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SPECIAL REPORT | APRIL 6, 2014

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CREDIT BUREAU MOBILE WALLET BANKING EXPERTS ATISATION FINANCIAL LITERACY CREDIT BUREAU COORDINATION WITH BANKS CODE OF CONDUCT SME FINANCE CREDIT BUREAU EMIRATISATIO EMIRATISATION FINANCIALINCLUSION MOBILEWALLET

Stableoutlook lending a hand in economic growth


YEARS

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SPECIAL REP ORT

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CArinG FOr tHE nAtiOnAlS As the government is trying to strike a balance between open-door policy and emiratisation, the banking industry is playing a lead role

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GrOwtH tO rEMAin FirM

The economy in 2014 is expected to benefit from investments arising from megaprojects as well as Dubai’s successful bid for Expo 2020, says Central Bank Governor Sultan Nasser Al Suwaidi

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tHE liFEblOOD OF tHE nAtiOnAl ECOnOMy

The banking sector has played a critical role in the emergence of the UAE as the second largest economy in the Middle East

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Encouraging values and professionalism

12

Steering the UAE Banking Sector

14

UAE banks embrace financial inclusion

16 18

Beyond plastic

22

Working together to address problems

26 30

Gunning for transparency

Gaining traction in Islamic finance

Be mindful of your spending habits

l Executive Editor: Patrick Michael l Supplements Editor: Suchitra Steven Samuel l Sub-editor: Sadiq Shaban l Reporters: Farhana Chowdhury, Suneeti Ahuja-Kohli l Design & Layout: Mohammad Ejaz Khan l Cover Design: Sidharthan l Imaging: Venugopal Prabhu l Director Advertising: Haroon Qureshi l Senior Advertisement Manager (Supplements): Philip Smith l DubAi HEAD OFFiCE P.O. Box 11243, Tel: +971 4 3383535, Fax: +971 4 3383345/46, E-mail: supplements@khaleejtimes.com l Abu DHAbi P.O. Box 3082, Tel: +971 2 6337666, Fax: +971 2 6351122, E-mail: ktimesad@eim.ae A PubliCAtiOn OF GAlADAri PrintinG & PubliSHinG llC

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KT Special RepoRT April 6, 2014


UAE BAnks FEdErAtion

ChAIRMAN’S MESSAGE The banking industry witnessed a healthy growth in 2013. The assets reached an all-time high of over Dh2 trillion against the backdrop of improving macroeconomic performances, recovering realty market, and growing investor optimism about the MSCI country upgrade and the recent Expo 2020 win for Dubai. The buoyant confidence in the industry, which constitutes the UAE’s 23 national banks and 26 foreign units, is a reflection of the healthy state of the national economy. The combined assets of the banks at more than Dh2 trillion by the end of 2013 are up Dh34 billion from Dh1,991 billion at end of November 2012. Consequently, the credit market is now more accessible and liquid; fresh life has been infused in stalled projects, and new ones announced. It comes at a time when the authorities are studying macroprudential policies to regulate the credit growth. We at the UAE Banks Federation are proud to play a pivotal role in the development of this space and work hand in hand with the Central Bank and other stakeholders. The Federation has provided a unique platform to all banks for discussions and raised key areas of concern. Recently, the forum steered discussions on consumer mortgage loans and large exposures. The proposals of the respective committees were accepted by the Central Bank and resulted in the Consumer Mortgage Loans Regulations 2013, and the Large Exposures Regulation introduced in October and November 2013, respectively. The year 2013 was also notable in terms of new committees formed to deliberate on the way forward. Mobile Wallet Initiative, which forms an integral part of the Smart Government Initiative, is one of the best examples. The committee on Mobile Wallet is working on a blue print and envisages providing a userfriendly platform by integrating technology with everyday life. The service would ease payments, transactions and management of personal finances.

AbdulAziz Al Ghurair Chairman of the UAE Banks Federation

Besides, the Federation also promotes Emiratisation in the financial services sector, raises public awareness on Al Etihad Credit Bureau, Islamic banking and financial literacy, builds a favourable banking environment to enhance customers’ confidence in banks, and encourages transparency and free market policy. The banking industry recognises the role of small and medium enterprises (SMEs) in an economy. The Federation’s committee on SME Finance seeks to highlight concerns in this sphere and work with the Central Bank to promote and strengthen this sector. The Federation developed and introduced the Code of Conduct for banks last year, which aims to protect customers’ rights, enhance cooperation and promote fair competition between banks, as well as reinforce cooperation with the Central Bank and other official entities to better serve customers, the community and the national economy. Looking ahead, we are positive about the growth prospects for the UAE. As real GDP growth is forecasted at around 4 per cent, we expect credit growth to strengthen further in 2014. On this note, the UAE Banks Federation would like to thank all the bank members and stakeholders, and look forward to their continued support ahead.

KT Special RepoRT April 6, 2014

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inTervieW

groWTh To

rEMAIn FIrM In 2014

The economy is expected to benefit from investments arising from megaprojects as well as Dubai’s successful bid for Expo 2020 BY SUneeTi AhUjA-Kohli

D

eveloping a support mechanism for the SMes is among the big challenges for the UAe Central Bank this year, says Central Bank governor Sultan nasser Al Suwaidi. As the economy continues to grow at a firm pace and expects to register 4.5 per cent growth in 2014, the Central Bank is keeping a close eye on the property sector and working to prop up support for the SMe sector. in an email interview with Khaleej Times, the governor talks about Al etihad Credit Bureau, challenges faced by the Central Bank, the need to promote financial literacy and much more. Excerpts:

Dubai government to curb possible speculative activity in the property market including an increase in the property registration fee and more recently standardisation of sale contracts. A number of major developers have also introduced a minimum holding to address potential speculation.

What is the outlook for economic growth in 2014?

Managing real estate lending related risk is primarily the responsibility of individual banks; the goal of the Central Bank is to ensure that under adverse scenarios the financial system functions properly. Central Bank regulations such as a cap on banks’ real estate exposure or an LTV limit ensure the resilience of the banking system and mitigate the impact of any potential shock on the UAE’s financial institutions.

According to recent iMF estimates, UAe economic activity expanded 4.5 per cent in 2013. growth through 2013 was supported by ongoing strength in the tourism and hospitality sectors while a recovery in real estate provided a further catalyst for growth. in 2014, economic growth is expected to remain firm at 4.5 per cent. The UAe economy in 2014 is expected to benefit from a solid pace of investment arising from a number of megaprojects as well as Dubai’s successful bid for Expo 2020. Similarly, recent trends in passenger arrivals and the logistics sector are likely to further boost gDp growth in 2014. The IMF has voiced concerns on a potential property bubble in the UAE

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The Central Bank’s decision to impose lending cap on mortgages is welcomed by the industry. But how effective will these regulations be in arresting the rise in property prices when a bulk of the transactions in the real estate sector are in cash?

