July 2023

Repositioning for Growth Repositioning for Growth

Khaled El Bialy, Chief Executive Officer, Banque Misr GCC

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Changes

Greetings to the July/August 2023 issue of MEA Finance magazine. We open with two lines from David Bowie’s well known 1972 song, Changes: I watch the ripples change their sizeBut never leave the stream - Though the whole largely remains the same, there will be moves and shifts within that revitalise or change the workings of a system, or a bank for overall better outcomes. And such is the general thrust of this edition.

Our cover story, features Khaled El Bialy, Chief Executive Officer, Banque Misr GCC, detailing the changes he is spearheading at the bank to position it among the GCC’s leading financial institutions,

“We are committed to digital innovation, streamlining complex processes and enabling business owners to concentrate on what they do best: expanding their enterprises.”

We have coverage of another of MEA Finance’s market leading roundtables, taking place in Riyadh, and hosted in partnership with Swift. With the theme, The Journey Toward Cross-Border Payments, here leading bankers from Saudi Arabia and the region, along with senior executives from Swift, avidly debate the epochal changes currently taking place throughout the international payments system.

We look into the development of Family Office and Succession Planning from page 42. As leading regional centres are growing into global wealth management hubs, so the plans and methods for managing the prosperity of families must change and adapt to the modernday environment, “HNWIs often have complex family and business structures, which can make succession planning challenging,” notes Biju Thomas from Mashreq Bank.

New technological applications, systemic changes and novel approaches to including SMEs in the processes of Trade Finance are

looked into from page 32. Here we focus on the growth of and increasingly important role of trade finance in regional economies and the challenges it faces in these times, “In our view, if not a noticeably significant growth, a steady growth curve is certainly on the cards for the region in the coming years,” predicts Mritunjay Singh, Lead - Trade Product Management, Trade Finance at ADCB.

In MEA Finance’s Leadership Series this issue, we hear from two leading players in the regional payments scene. From page 56, talking about key elements to their successful growth in recent times and how they stay at the forefront in a highly competitive market, Sandeep Chouhan, Group Chief Business Transformation and Technology Officer at Network International, points out, “The sophistication and the evolution of digital wallets has been another reason that we are seeing an unusual growth in the payment space.” And at page 14, we learn from Scott Harkey, EVP Financial Services and Payments at Endava that when it comes to digitisation, “The biggest challenge for regional banks is not having enough money.”

The Market Focus this issue is on Jordan. Here the economy is now showing signs of recovery and emerging economic dynamism that will provide an improved operating environment for the local banking sector. And in an opinion piece this month, we face the concept of Behavioural Finance where Ankur Attrey, Founder CEO and Chairman of Investments, Lamer Capital Limited states, “We believe, as an investor, you need to understand various aspects of behavioural finance and master the art of execution.”

Finally, our view of banking technology is on developments in cloud computing for banks from two businesses at the heart of changes to the sector, with contributions from Arun Krishnan, Global Head of Engineering, Infosys Finacle and Wiley Battle, Global Head, Partner Development, Amazon Web Services.

So now you know what is inside the pages of this issue, change your schedule and make time to browse our regular interesting assortment of interviews and features from the regional banking and finance world.

EVENTS

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DIFC continues to drive action on Global Climate Change on path to COP28, announces Future Sustainability Forum in Dubai

Agenda supports COP28’s 4-pillar plan on fasttracking the transition, fixing climate finance, focusing on adaptation to protect lives and livelihoods, and making COP28 fully inclusive, announced by COP28 President-Designate and Minister of Industry and Advanced Technology today, 13 July 2023

Dubai International Financial Centre (DIFC) announced its first edition of the Future Sustainability Forum. The Forum, which will be held on 4-5 October 2023 at the Ritz-Carlton DIFC, will focus on mobilising sustainable finance and innovation by connecting industry leaders, investors, tech disruptors and policy makers, and channel investment flows between the global north and global south, to accelerate climate action.

Central to DIFC’s programme in the run up to COP28, the announcement of the inaugural Future Sustainability Forum (‘The Forum’), further demonstrates the Centre’s commitment to play a leading role in advancing COP28 priorities, aligned with DIFC’s chairmanship of the Dubai Sustainable Finance Working Group (DSFWG), established in 2019.

The Forum also marks the Year of Sustainability in the UAE and builds on DIFC’s vision to pave the way for coordinated global solutions to deliver on the climate financing needs of emerging markets and developing economies, whilst supporting sustainable economic growth for Dubai, UAE and the wider region.

Arif Amiri, CEO of DIFC Authority, said: “We are thrilled to welcome the world to Dubai and the Future Sustainability Forum as part of our ‘Path to COP 28 ’ programme. As the nation prepares to host COP 28 , The Forum underscores our commitment to addressing pressing environmental challenges. Through collaboration and innovative financial solutions, we aim to drive tangible progress towards a low-carbon, climateresilient future. We are committed to contribute to the United Nations Sustainable Development Goals and look forward to enabling meaningful dialogue and actionable outcomes at this important event and beyond.”

Set to mobilise key stakeholders, including the finance and insurance sectors, towards accelerating net-zero goals, The Forum provides a platform to explore future sustainability and climate technologies, critical for the world’s netzero agenda as well as achieving the United Nations Sustainable Development Goals (SDGs) and contributing to delivery of the Paris Agreement.

The Forum also aligns with DIFC’s 2030 Strategy to drive the future of finance,

and on Dubai’s position as a global leader for Green and Sustainable Bonds and Sukuk, with NASDAQ Dubai representing a 110+bn market size with over 16 per cent being sustainable bonds and sukuks.

The Forum’s agenda supports COP28’s 4-pillar plan on fast-tracking the transition, fixing climate finance, focusing on adaptation to protect lives and livelihoods, and making COP28 fully inclusive, announced by COP28 PresidentDesignate and Minister of Industry and Advanced Technology today.

The UAE and Dubai government have spearheaded a range of comprehensive sustainability programmes in the pursuit of a net zero future. With initiatives like the Dubai Clean Energy Strategy 2050, the UAE Net Zero 2050 strategic initiative and the UAE Vision 2070, a clear emphasis is placed on renewable energy adoption, water conservation, waste management and sustainable urban development. These strategic endeavours serve as a testament to the nation’s proactive approach in addressing environmental challenges for a sustainable future.

The Future Sustainability Forum will put the spotlight on the UAE’s sustainable practices particularly within the financial ecosystem, inviting global experts to connect, collaborate and share insight to accelerate the global transition towards a low-carbon, climate-resilient future. Panel discussions and sessions include:

‘Supporting corporates in embedding ESG within their organisations’; ‘Empowering companies to design their path to Net-Zero’; ‘Unlocking the potential of ESG-driven innovation’; ‘Fostering sustainable entrepreneurial ecosystems’; and ‘Transforming capital to drive the low carbon transition’.

From Adoption to Acceleration BANKING ON CLOUD

increasingly relying on cloud to achieve agility, scalability and flexibility.

Banks have accepted the idea that an end-to-end managed services banking platform on the cloud empowers the bank with sharper focus on delivering core businesses value and scaling operations. Banks can thus look forward to a steady stream of innovations and lower the total cost of ownership (TCO), with quicker time to market. For example, Finacle’s digital banking solution suite on AWS has helped several customers achieve greater business agility, lower total cost of ownership, automated intelligent operations and a robust ecosystem innovation.

Finacle’s cutting-edge cloudnative architecture, powered by AWS, accelerates cloud transformation journeys and unlocks new value for our clients. Finacle’s Digital Banking Suite on AWS offers managed services that are designed enhance business agility at reduced costs. Key benefits include streamlined operations, superior performance, massive scalability and robust high availability. Banks benefit from Finacle’s resilient, self-healing, auto-scaling and low-maintenance digital banking platform to scale their cloud success more quickly,” says Arun Krishnan, Global Head of Engineering, Infosys Finacle.

Over the last two decades, cloud computing has been one of the biggest technological disrupters. In the Middle East alone, 71% of organisations already use the public cloud and 86% expect to move more data to the cloud by 2026, per a Cloudera report. According to a report by the International Data Corporation (IDC), the Middle East cloud computing market is expected to grow at a compound

annual growth rate (CAGR) of 25.2% from 2020 to 2024.

Banks operate in an increasingly dynamic, contact-free environment. Reports suggest that by 2030, banks are expected to leverage Cloud, API and 5G to become connected, insights-driven and seamless. Cloud can help banks improve security, expand their ability to handle data and offer their customers access to new delivery channels. Banking technology is

“AWS has the most extensive global cloud infrastructure. The AWS Region and Availability Zone model has been recognised by Gartner as the recommended approach for running enterprise applications that require high availability. No other cloud infrastructure offers as many Regions with three or more Availability Zones connected by low latency, high throughput and highly redundant networking,” says Wiley Battle, Global Head, Partner Development, AWS.

Banks in the Middle East region, like their global counterparts, are looking to leverage new cloud infrastructures to drive digital transformation. A recent KPMG report suggests that banks in

Arun Krishnan Global Head of Engineering, Infosys Finacle and Wiley Battle Global Head, Partner Development, AWS come together to explain the coming developments in cloud computing for banks and the key services they will be providing the market into the future

Wiley Battle, Global Head, Partner Development, AWS

Arun Krishnan, Global Head of Engineering, Infosys Finacle

the Middle East recognise the necessity for a Cloud Center of Excellence (CCoE) that helps financial institutions upgrade applications and standardise cloud adoption across the organisation.

Leveraging cloud is not limited to just moving current workloads. It enables the reimagination of service content as well. For example, risk management could be one of the non-obvious opportunities from cloud. Cloud can be a valuable way to help risk teams respond quickly to changes in the external environment and better understand the drivers of risk in ways that were not possible before, without requiring current levels of capital outlays. This includes both financial risks such as credit, market and liquidity, and nonfinancial risks such as cybersecurity, fraud and financial crime.

As cloud adoption accelerates in the next year, we can expect four trends to stand out. These include the evolution of Kubernetes and service meshes, the emergence of hybrid could, cloud-native CPUs and edge computing.

Containers and service meshes have become mainstream

Kubernetes is the new cloud OS. Service meshes facilitate super-efficient, resilient and consistent deployments that are indispensable for complex service delivery. Service meshes enable a consistent construct spanning several clusters or even multiple clouds. This offers banks the ability to have a common language and skills that scale their solution and services landscape.

With the rapid containerisation of applications, banks have the option to combine VM-based apps in the same Kubernetes cluster. The idea of multi-tenancy with the limitation of one size fits all can be challenged using hyper personalised multitenancy that is made possible with this tech. Blockchain networks are also leveraging the orchestration, low-touch administration and reliable operations enabled by Kubernetes and service meshes for running their massive, distributed infrastructure.

Hybrid cloud

Hybrid cloud models are fast emerging as the preferred choice for many banks as they enable them to progressively deploy workloads across public cloud, private cloud and even on-prem, basis the criticality of the workload and banks’ risk appetite. In 2023, a cloud-neutral, hybrid approach will enable banks to improve system availability and resilience, while fulfilling data residency requirements in various locations.

We can expect new variants of these models. For instance, with regulations prohibiting certain data from being put on the public cloud, we can expect

complete interoperability, with managed services interfaces and SLAs.

Edge Computing

Edge Computing is increasingly gaining traction in banking. It brings computational resources closer to the point of data generation, addressing banks’ needs for low latency and data residency. This, in conjunction with other modern technologies such as AI, VR, Computer Vision, NFC and more, will empower banks to curate immersive, context-aware customer experiences driven by high levels of intelligence at the point of consumption.

LEVERAGING CLOUD IS NOT LIMITED TO JUST MOVING CURRENT WORKLOADS

public cloud providers to offer tools to bring managed computing assets within data centers. Similarly, we could see banks put their secondary disaster recovery setups on the public cloud, while maintaining the primary ones inside their data centers.

Cloud-native environments with purpose-built hardware

Today, CPUs are being purpose-built for the cloud with designs that leverage insights about common cloud workloads to achieve higher throughput at a lower cost; an example is third-generation Graviton processors from AWS. The new-gen CPUs offer higher core density, and up to 50 percent improvement in price/performance ratio while consuming less power.

Increasingly, hyperscalers are offering managed services on cloud-native CPUs as an option. These services enable banks to use emerging hardware with

According to Gartner , we can expect three-quarters of enterprise generated data to be processed at the edge by 2025. As data processing moves near to its storage, banks will gain from improved processing time, heightened data security and costeffective infrastructure.

As cloud adoption gathers urgency, thanks to factors like digital proliferation and the emergence of platform models, banks in the Middle East will seek to migrate their workloads faster. In turn, we can expect the continuous evolution of banking in the region and the emergence of new and innovative business models. All of this points to the jugular importance of a robust banking platform integrated with cloud services which can provide financial services institutions a secure, resilient, global cloud platform to accelerate the creation and delivery of very valuable consumable banking services for today and the future.

A Brighter Future Awaits

The economy is slowly recovering after years of sluggish growth and high unemployment under the latest of many International Monetary Fund programmes, and signs of latent economic dynamism are beginning to emerge as the market starts to gather pace

For the first time in almost 30 years, a future King of Jordan’s royal family married into one of Saudi Arabia’s prominent business families – a union that is expected to reinforce local and global alliances.

The high-profile wedding at the Zahran Palace saw several global royals travelling to the Jordanian capital Amman to witness the historic event.

Global dignitaries including Britain’s Prince William and Princess Catherine, US First Lady Jill Biden, Malaysia’s King Sultan Abdullah and Sheikh Khaled bin Mohamed, the Crown Prince of Abu Dhabi were among the 140 guests who attended the wedding ceremony.

Tens of thousands of cheering Jordanians lined the streets and waved flags to the bride and groom who are

destined to become one of the Middle East region’s power couples. Jordan has relied on Western support to shore up its economy, reportedly one of the world’s biggest per capita recipients of US and European aid.

The fact that the Hashemite Kingdom is one of the region’s most politically stable countries attracts the world’s attention and international investors have come to the country’s aid – so the West and regional powers have long valued their relationship with Jordan.

While other countries in the Middle East boast of large reserves of oil and gas, Jordan has the location and a stable political environment compared to its peers in the region. The country’s economy is slowly recovering after years of sluggish growth and high unemployment under the latest of many International Monetary Fund (IMF) programmes.

However, many Jordanians took to the streets in the recent past protesting over a cost-of-living squeeze, including deadly riots last year over rising fuel prices and some quarters of the society who criticised Crown Prince Hussein bin Abdullah II’s glitzy wedding ceremony as a waste of public resources.

The IMF said Jordan has preserved macroeconomic stability in a most difficult environment, having weathered a series of severe and highly persistent shocks, including the outbreak of the pandemic, geopolitical tensions, the hosting of Syrian refugees, the disruption of critical export markets and rising borrowing costs.

Government plans

While external support is vital, the government in Amman has plans of its own. Jordan is keen to capitalise on its identity as pro-Western and stable to attract foreign direct investments.

The country is one of the few countries in the Middle East whose economy is not dependent on natural resources due to the scarcity of hydrocarbons and water. Nevertheless, it is also one of the most committed to fiscal reforms within the region having taken steps to privatise the economy, introduce tax reforms as well as open up the banking sector.

More broadly, the Hashemite Kingdom is keen to trumpet itself as a base for business with a far wider reach than its domestic market of 10 million. Jordan’s key fiscal reforms, backed by efforts to close tax loopholes and combat tax evasion, have started bearing fruit.

“Fiscal performance has been strong, on the back of sustained legislative and administrative reforms to reduce tax evasion and avoidance,” said the IMF. The fund projected that the planned gradual fiscal consolidation together with the authorities’ efforts to enhance public investment management and monitoring of fiscal risks will continue to support debt sustainability.

The authorities replaced untargeted and fiscally unaffordable fuel subsidies

with cash transfers to protect the most vulnerable segments.

Economists also expect the implementation of structural reforms to reduce the cost of doing business and improve public service delivery would support a more dynamic private sector and job-rich growth.

Jordan signed 12 agreements with Egypt, Bahrain and the UAE in February to

cushioned the economy from the three years of COVID-19 and the economic knock-on effects of the war in Ukraine.

The country maintains strong external financial support. Total foreign aid - including funding for the refugee programme - reached $4.4 billion in 2022 (similar to 2021) with budget support at $2.6 billion ($2.4 billion in 2021). “Jordan estimates that it will receive around $2.6

set up nine integrated industrial projects with an investment of over $2 billion. The investment agreements, which cover a range of sectors, including agriculture, medicine, minerals, chemicals and electric cars, are expected to create as many as 13,000 job opportunities and boost the national GDP in the partnering countries by over $1.6 billion.

