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ARE WE READY FOR A CHANGE? Diamond Financing: New Realities, New Opportunities
Financing is a major trouble for the diamond industry. The Banking summit on diamond financing held in Mumbai helped the industry to know more about newer ways of financing as well as addressed the need for transparency and corporate governance. It also helped counter the negative perception that the Banking industry have of the diamond industry. Kavita Parab brings you a detailed report as it unfolded.
By: Diamond World News Service
Feb 18 2017 1:51PM
Reference: 13906  

In the wake of diamond financing becoming a challenge day-by-day, industry needs to find newer ways of funding the industry like P2P (peer-to-peer financing).

But before the industry embarks on a journey to find new financing options, it needs to embrace to two important factors - Compliance and Transparency - in the way it operates. Both being critical issues and absence of which has led to the Banks moving out of diamond industry financing or restricting their exposure to the industry.

So are we ready for change? Are we ready to give up age-old ways of business and bring in Corporatisation and Professionalism in the sector? The industry has no other way but to embrace acute transparency and corporate governance in order to restore the bank’s faith in the industry.

As the international financing to the industry has reduced, the major part of the funds for the industry comes from Indian banks. However, they have tightened lending norms and made funding difficult.

However, major onus of getting the funds still lies with the industry as it is up to them as how they restore lost faith and reinstate the credibility of the industry as a whole. Also, the industry needs to be forthcoming in regards to taking action against miscreants especially ‘willful defaulters’. In this, the GJEPC, BDB and MDMA can play a larger role. The GJEPC has already mooted ‘MyKYC’ which is an online networking platform for the diamond industry to improve transparency in transactions.

Apart from this, the banks need to have tailormade financing solutions especially designed forthe diamond industry.

This and many more issues related to diamond financing were discussed at a length during a special finance seminar - Diamond Financing Seminar: New Realities, New Opportunities - jointly organised by India’s Gem & Jewellery Export Promotion Council (GJEPC), the Bharat Diamond Bourse (BDB) and the World Federation of Diamond Bourses (WFDB), held as a special segment of the Presidents Meeting of the WFDB, in Mumbai.

Diamond Financing
Diamonds being high value products depend on financing, especially for the midstream (i.e. polishing) as rough diamonds are sold in cash while customer demand long (3-4 month) credit terms. Indian banks have supported the industry as it has grown to be a world leader in the midstream segment. However, banks have restrained themselves from lending to the gem and jewellery sector at a time when margins have reduced and prices have become more volatile. Internationally, few large banks are withdrawing from the industry while some others are withdrawing credit lines due to reasons unrelated to the diamond business or compliance or Basel II restrictions.

Inaugural Session
The dignitaries for the inaugural sessions of the third such financing seminar conducted by the GJEPC included Sudhir Mungantiwar (Hon. Finance Minister, Maharashtra State), Manoj Dwivedi (Jt. Secretary, Union Ministry of Commerce, Government of India), Praveenshankar Pandya (Chairman, GJEPC), Russell Mehta (Vice Chairman, GJEPC), P. S. Jaykumar (MD & CEO, Bank of Baroda), Karnam Sekar (Dy. MD & Chief Credit Officer, State Bank of India), Ernest Blom (WFDB President), Anoop Mehta (Chairperson, Bharat Diamond Bourse), Biju Patnaik (EVP, IndusInd Bank) and Ajesh Mehta Convener, Banking, Insurance, Addressing the inaugural session, Praveenshankar Pandya, Chairman, GJEPC, said, “The Indian diamond sector cuts and polishes a billion pieces and gets USD 6 bn from India and around USD 5.5 bn from international banking channels. The support of the banking & finance sector will be crucial for the future growth of the gem and jewellery sector.”

Pandya added, “To make the sector further organised, and to enable banks to get concrete information to do the right due diligence while sanctioning credits, GJEPC has intensified measures for corporatization of MSME units in diamond cutting and polishing. Bankers have a great opportunity to provide financing for the MSME sector, which constitutes one third of the total business thereby bringing them to the mainstream. One of the important steps taken by the GJEPC to further improve transparency in transactions in the sector is starting a KYC online networking platform for the diamond industry. The project helps its members and global participants to maintain their Know Your Customer information on a centralized web-based platform and share it with other members online through important gem & jewellery associations of the world. GJEPC seeks the Government support to move towards a European Union turnover tax type model for the trade. We also seek the formation of a Banking Committee that meets regularly, engages the trade and gives direction to the gems and jewellery sector.” Taxation Sub-Committee (BITC-GJEPC).

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