Sultan nasser Al Suwaidi Central Bank governor

following the rapid rebound in real estate. What are your views? Citywide average residential real estate prices grew at a rapid pace during 2013: 24 per cent in Dubai and 21 per cent in Abu Dhabi. ongoing development activity and planned additions to the overall housing stock this year is likely to contribute to price stability. The Central Bank has recently introduced a loan-to-value (lTv) cap that should encourage prudent lending by banks. We have also seen efforts by the

What are the main challenges for the Central Bank? The Central Bank identifies three medium term challenges. The first is to develop a support mechanism for SMes operating in the UAe. SMes play an important role in the economy, supplying intermediate goods and services to larger corporates, being a force for innovation and offering


UAE BAnks FEdErAtion

employment opportunities. Further development of the SME sector is vital to the UAE’s goals of economic development and diversification. The Central Bank believes that all government entities, federal and local, should take bold and swift actions to support the development of SMEs. Such support could include government guarantees, technical assistance and improving SME access to finance. The second challenge is the development of a pan UAE Debt Market. This challenge is particularly relevant, as new Basel requirements will require increased holdings of quality bonds and sukuk. The absence of a Dirham yield curve implies that banks have little option but to acquire better priced instruments from international markets, placing the UAE under spillover risk during crises. Development of a UAE Debt Market will require the issuance of a public debt law and the necessary infrastructure, including an effective clearing and settlement system, custody arrangements, and a smooth and secure link to the UAE Funds Transfer System. Similarly, close cooperation between the Ministry of Finance, Central Bank, Emirates Securities and Commodities Authority and other key stakeholders are required. The third challenge facing the Central Bank is related to improving banking services across the UAE. This relates to improving the accessibility of the banking sector for consumers through the usage of new technologies as well as improving consumers’ overall satisfaction with the banking sector. The Central Bank, working with UAE banks can act to facilitate such an improvement in overall banking services offered to the UAE consumers. How does the Central Bank propose to address the problem of accessibility of finance for small and medium enterprises (SMEs)? SMEs are an important sector of the UAE economy and through the Central Bank’s liquidity provision to banks, banks are able to lend at a reasonable price. However, supporting SMEs cannot be only a Central Bank issue, other government ministries and authorities have a major role to play. Currently, the Central Bank is in close discussion with other government agencies to put in place more direct measures to support lending to SMEs.

Such discussion involves drawing upon the experiences of initiatives implemented in other jurisdictions to best identify those most suitable to the UAE. The Central Bank aims to identify measures that seek to increase accessibility of funding and support the viability of SMEs operating within the UAE. There is a need to spread awareness about personal finance management. How does the Central Bank propose to work on this front? Spreading awareness and education about personal finance management is key regardless of the debt levels among individuals in the UAE. The newly established Al Etihad Credit Bureau is a major move towards assisting individuals from taking unnecessary credit risk exposure. Therefore, it is important that the Al Etihad Credit Bureau forms a solid partnership with the UAE Banks Federation to develop consumer services materials in their respective websites to provide useful financial information, on topics such as inflation, banking, personal finances, investing and consumer protection and information to help consumers make informed decisions about managing their personal finances. The UAE aims to become the capital for Global Islamic finance. How will the Central Bank steer this project? The UAE is well positioned to serve as the capital for global Islamic finance due to its political stability, well-developed infrastructure and supportive government. Domestically, the Islamic Financial Services Industry (IFSI) continues to play a major role in financing national infrastructure, residential properties and corporate expansion. This will continue as the UAE economy continues its robust expansion. However, some challenges may arise which will require concerted efforts among key industry stakeholders. The most significant challenges are in the areas of standardisation, risk management, innovation and financial diversification, regulation and supervision, and human resources. In order to address these challenges and to support the UAE’s ambitions, the Central Bank can facilitate the process of implementation and development of the necessary frameworks that fall within its mandate.

The Central Bank believes that all government entities, federal and local, should take bold and swift actions to support the development of SMEs. Such support could include government guarantees, technical assistance and improving SME access to finance

The UAE financial sector relies on a lot of paperwork and cheques for transactions, whereas the developed financial world has almost done away with it. What are the views of the Central Bank in this space? In many jurisdictions, use of cheques and paperwork has been in rapid decline due to the increasing use of electronic payment systems. In line with such developments, the Central Bank continually strives to improve the efficiency of its payment systems in order to extend better services to banking customers in the UAE. With the recent launch of the Direct Debit System (UAEDDS) for all banking customers in the UAE, the Central Bank is offering banking customers an electronic facility that helps regularise their recurring payment transactions in a secure environment, thereby reducing paperwork hassles and processing time. In addition, it also assists banks in reducing the required time and costs in handling customers’ bounced cheques. This direct debit facility is a very common and popular payment option in many developed and emerging countries, and it is now available not only to all banks but also to finance companies and investment companies operating in the UAE. The Central Bank stresses the importance of increasing awareness of the UAEDDS, particularly with respect to the advantages offered to customers. —suneeti@khaleejtimes.com

KT Special RepoRT April 6, 2014

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CAPSTONE

ThE lIfEBlOOD Of

the national economy

The banking sector has played a critical role in the emergence of the UAE as the second largest economy in the Middle East BY MATEIN KhAlID

T

hE UAE has the largest, most diverse and sophisticated banking sector in the Arab world, with bank assets now 1.3 times its GDP. Banks have played a mission critical role in the emergence of the UAE as the second largest economy in the Arab world, with a vibrant non-oil sector and the hub of financial services in the Gulf. The spectacular economic development metrics achieved by the UAE in the past three decades would not have been possible without an equally spectacular growth in banking assets, since banks largely fi-

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nance consumers, corporates, quasi-sovereigns and government-owned institutions in the emerging markets of the Middle East. Each bank job created in the UAE has a multiplier effect on the economy, making banking sector a catalyst for the growth of the national economy. Significantly, many of the UAE’s leading Emirati corporate CEOs, public sector executives, economic technocrats and business magnates began their careers as commercial bankers, making UAE banking sector a prominent example of the success of the Emiratisation policy in the national economy.