Meanwhile, the visit by Saudi Arabia’s Prime Minister Crown Prince Mohammed bin Salman last year is highly expected to unlock as much as $3 billion in investment projects that the oil Gulf state committed to in recent years but never materialised. Jordan is also on the investment radar of UAE-based companies including AD Ports and sovereign wealth funds ADQ and Mubadala.

The Hashemite Kingdom has freetrade agreements with the US and the EU, where it has been granted simplified rules of origin requirements to help boost exports into the eurozone.

Friends in high places

Jordan is still in recovery territory though a rebound in tourism, remittances and higher exports of fertiliser have

billion (5.2% of GDP) in budget support in 2023, of which about 56% consists of loans,” said Fitch Ratings.

Jordan issued $1.25 billion of Eurobonds at 7.5% in April. The bonds were oversubscribed six times amid strong investor demand, allowing the government to raise the amount over a five-year and nine-month maturity from the original $750 million sought after attracting bids worth more than $4.7 billion.

The IMF approved the fifth review of Jordan’s Extended Fund Facility (EFF) arrangement in December 2022 and the country is currently undergoing its sixth review. The programme is set to last until March 2024, with remaining disbursements totalling $218 million, of which $97 million could be disbursed in 2023.

“Jordan enjoys strong relations with the IMF and its programmes have provided a policy anchor,” said Fitch. The rating agency said Jordan and the IMF are currently exploring a followup programme to the current EFF, due to end in March 2024, to anchor fiscal consolidation and reform momentum.

Last September, the Hashemite Kingdom finalised a seven-year MoU with

JORDAN ESTIMATES THAT IT WILL RECEIVE AROUND $2.6 BILLION (5.2% OF GDP) IN BUDGET SUPPORT IN 2023, OF WHICH ABOUT 56% CONSISTS OF LOANS

the US worth $1.45 billion in economic and military assistance per year. Fitch said the US Congress increased the envelope by $200 million for the current fiscal year with strong bipartisan support.

Meanwhile, the European Bank for Reconstruction and Development has financed 71 projects in Jordan worth more than $2.1 billion since 2012, including financial support for the country’s banking sector through loans to businesses and subordinated debt and trade finance facilities.

The kingdom also receives aid from its allies to support the general budget and finance development programmes, including $218 million from the European Commission in May and a three-year development cooperation with France valued at $995 million.

Jordan’s senate passed the country’s 2023 budget in February and the country is forecasting $16.1 billion (JOD 11.4 billion) in state expenditure, an 8.3% increase from a year ago while domestic revenues and external grants are expected to reach $13.5 billion. The authorities are expecting the deficit to shrink to 2.9% this year from 3.4% in 2022.

The financial sector

In spite of the prevailing global economic conditions, the Jordanian financial service sector started 2023 on a solid footing as banks are recalibrating their operations to new methods of working and evolving regulatory landscape.

S&P Global Ratings projected that lending would grow this year despite the

rising interest rates, driven by corporate demand for credit to fund working capital needs as the central bank has started the gradual phasing out of its programme to support strategic sectors of the economy.

“Increased lending will support loan portfolio repricing at higher interest rates, which would be positive for banks’ profitability,” said S&P Global.

Jordanian banks’ creditworthiness and their ability to absorb potential losses is supported by their strong capitalisation, compared to regional peers and should benefit from higher interest rates’ positive effect on profitability.

S&P Global cautioned that major risks to the banking sector’s outlook are weaker than anticipated economic performance and more aggressive monetary policy tightening. The Central Bank of Jordan (CBJ) raised its key interest rate on various monetary policy instruments by 25 basis points in March and vowed that it stands ready to act proactively to support monetary stability in the kingdom.

Meanwhile, competition among banks for deposits will likely add to pressures

on their cost of funding, which could hurt the margins of smaller banks. Just like their regional peers, Jordanian banks have been consolidating to improve economies of scale, reduce operating and funding costs as well as boost profitability and efficiency.

Standard Chartered agreed to sell its Jordanian business to Arab Jordan Investment Bank (AJIB) in March. The deal will see Standard Chartered’s corporate, commercial and institutional banking, consumer lending and private banking businesses migrated to AJIB.

Last year, Jordan’s Capital Bank acquired 100% of Societe Generale Bank Jordan, took over Lebanese Bank Audi’s businesses in Iraq and Jordan and sold a 23.97% stake to Saudi Arabia’s Public Investment Fund for $185 million in a deal that will help the bank expand its operations in Jordan, Saudi Arabia, Iraq and other markets.

Banks in Jordan have robust solvency and liquidity ratios and remained stable through the global banking crisis earlier this year, which culminated in the collapse of three US lenders and UBS Group’s takeover of long-time rival Credit Suisse Group. “The latest available total capital adequacy ratios, leverage ratio, and liquidity coverage ratio stood well above regulatory minima,” said the IMF.

Going forward, policies should remain focused on maintaining macroeconomic stability and advancing fiscal reforms to boost employment, economic growth and competitiveness. However, the million-dollar question remains: will this be enough to get Jordan on track without deeper, more painful reforms?

FISCAL PERFORMANCE HAS BEEN STRONG, ON THE BACK OF SUSTAINED LEGISLATIVE AND ADMINISTRATIVE REFORMS TO REDUCE TAX EVASION AND AVOIDANCE

– The International Monetary Fund

INCREASED LENDING WILL SUPPORT LOAN PORTFOLIO REPRICING AT HIGHER INTEREST RATES, WHICH WOULD BE POSITIVE FOR BANKS’ PROFITABILITY

Digital Darwinism

Scott Harkey EVP Financial Services and Payments, Endava explains how in the current digitisation era, regional banks can best adapt to the challenges, competition and the requirements of authorities, to thrive while also providing delight to their customers

Cross-border payments are key to UAE consumers. Describe the latest payments developments, and how banks can support these advancements. There is no doubt that cross-border is huge in the area. I think it comes second to maybe the US in terms of total dollars being exported out of the country or being sent out. So obviously, developments in cross-border payments are really important here. The interesting thing is, I think 80% of cross-border money movement flows outside of the major banks. So, they are using exchange houses or some other third party to transfer the money. That is a big deal for banks. So figuring out a way for the banks to continue to be involved in crossborder payments, continue to get more of a foothold in cross-border payments so that it’s not moving outside of the

Scott Harkey, EVP Financial Services and Payments, Endava

bank system, there’s probably some technology that needs to help drive that, whether it’s looking at alternatives to the kind of traditional correspondent bank model, looking at whether it’s blockchain or its other forms of, I won’t say cryptocurrency, in the way that it’s commonly talked about. But certainly, developing the technology underpinning it, whether it is blockchain or its other elements of that; to really try to figure out if there are more economical ways for the banks to move the money, to become part of that ecosystem, and then how do they pass that on to the consumers?

So ultimately, consumers want cheaper money movement. They want the convenience of the digital experiences they are getting from the third parties. And the banks have to start to develop some of those to really make sure they are part of the ecosystem.

With the UAE launching its instant payment scheme, how can banks and financial institutions comply with the framework?

Instant payments are really interesting, especially as you look country to country and how it is rolled out differently. Certainly, in countries where there has been some sort of government regulation or push to ensure that the banks and the ecosystem is enabling it, they have seen a lot faster traction. Markets like the US where it has not been pushed, but it has been created, we actually have two different competing systems, so there is not an impetus to adopt at all times, and that becomes a challenge.

But I think in markets like the UAE where it’s being pushed, mandated, regulated, however you want to word it, I think what it means is that as the banks start to make these investments in the real time network, they will naturally start to push use cases onto it because they’re making the technology investment. So, when you are making big technology investments, you want to spread it across as much as you can, volume wise. So, what are the use cases that provide a

better experience when you enable real time or faster payments? Looking at both B2B use cases; so, in a lot of countries, the business-to-business use cases are where a lot of the value initially is created, and then also looking at consumer use cases with bank-to-bank transfers or other ways, you can look at how you can really take advantage of the speed. I think a lot of the systems too, often they enhance the transaction and transaction data that comes as part of it as well. And that is another big thing we see, a lot of value in the system for the banks is as more data comes through these flows, then you can start to look at how do you do things like tying invoices to accounts payable and other things especially in

So, if you think about it in a lot of cases, it is not just about the money moving faster while certainly that has value. It can also be about what is the experience that you can enable when you know that the money is going to move at a very specific time. You can start to schedule it. You can start to plan it. You can start to build value added services around the timing of those transactions.

So again, if you’re a small business or you’re a consumer and you start thinking about bill pay or some other scenario where you know that you want the money to move at a very specific time, as the business or the receiver of that money, you want guaranteed funds, you want to ensure that it’s there, well,

BIGGEST CHALLENGE FOR REGIONAL BANKS IS NOT HAVING ENOUGH MONEY

the B2B space. So, there is a lot to be done there but certainly once the system gets built and in place, the impetus kind of shifts to how do you identify the use cases that drive the most value and then ultimately enabling those.

How can banks and financial institutions go beyond IPP’s base requirements to create new revenue streams using real-time instant payments?

I think a good way to think about that is for banks to look at where do they have relationships today with third parties that they could use or switch over to realtime payments to enable either a better experience or more value add. Again, I think a big piece of this is around the data and the data that can come along with some of these transactions because a lot of times that is where the value can be added.

those things can start to be automated and scheduled when you start using realtime payment systems.

So, just looking through your existing customer transactions today, looking through your existing customer flows today and saying, again, where would speed, where would the fact that the money is guaranteed arrival, the fact that there is clarity into when it is received, how could you start to leverage those to add value? And I think that is where most banks will ultimately find those use cases where they can monetise it. There is value being created that they can start to charge for.

How can traditional banks, the powerhouses of the UAE finance sector adapt to the presence of FinTechs?

It is tricky for the big banks because in a lot of cases they have gotten used to

THE

being the large incumbents and kind of having the ability to maybe move a little bit slower and not necessarily have to respond as fast to the market. I think that’s changed a lot with the FinTechs that have come into the space with now the large institutions being held almost to the same standard of innovation and experience. I think that is really where they can take cues from a lot of the FinTechs and even some of the smaller banks that have maybe advanced faster in terms of their experiences, is to look at the user experience.

So, I am big on user experience and that driving a lot of investment for institutions and looking at what is the ideal customer experience for any given product or any given flow and then really trying to design around that. So, in a lot of cases, the challenge for the large banks is they serve so many different customers that the experiences get kind of watered down a little bit. If you think about a FinTech that has a very specific use case and is solving one specific problem, well, they can design for that problem really well because that is all they’re designing for. But then you take a large bank and they have an audience ranging in age, an audience ranging in demographics and they have to water down the experience.

So, what they can start to do is to look at the experience being created by the FinTech and say, where is the customer delight in that. What part of that is it that our customers would react to or would see value in or would enjoy as kind of a delighted experience? And then frankly copy them for lack of a better word. Not to say copy the specific UX but start to copy those experiences in terms of offering something similar. And that is a really good way to look at it, just start to go through those experiences. Most institutions are doing customer research, they are getting feedback from their customers on what they like, and do not like and then just ensure that they are allowing for innovation to come in and that they are trying to keep up. They are not

just sitting back and watching the others build better experiences around them.

What are the main challenges regional banks face in realising their digital transformation ambitions?

The biggest challenge for regional banks is not having enough money. At the end of the day, the large banks in any market always outspend the small banks to a massive degree. And so, the challenge is always how do you do the same things, or some of the same things with way less money and way less resources, whether that’s people inside the bank to actually do the work or that is the capital that is spent on making the investment. And there again, I recommend just looking at the customer delights or pain points.

because this is what we do. And I think what is interesting about it is no matter where you are in the world, a lot of the challenges that banks are facing are the same challenges. They are trying to figure out how to compete with the FinTechs. They are trying to figure out how to modernise their technology, how to adopt the new technology that is providing the most delight for customers. And I think the challenge is always how do you do all that, again, with a limited budget? Even if you have a big budget, it is still limited. It is still not infinite. And how do you do it in a way that basically creates reuse or creates the ability to evolve as opposed to having to constantly rebuild?

That is what we do at Endava; helping our customers build technology, helping our bank clients modernise their back-

A lot of times in banks, product gets created by internal bank people who have an idea about a product and they go and they push it forward rather than listening to the customer. And so, I think really looking at that customer feedback, really bringing in customers to advise on where they would see value, what could be added to the experience, etc., and then really building around that and prioritising those things. You have to accept, as a smaller bank, you are not going to be able to spend the way the large banks are and that is okay. It just means better prioritising the things that make the most impact for customers. And I think that is best done through looking at customer feedback and really looking at those experiences.

In the current phase of the UAE’s financial sector’s evolution, what is Endava’s value proposition? This is a really exciting space for us

end infrastructure so that they are not having to rebuild over and over again. My perspective is that we are at a stage with technology now, especially in the banking space, where it is evolutionary. It is a constant. Digital transformation is not a thing anymore because it is ongoing. It never stops. Transformation implies that you did it and it is done, but it never stops. It is an evolution. There will always be a new thing. There will always be some new technology to adopt.

And so rather than chasing that and constantly trying to build to that, we really try to help our clients build iteratively and build components that can be reusable; so that as new things come along, they are able to scale faster, they are able to adopt that technology faster. So that is a big part of what we do, whether it is the experience, or it is the back-end technology. And we are really excited to be in this space.

DIGITAL TRANSFORMATION IS NOT A THING ANYMORE BECAUSE IT IS ONGOING

The Journey Towards Frictionless Cross-border Payments

At the recent MEA Finance roundtable debate hosted by Swift in Riyadh, Saudi Arabia, discussions focused on how the push to make end-to-end money movement more instant, secure and transparent across borders is driving the payments industry to continuously look to advance customer experience

Global businesses move an estimated $23.5 trillion across borders annually. To do this, they predominantly rely on the wholesale cross-border payment processes of correspondent banking networks, according to Oliver Wyman. This process costs around $120 billion in transaction charges per year.

Cross-border payments are an integral feature of today’s world. They play a vital role in keeping the economy healthy and stable. The payments typically require three to five days of end-to-end processing before reaching the intended recipient and the shortcomings are compounded by high costs, lengthy settlement times and opaque processes.

However, the cross-border payment space is being jolted by several trends that could fundamentally change competitive dynamics. These include increasing pressure from emerging technologies, shifting regulatory and sanctions frameworks, growing e-commerce industry and shifting customer demands.

MEA Finance in partnership with SWIFT hosted an exclusive roundtable themed The Journey Towards Frictionless Cross-border Payments in Riyadh, Saudi Arabia. The event attracted senior representatives from across the country’s financial services sector who shared insights on the trends that are shaping the future of the cross-border payments sector while exploring new ways to address the complexities of providing secure and ubiquitous payments.

According to Mastercard, reliability, predictability, security and speed are top of the agenda for both customers and businesses, and banks must deliver on all these fronts.

Traditionally, correspondent banking –in which one financial institution carries out transactions on behalf of another, often because it has no local presence - has been instrumental in facilitating cross-border payments.

The push to make end-to-end money movement more instant, secure and transparent across borders is driving the payments industry to continuously look to enhance customer experience. Financial institutions are leveraging partnerships, innovative technologies, multilateral approaches and multi-rail interoperability to make payments faster, more transparent and less costly.

Banks in Saudi Arabia have made headway in expanding their services and are exploring how the new innovative financial technologies can better support their businesses while partnering with other financial institutions to enhance the cross-border payments experience and cut costs for end customers.

Huny Garg, Country Head – KSA & Bahrain at SWIFT, said in his welcome remarks, as one of the largest originators of cross-border payments, Saudi Arabia is not only an important market for the payments network or the banks operating in the country, but it is of strategic importance to other emerging markets where the payments are flowing all the time – whether it is trade or personal remittances.

Ziad Al Yousef, Deputy Governor for Development and Technology at Saudi Central Bank (SAMA), in his opening remarks, said Saudi Arabia is one of the largest remittances countries in the world and the country remains committed to frictionless cross-border payments. Al Yousef said the country worked together with partners during its G20 Presidency to develop an ambitious payments system that addresses speed, cost and transparency.

The G20 made enhancing crossborder payments a priority during the 2020 Saudi Arabian Presidency.

“We have an ambitious target to achieve faster, cheaper, more transparent and more inclusive cross-

border payments by 2027,” Al Yousef said, adding that Saudi Arabia agreed with its global partners in 2022 to reprioritise even what the group can focus on to enhance cross-border payments – the ’19 building blocks’.

