RAKEZ access to state-backed trade finance loans, alongside other support measures.

Commenting on the MoU, ECI CEO Massimo Falconi said that the partnership would particularly focus on empowering SMBs and promoting a culture of entrepreneurship. It “will also contribute directly to the sustainable development of the UAE economy while exploring and benefiting from new growth markets,” he added.