The UAE banking sector made a tangible and significant contribution to the recovery of the national economy from the fallout of the 2008-09 global financial crisis

The UAE banking sector assets have grown tenfold from $49 billion in 1995 to $554 billion (net) by 2013, making it the largest financial system in Middle East and North Africa. It is no coincidence that the UAE’s non-oil nominal GDP has risen from $49 billion to $229 billion by mid-2013, a testament to the exceptional success of the UAE Government policy objective to diversify the national economy. The UAE’s banking sector has the greatest financial depth and the most competitive financial products in the Arab world. Banks play a key role in the payments, settlements, cor-


UAE BAnks FEdErAtion

porate financing, trade finance and capital markets in the UAE. For instance, the UAE banking system cleared 27.6 million cheques with a value of $306 billion in 2012. The outstanding value of letters of credit, the bellwether product for international trade finance, was $32 billion, while forward endorsements and acceptances were $92.5 billion in mid 2013. The UAE banking sector made a tangible and significant contribution to the recovery of the national economy from the fallout of the 2008-09 global financial crisis. The UAE Government’s swift and decisive policies enabled UAE banks to withstand the global recession and credit crunch and resume their role as the financial catalyst of national economic growth. The UAE Ministry of Finance placed $19 billion in subordinated deposits in the UAE banks, which then pro-

UAE BAnks' FinAnCiAl HigHligHts As OF 31/12/2013 Figures in billion dirhams

Parameters

31/12/2012

31/12/2013

Change during the year (%)

1,167.8

1,278.9

9.5

95.1

107.9

Loans & Advances

1,099.1

1,177.3

7.1

Total Assets

1,791.6

2,025.8

13.1

276.4

268.4

-2.9

Deposits Certificates of Deposit held by Banks

Capital and Reserves

vided required liquidity to the market. This liquidity injection boosted bank capital adequacy ratios by 5 per cent, taking the capital adequacy ratio of the UAE banking system up to 20 per cent among the world’s highest. In addition, the UAE Central Bank set up an additional liquidity facility mechanism.

Ratios EIBOR/one year (%)

13.5

31/12/2012

31/12/2013

1.63

1.84

Capital Adequacy Ratio (%)

21

19.3

Loans & Advances/ Deposit Ratio (%)

94

92


These confidence capital and liquidity boosting policies protected the UAE banks from the global wholesale money market funding crisis of 2008-09 and enabled the banking sector to finance the national economy’s recovery from a mild recession in 2009 to an impressive 4.5 per cent GDP growth rate in 2013-14. It is significant that most UAE banks have returned the subordinated deposits of the Ministry of Finance, and the UAE Central Bank’s liquidity facility was used only occasionally during the post Lehman global interbank funding money market freeze in 2009. The UAE Central Bank has acquired a global reputation as a proactive and prudent bank regulator that has insisted that UAE banks maintain capital adequacy ratios far in excess of internationally mandated requirements set by the Bank of International Settlements in Basel, Switzerland. In 2012, the average Tier One capital of the UAE banks was 17.6 per cent, one of the highest in the world, a tribute both to the UAE Central Bank’s prudence and

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the inherent financial strength of the banking sector. UAE banks employed 34,413 professional staff (excluding auxiliary personnel) in mid 2013. Significantly, UAE banking professionals have some of the highest academic credentials and average incomes for executives in the UAE economy. Economists have estimated that each job in the UAE banking system creates two to three jobs in the national economy. A one percent rise in financial services growth leads to a 0.67 rise in the broader UAE employment rate, and a one per cent rise in domestic credit is correlated with a 0.46 per cent rise in non-oil segment of the GDP. The UAE banking sector is the fourth largest employer of Emirati professionals after the government, education and transportation/communications sectors. The UAE financial sector was the third largest employer of Emirati women after the government and education sectors. Bank sponsored training, research and academic programs have significantly upgraded the

UAE banks employed 34,413 professional staff (excluding auxiliary personnel) in mid 2013. Significantly, UAE banking professionals have some of the highest academic credentials and average incomes for executives in the UAE economy

professional credentials of Emirati employees in the UAE financial sector. The banks channel savings of the population and surplus

cash flows of the corporate sector into productive longterm loans, investments and project finance. In mid 2013, the UAE banking system held $341 billion in customer deposits and net loans of $319 billion. This transformation of short term deposit into productive /investment and project finance is essential to maintain and accelerate, economic growth in the UAE. Banks also play a vital role in risk management, economic diversification, the functioning of the UAE corporate bond/new issue/sukuk markets and finance of the UAE’s international trade. The banks also finance short-term funding needs of corporates, and provide them with treasury products to enable them to manage interest rate and foreign exchange risk that arises from their cross-border business. Banks have also opened subsidiaries and even taken ownership stakes in banks in the Arab world and have a presence in major global financial centres. The international credit rating agency Moody’s upgraded the UAE banking sector outlook from negative to stable due to the significant recovery in the local real estate market, the fall in problem loans and an increase in operating profitability. Bank lending in the UAE grew at 7.1 per cent year on year in 2013, enabling UAE banks to generate internal capital, improve liquidity ratios and accelerate profit growth. The UAE banking system’s Tier One capital ratio was stellar in June 2013, liquid assets were 30 per cent of total assets and loans to deposit ratio was 93 per cent (down from 108 per cent in 2008). While UAE banks must continue to improve risk management, reduce related party lending exposure and high loan and deposit concentration risk, the UAE banking sector has the requisite capital, liquidity, professionalism and scale to act as the catalyst of the UAE’s economic growth in the future.


code oF conducT

encouragIng values and professionalism The UAE Banks Federation’s Code of Conduct, a non-binding agreement, serves as a guiding light for the sector BY MaTEIn KhalId

T

he Federation’s code of conduct enables member banks to adopt principles and policies that promote professionalism and trust in the uae banking sector. While the code of conduct is not a legal document and does not replace an individual bank’s own policies, it provides values, guiding principles and ethical platform to raise professional standards, adopt best practices in banking procedures and promote trust and transparency in the uae banking sector. The Federation’s code of conduct emphasises high ethical standards, integrity, due skill, care and diligence as the foundation of banking activity in the uae. The code emphasises the role of risk management, client confidentiality, management of conflicts of interest, adherence to all relevant laws and regulations, the importance of procedures, processes, systems and control checks in banking operations and the use of technology in financial services. an important component of the code is its emphasis on standards of market conduct, since it addresses relationships among banks and the need for fair competition and accurate information exchange among member banks. The code’s purpose is to promote stability and continued growth of the uae banking sector. The success of any banking systems is based on frank, confidential information exchanges among member banks. so the code places great importance on stable relationships among member banks and high standards of market. The code lays great emphasis on the fair treatment of all bank clients, particularly the elderly and disabled. Trained staff must guide clients on suitability of loan products and services, knowing that many clients regard the bank’s judgement as the basis of any purchase or action decision. Bank must provide customers with copies of the relevant contracts or transaction agreements

An important component of the Code is its emphasis on standards of market conduct, since it addresses relationships among banks and the need for fair competition and accurate information exchange among member banks

before the time they take effect. all information exchanged with clients should be fair and not misleading. deposit and savings rates must be published in an accessible format and periodically updated. client instructions should be executed to cause no financial losses. If any request cannot be executed due to legal or regulatory reasons, banks must notify their client promptly so this does

not conflict with the relevant law or regulation. all client complaints must be responded to at the earliest and, when required, independently. The code addresses the role of banks when dealing with retail clients who access credit facilities. Banks must take care to ensure borrower and guarantor are aware of the obligations they are undertaking. Banks must be transparent in advising applicable interest rates, service charges and fees on websites or on notice boards in branches. Banks must also provide clients who are in financial difficulties support to manage their indebtedness and develop a repayment plan before resorting to external debt collection or legal action. Banks should ensure all advertising and promotional material is clear, fair and not misleading. The code of conduct addresses the importance of training uae national staff in line with national government objectives. This can be accomplished via banking schools, academies, in house training and the recruitment of fresh, competent university graduates. KT Special RepoRT April 6, 2014