The 19 building blocks are arranged into five focus areas, four of which seek to enhance the existing payments ecosystem, while focus area E is more exploratory and covers emerging payment

the institutions even during challenging times such as the COVID-19 pandemic or ongoing geopolitical issues,” reveals Bhatia.

The company’s cross-border payment portfolio consists of three pillars –foundation, frictionless and instant. Its strategy is underpinned by a strong platform and foundation.

Global payments messaging, the medium by which transactions take place,

infrastructures and arrangements. Going forward, Al Yousef believes that new digital tools, among them central bank digital currencies (CBDCs), can address many issues related to efficiency, security and access.

Presentation

Kalyani Bhatia, Global Head of Payments & PMI Go to Market at SWIFT, opened his presentation by highlighting that SWIFT Go to Market is a group of 30 payment professionals and provides deep product and market knowledge for the payments network’s 12,000 member banks.

“Our mission is to enable instant and frictionless payments around the world account to account, in every market we are present and we have been doing this in the financial service sector since 1973,” said Bhatia.

SWIFT is celebrating its 50th birthday this year. Over the years, the payments network has been revolutionising cross-border payments with SWIFT gpi, bringing visibility and transparency to the global payments space. “We are here to support the financial community and

is changing. 2023 is a milestone year for the rollout of ISO 20022, which became the standard for cross-border payments and cash reporting starting in March. Bhatia said ISO 20022 is leading financial institutions on the path to richer and better data.

“Our inflow translation service is supporting global financial institutions on their journey to ISO 20022 at their own pace by providing the new ISO standards in co-existence with categories 1, 2 and 9 of MT messages in November 2025,” she said.

Bhatia said SWIFT ramped up transaction management at the end of May, bringing the orchestration layer to payment processing while moving away from point-to-point messaging. The payments network highlighted that ramping up transaction management will be transformational for the financial service sector as the company is starting to address concerns from a data truncation perspective.

From a frictionless perspective, Bhatia said SWIFT seeks to reduce any kind of friction in the payments chain to achieve

WE HAVE AN AMBITIOUS TARGET TO ACHIEVE FASTER, CHEAPER, MORE TRANSPARENT AND MORE INCLUSIVE CROSSBORDER PAYMENTS BY 2027

– Ziad Al Yousef

straight-through processing times and that is where payment pre-validation comes into play. By analysing SWIFT’s traffic, Bhatia highlighted that 65% of all global payment rejections could have been solved by leveraging upfront account verification to eliminate friction.

“SWIFT also offers case management, which is simplifying the exceptions and investigations process, essentially creating a central and standardised platform to monitor and manage exceptions,” he added.

Finally, the last pillar, instant. SWIFT is facilitating instant processing essentially by increasing speed, transparency and the predictability of payments. According to Bhatia, “80% of all MT103 messages are being sent as SWIFT gpi across the globe, 95% of cross-border payments are tracked and confirmed in less than 24 hours and 50% of these reached the end beneficiary in less than five minutes.”

SWIFT gpi dramatically augmented cross-border payments across the correspondent banking network and for global businesses, for whom speed, certainty and a smooth payments experience are an absolute must.

Augmenting customer experience

The payments industry is changing rapidly, with consumers and businesses both demanding more from their relationship with banks. The advent of innovative technologies and evolving customer requirements have heightened the need for banks to improve the process of cross-border payments.

Today, global businesses require their international payments to be equally seamless as domestic transactions.

Sandeep Dhawan, Regional Head of Products, Payments at JP Morgan said to advance customer experience, cross-border payments should be as instant as domestic payments. However, customer expectation from a cross-border payment perspective is slightly different, Dhawan said while noting that payments across borders are expected to be ‘fast’ and if a transaction is settled within three hours customer expectations would have been met.

The growing frustration with the traditional correspondent banking model, which is often considered cumbersome and costly in a world of real-time low-cost payments, has created an enabling environment for the growth of non-bank providers.

Amol Bahuguna, SVP, Head of Corporate Technology, Innovation and Change Management at Riyad Bank concurred with Dhawan saying that enhancing customer expectations will be determined by the service that a banking customer is availing.

From an individual perspective, Bahuguna said for urgent requirements such as payment of children’s college admission, confirmation is upfront. “Visibility makes sense and speed is the need of the hour in such as case, not the cost or not the transparency,” he said.

For corporates, global businesses are not always in a rush all the time,

Bahuguna said while noting that they need visibility as proof to take to the supplier for a settled payment. While from a banking perspective, cross-border payments providers want to make their service as efficient as possible, not as expensive.

“Banks are not just providing payment as a service, but as commercial organisations, they expect to generate revenue from the financial product,” Bahuguna said, adding that if financial institutions provide visibility in terms of having MT103 messages sent to customers, they would have met expectations.

Rida Al-Arnaout, Head of Payment Services Unit at Riyad Bank weighed in saying, “We all know about the customer expectation, we are all customers and we know about the expectation.” However, the million-dollar question is how to improve the expectations, Al-Arnaout added.

Consumers have high expectations and the new innovative technologies are raising them even further, driven by the growing demand for seamless interactions, security at every step and easy access to purchase information.

Ammar Awad Altawiel, Manager of Digital Solutions Delivery at Bank Albilad said the main thing for the customer is the notification and the Service Level Agreement (SLA).

From complaints analysis, Gulfan Shaikh, Senior Payments Operations Manager at SAB, banking customers are frustrated by additional questions that

are asked when processing cross-border payments, but the requirement does not apply to domestic payments.

He said there is increasing dependency on correspondent as well as beneficiary banks, making the overall turnaround time it takes at each of these banks longer, which might impact customer experience

and regulatory-related issues that can arise along the payments chain. With SWIFT Go, banks are providing instant and frictionless cross-border transactions while enhancing transparency and endto-end digital strong security.

Sheikh Manzoor Sabir, Head of Cash Products, Global Transaction Banking, Gulf International Bank concurred that not every solution is for every customer for every transaction. He said in cases where global corporates have a payroll, they prefer to send the payroll with minimum deductions and on time for the payment to reach the customers’ or the employees’ accounts on time.

In another scenario, banking customers might want to know ‘the status of their payment’. Sabir said they carried out an analysis that showed that for important payments, a customer will likely

said cross-border transactions are prone to fraud, money laundering and terrorism financing risks and this is where ISO 20022 comes into play.

The cross-border payments landscape is becoming increasingly competitive and customers’ demands for fast and seamless experiences are higher than ever. Similarly, the push to make end-to-end money movement more instant, secure and transparent across borders has the payment industry continuously looking to improve the user experience.

Correspondent banking & fintechs

Correspondent banks are financial middlemen that act as go-betweens in cross-border payments. Crossborder payments are supporting the development of digital economies and are driving innovation all while functioning as a stable backbone for global economies.

Saudi Arabia has always been viewed as innovative and a leader in payments and finance – spearheading the move to a less cash-reliant society while encouraging consumers to embrace different ways to settle payments.

better. Shaikh remains optimistic that ISO 20022 will solve the problem largely by eliminating nearly 90% of the incorrect false hits.

Bader Nasser Al-Hussinan, SVP, Head of Payments Section at Riyad Bank highlighted that additional questions that are required when customers are initiating a cross-border payment as part of compliance requests from the bank. Al-Hussinan believes that SWIFT’s case resolution can help iron out friction and enhance customer experience.

The case resolution service speeds up the resolution of operational, compliance

check the payment three times before it reflects in the beneficiary account.

“SWIFT gpi is a fabulous tool and I believe it should have been released many decades ago to augment customer experience in cross-border payments,” he said. “Banks are setting their tools to meet different customer preferences. Faster payments are not a solution for every customer, a full value transfer is not a solution for every customer and SWIFT gpi is not a solution for every customer satisfaction.”

On why cross-border payments are associated with many questions, Sabir

Ahmed Alhadeed, Chief Treasury Officer at Vision Bank said fintech companies are simplifying the process of transferring money across borders and that is what attracts customers’ attention to a financial service provider “vis-à-vis the old ageing models of the past”. “What fintech companies have come up with is a challenge to correspondent banks and the incumbents need to fine-tune their systems and service offerings to maintain a competitive edge in the market,” said Alhadeed.

The emergence of new technologies has shaken the banking sector and new payments initiatives such as BUNA – a payments platform that seeks to deliver the Arab world’s most cutting-edge, crossborder payments system, encompassing multiple currencies and payment types.

Spurred by Saudi Financial Sector Development Programme, innovation

THE DISRUPTION IN THE CROSS-BORDER PAYMENTS SPACE IS GOOD. IT IS KEEPING CORRESPONDENT BANKS ON THEIR TOES TO REVAMP THEIR PROCESSES AND BECOME BETTER

– Gulfan Shaikh

is coming faster than ever before in all aspects of banking including crossborder payments where a key trend is a new focus on retail customers and small to medium enterprises.

From a fintech perspective, Onur Ozan, Managing Director / Regional Head

provided by the tech enablers to create a superior end-to-end customer experience.

“It is obvious fintech firms are taking market share from incumbents as they are making themselves available to customers of all segments, even the unbanked that the traditional banks

it is a 60/40 scenario because fintech companies are gaining market share from customers that move smaller amounts of money, particularly small to mid-sized businesses. Al-Sayed highlighted that 60% of cross-border transactions are being handled by large banks, which

– Middle East, North Africa and Turkey at SWIFT said fintechs are leveraging entrenched faster payment rails to offer seamless cross-border payment services that do not use a legacy system, unlike incumbents. “The absence of the legacy infrastructure associated with incumbents allows fintechs to provide a digital customer journey with few clicks to initiate cross-border payments,” said Ozan.

He also noted that fintech firms remain more competitive when it comes to transaction fees, charging between 0.5 and 2.5% in fees depending on the currency, that traditional banks have been enjoying over the past decades.

Esraa Diwali, Senior Digital Payments at SAB said artificial intelligence capabilities and fintech characteristics will pave the way for the elimination of pain points in cross-border payments while advancing customer experience and streamlining transactions.

Businesses have choices, and so far, they are often finding better crossborder experiences outside the traditional banking channel. Still, incumbents in Saudi Arabia have a real opportunity to evolve into concierges or curators of the best of the fintech world and maximise the tools

have not been serving for decades,” said Nawaf Althukair, Head of FI at Vision Bank.

Althukair said fintechs are leveraging seamless onboarding and processing as powerful tools to gain rapid market share and the trend is expected to continue going forward.

“We see prominent fintech companies in the cross-border payments sector such as Wise, Ripple Labs and Rapyd are playing a greater role in connecting countries with seamless processes and they are dealing with multiple currencies,” said Althukair.

Dr Ahmed Darwish Al-Sayed, Head of Digital Delivery at Bank Albilad said

are leveraging SWIFT’s innovative technologies while the remaining 40% is being processed by fintechs.

“The disruption in the cross-border payments space is good. It is keeping correspondent banks on their toes to revamp their processes and become better,” Shaikh said, adding that incumbents risk losing a significant chunk of the market share to fintechs.

The new ways to access digital financial services have made the payments ecosystem very efficient, inexpensive and more inclusive. SWIFT’s Garg said the financial services sector is growing and evolving very fast. He highlighted that incumbent banks are not

IT IS OBVIOUS FINTECH FIRMS ARE TAKING MARKET SHARE FROM INCUMBENTS AS THEY ARE MAKING THEMSELVES AVAILABLE TO CUSTOMERS OF ALL SEGMENTS, EVEN THE UNBANKED THAT THE TRADITIONAL BANKS HAVE NOT BEEN SERVING FOR DECADES

– Nawaf Althukair

losing market share to fintech but rather there are a lot of business opportunities emerging in the market.

Ganesh Venkatakrishna, Product Manager- Fintech & Payments at SAB said fintech companies have overwhelmingly captured market share

foreign exchanges and transfer costs and collaborating with fintech players to enhance offerings.

Streamlining cross-border payments

Cross-border payments can be slow,

correspondent banks can be eliminated by standardisation.

The standardisation of cross-border payments is expected to help the global financial services sector to eliminate many of the factors causing friction and SWIFT’s shift to the richer file format of ISO 20022

from incumbent banks, in retail banking, commercial banking or SMEs segment and over the years the customers are losing trust in incumbents and to regain the market share SWIFT is providing traditional banks with innovative solutions.

Promising work is currently underway in correspondent banking networks to boost cross-border payments as part of a broader strategy by G20 countries to augment the global economy. However, progress on this front has been much slower as moving money from one country to another remains slow, expensive and inconvenient.

Aiman Alrabiah, Director of Payment Systems Business Department at SAMA said the cross-border payments market is moving toward a cooperation model as both traditional banks and fintech companies seek to serve clients who fall outside of their core customer bases.

Fintech companies have taken significant market share from traditional banks in cross-border transactions and incumbents have started to fight back. Traditional banks have begun building new cross-border payment interfaces and mobile applications, repricing

expensive and risky. However, a multilateral platform to facilitate crossborder transactions, currency exchange and financial contracting such as the ‘X-C platform’ that was envisioned by the International Monetary Fund (IMF) and will create a centralised and multi-currency foreign exchange trading environment.

Garg said SWIFT gpi solved the friction with cross-border payments by streamlining but the company is going a step further with SWIFT Go to standardise the format further and make it possible to initiate high percentage straightthrough transactions.

SWIFT is expecting the migration to ISO 20022 to be a game changer. There is limited artificial intelligence that can be applied to an MT103 database, but ISO 20022 can carry 100 times more data, Garg said while noting that it is up to the bank to request as much data as possible from the customer as required through the chain of a transaction. “Standardisation is going to the very next level in the next few years,” Garg added.

Yagoub Yousef Al-Sulaiman, Head of Transformation Management at Alinma Bank weighed in saying the fragmentation and truncation of data formats between

will enhance cross-border payments for banks and their correspondents.

Al-Arnaout said MT uses a standardised format and global correspondent banks have been using it for decades, but friction still exists in cross-border transactions. However, ISO 20022 will have enriched data and more information, which is expected to allow for standardisation and elimination of friction.

Meanwhile, Sabir believes ISO 20022 will not eliminate friction in cross-border transactions because what is being standardised is the medium between two banks i.e., the way two financial institutions communicate. “The friction comes when Bank Albilad says that I treat this data with XYZ and Saudi National Bank interprets the data as ABC,” he said.

Dhawan said standardisation is being brought in by ISO 20022 and going forward, harmonisation of ISO formats and harmonisation of APIs is going to play an increasingly important role in crossborder transactions.

A report by the Bank for International Settlements (BIS), the World Bank and the IMF highlighted that a greenfield approach to cross-border transactions may accelerate the alignment of aspects

such as settlement finality, liability regimes and participant onboarding through a scheme managed by a single governing entity.

Ahmed Fadl, Digital Solutions Delivery Manager at Bank Albilad hailed ISO 20022 for bringing standardisation in correspondent banking while noting that with fragmented data

to streamline cross-border payment processes and support SMEs by speeding up the transaction process and increasing efficiency and transparency.

The technology leverages distributed ledger technology (DLT) where transactions are recorded with a fixed cryptographic signature called a ‘hash’. An integrated ecosystem such as ‘the

Al-Arnaout said payment market infrastructures (PMIs) have a big role to play to ensure that standardisation can be understood across the industry as well as be extended to all the players in each jurisdiction to make it a global standardisation.

Al-Hussinan said PMIs inside a jurisdiction such as Saudi Arabia will

it will be impossible to advance customer experience.

Mohamed Hustafa Ishak, NBE Representative and Country Manager of the National Bank of Egypt said the MT103 format brought a standard in the cross-border payment space and the rich data associated with ISO 20022 will eliminate friction in payments while boosting customer experience.

“The greenfield approach involves establishing a new multilateral platform either as a hub entity to create a hub and spoke system with the existing infrastructures as spokes or as a common platform to replace the existing infrastructures and provide direct access to all participants,” the three entities said in a report in January 2023.

Khalid H. Al Otaibi, Division Manager of Payment Systems Operations at SAMA said the G20 road map is a specific working group that is working on aspects related to interoperability. “One of them is achieving some sort of standardised formats for messages for cross-border payments,” added Al Otaibi.

Blockchain technology is one of the newest payment rails that is helping

greenfield approach’ is expected to simplify doing business and reduces risk.

Reshaping the present and future

The increased adoption of payments modernisation worldwide, including real-time payments, and straightthrough processes and platforms, are clear opportunities for the sector as global corporates seek to build better customer experience.

play a critical role in completing the order of payments.

