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Other Supply Chain Players - The Banks

Financial institutions are another key stakeholder in the diamond supply chain, which Ehud believed expected greater transparency from the diamond sector.

"Bank financing is the lifeblood of the industry. Without it, there would be no money for exploration or new store openings," Ehud stated in 2015. He also stressed the need to boost confidence in the diamond industry. This lack of confidence is evident in, for example, the decline in available bank financing over the past several years.

One of the keys to building this confidence, according to Ehud, is greater transparency in diamond pricing. 

"The banks have in-depth knowledge about the companies they finance... They have very intimate knowledge about the costs, values, types and quantities of the rough diamonds these clients purchase... The question usually arises when it comes to the value of rough diamonds sourced from other suppliers, and the value of polished diamonds. What is the value of these items? Knowing the costs is good, but if goods are in inventory for a while, and it is not unusual for prices to rise and decline, what are they then worth?".

Furthermore, when buying diamonds, the bank wants to know if the company paid market prices. Sometimes, a company pays high prices (because having the goods is important enough to pay a little extra for them), but their inventory value should perhaps be lower - from the bank's perspective. Other times, a company has an opportunity to buy at a great price, in which case the company has a higher-value inventory that the cost reflects."

In addition to diamond pricing, Ehud highlighted several other avenues to explore for improving transparency vis a vis the financial institutions.

"The banks demanded that the industry move to IFRS, and in my opinion, justly so,"  Ehud stated in a post advocating price transparency. "Compliance with IFRS would determine how the value of diamond stocks is reported."

"To be accepted by banks, diamond companies, government authorities and even insurance firms, this third-party assessment system should be transparent, in order to be accepted by all. This is possible if prices of all diamonds are known, if the reason for the variations in prices are clear and understood, and if the methods by which the data on prices is collected are verified and monitored. Each and every component of this process requires full disclosure to the market and stakeholders. In one word, transparency.

Transparency also strengthens the confidence the banks financing the diamond industry have in the sector. With a few banks deciding to cease their financing of diamond operations, and others decreasing their financing of the diamond industry, this confidence-building measure can play an important role in bringing back and increasing financing to the industry."

Taking this further, "More bank involvement in the diamond industry could be beneficial in a number of other areas, including the creation of a market for diamonds as a possible wealth preservation asset." 

Related Articles:

Support Services: Banks

Banks Keep Walking Away and We Must Learn the Lesson

A Call for Transparency

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