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ACTIVITIeS

STEERING

The UAe BANKING SeCTOR With 49 banks on board, the Federation’s proposals and discussions reflect that of the industry BY MATeIN KhALID

T

he UAe Banks Federation has played a seminal role in the exponential growth and expansion of the banking sector since 1982. Its strategic role encompasses the creation of an advocacy platform for member banks, the creation of an Advisory Council of Bank CeOs and 10 specialist committees dedicated to different domains in the financial sector, the provision of leadership in the discussion of industry policy issues and regulatory liaison with the UAe Central Bank. The Federation requested the UAe Central Bank to invite its member bank’s opinion on mortgage lending via a questionnaire. This input, in turn, had a major impact in the UAe Central Bank’s Consumer Mortgage Loan Regulations, issued in 2013. The Federation also requested the Central Bank to invite member bank opinion on the management of large exposures and the Federation’s Wholesale Banking Committee put forward a proposal to redefine the UAE Central Bank’s policy discussion on commercial real estate finance. The

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Federation’s Islamic Banking Committee has proposed guidelines to establish a Sharia Compliant Governance Unit. The Federation has contributed to the working groups, seminars and workshops on the creation of the Al etihad Credit Bureau, with its Legal and Consumer Banking Committee submitting proposals to the Ministry of Finance for consideration. The Federation’s Financial Markets Committee submitted proposals on liquidity coverage ratios to the UAe Central Bank for consideration. Meanwhile, the Legal and Consumer Banking Committees reviewed the Direct Debit System and recommended proposals to the UAe Central Bank for consideration. The Federation continues to play a crucial role in the infrastructure development of the interbank money and capital markets of the UAe. Its Financial Markets Committee recommendations resulted in a UAe Central Bank seminar on the Discount Window. The Federation also submitted a proposal on the netting of derivatives contracts to the UAe Central Bank for consideration.

The Federation has contributed technical input to public policy initiatives of the UAe Government. A special committee was formed to discuss the Smart Government Initiative. The Federation’s Risk Management Committee sent a proposal o n S t a n d a r d i s at i o n o f I n d u s t r y Classification. The Federation’s Legal Committee submitted a proposal on Real estate Foreclosure to the UAe Central Bank for consideration, as was a proposal to create a National Data Pooling Unit submitted by the Risk Management Committee. The CeO Advisory Council approved the final version of the Federation’s Code of Conduct and the Federation liaised with Dubai/ Ras Al Khaimah Courts and the UAe Central Bank to promote, develop and regulate the appointment of banking experts in legal cases in the UAe courts. The Federation has also enhanced the profile of the UAe banking system internationally via the signing of memoranda of understanding with the South Korean and Italian banking federations.


UAE BAnks FEdErAtion


FINANcIAl INclUSION

UAE BANkS EMBrAcE FINANcIAl INclUSION The UBF and the Central Bank are working on an initiative that includes the ability to provide financial services to various segments of the population through mobile phones BY ABdUlAzIz Al GHUrAIr

T

he term ‘financial inclusion’ very often makes people think ‘banking for the under-privileged’. It is actually much more than that – it is a belief that equates individual financial independence to a nation’s economic potential. Put simply, financial inclusion not only correlates with the aspirations and intrinsic wealth of any nation, but actually supports it. It is a well-known fact that financial inclusion is about delivering financial services at affordable costs to disadvantaged and lower-income segments of society. So it follows that inclusive financing will empower society, increase individual independence and support an economy, as well as the organisations such as banks that operate in it. Professor Muhammad Yunus, the Nobel prize winning founder of Grameen Bank which provides micro-credit to millions of poor people in Bangladesh, is to many the personification of financial inclusion. He believes that poverty is not created by poor people. Poverty is an artificial imposition on people. Poorer people are endowed with the same unlimited potential of creativity and energy as any other human being of any walk of life, anywhere in the world. It is a question of removing the barriers to unleash poorer people’s creativity to solve their own problems. The UAE Banks Federation encourages all of its members to make available the financial services they offer to as wide a spectrum of the population as possible.

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Obvious rules apply of course, such as affordability and transparency both on their part and on the part of their customers. In the UAE we have taken great strides to improve and enable an environment ripe for financial inclusion, as for instance most adults in the professional economy here hold more than one bank deposit account. But we still need to continue to innovate and improve technologies that enable financial inclusion while also avoiding risks inherent with potential microfinance options. We wholeheartedly support high quality regulatory and supervisory standards within the UAE’s banks. We encourage innovation and continuous assessment of new technologies that pave the way for increased accessibility. We also encourage competition among the banking community, since we believe that this will support financial inclusion which will feed into the competitiveness of the nation as a whole.

There are a number of factors that drive such an initiative as financial inclusion – fairness, transparency and access. Most of the financially less well off in the UAE tend to be in remoter parts of the country, and often for them lack of accessibility is a key deterrent to knowing about and taking advantage of the services available. The UBF and the central Bank are working on an initiative that includes the ability to provide financial services to various segments of the population through mobile devices. A number of member banks in the UAE have been assisting with the design and feasibility of this important, potentially lifestyle changing project. Embracing technology, harnessing and cultivating a financially aware generation means banks and our society can work together to make financial inclusion a reality throughout the UAE. All of the above is underpinned by education. If we can stimulate a clear understanding of financial literacy among the youth of today, we can help avoid the pitfalls seen in recent times, whether it’s the sub-prime mortgage catastrophe in the US or the everyday problem of hidden or misunderstood charges. There is more than one definition for ‘access’, and educating all on the benefits of personal finance if responsibly managed will bode well for a more inclusive financing society in the UAE. The banking community in the UAE has an opportunity to lead the way. AbdulAziz Al Ghurair is the Chairman of the UAE Banks Federation


FUTURe MONey

BeyOND

plASTic Mobile Wallet, a part of the Smart Government Initiative, will facilitate seamless virtual transactions

By SUNeeTI AhUJA-KOhlI

T

he comfort of carrying out various admin tasks at the click of a button is perhaps the biggest boon of the technological era. So much that progressive policies of governments, which facilitate the use of Internet and special platforms for various chores like payment of taxes, goods and services, are seen as a perfect match between good policy-making and citizenry welfare. The latest initiative of his highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAe and Ruler of Dubai, is a step in this direction. The Smart Government initiative is an advanced step of e-governance that aims t o e n c o u ra g e g o v e r n m e n t a n d government-related entities to provide creative solutions for round-the-clock, highly efficient and transparent services through mobile phone applications that meet customers’ expectations. "The initiative will help transform the landscape of the UAe into a true digital economy. Through different technologies, the people in the UAe will have access to secure banking services on the go, making their lives easier and services more accessible and faster," says Tirad Al Mahmoud, Chief Executive Officer, Abu Dhabi Islamic Bank. The banking industry is adding another dimension to this initiative by launching Mobile Wallet project to facilitate contactless payments. Mobile Wallet is a move to go beyond plastic, which means smartphones would be as good as traditional wallets. It would carry cash, virtually of course, and allow transactions and payments at NFC-