PMIs have a critical role to play in facilitating the end-to-end tracking of cross-border payments. According to SWIFT, more than 55 PMIs are already delivering value for their members by exchanging gpi payments and enabling domestic exchange and tracking.

For PMIs to boost standardisation, Abdul Haye Ahmad, Payments Programs

WE HAVE HEARD THE COMMERCIAL BANK AND REGULATORY PERSPECTIVE

ON THE G20 ROADMAP. AT SWIFT, WE ARE SPENDING A SIGNIFICANT AMOUNT OF TIME ON THE RECOMMENDATIONS FROM THE BANK FOR INTERNATIONAL SETTLEMENTS, THE INTERNATIONAL MONETARY FUND AND WORLD BANK

– Huny Garg

Manager at Banque Saudi Fransi said it is going to be a community effort. He highlighted that currently, the use of ISO 20022 is equivalent to MT103 as most of the banks are not ready to migrate to the new standard.

“The issue currently is the data. We have a tool and it is a very basic tool and at current implementation what we

and AFAQ System were pilot projects for many years within the GCC before the two initiatives came to fruition over the past 18 months. “Comparing with other global payments initiatives, BUNA and Arabian Gulf System for Financial Automated Quick Payment Transfer (AFAQ) System are probably the most innovative partly because of the

technologies such as application programming interfaces (APIs) and DLT are revolutionising the financial service sector from payments to open banking and these innovations will enhance financial services and products.

G20 roadmap & ISO20022

From instant payments to CBDCs, a

have is equivalent to the MT standards,” Ahmad said, adding that until the data is being fed properly into the message, the system will not be able to leverage the data.

With Saudi Arabia halfway through its multi-trillion-dollar economic transformation and diversification strategy under Vision 2030, cross-border payments offer a compelling revenue opportunity, driven by growing trade activity, expanding e-commerce and a constructive regulatory agenda.

Aiman Alrabiah, Director of Payment Systems Business Department at SAMA said the G20 Roadmap identified three themes that will have a significant impact a profound impact on cross-border payments. “Standardisation of data, as well as interoperability of payment system, are key to achieve frictionless in cross-border payments,” said Alrabiah.

Al-Sayed said BUNA and AFAQ System are regional answers to the pain points in cross-border payments and correspondent banking.

John O’ Donovan, Payment Systems Business Department, Advisor at SAMA concurred with Al-Sayed, saying BUNA

guarantee given by the central banks,” O’ Donovan added.

The growth and innovative developments in the country’s financial services sector are fertile conditions for new entrants, which have built market share by offering highly functional and cost-efficient services.

Khalid AlQassem, Head of Product and Innovation at Banque Saudi Fransi said although financial institutions are investing in innovative technologies to make their payment solutions desirable, customers, both big and small, are yet to derive value from these services. “Customers have not yet obtained any value from incumbents’ payments services and products, hence the reason why most customers are moving to fintechs,” he said.

From an integration point of view, Afnan Mohammed Al Ghamdi, EVP, Head Payment Operation Shared Services Group at Saudi National Bank said the current operating environment calls for financial institutions to consider segmentation and the different business requirements.

Kaya Al Zamil, Senior Digital Payments at SAB weighed in saying innovative

wide range of new and emerging digital technologies holds the potential to transform the face of the cross-border landscape, alongside the industry-wide transition to ISO 20022.

Dhawan said having a frictionless and instant payment platform (IPP) is one of the prerequisites to joining the G20 roadmap and Saudi Arabia is much ahead of the curve because the country already has an instant payment service in place while other regional countries such as the UAE are set to go live with their IPP this year.

From a commercial bank perspective, Dhawan called on the banking ecosystem to study the report that was released by the BIS, the IMF and the World Bank, which seeks to establish whether and how multilateral platforms can bring meaningful improvements to the crossborder payments ecosystem.

ISO 20022 is emerging as a common language and model for financial messages across the world. SWIFT projected that 80% of global, high-value payments by volume will be processed through this standardised messaging system as major currencies are adopting it.

“We have heard the commercial bank and regulatory perspective on the G20 roadmap. At SWIFT, we are also spending significant time on the recommendations from the BIS, the IMF and World Bank and the company has a team working full-time on this,” said Garg.

The move to ISO 20022, meanwhile, is more than just a mandatory exercise. Instead, it’s a key factor in driving innovation and building a frictionless

G20 Saudi Presidency in 2020, the G20 roadmap on cross-border payments is more of stock-taking, investigating and pinpointing challenges to address the pain points that are confronting the payments space. He also urged representatives of different banks that were present at the round table to take time and study the Exploring multilateral platform for cross-border payments report from the BIS, the IMF and the World Bank.

chances that banking customers are buying and trading cryptocurrencies – which are prone to price volatility due to lack of firm regulation in the crypto industry.

A promising path is multilateral crossborder payment platforms that combine new forms of CBDC with new innovative technologies. SAMA and the UAE central bank launched Project Aber in 2020 – a joint CBDC that showed that central banks can leverage distributed ledger

future – offering new opportunities and the chance to enhance services all along a transaction’s lifecycle.

The G20 has outlined a roadmap to improve the speed, cost, transparency, choice and accessibility of cross-border payments, and new developments are coming thick and fast to help realise these goals. So, what’s driving these changes?

The core payments space is seeing greater competition at all levels, from alternative providers and fintechs to large, established players. Similarly, domestic market infrastructures are increasingly looking to connect and interoperate with each other. This is leading to the exploration of new ways to settle payments, from CBDCs to instant payments.

Front-end innovation: Significant development is also taking place on the front end, including the rise of new apps and e-commerce platforms.

Alrabiah highlighted that since the

A vision for the future (CBDC)

Global central banks are researching and experimenting with central bank digital currencies (CBDCs). SAMA is one of the many institutions that are looking into this new technology. The central bank is expecting CBDC to provide a more efficient and resilient payment system and help reduce business costs.

Bank Albilad’s Al-Sayed said the CBDC initiative will be a safe and transparent game changer given the risks and

technology (DLT) to issue and exchange their digital currencies.

“CBDC will eliminate the risks and ambiguity associated with digital currencies and cryptocurrencies while putting central banks and regulators that run the global economy back in the control seat,” adds Al-Sayed.

Using the surge in digital payments as an example, Alhadeed said the CBDC concept is already in the system while noting that the financial service ecosystem has made

CBDC WILL ELIMINATE THE RISKS AND AMBIGUITY ASSOCIATED WITH DIGITAL CURRENCIES AND CRYPTOCURRENCIES WHILE PUTTING CENTRAL BANKS AND REGULATORS THAT RUN THE GLOBAL ECONOMY BACK IN THE DRIVER’ S SEAT

– Dr Ahmed Darwish Al-Sayed

the disappearance of fiat money so easy amid a surge in digital payments. “Banking customers are already dealing with CBDC indirectly when settling payments, that is sort of the digital currency,” he said.

Technological innovations and partnerships among stakeholders can address the challenges around speed, cost and transparency in crossborder payments. SAMA’s Alrabiah highlighted that CBDCs are similar to – but not the same as – stablecoins

• Rayan Altuwaijri, Division Manager, Payment Systems Initiatives Realization, Saudi Central Bank –SAMA

• John O’ Donovan, Payment Systems Business Advisor, Saudi Central Bank - SAMA

• Yagoub Yousef AlSulaiman, Head of Transformation Management, Alinma Bank

• Ahmed Belal , Manager Correspondent Banking, Bank Albilad

Payments, Public Investment Fund (PIF)

• Bader Al-Husainan , Head of Payments Section, Riyad Bank

• Amol Bahuguna , SVP, Head of Corporate Technology, Innovation and Change Management, Riyad Bank

• Rida Al-Arnaout, Head of Payment Services Unit, Riyad Bank

• Gulfan Shaikh , Senior Payments Operations Manager, SAB

and as many as 60 global central banks are still investigating the use cases associated with CBDCs and 11 countries including Nigeria and some Caribbean nations have already launched digital currencies.

Fintech companies have identified opportunities and are challenging existing banking models in the cross-border space. However, incumbents are fighting back by harnessing the full potential of existing innovative technologies and exploring how new ways of doing business can give them a competitive edge in the market.

In attendance at the roundtable were:• H.E. Ziad Al Yousef, Deputy Governor for Development and Technology, Saudi Central Bank - SAMA

• Aiman Al Rabiah, Director, Payment Systems Business Department, Saudi Central Bank - SAMA

• Khalid H. Al Otaibi, Division Manager, Payment Systems Operations, Saudi Central Bank - SAMA

• Ahmed Fadl , Digital Solutions Delivery Manager, Bank Albilad

• Ammar Awad Altawiel , Manager of Digital Solutions Delivery, Bank Albilad

• Ahmed Darwish Al-Sayed, Head of Digital Delivery, Bank Albilad

• Abdul Haye Ahmad , Payments Programs Manager, Banque Saudi Fransi

• Khalid AlQassem, Head of Product and Innovation, Banque Saudi Fransi

• Mohammed Ghaban , Head of Operations, D360

• Sheikh Manzoor Sabir, Head of Cash Products, Gulf International Bank

• Sandeep Dhawan, Regional Head of Products – Payments, JP Morgan Chase Bank

• Ra sheed Alshaikh , Head of Wholesale Payments, JP Morgan Chase Bank - Riyadh Branch

• Mohamed Hussein Ishak, Country Manager, National Bank of Egypt

• Sara Alhakbani , Head of Digital

• Ganesh V enkatakrishnan , Product Manager - Fintech & Payments, SAB

• Haya Al Zamil , Senior Digital Payments, SAB

• E sraa Diwali , Senior Digital Payments, SAB

• Afnan Alghamdi , EVP, Head of Payment Operations, Saudi National Bank

• Ahmed Alhadeed, Chief Treasury Officer, Vision Bank

• Nawaf Althukair, Head of Fis, Vision Bank

• Abdullah Almoslem , Hea d of Money Markets and FX, Vision Bank

• Onur Ozan, Managing Director & Regional Head - Middle East, North Africa and Turkiye, Swift

• Huny Garg, Country Head - KSA & Bahrain, Swift

• Kalyani Bhatia , Global Head of Payments & PMI Go to Market, Swift

• Andre w Cover , Roundtable Moderator, MEA Finance Magazine

Repositioning for Growth

In our interview with Khaled El Bialy, Chief Executive Officer of Banque Misr GCC, he describes their vision and details the ongoing success the bank is achieving in its plan to become one of the region’s leading financial institutions, and how their focus on values and digitisation forms a key element in meeting their objectives

How has Banque Misr performed in the past two years in the UAE and the GCC and how do you see the current global challenges?

Banque Misr UAE began a three-year effort in 2021 to reposition itself as one of the leading financial institutions

in the Middle East. Improving the brand’s reach, enhancing the customer experience and assuring sustainable development are fundamental to the strategy. The plan was established to support the Group’s objectives for regional expansions, with the United Arab Emirates selected as the engine that leads that growth.

In 2022, the bank achieved outstanding financial results and maintained a solid financial position and capital structure. The balance sheet size increased by 153 percent, net income increased by a whopping 129 percent, customer deposits increased by 148 percent, and loans and advances increased by 5 percent. The Net Intertest Income (NII) increased by 316 percent, whereas Fees and Commissions increased by more than 70 percent. NonPerforming Loans (NPLs) decreased dramatically to 2 percent, while Return on Average Equity (ROAE) reached a record high of 13 percent. The Cost of Funds was reduced to 0.4 percent and the Capital Adequacy Ratio (CAR) was 20 percent, greatly above the CBUAE’s minimum requirement. The performance trend in 2023, based on H1 run-rate, is exhibiting more robust performance numbers, as we anticipate closing the fiscal year with solid bottom-line growth of 550 percent over 2022, ROAE greater than 17 percent,

Khaled El Bialy, Chief Executive Officer, Banque Misr GCC

NPLs less than 1 percent and a cost-toincome ratio hovering around 20 percent.

We aim to capitalise on the expansion in the region and the UAE in particular. The country’s gross domestic product increased by 7.6 percent in 2022, which was almost twice the rise in 2021. In 2022, the UAE’s international trade reached 2.2 trillion dirhams ($599 billion), a 17 percent increase from the previous year. The UAE’s economy established a firm foundation in 2022, as both the oil and non-oil industries performed well. As a component of international economic relations, this preserves the country’s status as an exceptional environment that draws investments on a continuing basis and supports foreign commerce and openness. The oil and gas sector plays a vital part in the UAE’s economy, accounting for about 30 percent of the country’s GDP and 13 percent of total exports, according to the most recent figures. The year 2022 witnessed a substantial economic recovery, with the fastest growth rate since 2007, reaching record levels. We at Banque Misr UAE want to be among the industry leaders who create that big, successful mark in history.

However, the global economic arena is undergoing a series of severe and mutually reinforcing shocks, such as the rippling effects of the COVID-19 outbreak, the conflict in Ukraine and food and energy shortages, surging inflation, debt consolidation and climate emergency issues. Due to geopolitical tensions, lower global demand and more stringent monetary and fiscal policies, inflation is chronically high in several countries, and the global economy remains under pressure. In 2023, the volume of global trade in goods and services is anticipated to expand by 2.3 percent, which is much slower than the rate before the pandemic. The decrease in commodity prices and early symptoms of a mild recession imply a clearer route for the monetary outlook, notwithstanding the persistence of shortterm worries. Early evidence points to a global economic downturn; China’s path to recovery may not be as promising

as it seemed at the beginning of 2023. This trend is expected to continue. The markets are pricing in high inflation over the longer term, and the main central banks continue to hike interest rates; the loosening of monetary policy may not be as aggressive as the tightening cycle. The FED maintains current interest rates, but hints that more rate hikes will be required to lower inflation in 2023.

What are the main Pillars of Banque Misr Operating Model?

There are three main pillars to Banque Misr Strategy & Operating Model based on Business Strategy, Operational Strategy and Transformational Strategy:

1 - The Business Strategy Pillar focuses on…

Proper Corporate Governance and Solid Infrastructure

Long term sustainable growth

Value proposition differentiation

Double digit return on capital

Positioning employees for future succe ss through proper career progression is one of our main targets

Positive contribution to the UAE Economy and its people through Emiratisation and educational Schemes

Provide an air cover to the trade corridor between Egypt and the GCC Clear target market and prudent risk acceptance criteria.

2 - Our Operational Strategy Pillar

Develop effective & efficient process improvement

Advance translation of strategic goals into operational capabilities

Smooth, lean and secure workflow

Immaculate process and control environment

3 - Transformational Strategy Pillar involves…

Major strategic cultural change to suit the organisational objectives

Digitalisation and business transformation

Agile and lean process implementation

Our aim is to revamp our business

model to foster sustainable growth through the following actions:

i. Optimise Capital Allocation

Allocate our capital to areas that d eliver the highest risk-adjusted returns.

In Wholesale Banking, continue to rationalise the loan portfolio.

In Consumer Banking, focus on liabilities and prudent lending. We will dispose of non-core assets and redeploy the capital to higher yielding assets.

ii. Improve Cost Efficiency

Improve our cost-income ratio through sustainable cost savings, optimisation, streamlining, digitisation and productivity enhancements.

Reduce bureaucracy and streamline our processes and procedures.

iii.

S trengthen Balance Sheet Quality

Improve the risk adjusted returns on capital.

Build a quality asset portfolio that strikes a good balance between asset and return.

iv. SMART Control Environment

Enhance the organisational structure and embed an effective three lines of defense, ensuring clear and defined roles and responsibilities with no gaps or overlaps between control functions. Establish a cost-effective control environment that adheres to UAE laws, regulations and best market practices.

Strengthen our safety net pillars, corporate governance, process and control.

How is Banque Misr in the UAE facing the demands and challenges of technology and digitisation?

Digitalisation is paving the path for simpler and more comfortable client banking. No longer must customers wait in lengthy bank lines or be concerned about banking hours. With the assistance of internet

banking and mobile applications, clients may conduct financial transactions at any time, from any location. With mobile banking, the speed of transactions has also increased. Previously, banks required three to four days to transfer consumer funds to other accounts. With online payment options, this step is now completed in a few seconds. People may swiftly and effectively monitor their account balances, transfer funds, pay bills and apply for loans from the comfort of their homes or workplaces.

Digitisation has allowed banks to use the power of data analytics and artificial intelligence (AI) to make more informed business decisions and provide clients with personalised services. By collecting and analysing client data, banks may customise their services to match the unique requirements of each individual customer. Customers may now access financial services from anywhere and at any time thanks to the advent of digital banking, which has made the sector more efficient and comfortable. As digital technologies proliferate, digital banking is poised to become the industry norm.

