The Rise of Alternative Credit in the Middle East

By Kamran Anwar

Basel III rules have forced banks to re-evaluate their lending strategies and appetite. Non-bank institutions have stepped in to fill the gap. Alternative credit is growing steadily in Europe, but how is it faring in the Middle East?

The Middle East remains a highly competitive banking market and is over-banked in many countries. To convince businesses to embrace alternative credit as an option, providers must educate them on the benefits that such asset classes bring to them and to the regional economies in general.

If local inflows of alternative credit are to be enjoyed, the region’s investors must also be educated; alternative credit managers should emphasize the liquidity advantages of their product. While private equity liquidity is realized only once a transaction has finalized, alternative credit revenues come from interest payments. As such, investors can obtain private equity-type returns with superior liquidity terms.

There are concerns in the EU that the European Securities and Markets Authority (ESMA) may propose additional regulations on alternative credit, despite the belief that the Alternative Investment Fund Managers Directive (AIFMD) is sufficient. According to the Alternative Investment Management Association (AIMA), regulations may include leverage restrictions. These rules may force European alternative credit providers in the EU to stop providing loans.

Middle Eastern regulators will no doubt adopt a balanced approach to alternative credit. A failure to properly regulate can lead to abuses, but prematurely imposing rules on alternative credit would undermine its ability to grow naturally.

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