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Tirad Al Mahmoud Chief Executive Officer, ADIB

Shayne Nelson Chief Executive Officer, Emirates NBD

enabled devices. NFC, or near-field communications, is a technology similar to Bluetooth that allows mobile phones to conduct a transaction by tapping the phone on the NFC-enabled terminals. “The UAe Mobile Wallet will allow residents and tourists to pay for government services, complete purchases, send money locally and internationally, pay their bills, receive cash and many more transactions. All of this will be managed through the mobile device. Just as online banking brought traditional

banking services to the computer, the UAe Mobile Wallet brings these services to the mobile phone,” says Alex Thursby, CeO, National Bank of Abu Dhabi. Spearheaded by the UAe Banks Federation, the idea behind the initiative is to leverage the deeply entrenched smartphone market in the UAe where three out of every four people own smartphones. The UAe has the highest penetration of smartphones in the world at 74 per cent, as per the latest statistics by the Telecommunications Regulatory


UAE BAnks FEdErAtion Authority (TRA). The UAE Banks Federation has appointed a consultant to chalk out the basic contours of the project and help roll it out in a year. The groundwork was laid by a committee on behalf of the banking sector to translate the Smart Government Initiative into reality. This committee has been working closely with the Central Bank and other stakeholders to create the UAE Mobile Wallet since mid-2013. Banks involved in the committee include Abu Dhabi Islamic Bank (ADIB), Emirates NBD (ENBD), First Gulf Bank (FGB), National Bank of Abu Dhabi (NBAD), Abu Dhabi Commercial Bank (ADCB), Commercial Bank of Abu Dhabi (CBD), Standard Chartered Bank (SCB), Mashreq, and Dubai Islamic Bank (DIB). The committee, chaired by Tirad Al Mahmoud, CEO of ADIB, focuses on the requirements of the UAE banks to ensure that their systems support the Mobile Wallet, and that it can be applied throughout the economy. The new technology will take the UAE a notch higher in terms of digitisation — the hallmark of a progressive and

Alex Thursby Chief Executive Officer, NBAD advanced nation. “The mobile wallet will provide a complete set of financial services, which will include storing, paying and receiving funds. In addition, a series of complementary services will be offered that are designed to induce its usage such as loyalty schemes. These

services will be published in details closer to the launch which scheduled in the first half of 2015,” adds Al Mahmoud. The vision is to create an inclusive mobile wallet, says Shayne Nelson, CEO, Emirates NBD. “We have not yet unveiled all the details of the mobile wallet, but we can say that this initiative has the potential to help transform the landscape of the UAE into a true digital economy. We are excited to be part of this project that will be the cornerstone of the next generation of financial services in the UAE. Both smartphones as well as feature phones are covered by the project design and scope. For that purpose we are evaluating different technologies and solutions.” The concept is very popular in developed financial markets, where it is expected to hit 250 million users by the year end. By initiating this drive, the UAE will be a part of the league of nations who have already implemented the technology such as Austria, Canada, Poland, US, UK and Japan. — suneeti@khaleejtimes.com


ISlAMIC FINANCe

GAINING trACtIoN IN

IslamIc fInance The issuance of $1 billion sukuk on Nasdaq-Dubai brings the UAE a step closer to its goals BY SuNeetI AhujA-KohlI

t

he UAe is keen to add another jewel to Dubai’s crown to make it the capital of $1.7-trillion Islamic economy in the next three years — a befitting tribute to the emirate that set up the first Shariah-compliant bank in the 1980s. the work has since begun. For a start, the Jeddah-based Islamic Development Bank recently listed $1 billion sukuk (Arabic word for certificates) on Nasdaq-Dubai, marking a debut for the UAe. the listing gains prominence in the light of a recent study by Standard and Poor’s that states sukuk issuances will top $100 billion this year, mainly driven by demand from the Middle east and Malaysia. Nasdaq-Dubai now offers a real alternative to

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typical listing centres like london, Irish or the Kuala lumpur stock exchanges for future issues. Also, locally the bourse can play a crucial role in raising funds leading up to expo 2020, wherein sukuk is seen as a preferred route. Currently, Malaysia is the world’s largest market in Islamic finance. Collectively, Malaysia and the GCC’s annual trade volumes have grown significantly from $627 million in 1997 to over $15 billion in 2013, and account for almost 57 per cent of the global Islamic finance assets. “the listing of sukuk is an indicator that the UAe's Islamic finance sector, and particularly Dubai, are now ready to be listed on international markets. the move will promote the development of an

Hussain al Qemzi Group Chief executive officer, Noor Investment Group and Chief executive officer, Noor Bank active sukuk market in the region and position NasdaqDubai at the centre of this activity,” says hussain Al Qemzi, Group Chief executive

officer, Noor Investment Group and Chief executive officer, Noor Bank. Interestingly, the UAe is one of the six countries that will be the driving force behind the next big wave in Islamic finance, making it a vital player in the future internationalisation of the Islamic banking industry. Presently, the UAe Islamic banking assets are estimated to be around 5 per cent of the global pie. the Islamic banking sector showed strong resilience during the crisis as the governing principles forbids speculative investments, which were a major concern in the conventional banking sector at the time. “the fundamentals of the value proposition of Islamic banking are attractive to customers in general, both


UAE BAnks FEdErAtion

KT Special RepoRT April 6, 2014

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Muslims and non Muslims. There is transparency in all underlying fees, which makes customers feel safer and less exploited. The balance sheets of Islamic banks have considerable built-in collateral with high capital adequacy ratios. This translates into less risk. It is, therefore, no surprise that the Islamic banks ended up less impacted by the mishaps of the financial crisis in 2008,” says Mohammed Abdulla, Chief Executive Officer, Sharjah Islamic Bank. The steady growth of the top 20 Islamic banks in the world at about 16 per cent annually

Mohammed Abdulla Chief Executive Officer, Sharjah Islamic Bank for the last three years, therefore, is prompting the world’s top financial centres to grab a larger share of the market. During the 2013 World Islamic Economic Forum in November in London, British Prime Minister David Cameron announced an ambitious plan. “I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world,” he said in a speech. This year Dubai has the privilege of hosting the 2014 World Islamic Economic Forum, giving its ambitions a further boost. Statistically, the sector has shown an impressive rise. Islamic banking and finance industry in the UAE has been growing at about 14 per cent between 2008 and 2012, effectively three times more than the conventional banks. The emirates has eight Is-