In addition to enhancing security and operational efficiency, technological developments in the banking business would improve the entire client experience. For instance, anti-money laundering (AML) and know-your-customer (KYC) systems enabled by AI make client profile screening quicker and more accurate, saving time, effort and money.

Digitalisation, fintech and AI are no longer alternatives; they represent the future. They are altering how people interact and do business on a day-to-day basis, and technological innovations in banking are continuing to shape the future of financial services around the world. An increasing demand for a digital banking experience is transforming how the entire banking industry operates. Having said that, we are currently investing heavily in technology infrastructure and cybersecurity crimes prevention measures in order to arrive at a worldclass solid platform and infrastructure.

In the dynamic and competitive world of banking world that we are living in, effective management is key to driving growth, profitability and customer satisfaction. The banking sector is experiencing a major transition in an age of fast technological innovation. Traditional banks are faced with the challenge of adapting to evolving customer expectations, regulatory changes and disruptive fintech startups. However, Banque Misr UAE recognises that time is a precious resource for consumer and corporate customers. Therefore, substantial resources were spent on cutting-edge technology and user-friendly systems to improve the banking experience. Once the banks’ transition is complete, customers will be able to access and manage their accounts, make transactions and monitor their financial health with ease using Banque Misr UAE’s easy online and mobile banking capabilities. We are committed to digital innovation, streamlining complex processes and enabling business owners to concentrate on what they do best: expanding their enterprises.

Tell us about the Banque Misr approach to sustainability and ESG.

Climate change is a very serious threat to the world. It not only has a direct impact on business but is also a threat to our continued survival. Organisations measure and report sustainability practices using the ESG strategy. Organisations engaging in ESG activity must meet the needs of the present generation without jeopardising the needs of future generations.

ESG (Environmental, Social and Governance) is now required for firms to assess their sustainability practices and their influence on society and the environment. Banque Misr UAE acknowledges that ESG aspects are crucial for risk management and longterm wealth generation, hence it is one of our strategic objectives. The major purpose of our ESG task force is to

ensure that the bank adheres to the most recent standards.

Sustainability may generate company success in addition to mitigating global concerns. ESG indicators are being used by regulators, investors, consumers and society to evaluate an organisation’s ethical impact and sustainability practices. They evaluate a business’s carbon impact, water use, community development activities and diversity. According to research, organisations with a high ESG rating have a reduced cost of financing and equity, and that sustainability initiatives may assist enhancement of financial performance while fostering public support.

ESG is a highly important concern in the banking sector with key considerations that are vital to the success and wellbeing of financial institutions, for example:

Risk management: Banks face a variety of risks, including those associated with climate change, societal challenges and governance policies. Incorporating ESG aspects assists banks in identifying and mitigating these risks, which may otherwise have financial repercussions.

Reputation and trust: Stakeholders, including consumers, investors and regulators, analyse ESG performance extensively. Banks that emphasise ESG efforts show their dedication to sustainable practices, thus enhancing their reputation, fostering trust and attracting customers and investors with a social conscience.

Compliance and regulations: Sustainability and environmental, social and governance (ESG) issues are emerging regulatory frameworks. Banks must change in order to comply with new ESG-related standards and disclosure responsibilities. By integrating ESG into their operations and decision-making processes, banks can remain compliant and avoid legal and reputational risks.

Competitive advantage: Adopting ESG standards may distinguish institutions in a competitive market. Consumers and investors like institutions that share their values and contribute

to beneficial social and environmental results. Banks that successfully incorporate environmental, social and governance factors may acquire a competitive advantage and attract a broader client base.

Long-term value creation: ESG integration goes beyond risk management and compliance; it also provides opportunities for innovation, long-term value creation and sustainable growth. Banks can invest in environmentally friendly projects, support social causes and promote good governance practices, leading to positive economic, social and environmental impacts.

What is your vision, strategy and your near and medium-term plans for Banque Misr in the region?

Our Vision is to become a peoplecentric financial institution that delivers unmatched customer experience and value preposition, anytime, anywhere. We aim to connect and facilitate the everyday life of people, businesses and partners, enabled by top talent, innovative solutions, digitalisation and long-standing customer relationships.

Our value pillars are Customer Centricity, Innovation, Agility, Stewardship and Pride and our strategic objectives are:

1. Deliv er elite customer-centric service model

2. Re vamp the business model to foster sustainable growth

3. Con tribute significantly to the group’s international endeavors

4. Optimise operational centralisation, autonomy, agility and flexibility

5. Explore and leverage the brand reach in the UAE market and the GCC

6. Deliver value preposition to our community, our stakeholders and people, and contribute positively to the environment

We will always aspire to contributing positively to the group’s mission by offering world-class financial solutions to our customers, elevating our value proposition through embracing digital transformation, service innovation,

evolving partnerships and fostering our diverse and competent people.

In the face of disruptive technologies, evolving customer expectations and regulatory changes, effective banking management is paramount for success. By embracing digital transformation, fostering a customer-centric culture, enhancing risk management practices, embracing innovation and collaboration, and investing in talent development, banking executives can navigate the challenges and leverage opportunities in today’s dynamic banking landscape. With a strategic focus on these essential areas, Banque Misr UAE can position itself as industry leaders, deliver exceptional customer experiences and drive sustainable growth in the years to come.

As an emerging global economic powerhouse how do you feel the GCC, and the wider Middle East will rank by 2030?

By 2030, the GCC and Middle East region are expected to experience substantial transformations in the coming years, as the GCC countries have been actively diversifying their economies beyond oil and gas. They are investing heavily in sectors like tourism, finance, technology, renewable energy and manufacturing. By leveraging their strategic geographic location, abundant natural resources and

strong infrastructure, these countries have the potential to become major global players in various industries.

The Middle East has been investing significantly in infrastructure development, including transportation, logistics and smart cities. Large-scale projects like Dubai Expo 2020, Qatar World Cup 2022, and Saudi Arabia’s NEOM and Red Sea tourism projects are expected to attract foreign investment, boost tourism and enhance regional connectivity. Such infrastructure investments can have a positive impact on the region’s economic growth and overall ranking. The Middle East has also embraced emerging technologies, including artificial intelligence, blockchain and Internet of Things (IOT). Governments and private entities are fostering innovation and entrepreneurship through initiatives like Dubai Future Accelerators and the establishment of technology hubs. By capitalising on technology-driven opportunities, the region has the potential to become a global hub for innovation, attracting talent and investments.

The GCC and Middle East have a young and growing population, presenting both opportunities and challenges. To unlock their full potential, governments are focusing on education, skills development, and creating job opportunities for the youth. By nurturing a skilled and entrepreneurial workforce, the region can benefit from a demographic dividend, driving economic growth and innovation.

The geopolitical landscape can significantly impact the ranking of the GCC and Middle East region. Regional stability, political reforms and peace agreements can attract investments and foster economic growth. Conversely, ongoing conflicts or political unrest can hinder progress and deter investors. A favorable geopolitical environment will be crucial for the region’s continued rise.

As stated by Dubai ruler, Sheikh Mohammed Bin Rashid Al Maktoum, the Middle East can become the new Europe if its countries adopt modernity and development.

A New Age for Middle East Trade Finance

Innovative new technologies, the advent of ISO 20022 and changing market necessities are reshaping trade and trade finance business models across the region

No doubt the past three years have had a devastating impact on global trade and the trade finance sector that powers economic growth, creates jobs, delivers critical goods and improves people’s lives.

Trade finance markets are vulnerable during economic and financial crises. A survey conducted by Dubai ports operator DP World in November 2022 painted a stark picture of global trade. It revealed that the lingering supply-chain crisis, geopolitical tensions as well as inflation and the lack of financing options have a crippling effect on the global logistics industry’s ability to deliver goods.

Trade finance supports an estimated 80% of global trade through a variety of financial instruments including letters of credit, trade loans, guarantees and insurance. Without it, global trade would grind to a halt.

The banking division underpins one of the most fundamental economic concepts – countries’ need to import and export goods and services based on their resources or lack thereof.

However, data from global bodies such as the United Nations, the World Bank and the World Economic Forum reveals that there is a $1.5 trillion trade finance gap on merchandise trade worth $17 trillion.

“The divide between what lenders are prepared to provide and what borrowers

need is impeding the ability of trade to fully support international economic growth,” according to Australian institutional bank ANZ.

The events of the past three years –geopolitical tensions, a slowing global economy and inflation – are believed to have also exacerbated the trade finance shortfall and the need to improve the $5.2 trillion global trade finance ecosystem. Trade specialists are betting that the geopolitical shocks, issues with inflation and evolving regulatory requirements affecting global trade will be a passing phase, while innovative technologies and sustainable finance will have a lasting impact – making transactions faster and more reliable.

Though trade finance has been relatively slow to modernise its decadesold processes, the ongoing transformation in the industry offers financial institutions a valuable opportunity to reimagine how they finance trade with no constraints and no legacy baggage.

“Digitalisation can address the challenges of process inefficiency, regulatory compliance and information

asymmetry in trade and trade finance transactions,” economists at Asian Development Bank said in a report titled Driving Inclusive Digitalisation in Trade and Trade Finance.

ISO 20022, a global and open messaging language for payment, became the standard for cross-border payments and cash reporting starting in March 2023. The migration to the digital language for payments messaging is expected to unify current practices based on fragmented standards while providing the industry with highly structured and enriched data for end-to-end automation on an international scale.

Meanwhile, sustainability has become a topic of crucial importance for many corporations, including financial institutions. Global banks such as Standard Chartered Bank and HSBC are offering sustainability-linked financing solutions, including deposit accounts backed by investments in sustainabilityrated assets and letters of credit issued for transactions in which the underlying asset contributes to efforts to mitigate climate change.

Futuristic trade finance solutions

The pace of digital transformation in the financial services sector continues to accelerate. The new innovative technologies and an ever-changing market landscape are reshaping trade and trade finance business models.

The proliferation of networks, digital standards and digitisation efforts are constructive steps toward trade finance modernisation and inclusion. They validate the belief that market participants –including banks and credit insurance companies – recognise the importance of enhancing trade finance efficiency.

Innovative technologies hold the potential to improve documentation, testing and risk governance models, meet regulatory risk-based demands, improve anti-money laundering policies and tighten up change control procedures.

“Several global trade finance banks have already started to invest in

digitalisation, with technologies such as optical character recognition (OCR), artificial intelligence and blockchain being used to develop innumerable use cases and proofs of concept,” according to EY.

Last September, HSBC executed the Middle East region’s right blockchainenabled, trade finance transaction between China’s SAIC Motor and Saudi Arabia’s Taajeer Group via the global lender’s Contour platform.

The digital platform has been instrumental in bringing down transaction lead times from 5-10 days to 24 hours. The bank’s digital receivables finance portal also reduced waiting time for working capital from 60 days to less than 48 hours, which significantly enhanced cash flow for its commercial and global banking corporate customers.

Trade documents themselves are very complex. However, the use of blockchain and distributed ledger technology (DLT) in global trade makes it possible for documentation to flow transparently and securely between banks, trading companies and other network participants such as credit insurance companies.

Blockchain technology has the potential to empower global trade and banks that finance it by making transactions more efficient while retaining a high level of security. The World Trade Organisation said DLT could be to trade and trade finance transactions what the internet has been to communication.

Industry experts say trade finance functions that adopt appropriately targeted automation and advanced analytics as integral parts of their compliance operations will be more

important than ever in this uncertain international environment.

Augmenting cross-border transaction

Cross-border payments are important in the Middle East, with two of the world’s three largest remittance corridors located in the UAE and Saudi Arabia. Three major initiatives have already been unveiled in the region including Project Aber, the Arab Regional Payment System (Buna) and the AFAQ system that connects the real-time gross settlement systems of GCC countries.

Financial institutions, banks and payments networks that process large cross-border transactions are upgrading their infrastructures to ISO 20022 standard that brings more effective realtime controls against fraud and money laundering as well as a range of richer new payments services that are yet to be developed.

The transition to ISO 20022 is expected to solve the interoperability between the two standards or two payment rails—the domestic and the cross-border. It has emerged as a common language and model for financial messages across the world as several Middle Eastern and Asian countries have already migrated their national payments infrastructures to ISO 20022.

The rich and structured data enabled by ISO 20022 is an essential element of the next generation of payments. It’s the foundation for financial institutions to work smarter and faster, leading to greater operational efficiency, improved data analytics and compliance, new opportunities for

THE DIVIDE BETWEEN WHAT LENDERS ARE PREPARED TO PROVIDE AND WHAT BORROWERS NEED IS IMPEDING THE ABILITY OF TRADE TO FULLY SUPPORT INTERNATIONAL ECONOMIC GROWTH –

innovation and enhanced customer experiences that promise to transform the payments landscape.

Sustainable trade finance

Banks in the Middle East are expanding their sustainable trade finance offerings to meet growing corporate demand. However, they face a challenge to ensure that stricter environmental, social and governance (ESG) criteria do not worsen the trade finance gap by cutting off access to financing for companies that need it most.

Over the years, ethical sourcing, climate-smart supply chain planning, eco-friendly warehousing as well as renewable energy and green logistics have become an integral part of the global trade equation.

“This focus is here to stay and trade finance can play a key role in encouraging more climate-conscious supply chains in the future by, for example, offering modifications in pricing for those engaging in environmental best practices,” said Lynn Galkoski, director of Trade Product & Portfolio Management with BNY Mellon Treasury Services.

Globally, more banks are rolling out green or sustainability-linked equivalents of trade finance to meet corporate demand and support their sustainability commitments. Standard Chartered unveiled its sustainable trade finance solutions across Asia, Africa and the Middle East, Europe and the Americas in 2021.

The London-listed bank said the financing product will focus on supply chain finance, invoice financing, receivables services, bonds and guarantees and letters of credit. “These products will help global supply chain activities – estimated at $19 trillion by the World Trade Organisation (WTO) –become more sustainable,” Standard Chartered said at the time of the launch.

Wall Street lender Citigroup followed last year with the introduction of new sustainable trade and working capital loan solutions in Asia Pacific, Europe,

DIGITALISATION CAN ADDRESS THE CHALLENGES OF PROCESS INEFFICIENCY, REGULATORY COMPLIANCE AND INFORMATION ASYMMETRY IN TRADE AND TRADE FINANCE TRANSACTIONS

– Asian Development Bank

Middle East and Africa and Latin America regions.

A research document published by HSBC and Boston Consulting Group in 2021 revealed that global supply chains will require $100 trillion of investment by 2050 if they are to achieve net-zero emissions - and as much as half of it is required by small and medium-sized enterprises (SMEs).

Banks and other players in global trade are collaborating to drive further growth in sustainable trade finance. However, S&P Global warned that financial institutions face a challenge to design sustainable trade finance structures that are inclusive and incentivise change - something that bankers believe can be done. Industry experts believe that how banks define sustainable trade will significantly have an impact on which companies can and cannot access financing with an ESG label. Global trade and banks that finance it need to develop appropriate metrics to measure the sustainability of trade outside of developed economies to ensure that more companies will benefit from sustainable trade finance.

Driving SME growth in GCC

The Middle East is home to millions of SMEs, including startups, that see the region as a strong place to start and grow a business. Globally, SMEs account for around 90% of companies and more than half of the jobs worldwide, according to the World Bank.

SMEs are often constrained in working capital. With the trade finance gap projected to be around $1.7 trillion, it’s

often those SMEs that are underserved and lack access to affordable trade finance. “Trade constitutes the backbone of every economy and 80-90% of global trade requires financing,” according to the WTO.

The public and private sectors in the GCC region have been developing programs to catalyse the growth of SMEs, including startups. DP World launched its trade finance platform in 2021 and the Dubai-based firm has partnered with 23 financial institutions, generating more than $700 million in credit limit submissions.

The logistics major partnered with South Africa’s Standard Bank to offer trade finance solutions jointly with DP World Trade Finance. SMEs are often not able to provide collateral to secure funding, which raises rejection rates.

However, credit insurance agencies in the GCC such as Etihad Credit Insurance and Saudi Export-Import Bank have taken several measures to assist SMEs in meeting their trade finance needs during the current crisis, including expansion of working capital guarantee, pre-export payment and supply chain finance guarantee programs.

Trade finance can further boost the recovery of the global economy by facilitating export and import growth, by addressing two major challenges associated with international trade. Innovative technologies are revolutionising trade and this is particularly true in the trade finance field. The infrastructure now exists to enable end-to-end straight-throughprocessing of hundreds of thousands of instruments in a low-cost way.

