Diamond Trade Must Find A Way Around Negative DevelopmentsSeptember 06, 18
Looking back at the news from the past week, two items – unfortunately both rather negative – really stood out.
The first one related to the decision by Union Bank of India to withdraw from the Antwerp diamond center, thus becoming the latest bank to exit the industry. The bank has given notice that it will close its branch in the Belgian diamond hub within a year, according to Chief Executive Officer Rajkiran Rai Gundyadka.
Union Bank began its Antwerp operations just four years ago. At the time, it said it aimed to dedicate about 20% of its $200 million loan book to diamonds in the first year.
Gundyadka's reported comments were far from encouraging. He said that the Antwerp diamond trade didn’t generate “the expected amount of business, particularly from the diamond sector. The viability of the branch isn’t established.”
The Indian bank joins Antwerp Diamond Bank and Standard Chartered Plc in pulling out of the diamond industry, and it's the latest blow to diamond financing for the trade. Some banks, such as ABN AMRO, have scaled back operations, while others, such as Israel's Bank Leumi, have completely left the diamond business.
Union Bank of India's decision to withdraw from the diamond sector again puts the spotlight on the challenges facing our trade in the area of financing. Indeed, global lending to the midstream sector reportedly fell to just over $13 billion last year from $16 billion in 2013 and is forecast to drop below $11 billion in the next couple of years.
As the cliché goes, bank finance is the credit that the diamond trade needs often just to survive, never mind to expand operations. As one diamantaire told me this week: the more things change, the more they stay the same.
"Frankly, it's the same old story: the big players have the volume and the means to continue, but the small and medium-sized players are always up against the wall, especially the smaller companies. You can run your firm as carefully as possible, but there is a risk associated with our trade that's very unfair and incredibly difficult to shake off."
The other item that grabbed my attention related to the Chapter 11 Trustee of Firestar Diamond, Inc. and Fantasy, Inc. in the United States announcing the liquidation of the diamond and jewelry inventories, patents, trademarks and associated jewelry of Firestar and Fantasy.
The US companies were part of the business empire of alleged fraudster Nirav Modi. He went to ground months ago after a more than $2 billion fraud.
This also has a connection, of course, with the first item mentioned above. Banks everywhere, but especially in India, have been further deterred from touching the diamond and jewelry industry, according to reports out of the sub-continent.
Can they be blamed for doing so? Yes, actually, they can. The vast, overwhelming, majority of businesses are run prudently. Since the global financial crash of 2008, there has been a shift in thinking: ordering goods only when needed and for specific purposes and reducing Memo shipping. The industry has cooperated with the Financial Action Task Force which sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
Furthermore, the trade has acted to prove itself to be increasingly transparent, understanding that this is a basic requirement in order to receive credit. However, it must be conceded that the industry is still dominated by small and family owned businesses some of whom find it difficult to let sunlight between the pages of their books.
Clearly, the issue of industry financing remains acute. It will certainly once again be a major issue for debate among presidents and national delegations from the World Federation of Diamond Bourses and the International Diamond Manufacturers Association at the 38th World Diamond Congress set to take place in Mumbai on October 23-25.
Finally, may I wish all diamond and jewelry industry members celebrating Rosh Hashana, the Jewish New Year, a sweet, enjoyable and peaceful festival and year ahead.