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lamic banks that command more than $83 billion of the global Islamic banking assets and claim about 17 per cent share of the region’s Islamic banking assets, cites the World Islamic Banking Competitiveness Report 2013-14. “The GDP growth in 2012 was about 4.4 per cent where nominal GDP stood at $383 billion. The estimated figure according government sources for 2013 is around 4 per cent reaching a nominal GDP of $400 billion. Since the financial sector represents about 10 per cent of the GDP, the surge in Islamic banking clearly positions the sector as an important and key contributor to the same and is undoubtedly a cornerstone to Dubai’s ambition to become the ‘global capital of the Islamic economy’,” says Dr Adnan Chilwan, Chief Executive Officer, Dubai Islamic Bank. In line with the proposed plan, a Dubai Islamic Economy Development Centre will be set up to chalk out a blueprint for the economy. The centre will have legal and financial independence and promote Dubai "to become the global capital of Islamic economy". The aim is to build a database on Islamic economic activities and encourage recourse to arbitration in related disputes. The centre will also be tasked with conducting studies on the Islamic economy, determining the extent of Shariah-compli-

Dr Adnan Chilwan Chief Executive Officer, Dubai Islamic Bank ant economic activities on the GDP of Dubai, and how to develop them. Interestingly, a drive to develop the Islamic business sector was also launched last year, aiming to attract fresh investments from the Middle East and Southeast Asia. The government will promote Islamic banking and insurance, Islamic financial products and other areas including the arbitration of Islamic contracts and the setting of quality standards for halal food. Islamic finance, based on principles such as ban on interest and on pure monetary speculation, has grown rapidly around the world over the last several years, although it remains much smaller than conventional finance. Islamic banks command a roughly 25 per cent share of the banking market in the six countries of the Gulf Cooperation Council,

according to an estimate by Ernst & Young. The popularity, however, is growing. Explains Abdulla: “Although Islamic Banking appeals primarily to followers of Islam, we have witnessed a phenomenal growth in the number of nonMuslim customers seeking Shariah-compliant products.” Talking about the challenges, Dr Chilwan points out the lack of innovation, particularly in liquidity management and working capital financing as the main focus area. “The sector lacks some of the more established offerings of the conventional banks such as receivables financing, factoring, distributor finance, vendor finance and straightforward overdraft facilities. There is strong focus in these areas and we are confident that quality structures abiding by the principles of Islamic finance will soon see light and plug these gaps.” Standardisation from regulatory and governance perspectives, too, pose a challenge. “Global Islamic financial institutions need to come together and look at achieving standardisation of the regulations that govern Islamic finance, as the lack of integrated efforts is limiting its growth. There is a need for balanced, globally accepted regulations that drive growth and stem misuse,” concludes Al Qemzi. — suneeti@khaleejtimes.com


SME SECTOr

Working together TO

address problems

As lending to small and medium enterprises strained after the crisis, plans are being chalked out to prop up the sector BY SUNEETI AHUjA-KOHLI

Small and medium enterprises are potential creators of jobs in emerging markets such as the UAE Sultan bin Nasser Al Suwaidi

A

T 60 per cent, small and medium businesses make a significant contribution to the nominal GDP of the UAE, yet the sector is marred by the lack of financial support and options. Historically, small, medium and micro enterprises rely on banks for borrowings, but since the financial crisis, the funding has dried and local and foreign banks, private equity lenders and venture capital have become increasingly chary.

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Even though banks in the UAE are directed by the Central Bank to extend a fourth of their total lending capacity (at 24.3 per cent) towards this sector every year, it is a far cry from reality. Last year, banks lending to the SMEs stood at a meager 3.85 per cent, exposing the vulnerability of the sector. Globally, on an average bank lending to the SMEs stands at around 14 per cent. It is a double whammy for the sector as the cost of setting up a business in the emir-

ates has gone up too. While some banks are ready to lend to existing steady business houses, very few will provide facilities to start-ups. “The high rejection rate is a lack of adequate credit history of SMEs. Such information is not collected in the UAE. Thus, banks cannot assess the health of the company and lend accordingly. Additionally, banks are reluctant and resist lending to SMEs that have an owner taking on different business roles. This puts his

or her ability to appropriately manage the business into question,” explains Kris Babicci, CEO, Commercial Bank International. In Dubai, SMEs constitute almost 90 per cent of the total number of businesses and contribute 42 to 45 per cent to the nominal GDP. The Central Bank and the UAE Banks Federation are making efforts to put the sector in focus. In a keynote address this month, the UAE’s Central Bank Governor Sultan bin Nasser Al Suwaidi reiterated the importance of the sector, and said, “Small and medium enterprises are potential creators of jobs in emerging markets such as the UAE.” The UAE Banks Federation (UAEBF) too has also been at the forefront of efforts to transform and develop the local banking sector. On their part, UBF has constituted a SME Committee and has been rallying support and sugges-


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Vince Cook Chief Executive Officer, National Bank of Fujairah

tions from member banks to prop up the sector. “The biggest obstacle for the business owner continues to be the presenting of credible and standard documentation to the financial institution. It is only natural that both parties (SMEs and banks) attempt to hedge against risks by taking positions that are not beneficial to either. Bottom line is transparency by the applicant is key for paving the way for a solid relationship with a financial partner of choice,” notes Martin Roussel, Head of Business Banking Division, Abu Dhabi Commercial Bank. The Dubai Financial Services Authority (DFSA) too made provisions for small companies to succor funds through the capital markets. In 2012, it had brought the necessary market capitalisation for initial public offerings (IPOs) from $50 million (Dh183.6 million) to $10 million. Besides this, the setting up of Al Etihad Credit Bureau will set the stage for greater SME support by providing a framework to assess the credit worthiness of companies, which in turn would determine their eligibility to funding. In terms of support, the government has unveiled a

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Kris Babicci Chief Executive Officer, Commercial Bank International

number of initiatives ranging from the Dubai Competitiveness Office to help speed up registration of new companies, to the Dubai SME Top 100 Awards, which acknowledges and inspires companies to develop their potential of becoming world-class enterprises. One of the trenchant challenges facing the sector is the lack of innovation and expertise in the sector. Explains Vince Cook, Chief Executive Officer, National Bank of Fujairah: “SMEs have yet to develop the business expertise or technical know-how to further grow their business. Exporters and importers, for in-

stance, may not have full knowledge of the trade finance products that they have at their disposal, which is why National Bank of Fujairah (NBF) adopts a multidisciplinary approach towards servicing the needs of clients, regularly bringing in experts from fields ranging from treasury to trade to meet its business banking clients and assess their needs.” Blanket borrowing is cited as another problem area. “Blanket borrowing often results in the customers having surplus loan amounts beyond what they need immediately, which could end up being utilised outside the actual business requirement. SMEs should make a three-point checklist: What is the loan amount my business needs currently? Am I ensuring the optimum benefit from my loan? Have I chosen the right banking partner?” says Babicci. The financial services industry is also starting to pay greater attention to the needs of the SMEs. Even then, there is more that banks can do to guide them along in their success such as conduct road shows and trade finance workshops for the SME sector. NBF, for instance, regularly

hosts trade finance workshops for clients to familiarise them with the latest trends in international trade and the banking solutions that might benefit their business. ADCB, on the other hand, has active strategic partnerships with organisations like the Khalifa Fund, Dubai SME, Department of Economic Development, etc. CBI, too, supports the idea of encouraging banks to finance start-ups through loan guarantee schemes from funding initiatives such as Dubai SME, Khalifa Fund for Enterprise Development, where the institutions share the risk with the bank.