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Trending Upward

Addressing questions on regional trade finance, Madhavan Thooppal, Head Trade Services, NBF responds with his outlook for trade-related growth as very positive, that it is too soon to notice any visible effects following the inception of ISO20022 and that banks are developing sustainable trade products to meet growing ESG imperatives

28 percent in 2021 to touch AED 1.911 trillion, and a further 17 percent in 2022 to reach AED 2.233 trillion, passing the AED 2 trillion mark for the first time in history.

With the UAE’s non-oil foreign trade setting records, the outlook for traderelated growth in the country and the region is very positive.

Are you seeing effects of the migration to ISO 20022 for crossborder payments and reporting in your trade finance transactions?

While ISO 20022 is expected to facilitate electronic data exchange between financial institutions, improving efficiency in cross-border transactions

Are you expecting noticeable growth of Trade Finance in our region in the coming years?

As the COVID pandemic began to abate, at NBF we experienced a faster recovery in trade volumes in 2021 and 2022, as they bounced back from 2020 levels. In fact, we witnessed growth of nearly 42 percent in terms of trade volumes over the course of 2021, and if you compare FY 2022 to FY 2020, the growth in trade volumes was approximately 85 percent.

This is testament to the fact that trade volumes have not just recovered to prepandemic levels but are now surpassing them – in a stable way.

At the national level we see the same trend – as the world recovered from the pandemic, the UAE’s non-oil trade performance shifted to a trajectory of unprecedented growth. After declining by 12 percent to AED 1.496 trillion in 2020, the country’s non-oil trade jumped

with parties exchanging data digitally, the majority of trade transactions still rely on paper documents such as Bills of Lading, AirWay bills etc. So, there is still a long way to go.

Madhavan Thooppal, Head Trade Services, National Bank of Fujairah

WITH THE UAE’S NON-OIL FOREIGN TRADE SETTING RECORDS, THE OUTLOOK FOR TRADE-RELATED GROWTH IN THE COUNTRY AND THE REGION IS VERY POSITIVE

In strained times with lacking liquidity or falling stock prices, can financing trade via traditional instruments – letters of credit or promissory notes ease matters?

Letters of Credit continue to remain an important method of trade settlement; however, there is also a growing requirement for - and usage of - open account financing, such as trust receipt loans for imports. These transactions are cheaper in terms of banking charges, as well as less complicated, when compared to the preparation and presentation of documents under Letters of Credit.

Notwithstanding the growth of open account financing, as cross-border trade increases, Letters of Credit remain the instrument of choice in this type of trade, as they provide security to exporters in terms of mitigating buyer risk of non-

COP28. Given that trade finance is an important driver of the regional economy, banks are expected to engage with

clients on ESG issues when granting trade finance facilities. Banks are also coming up with tailored trade products like sustainable Letters of Credit and sustainable supply chain finance.

Is there a case for the adoption of Blockchain and distributed ledger technology in trade finance?

payment. Furthermore, in some cases, exporters can ask their bank to add confirmations to these Letters of Credit, thereby mitigating the country risk for cross-border transactions.

Promissory notes and bills of exchange continue to be used for trade settlements, because of their uncomplicated nature as well as option for financing.

With COP Summits occurring in the region, are ESG considerations influencing trade finance operations?

There is an increased focus on how banks in the region are integrating ESG factors into their financing and business decisions, especially with the UAE hosting

Currently we use a blockchain-based supply chain financing platform for invoice financing. This platform seamlessly connects the buyer, seller & financing bank (NBF), and the shipping documents relating to the transaction are uploaded by the seller and accepted by the buyer electronically. NBF finances the invoice to the seller after digital acceptance by the buyer. The transaction is financed digitally on an end-to-end basis, without any requirement for application or paper documents.

Are SMEs in the region able to access trade finance services as readily as larger corporations?

NBF has a dedicated Business Banking segment and services a large number of SMEs in the region. Through NBF, SMEs are able to access all trade finance products such as Letters of Credit, Letters of Guarantee, Trust Receipt Financing and Invoice Discounting, in the same way as any large corporates.

BANKS ARE ALSO COMING UP WITH TAILORED TRADE PRODUCTS LIKE SUSTAINABLE LETTERS OF CREDIT AND SUSTAINABLE SUPPLY CHAIN FINANCE

Set for Growth

Mritunjay

Are you expecting a noticeable growth of Trade Finance in our region in the coming years?

While the events that have been taking place in the last 3-5 years globally, coupled with the geopolitical issues and various other challenges (regulatory, legal framework etc.) faced in the region, makes it difficult to predict the future. Factors such as digitisation and innovation within the region have outperformed the challenges towards stabilisation and growth. The projection of UAE’s export volumes reaching AED 1.7 trillion ($463 bn) by 2030 (Trade Finance Global May ‘23) is in itself an indication of the region’s growth potential in the coming years. Predictions that exports from the region are set to more than double from 2020 volumes by 2030 (Future of Trade 2030), and with the regional trade volumes between Asia, Africa and the Middle East carrying a projected combined trade volume of AED 53 trillion by 2030 (Zawya), also indicates that the region will not be slowing down in the near future.

Massive infrastructure expansion plans of some of the key countries ex: Saudi Arabia would also contribute to the growth of trade finance in the region in the coming years. Technology innovations such as blockchain and the presence of many fintechs also renders opportunities for the region’s businesses to showcase their deals globally to various lenders, in cases where lenders in the region may not have an appetite, which too, will impact future business positively.

In our view, if not a noticeably significant growth, a steady growth curve

Mritunjay Singh, Lead, Trade Product Management, Trade Finance, Transaction Banking Group, Corporate & Investment Banking Group, ADCB

Singh Lead, Trade Product Management, Trade Finance at ADCB tells MEA Finance that trade finance in the region is on a clear path to growth in the coming years, the role of Blockchain technology may increase given time and how banks are creating product offerings more inclusive to SMEs

is certainly on the cards for the region in the coming years.

In strained times with lacking liquidity or falling stock prices, can financing trade via traditional instruments – letters of credit or promissory notes ease matters?

Traditional instruments have always been the backbone of trade finance. They have given comfort to lenders while structuring trade related facilities irrespective of the economic situation in the region and continue to do so. In times where there is a liquidity crunch, buyers look for extended payments in securing deals with their suppliers while lenders look for the most secured option against which they could release their limited liquidity to sellers. Therefore, the level of security and the acceptance that these instruments provide, would drive the parties involved into considering these options.

Also, given the security and the comfort that these traditional instruments provide to the lenders, financing via the traditional

all parties involved with a common platform that offers an automated and streamlined process away from the manual framework, increasing efficiencies and providing transparency, thereby reducing the risk of disputes and frauds. The ability to integrate logistics providers to the platform provides visibility on the movement of

This is obvious since the larger corporates carry a more credit worthy profile, stronger financials, better debtor profile and proven track records in terms of repayment history.

Some of the traditional reasons which restricted SMEs from accessing trade finance services were the nonavailability of strong financials (audited),

instruments, even in a liquidity crunch would work out relatively cheaper to the borrowers when compared to other forms of financing options.

Is there a case for the adoption of Blockchain and distributed ledger technology in trade finance?

Although still in its early stages, there are multiple benefits of adopting this technology in trade finance. It provides

goods which is critical in trade finance. The blockchain and distributed ledger technology is also expected to provide enhanced security of the data by way of its decentralised storage mechanism. This digital marketplace is also expected to innovate effective trade solutions in relatively shorter time and significantly reduce costs compared to a traditional trade model.

While there is a case for the adoption of this technology, it is not without challenges. Regulatory issues, legal framework, integration of technology into multiple systems, getting all parties across industries into a single platform are some of the key challenges faced.

Given the challenges we believe that, while there is a valid case for adoption of this technology, it may take more time for it to have widespread acceptance across parties and industries.

Are SME’s in the region able to access trade finance services as readily as larger corporations?

The general sentiment is that the larger corporations are always preferred over SMEs when it comes to lending by financial institutions since they have better accessibility to trade finance services.

established payment history, difficulty in providing collateral to meet lenders requirements, issues in meeting with compliance requirements and the lack of awareness, skills and expertise in trade finance products.

This been said, the lenders in the region in the last few years have realised the importance of the SMEs contribution to the region’s economies, starting from providing employment, to efficient supply of goods and services strengthening the regions supply chain dynamics. Lenders are accordingly focussing on the SMEs with customised product offerings, providing a segmented business approach with simplified trade finance service propositions needed for the growth of the SME sector. The segmented approach allows the lenders to identify the needs of the SME sector and suitably structure their offering.

Further, the introduction of fintech’s in the region, providing digital platforms and blockchain technology will enable SMEs to reach a digital market space and connect with buyers, lenders, insurers and logistics providers, who will give them access not only to trade finance services but also to the complete supply chain value proposition.

IN OUR VIEW, IF NOT A NOTICEABLY SIGNIFICANT GROWTH, A STEADY GROWTH CURVE IS CERTAINLY ON THE CARDS FOR THE REGION IN THE COMING YEARS

WHILE THERE IS A CASE FOR THE ADOPTION OF THIS TECHNOLOGY, IT IS NOT WITHOUT CHALLENGES

Enabling Growth Economies

Underlining recent growth in trade, the integration of ESG principles, the benefits of using distributed ledger technology and opportunities opening up for SMEs, Zul Javaid CEO of UAE Trade Connect, an e& enterprise company, highlights the key role of trade finance in regional economies

Are you expecting noticeable growth of Trade Finance in our region in the coming years?

In today’s interconnected world, trade finance plays a critical role in facilitating international trade. As businesses expand their operations across borders, the need for efficient and reliable financing solutions continues to grow.

Our region has seen a significant increase in trade activity in recent years. With increasing globalisation and the rise of emerging markets, businesses are seeking new opportunities and tapping into previously untapped markets.

The advent of technology has revolutionised the trade finance landscape. Digital platforms and blockchain-based solutions have streamlined processes, reduced paperwork and risk, and increased transparency. Automated systems for document verification, smart contracts and real-time tracking have accelerated the speed and efficiency of trade finance operations.

The remarkable growth of trade finance in our region demonstrates its

critical role in facilitating global trade. As businesses seek to expand their reach and capitalise on international markets, trade finance acts as a catalyst by providing the necessary financial tools and infrastructure. Embracing the latest technologies in trade finance will undoubtedly position our region at the forefront of the global trade ecosystem.

With COP Summits occurring in the region, are ESG considerations influencing trade finance operations?

In recent years, the importance of Environmental, Social and Governance (ESG) issues has grown significantly in various sectors. As countries and companies strive to meet the challenges of climate change and sustainable development, the impact of ESG factors has also shaped trade finance.

The integration of ESG principles into trade finance is driven by the recognition that sustainable business practices are essential for long-term value creation, risk management and stakeholder confidence. As a result, trade finance providers are integrating ESG criteria into their decision-making processes to support environmentally and socially responsible business practices.

Technologies such as blockchain and AI are revolutionising the trade finance landscape, playing a pivotal role in integrating ESG considerations into operations. These technologies offer transparency, efficiency and traceability, making it easier to assess and verify

Zul Javaid, CEO, UAE Trade Connect

ESG-related data. Blockchain provides a decentralised and immutable ledger that enables trade-related information to be recorded securely and transparently. It improves supply chain visibility by tracking product origins, certifications and carbon footprints.

With blockchain, trade finance transactions can ensure that the activities being financed meet ESG standards, such as sustainable sourcing and responsible production. In addition, blockchainbased smart contracts automate ESGrelated terms, ensuring compliance and accountability throughout the trade finance process.

Artificial Intelligence (AI) has the potential to analyse vast amounts of data and extract valuable information

data and improve their ability to support sustainable business operations.

By adopting blockchain and AI technologies, trade finance operations can navigate the complex landscape of ESG considerations and build a more sustainable and resilient future.

Is there a case for the adoption of Blockchain and distributed ledger technology in trade finance?

Blockchain, or distributed ledger technology (DLT), has emerged as a transformative tool in a wide range of sectors, and trade finance is no exception.

The adoption of DLT in trade finance offers numerous advantages, including greater transparency, efficiency and security. DLT provides a decentralised, tamper-proof ledger that records and verifies trade transactions in real time. This transparency allows all parties to access and validate information, reducing the risk of fraud and increasing confidence in the trade finance process. In addition, blockchain’s ability to navigate the evolving landscape of global commerce with greater confidence and efficiency.

enables the traceability of goods and funds throughout the supply chain, thereby supporting ESG objectives.

Fraud is a significant risk in trade finance, resulting in financial loss and reputational damage. Blockchain’s immutable ledger can mitigate fraud by providing secure and transparent trade transactions, ensuring the security and confidentiality of data shared within the trade finance ecosystem. The decentralised nature of blockchain makes it difficult for malicious actors to tamper with transaction records, improving risk management practices and protecting the integrity of trade finance operations.

By leveraging blockchain technology, trade finance operations can contribute to sustainable trade practices and promote responsible business conduct. When it comes to seeking trade finance services, there are a number of issues that can limit the ability to engage in international trade. Some of the key pain points stem from low confidence in lending from banks and financial institutions due to limited financial history, collateral requirements, complexity of documentation and perceived risk.

for ESG ratings.AI algorithms can assess ESG risks and opportunities by analysing trading partner performance, industry trends and environmental data. AI-powered tools can help financial institutions and trade finance providers assess companies’ ESG performance, identify potential risks and make informed decisions. By leveraging AI, trade finance operations can integrate real-time ESG

Are SMEs in the region able to access trade finance services as readily as larger corporations?

Small and Medium Enterprises (SMEs) are the backbone of the economy, contributing to job creation, innovation and economic growth. However, SMEs often face difficulties in accessing trade finance services compared to larger corporations.

SMEs face a number of barriers to creating an immutable audit trail that

Through digitisation, alternative data sources, advanced analytics, blockchain technology and open banking initiatives, SMEs can overcome traditional barriers and gain greater access to trade finance services. Banks equipped with technology-enabled risk assessment models, automated compliance controls and effective portfolio monitoring can confidently extend trade finance services to SMEs, driving economic growth, innovation and financial inclusion in the region.

THE INTEGRATION OF ESG PRINCIPLES INTO TRADE FINANCE OPERATIONS IS DRIVEN BY THE RECOGNITION THAT SUSTAINABLE BUSINESS PRACTICES ARE ESSENTIAL FOR LONG-TERM VALUE CREATION , RISK MANAGEMENT AND STAKEHOLDER TRUST

SMEs FACE A NUMBER OF BARRIERS TO CREATING AN IMMUTABLE AUDIT TRAIL THAT ENABLES THE TRACEABILITY OF GOODS AND FUNDS THROUGHOUT THE SUPPLY CHAIN, THEREBY SUPPORTING ESG OBJECTIVES

Family Growth and Development

economy – have seen their emergence in GCC as the region transforms into a global economic powerhouse.

The GCC, one of the world’s hotbeds of wealth creation, has seen an acceleration in trends relating to succession planning, alternate investment vehicles, wealth preservation, digitisation in wealth management and growing interest in sustainable investing.

Family offices are a fast-growing segment of the GCC region’s wealth management industry. They are increasingly becoming the preferred instrument vehicle for ultrahigh-net-worth individuals (UHNWIs) and wealthy families due to the greater deal of control and flexibility that they provide as compared to traditional wealth management firms.

“The growth of family offices in the Middle East is evidenced by an increase in the creation of formalised family office structures and governance activities where informal structures such as

‘embedded family offices’ and ‘virtual family offices’ are evolving into more formal, staffed family office entities,” Shadi AlNasr, Principle, Senior Client Strategist, Global Family Office, BNY Mellon Wealth Management.

Family offices go wherever wealth goes. HSBC said in emerging markets, especially Asia and the Middle East, the family office is a relatively new structure that is gaining traction among the first-generation founders of successful businesses.

Events of the past three years –the economic impact of COVID-19, geopolitical tensions and a slowing global

Enterprising families in the Gulf region understand the importance of succession planning and wealth transfer. According to Lombard Odier, HNWIs in the Middle East have a strong desire to leave a lasting legacy to the next generation and society more broadly.

However, a survey of 300 established HNWIs in the Middle East revealed that almost 90% believe that their family business is set up for an efficient wealth transfer to the next generation whilst 24% have a full estate plan in place.

As the UAE is gearing up to host the Middle East’s consecutive climate change conference (COP28) in November, wealthy families – and their family offices – are

The Middle East is witnessing a record emergence in family offices as the region evolves into an emerging global economic powerhouse, with trends and instruments changing as succeeding generations take grasp of the reins

among the prominent investors who are now showing much greater awareness and interest in social investment.