Martin Roussel Head of Business Banking Division, ADCB

While the government and other stakeholders prop up their support, the onus lies on the SMEs to reinvent itself and keep abreast of the latest finance options internationally. — suneeti@khaleejtimes.com


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CrEdIT BUrEAU

GUNNING FOr transparency The official launch of a credit bureau points at the maturing financial landscape of the emirates BY SUneeTI AhUjA-KohLI

T

he stage is set. Al etihad Credit Bureau’s (AeCB) team has completed the installation of an electronic link with banks and financial institutions, and is operationally ready to launch its services. It will soon allow registration and purchase of credit reports for UAe residents. A federal government’s initiative, the credit bureau will maintain a record of individuals' and companies' data related to the lines of credit, payment timelines of various services like credit cards, loan instalments, telephone or other utility bills. Internationally, bureaux process such financial data into credit reports and scores using a statistical method that determines the capacity of an individual to take on credit and the likelihood of repaying the borrowed sum. The financial motive is to discourage increasing dependence on credit and over-leveraging among individuals and companies, which is the prime focus of the UAe Banks Federation. effectively run credit bureaux are proven to support responsible lending, enhance payment behaviour and reduce credit losses from bad or non-performing debts. On these lines, Al Etihad Credit Bureau too is striving to set a new benchmark in the accuracy of credit data capture. So far, 25 leading financial institutions that control nearly 96 per cent of the retail credit market have shared its data and set stage for a robust financial system in place. “The existence of a dynamic and vibrant credit bureau is imperative in any country and supports the evolution of the financial services industry. Al etihad Credit Bureau is one of the critical

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andre sayegh Chief Executive Officer, First Gulf Bank

sami Farhat General Manager, Invest Bank PSC

institutions required to have greater transparency in the financial services space and to manage consumer behaviour within the market place,” says Andre Sayegh, CEO, First Gulf Bank. Formation of AeCB points at the maturing financial landscape of the emirates that fared poorly during the financial crisis. A slump in property prices and liquidity crunch had brought doubledigit lending to an abrupt halt in 2009, jolting the economy. As growth returns and investments pick steam, AECB is a step in the right direction and in many ways points at the UAe’s preparedness to cut the risk of another credit bubble. Notably, the timing is apt and more pronounced as dubai prepares to host the Expo 2020. The event is expected to attract more than 20 million visitors, create 270,000 new jobs, and in turn fuel

demand for credit. “This naturally paves way to increased business/consumer finance. At these levels of expansion it is critical that financial health and economy are protected by embracing technology designed to drive down sound credit history. The credit bureau will harness the power and spirit of open-source collaboration between the regulators, the ministries and banks, using it for competitive advantages while fostering customer confidence and financial stability,” notes Sami Farhat, General Manager, Invest Bank PSC. As per rating agency Standard & Poor’s, low interest rates, returning confidence in the property market and wider economy are supporting borrowing levels. Loan growth in the UAE is expected to reach 10 per cent or slightly more this year, up from 9.6 per cent last year.


UAE BAnks FEdErAtion Spearheaded by the Ministry of Finance, the project took shape after thorough brain-storming sessions by the Central Bank and the UAE Banks Federation. Set up in 2012, the bureau has been working offline since July last year to create a database. Since January this year, leading financial institutions have supplied credit information about their customers, covering their payment behaviour for the past 24 months including any defaults in the UAE. The scope of data collection will eventually increase. “We do believe the data collection will widen as AECB plans to gradually increase the threshold from Dh15 million to Dh50 million, and then to Dh100 million. AECB will presumably harmonise with the ministry and the UAE Central Bank, plan to eventually augment and integrate with the UAE Central Bank Credit Bureau, a sensible proposition in the interest of the economy and the lenders,” says Farhat. The banking industry has wholeheartedly supported the initiative. Appreciating the move, Union National Bank’s CEO Mohammad Nasr Abdeen notes: “Al Etihad Credit Bureau is a key strategic initiative

Mohammad Nasr Abdeen Chief Executive Officer, Union National Bank and a welcome step towards enhancing credit discipline and transparency in the financial system within the country. Establishing such an independent credit bureau would facilitate financial stability, mitigate systemic risk and augment building a resilient economy.” The bureau will be rolled out in four phases. The first step, which is already

initiated, involves collection of consumer credit data from a group of financial institutions in order to make the lending process more transparent. The second phase will put together a similar database for the commercial sector. The third phase will rollout value added services for the lenders. Finally, historical data will be compiled and credit score will be published for individuals by 2015. “In the long run, it will benefit the industry, the consumer and the economy immensely with better credit behaviour, managed interest costs, faster turnaround times, lesser documentation requirements and greater credit inclusion for all categories of customers,” adds Sayegh. Banks will be using Al Etihad Credit Bureau’s data to analyse the credit worthiness of prospective credit card, personal loan, home loan and auto loan applicants. No longer will the threemonth pay slip or credit card statement be a barometer to measure one’s credit history. Higher the credit worthiness, the better the rate of interest for borrowings will be. Keep yours in check! — suneeti@khlaeejtimes.com

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E m i r at i s at i o n

Caring for the

nationals As the government is trying to strike a balance between open-door policy and emiratisation, the banking industry is playing a lead role BY sUnEEti ahUja-Kohli

Since the Emiratisation programme was introduced, the banking sector has done well in integrating the local population into its workforce. In 2013, the sector employed 11,679 UAE nationals.

“E

miratis, not oil, are the real wealth of the UaE,� said General shaikh mohammed bin Zayed al nahyan, Crown Prince of abu Dhabi and Deputy supreme Commander of the UaE armed Forces, last year. the message was loud and clear: while the government still supports the open-door policy, and appreciates the role of expatriate population in building the local economy, it is keen to

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see more Emiratis integrated into the workforce. Emiratisation, a special programme introduced by the UaE government to train and prepare Emiratis for various jobs in the public and private sector, has served as an answer. Emiratisation as a law was first introduced in the banking sector in 1996, stipulating that at least 4 per cent of bank employees had to be Emiratis. the federal government subsequently introduced similar rules for the insurance and fi-

nance sectors in 2003 and 2008, respectively. the scope of this quota system was broadened in late 2010 with the ministry of labour announcing that Emiratis should account for no less than 15 per cent of total staff at every UaEbased company. recently, absher initiative was announced to step up the efforts. The banking and financial industry is the most active and robust sector of the economy and has been a frontrunner in engaging the local population.

since the Emiratisation programme was introduced, the banking sector has done well in integrating the local population into its workforce. in 2013, the sector employed 11,679 UaE nationals. By comparison, a little more than 11,800 Emiratis were employed in 2012. the year 2011 was the best with 12,851 UaE nationals on board, whereas in 2010, the number had dipped to 11,721, and stood at 11,679 in 2009. “We focus on recruiting, de-


UAE BAnks FEdErAtion

veloping and providing opportunities to UAE nationals to support Emiratisation as a whole. In addition, the Absher Initiative is one we would like to support as it promotes integration of UAE nationals into the private sector workforce. Our team is currently in the process of proposing ideas to take part in this very important initiative and we will be able to update shortly,” says Paul Trowbridge, Chief Executive Officer, United Arab Bank. In United Arab Bank, Emiratis constituted 44 per cent of the workforce in 2013, up from 34 per cent in 2008. Likewise, RAKBANK also boasts of a healthy ratio of Emirati workforce. The bank has 998 UAE nationals, constituting 41.5 per cent of the total workforce, across its branch network and back offices. In 2014, it aims to increase this percentage and hire an additional 120 UAE nationals. “For many years RAKBANK has supported UAE nationals in their academic studies and education. We actively encourage UAE national career development in financial services by providing scholarships for Emirati students — 350 from HCT RAK and 10 from American University of Ras Al Khaimah,” says Peter England, CEO, RAKBANK. Supporting UAE nationals to build a strong foundation in this industry, banks run special

Paul Trowbridge Chief Executive Officer, United Arab Bank (UAB)

Peter England Chief Executive Officer, RAKBANK

Wajahat Husain Senior Executive Vice-President, Group Executive and Head of International, UBL

programmes. Explains Wajahat Husain, Senior Executive Vice-President, Group Executive and Head of International, United Bank Ltd, “UBL runs a Management Trainee Programme for UAE nationals through which the bank recruits young students with all perks and benefits, and registers them for full-time Banking and Finance Diploma programme with the Emirates Institute for Banking and Financial Studies. After completion, the recruits are assigned responsibilities in the branches/units. We also remain in constant contact with Tanmia and other bodies for hiring of talented Emiratis and to maintain the required diversification ratio/percentage.” The UBL workforce com-

prises more than 40 per cent Emiratis. In the UAE, the local population is far outnumbered by the immigrants at just 11 per cent of the total population. In a bid to integrate greater participation of Emiratis into the workforce, the UAE’s Council of Ministers adopted Emiratisation in the early 1990s to apply to both public and private sectors. While the programme has been in place for more than a decade and results can be seen in the public sector, the private sector is still lagging behind with local citizens representing less than one per cent of the private sector workforce. As per the latest study by the government, almost 88 per cent of the Emiratis work-

force is in the government and semi-government sector, while only 12 per cent make up the private sector. The official unemployment rate among Emiratis is at around 14 per cent amounting to nearly 40,000 nationals. Emiratisation is the top priority for the Federal National Council. His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, has asked the ministry to ensure Emiratisation figures increase tenfold over the next seven years. Federal government’s Absher Initiative and the year 2013 as the year of Emiratisation are a few steps towards this campaign. — suneeti@khaleejtimes.com

KT Special RepoRT April April 6,, 6, 2014

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FInAnCIAl lITerACY

be mInDFul OF YOur

SpenDIng habItS

Used to an opulent lifestyle, a number of UAE residents struggle with high personal debt

A

number of residents and nationals in the uAe are pushed into a debt trap every year. Figures released by the uAe Central bank in September last year throw light on the dark underbelly of the opulent and hedonistic lifestyle pursued by many in the emirates. On an average, uAe residents have less than Dh10,000 in total bank savings and the debt to income level has reached an average 108 per cent, reveal official figures. Industry experts suggest that 70 per cent of young emiratis are reported to be in debt in some form. A study conducted by the emirates Foundation in 2012 points at the high reliance of emirati youth on borrowings that eventually lead to debt. Appropriately named "emirati Youth in Debt", the study highlights a disturbing pattern of expenditure where a large chunk of their money is spent on dining out, closely followed by clothing and mobile phone calls. The government in 2011 initiated a Debt Settlement Scheme, wherein a Dh10-billion fund was created to help settle the bank debt outstandings of uAe citizens. As part of the scheme, signatory banks are required to waive 50 per cent of these loan outstanding while the other half were to be settled through the loan fund, which should eventually be paid in instalments to the fund from debtor’s

Dinesh Sharma Consumer banking Head, menA, Citi

Farhad Irani Head of retail banking Group, mashreq

source of income. While it serves as a good start, there is a need to tackle the underlying problem of financial illiteracy. explains Dinesh Sharma, Consumer banking Head, menA, Citi: “Financial literacy campaign can be effective if taken up at grassroots levels, and building an ecosystem for responsible finance and financial education at an early stage can prove beneficial. While debt settlement fund can provide a short-term fix, a longterm solution to sound financing can only come from financial literacy.” For the last 10 years, Citi has forged partnerships with academic institutions

such as Higher Colleges of Technology, university of Dubai, Abu Dhabi university, Sharjah Women’s College, Ittihad university and emirates Institute of banking and Financial Studies, which resulted in the training of hundreds of local students and women entrepreneurs. The uAe banks Federation on its part has launched the Code of Conduct, which stipulates transparency. “The Code of Conduct entails banks to be fully transparent with customers. This is to benefit customers and is another step towards creating financial stability. It is imperative to ingrain the principles of sound financial discipline across all segments of clients. understanding client needs and explaining the risks/ reward payoff should be firmly emphasised to all,” says Farhad Irani, Head of retail banking Group, mashreq. However, the onus lies with the individuals too for self-learning and understanding the value of money. every individual, irrespective of age must take the responsibility to educate themselves and being financially literate for taking well-informed decisions. make every dirham count and spend wisely. — suneeti@khaleejtimes.com

Let’S Start wIth the baSIcS Here are some cardinal rules of personal finance for a healthy wallet: 1. Pay yourself first: before you start spending on monthly expenditures or shopping, make it a point to pay yourself first. It is a good start towards savings. Gradually, build up a contingency fund that has at least three months of your monthly income. 2. Loan to income ratio: Financial advisors suggest no more than one-third of the monthly income should be used for paying of loans/credit. 3. Pay off your credit cards: Credit cards charge very high rate of interest, make it a point to pay off the bills before the due date.

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First Gulf Bank wins

"Bank of the Year, United Arab Emirates" 2013

We are honoured to have received this accolade from The Banker magazine, whose annual awards are recognised as the definitive guide to performance, strength and achievement within the banking sector. This prestigious title is the latest in a winning year for First Gulf Bank and validates the progress we are making in adding value and service excellence for our customers and stakeholders. www.fgb.ae



UAE Banks Federation