Digitalisation in family offices is not a one size fits all approach, but a common theme is better information for decision-making and more proactive management to reduce surprises. “As the shift to digital and virtual accelerates, family offices can seize this moment in time and modernise and futureproof their operations,” said EY.

With many family-owned businesses in the region transforming into multinational conglomerates with diverse portfolios, family offices have emerged as the engines of growth and a driving force behind economic diversification.

Legacy and wealth preservation

With a staggering $15.4 trillion set to exchange hands within families with a net worth of more than $5 million by 2030, according to Altrata, succession is a top priority for wealthy families and their offices.

Succession is a true test of the degree or extent to which the transition from one generation of a family to another is managed successfully. It involves the transition of ownership of businesses, property and other assets along with the broader financial concerns of wealthy families, such as philanthropic foundations and art collections.

“Succession planning is one of the biggest challenges we see facing wealthy families,” said Yann Mrazek, Managing Partner at M/HQ.

BNY Mellon said three challenges that emerge as wealthy families and their offices attempt succession planning include the inherent nature of the subject, the perceived dichotomy of values between current and future generations and a lack of expertise needed to effectively carry out succession planning.

“Family is the cornerstone of traditional Middle Eastern culture, while family-run businesses are the lifeblood of the economy in the region,” Arnaud Leclercq, Partner Holding Privé and Head

of New Markets at Lombard Odier said in a report last November.

HNWIs in the region are adopting protocols to regulate succession, conflict resolution, business valuations and other key issues to preserve wealth and ensure a smooth transition between generations. However, these policies and procedures do not necessarily include key documents such as family constitutions or conflict resolution mechanisms, hence there is still much work to be done.

The country’s milestone in putting in place tools to govern wealth transfer has seen several global offices flocking to the UAE in the past two years including The Dalio Family Office, which opened its regional offices in Abu Dhabi.

Over the years, life insurance and foundations have also emerged as a new asset class for planning succession among wealthy families.

Enterprising families make up a sizeable proportion of the Middle East

Rajiv Garg, Co-Founder and Managing Director of Farro Capital, said, “Ideally, family offices should possess the necessary resources and expertise to effectively handle succession planning for HNWIs. But ironically, not all family offices have the depth of understanding regarding this complex process.”

Abu Dhabi issued a new family business ownership governance law in January 2022 that prevents selling shares or dividends of family-owned businesses to individuals or companies outside the family. The law requires prior approval from family partners before a shareholder sells an equity stake to a non-family member.

Dubai Centre for Family Businesses opened its doors for business in June 2023 to provide technical and administrative support to ensure smooth generational succession. The Centre, which is under the umbrella of Dubai Chambers, aims to support effective succession planning and contribute to the growth and sustainability of family businesses in the emirate.

non-oil economy and in these challenging times, the need for adaptability and action to ensure that potential is not wasted and the future is secured has never been more paramount.

Wealth transfer and succession planning are two sides of the same coin. Without enough of the latter, there is too little of the former.

Building wealth with positive outcomes

The family office concept dates back to the 1800s. In 1838, the family of J.P. Morgan founded the House of Morgan, which managed the family’s assets and in 1882, John D. Rockefeller Sr. founded the family office, which continues today.

Centuries later, the Rockefeller Foundation coined the term impact investing in 2007 to encourage a greater focus on – and the building of a community of investors around – the high-impact end of the sustainable investing spectrum.

Since then, family offices and the impact investment sector have grown in terms of both assets and sophistication.

FAMILY IS THE CORNERSTONE OF TRADITIONAL MIDDLE EASTERN CULTURE, WHILE FAMILY-RUN BUSINESSES ARE THE LIFEBLOOD OF THE ECONOMY IN THE REGION

–

Arnaud Leclercq

Wealthy families and their family offices are ideally suited to the kind of approach that impact investing requires owing to the group’s large pools of capital and multi-generational objectives that support a long-term strategy.

Compared to institutional investors that may be subject to commercial policies or have limited decision-making due to mandated trusts, enterprising families and HNWIs can be flexible in how they approach investments in terms of size, geographies and asset classes.

Socially responsible investment, rather than simply donating money, is becoming a prominent way for wealthy families and HNWIs to execute philanthropic goals.

The investment theme is increasingly attracting attention among family offices in the Middle East due to the strategy’s promise of utilising a range of non-financial information to better align finance with long-term value and societal values. A survey conducted by Lombard Odier in 2022 revealed that 81% of younger investors in the Middle East are already taking sustainability/ ESG into account when making investment decisions.

Similarly, almost 73% believe that sustainability factors can contribute to strong investment performance while 74% believe that new business opportunities will be found in sustainable sectors in the region.

Meanwhile, family offices in the GCC region are already playing a key role in helping enterprising families transition to more responsible investment.

Sustainable or impact investing is not slowing down anytime soon. The investment theme involves avoiding certain companies, sectors or countries owing to conflicts with environmental, social and governance (ESG) principles. ESG investing has become a respected strategy in its own right and one which family offices and major asset managers have embraced.

“ESG concerns particularly resonate with the next generations of millennials who are now rising in prominence,” said

Faizal Bhana, Director of Middle East, Africa and India at Jersey Finance.

The increasing discourse and awareness of sustainable investments as well as the growing availability of sustainability-related data is expected to further support the adoption of impact investing across the Middle East

However, Swiss banking giant UBS Group said wealthy families and HNWIs appear to be re-evaluating how to invest sustainably. The pause comes

partner’s most coveted asset. With the shifting demographics in client segments and the ongoing wealth transfer in the Middle East, next-gen HNWIs are not satisfied by the traditional periodic face-to-face meetings and hefty printed reports.

The younger clientele, instead, expect a proposition that is more reliant on innovative technologies including access to real-time information and transactional capability. EY said owing to the complex

SUCCESSION PLANNING IS ONE OF THE BIGGEST CHALLENGES WE SEE FACING WEALTHY FAMILIES

– Yann Mrazek

at a time of debate about how to define sustainable investments and how to assess their contribution to social and environmental impact amid a changing regulatory landscape.

Shifting tectonics in family offices

Globally, the family office is evolving, and the Middle East market is no exception. It is worth noting that as with all businesses, there is a need for more transparency and a growing expectation of better real-time data to drive decision-making among wealthy families and their families.

Wealthy families across the Middle East are fast approaching a major transition. The shift to the next-generation operating model has increased the use of modern innovative technologies by family office partners, offering a chance to future-proof operations.

“Digitalisation can provide operational and administrative efficiencies which will either lower costs of hiring additional staff or repurpose professionals within the office to higher and better uses,” said AlNasr.

Building and strengthening client relationships is every family office

nature of their work, family offices must aggregate and analyse huge amounts of research, data and analytics.

Artificial intelligence can help build these capabilities in such areas as managing the daily flood of unstructured data, investment decision-making and protecting the office from cybersecurity attacks.

Industry experts say family offices stand to benefit from the adoption of advanced technologies, however, the degree will vary from each family office.

Enterprising families and their family offices have a major opportunity to modernise processes by leveraging the artificial intelligence investments of their professional and financial services firm partners.

Family offices - personal investment vehicles for wealthy families - and UHNWI are a growing force in the global financial market. As the number of wealthy families in the UAE continues to swell, with 4,500 millionaires expected to arrive in 2023, so will the count and assets of their associated family offices – along with their clout too.

Change is happening

Navigating Changing Times

Addressing the nature of family office and succession planning in the region, Biju Thomas, Senior Director, Private Banking at Mashreq explains the challenges and strategies being adopted by those managing and advising wealthy families in the Middle East

What is your definition of a Family Office in the Middle East?

As a leading financial institution headquartered in the GCC region, family-run businesses are pivotal to our growth and success. These families have traditionally relied upon the expertise of high-ranking wealth management professionals when seeking guidance regarding personal wealth management, investments and financial requirements. In this scenario, our Corporate Banking division is actively engaged in lending and offering investment solutions to such enterprises.

Over time, the increase in wealth accumulation, the younger generations’ exposure to international education and the complexities of succession planning prompted the establishment of Family Offices. From our perspective, Family Offices comprise a spectrum of diligently operated investment vehicles led by seasoned professionals who are entrusted with the responsibility of managing and sustaining family wealth across generations.

Family Offices in the Middle East differ from traditional wealth management

firms as they are designed to meet the unique needs and objectives of affluent families. They offer customised solutions and personalised services that go beyond the conventional, including investment management, estate planning, tax planning, philanthropic planning and risk management. In addition, they may

also provide concierge services such as travel arrangements, security and other personalised assistance.

What are the current needs and challenges of family offices operating in the region?

Family Offices in the region encompass a wide spectrum, from entities managing the personal investment portfolio of royal families, with a workforce of few thousand employees and managing billions in wealth, to smaller teams of investment specialists relying on their CEO/CFO for investments. The current needs and challenges of such organisations include:

Wealth Preservation and Growth: While the primary requirement, for most High and Ultra High Net Worth Individuals is the preservation and growth of wealth for future generations, they also seek alternatives to business dividends in order to differentiate corporate strategies from personal income.

Succession Planning: Family Offices often prioritise the seamless transfer of assets and management responsibilities across generations, ensuring the continuity of wealth. This becomes particularly crucial in the case of extended families where the focus expands to encompass a wider range of members.

Governance and Risk

Ma nagement: To navigate the intricate interplay between family dynamics, investment choices and business interests, Family Offices establish robust governance structures. They must ensure effective compliance with regulations to safeguard the wealth of their clients.

Talent Management: Family Offices rely on competent professionals to manage their investments, operations and relationships, while attracting and retaining top talent remains a key challenge.

Biju Thomas, Senior Director, Private Banking, Mashreq

Social Responsibility: Several families are dedicated to fulfilling their social responsibilities and engaging in philanthropic endeavors, while utilising their wealth to create a positive impact on society, taking into consideration that balancing their financial objectives creates a complex challenge.

Approximately only a quarter of the regions’ HNWIs have adequate succession planning. Are Family offices addressing this concern?

HNWIs often have complex family and business structures, which can make succession planning challenging. However, many of them recognise its importance and take the necessary steps to ensure a smooth transition of wealth and assets.

The establishment of Family Offices itself aims to manage wealth and establish processes independent of excessive influence from family members. Working closely with families, they collaborate to design a comprehensive succession plan aligned with the family’s goals, values and unique circumstances.

One effective approach involves the implementation of strategies such as placing assets in trusts or foundations. More recently, family wealth has been invested in fund structures that facilitate easy distribution of income and ensure smooth transitions when selling holdings.

While there is no one-size-fits-all solution, many Family Offices are actively addressing concerns related to succession planning to ensure a seamless transfer of wealth and assets to future generations.

How has the ending of the era of low interest rates affected strategic asset allocations?

2023 comes at a defining moment in time, with the end of the era of low or negative nominal interest rates, and the ample liquidity that followed the global financial crisis. With interest rates on the rise,

AND BUSINESS STRUCTURES, WHICH CAN MAKE SUCCESSION PLANNING CHALLENGING

traditional asset allocation models that worked well in the past may no longer be relevant now.

One approach being actively embraced involves the allocation of funds towards alternative investments such as private equity, real estate and hedge funds as they tend to be less impacted by fluctuations in interest rates and can offer diversification benefits.

Another strategy involves increasing allocations to fixed-income assets with shorter maturities, given that they are less sensitive to changes in long-term interest rates.

Moreover, UHNWIs may need to reassess their investment objectives and risk tolerance, which includes adjusting target returns, reevaluating portfolio diversification strategies and exploring previously unconsidered asset classes.

The conclusion of the era of low interest rates presents new challenges, and at the same time brings forth new opportunities, where adopting a flexible and dynamic approach can ensure fruitful outcomes.

Are current geo-political circumstances and climate related concerns changing patterns of investment?

Due to the challenging global environment, geopolitics is now the top concern for Family Offices. While most still have almost half of their assets in North America, they are keen on boosting allocations to Western Europe for the first time in several years. Additionally, they are planning to raise and broaden allocations to the wider Asia-Pacific region.

In addition to geopolitical factors, climate-related concerns are increasingly re-shaping investment strategies. Urgent issues such as greenhouse gas

emissions and climate change impacts have led investors to prioritise companies adopting climate solutions, such as renewable energy, energy efficiency and sustainable agriculture. Some investors are also divesting from fossil fuel-intensive industries or companies that aren’t taking sufficient measures to reduce their carbon footprint.

It’s worth noting that, in some instances, geopolitical circumstances and climaterelated concerns are further complicating the investment landscape. For example, the transition to a low-carbon economy may be influenced by geopolitical tensions surrounding access to critical minerals needed for renewable energy technologies. Similarly, climate change impacts like sea level rise and extreme weather events can contribute to geopolitical risks through resource scarcity or social unrest.

How is the increasing role of technology changing family office services?

The swift advancements in technology have allowed family offices to harness their potential for optimising their operations, enriching their services and boosting overall efficiency. Utilising software tools that offer real-time financial data, automate mundane tasks and enable comprehensive investment analysis and reporting, family offices can make well-informed investment decisions, identify potential risks, and optimise their portfolios.

Furthermore, it enhances transparency and communication between family offices and their clients, enabling the latter to gain real-time access to financial information, investment performance and various services through web portals and mobile applications.

HNWIS OFTEN HAVE COMPLEX FAMILY

Managing Progression

Faizal Bhana Director, Middle East, Africa and India at Jersey Finance takes a look at some key factors shaping the Middle Eastern family office landscape, highlighting challenges to established mindsets, a need for practitioners to adhere to faith values and the changes heralded by technology and next generation participation

What is your definition of a Family Office in the Middle East?

We see the family office very much as a dedicated and comprehensive unit that oversees investments, assets and family businesses, but one which importantly sits separate to the business itself. These units can be used to support a family’s co-investment ambitions as well as define strategies, underpinned by a shared purpose, be it Shari’a compliance or a desire to give back through socially conscious investment.

Although the family office also extends beyond investment support, to support the family’s wider personal affairs, in the Middle East family offices are predominantly focussed on supporting investment strategy and execution, including the family operating businesses from a shareholder perspective, and asset management. With increased regulatory complexities, including tax related issues, family offices provide their families with expertise in this space.

Another key role of the family office is to provide effective governance, including clear succession planning. This is particularly pertinent with the Nextgen coming to the fore, which in turn

is pushing responsible investment higher up the agenda.

While there is still a sizeable number of family office function still operating and embedded within family-owned businesses, often benefitting from savings due to economies of scale, the direction of travel though is very much towards standalone offices. With increasing regulatory complexities,

greater investment sophistication, and liquidity events such as IPOs, autonomising the family office is becoming the sensible option.

Top tier families will usually already have established family offices operating to a high standard of governance withe a dedicated management team, often utilising experts, independent service providers in a reputable international finance centre (IFC), such as the Dubai International Finance Centre, but also in stable jurisdictions further afield like Jersey or London especially if their shared goals are internationally focussed.

What are the current needs and challenges of family offices operating in the region?

There are a number of challenges facing family offices in today’s market; access to expert practitioners capable of managing the family office and initial set-up costs are currently creating significant barriers. Meanwhile, the regulatory and legal frameworks supporting family offices are still in their infancy with some unwilling to be the first to dip their toes in the water.

Separating family office and business can also require a distinct shift in mindset for those families which have historically been operators but now find themselves adopting an investor position. In addition, some family members may view a move to a standalone office with suspicion, fearing a loss of control over assets and investments.

The increasing complexity of the legal and regulatory framework, both locally in the Middle East and also globally - such as CRS obligations, compliance with economic substance and of course tax, family offices face a constantly evolving landscape which they operate in. Being surrounded by a robust ecosystem of experienced experts who understand both the local and international

Faizal Bhana Director, Middle East, Africa and India at Jersey Finance

challenges, is critical. IFCs like the DIFC, ADGM and Jersey shine in providing this well governed and robustly regulated pool of professional services, fiduciaries and other types of intermediaries who understand the local nuisances in the context of compliance both globally and regionally, and support many family offices in the region.

Setting down values, based on shared beliefs, and placing such impetus at the heart of the family office can mitigate some of these concerns.

Approximately only a quarter of the regions’ HNWIs have adequate succession planning. Are Family offices addressing this concern?

Establishing a family office presents a distinct opportunity to have critical discussions around governance and succession plans.

Alarmingly there are still disproportionate numbers of family office businesses in the Middle East that have no governance or succession plans in place when compared with their counterparts in other regions.

And, while a recent study by HSBC Global Private Banking found that more than half of family offices around the world are training their heirs in business and finance, highlighting a forwardthinking approach, there is still a need to formally set down intentions.

Without plans, such as those built around conflict resolution, family onboarding and founder rights, families can find themselves in a fractured state especially during times of heightened emotion like in the eventuality of divorce or bereavement.

In addition, liquidity events whether it be an IPO or a third-party investment – including those from sovereign wealth funds – can strong arm succession and governance scenarios onto families that are potentially ill-prepared.

Of course, many families rely on a Shari’a interpretation of succession via wills and so it is vital that wealth

GREATER

AND

practitioners create viable family office structure that adhere to faith, values and belief accordingly.

How has the ending of the era of low interest rates affected strategic asset allocations?

As a general rule, Middle Eastern families have high liquidity with few dependent on debt to expand and grow their wealth or business operations. Debt is more commonly used as leverage to increase internal rates of return, especially with investments in countries with tax and related reliefs.

Consequently, the increase in interest rates has created opportunities for Middle Eastern family offices - particularly in the real estate and private equity arenas - with purchasing assets in these classes long being the preferred option for wealthy families in the region.

In addition, many family office businesses - particularly in Saudi Arabia – are also receiving sovereign wealth fund capital to mitigate any cashflow or capital issues stemming from the current economic climate.

Are current geo-political circumstances and climate related concerns changing patterns of investment?

Absolutely. Middle Eastern families are incredibly cognisant of the geo-political environment and the race to halt climate change. Plus, with COP28 being held in the United Arab Emirates, green investment is particularly high on the agenda with governments, sovereign wealth funds and family offices all looking to opportunities in this space.

EVENTS SUCH

ESG concerns also particularly resonate with the next generations of millennials who are now rising in prominence. For instance, a recent study found that 72% of nextgens expect to play a role in increasing their family’s focus on investing in sustainability in the future while 76% of nextgens believe their business is actively contributing to the community (PwC, Today and Beyond: The next generation challenges the status quo of family business).

Consequently, when combined with wealthy families’ time-honoured commitment to philanthropy, there is the real potential to enact lasting change for all.

How is the increasing role of technology changing family office services?

Digital assets are a growing area of interest for family offices and with nextgen becoming more involved in operations, there is a visible drive towards a more tech savvy mindset. Interestingly, this trend has been accelerated by the pandemic with 43% stating they feel more committed to the family business and are now more involved (PwC, Today and Beyond: The next generation challenges the status quo of family business).

Added to that is increased encouragement by governments towards greater adoption of fintech and digitalisation to support efficiencies but also to direct investment towards tech focussed investments.

Consequently, digital assets, tokenisation of real assets, crypto and start-up investment are offering distinct appeal, particularly when aligned with Shari’a principles and values.

WITH INCREASING REGULATORY COMPLEXITIES,

INVESTMENT SOPHISTICATION

LIQUIDITY

AS IPOS, AUTONOMISING THE FAMILY OFFICE IS BECOMING THE SENSIBLE OPTION

Changing Family Values

Shadi AlNasr Principle, Senior Client Strategist, Global Family Office, BNY Mellon Wealth Management explains how regional Family Office activity has developed during recent times, highlighting the prevailing trends and challenges for this sector and how technology will be deployed in its service

bring a higher level of efficiency, an increased focus on achieving a family’s goals and objectives and a mechanism to create more formal management of the family’s wealth-related activities.

What are the current needs and challenges of family offices operating in the region?

What is your definition of a family office in the Middle East?

There is often a misconception around defining family offices, equating it to the definition of a family business. A family office

is a structure that holds the family business(es) and wealth under one umbrella, catering to the distinct needs of the family: be it servicing and managing the investments, incorporating philanthropic strategies, increasing access to liquidity, creating wealth structures or defining spending (dividend to family office members), etc. All these services combined can immensely benefit the family in creating a successful and sustainable legacy. According to the 2017 Global State of Family Offices report by Capgemini, family offices have been around for well over a century. However, in the Middle East, it has only come to the fore in the past two to three decades. Though the region has been a late bloomer, it is certainly catching up with the rest of the world. In the region, there has been a shift in the evolution of family offices. Evident through an increase in the creation of formalized family office structures and governance activities where informal structures, like “embedded family offices” and “virtual family offices” are evolving into more formal, staffed family office entities. These formal family office structures

Over the past few years, the world has experienced the worst public health crisis, social tensions, technological disruptions and economic turbulence in decades. This has exacerbated the need for transition of wealth, next gen planning, adoption of digital assets and leveraging technology to reduce risk and increase the visibility of underlying asset performance and most importantly, giving back to the society. Besides the pandemic which acted as a catalyst for growth, there are three distinct trends we see emerging in the Middle East family office landscape affecting family offices operations:

Transition of wealth: There has been a growing trend of wealth transitioning from businesses to individuals. We are seeing this globally as well where there has been a recognized effort to distinguish the private wealth of individuals with that of business assets. Families are now increasingly seeking specialized units that focus solely on private wealth instead of the family investments being managed by the team who focused on the day-today operations of the business.

Succession planning: Most of the wealth in the region has been created over the past 50-60 years and most are firstgeneration wealth creators. According to the 2022 DHF Capital Report, it is estimated that approximately $1 trillion

Shadi AlNasr, Principle, Senior Client Strategist, Global Family Office, BNY Mellon Wealth Management

ME assets will be passed on to the next generation by 2030. Evolution in operating model: The massive amount of transition and transfers in flight has created a sense of urgency for families to re-structure the way they manage their wealth. Their operating models are evolving into a more corporate-like structure embedding standardized policies and procedures within their governance framework. They are also seeking out nonfamily members to join the offices and often these individuals are highly experienced employees from global firms, bringing with them an institutional mindset and a change in behaviour.

Approximately only a quarter of the regions’ HNWIs have adequate succession planning. Are Family offices addressing this concern?

The true test of a family office is the degree to which the transition from one generation of a family to another is managed successfully. There are three types of challenges that can emerge when family offices attempt succession planning:

Concerns that have to do with the inherent nature of conversations and planning around the inevitable wealth transfer. Addressing the topics of what comes next and inheritance and wealth discussions, to name some, are often topics avoided by the families. A perceived dichotomy of values be tween current and future generations which can complicate succession planning efforts. For example, successor generations may choose to use their wealth to drive social, economic and environmental impact in addition to just preserving and growing their wealth.

A lack of expertise needed to effectively carr y out succession planning. A significant number of family offices actively partner with trusted advisors in the industry who can help guide the family in their conversations.

The evolution of family offices to more formal structures with staffed family office entities, brings more efficiency and an increased focus on fulfilling the family’s goals and objectives. It also enables family governance, wealth transition and succession planning. As substantial wealth goes through intergenerational transfer, the investment approach families seek is also changing. Younger generations are looking for ways to make a positive environmental impact and implement responsible investing strategies and advice to contribute to the family legacy.

accuracy with which an office executes on everything from the very tactical, such as funding a capital call, to the strategic, of complex estate plans. The services most mentioned as ripe for improvement by digitalisation include but are not limited to file and document sharing, interfamily communications, investment reporting, accounting, transactional processing, HR functions as well as concierge and domestic staff management. Technology in the categories of collaboration, data aggregation, bespoke financial and performance reporting, as well as innovation in technology around less

The next generation of family office leadership is perceived to be more interested to invest in opportunities related to decentralized finance (crowd funding, peer-to-peer lending. etc) and focused on ESG. They are more willing to forgo some profit to make responsible investments, compared to the older generation. There is also decreasing demand for product or transaction driven investing and an increasing demand for discretionary investment management and outsourced chief investment officer (OCIO) services.

How is the increasing role of technology changing family office services?

Family Offices tend to operate lean. Most are cost centres and non-commercial. Digitalisation can provide operational and administrative efficiencies which will either lower costs of hiring additional staff or repurpose professionals within the office to higher and better uses. It can improve the timeliness and

liquid asset classes are changing how family offices operate. We are seeing an increased sophistication in how families operate in the Middle East, including master global custodian services and the effective use of leverage. Consolidated reporting, investment performance analytics and efficient management of execution are just a few of the advantages families seek when moving to a master global custodian. The ability to consolidate the leverage of assets that are being managed across multiple investment managers through one loan structure at the master global custodian account level is an appealing efficiency The true game changer will be the integration of many disparate systems through APIs and other integrations. Family Offices have often been torn between competing approaches of “best in breed” versus “fully integrated.” Advances in ease of integration with multiple platforms through more sophisticated API’s will allow offices to be able to enjoy both to some degree.

THOUGH THE REGION HAS BEEN A LATE BLOOMER, IT IS CERTAINLY CATCHING UP WITH THE REST OF THE WORLD

Challenges and Opportunities

Yann Mrazek Managing Partner, M/HQ and Hermione Harrison Head of Corporate Governance, M/HQ provide an overview of the family office landscape, noting the advantages for families that have emerged in the region as well as the challenges that are now current

A SFO is designed for one family by one family to solely manage a family’s financial, legal and personal affairs. The family has the flexibility to adjust the range of services according to its needs. In the GCC, a personalised team of advisors to manage positive cash surplus, and safeguard exponentially growing wealth for future generations and sensibly pass it to heirs is preferred to off the shelf wealth management solutions.

A MFO provides financial and investment services to a group of families or high net worth individuals (“HNWI”). The services of an MFO tend to be less bespoke but come at a lower cost due to economies of scale. Investments from the group of families/individuals are aggregated which provides greater leverage and buying power.

What are the current needs and challenges of family offices operating in the region?

Family offices are at the heart of an unprecedented intergenerational transfer of wealth in the MENA region; in the MENA region alone, USD 1 trillion is predicted to move from one generation to the next in the coming decade. Rapid dislocating geopolitical changes, economic pressures and increasing clarity for business ethics are all driving rapid change in how and where UHNW individuals choose to manage and to growth their wealth, driving increased demand for family offices.

What is your definition of a Family Office in the Middle East?

Family office can vary greatly in the Middle East, ranging from founder’s office to full-fledged, and fully staffed standalone units.

A family office is a private entity or arrangement aimed at managing the investments and affairs of one or more families. In the UAE it will increasingly take the form of a standalone corporate structure combined with a foundation. In addition to investment management, family offices typically also provide

family management services, e.g., family governance, family assemblies, financial and investment education of family members, concierge services, coordination of charitable and philanthropic activities. Depending on the value and spread of family assets and investments, a family may choose between a single-family office (“SFO”) or a multi-family office (“MFO”). In the UAE, where there is an everincreasing concentration of ultra-high net worth individuals (“UHNW”) and their families, we are seeing a preference for an SFO reflecting the strong desire for privacy, control, continuity and security.

One challenge is persistently high inflation since the pandemic, and rising interest rates. While total wealth has grown strongly over the last three years (estimated increase of 27.5% in total wealth among UHNW individuals, and a jump of 9% in 2021 alone), higher interest rates are affecting legacy investment options and are pushing some families to move away from traditional investment approaches towards more active family office structures.

Families have found it challenging to identify locations where a complete

Yann Mrazek, Managing Partner, M/HQ Hermione Harrison, Head of Corporate Governance, M/HQ

set of wealth structuring tools is available and effective. The UAE stands out in the MENA region for clear, effective and timely policymaking, based on solid fundamentals: security, political stability, high GDP, fiscal advantages and world-class connectivity. Families can choose from a range of domestically available tools and arrangements - family holdings, specific family arrangements, foundations (arguably the go-to legacy planning tool for Muslim families), and trusts.

Long term asset growth requires predictability in the investment environment. Families increasingly look towards financial centres where clear and consistent regulations have been established, offering stability. The ADGM and the DIFC have succeeded in developing legal systems to provide impartial and transparent recourse to disputes which may affect families’ wealth. Cross-learning and best practice sharing is improving. Access to tools is important but not sufficient for family office success. Family members can benefit from opportunities to gain awareness and to study the application of the right tools for their investment strategies and needs. This challenge has grown as the range of tools and pace of change has increased rapidly. Solutions are emerging, such as the Emirates Family Office Association (EFOA) of the UAE, supporting family offices to grow and to work cohesively with regulators.

Approximately only a quarter of the regions’ HNWIs have adequate succession planning. Are Family offices addressing this concern?

Succession planning is one the biggest challenges we see facing families. We work daily with families and their family offices to guide them to identify, select

and implement effective succession planning strategies. The capabilities of a family office may not always extend to knowledge of the best tools, structures and understanding of regulatory threats to planned succession (such as the applicability of probate and shariah to the family’s underlying wealth and assets).

We see effective succession planning achieved where:

Family assets and wealth have been organised under a secure holding structure, located in a stable and predictable regulatory environment and organised in perpetuity according to clear, agreed and documented wishes of the key family members. Unquestionably, the go to tool in the UAE and greater GCC is a foundation.

Family members are educated and in volved in the process of identifying a successor at each level of the family wealth structure and the successor is provided with adequat e time, resources and mentoring to learn and prepare for future responsibilities.

How has the ending of the era of low interest rates affected strategic asset allocations?

Every family is different but there are some recognisable patterns. Families from the MENA region have tended to heavily concentrate their investments in real estate and traditional financial products and favoured direct investments over funds.

The majority are not leveraged in their private investments, meaning those separate from the core family business.

The coming of higher interest rates may therefore be an opportunity as families are well positioned to extend into new asset classes and to enter high growth areas they may have previously avoided: angel investing, private debt or convertible lending.

Many families have found that higher interest rates are impacting performance of their core businesses, leading to increased pressure for short term performance on their traditional longer-term investments. This need to simultaneously deliver short term performance and long-term returns is another factor driving rising expectations for the management and outcomes from family offices.

How is the increasing role of technology changing family office services?

Emerging technologies are affecting both the investment opportunities and service delivery options for family offices. Families are responding in a variety of ways, but one interesting development is the Virtual Family Office (“VFO”). VFOs are also appearing as platforms, combining financial and legal service providers for a family through one point of contact - and may be suitable for some families’ needs.

While new technologies are increasing the pace at which family offices can operate and adjust their investment strategy, they are also creating new vulnerabilities to information leakage or theft. Family offices must keep cyber security front of mind, and carefully choose service providers to develop and maintain effective defences, without isolating themselves from new options for automation or other tools to improve performance.

IN THE MENA REGION ALONE, USD 1 TRILLION IS PREDICTED TO MOVE FROM ONE GENERATION TO THE NEXT IN THE COMING DECADE

The Same but Different

Asserting the Family Office concept should remain universal but attuned to their charges and generational differences when planning succession, Rajiv Garg Co-Founder & Managing Director of Farro Capital also notes changing investment trends and the current challenge talent acquisition for this sector in the region

What is your definition of a Family Office in the Middle East?

We believe that the definition of a Family Office should remain the same regardless of region. Having said that, we would note that family offices generally follow the unique characteristics of the Families they serve. From our perspective, we define a family office as an organisation with an institutional character that can understand and navigate the nuances of family dynamics, thereby preserving and growing the legacy and wealth of the Family.

What are the current needs and challenges of family offices operating in the region?

The concept of a Family Office is relatively new in the Middle East and is closely tied to the mass creation of wealth in the region, which has primarily happened in the last few decades.

Hence, there is not enough clarity on the current needs and challenges of Family Offices in the region. On the overall, we have identified three main challenges:

Cost, especially for small and midsized family offices, as the fixed overheads as a percentage of the total AUM could come up to be

Talent acquisition and retention in amily offices. Historically, family office jobs were considered as positions for retirement resulting in most professionals being reluctant to work in such organisations due to the lack of perceived career growth. On top of that, it is also challenging to secure the right set of professionals to work or to advise the families for their long-term financial goals while mirroring their values, purpose and aspirations. Scale of services for family offices, t all family offices can hire for

For Single Family Offices (SFOs) struggling with wealth management recruitment, talent retention and scaling up, multi-family offices like Farro Capital can step in to fill the gaps and mitigate obstacles. While SFOs are usually hesitant to merge with other SFOs due to interpersonal issues, multi-family offices provide an attractive alternative allowing the families can access comprehensive wealth management services without the need for consolidation. This allows them to benefit from the expertise and resources of a professional organisation while maintaining

Rajiv Garg, Co-Founder & Managing Director of Farro Capital

Approximately only a quarter of the regions’ HNWIs have adequate succession planning. Are Family offices addressing this concern?

Ideally, Family Offices should possess the necessary resources and expertise to effectively handle succession planning for High-Net-Worth Individuals (HNWIs). But ironically, not all Family Offices have the depth of understanding regarding this complex process. As a result, they may either they fail to address the concerns adequately, or they come up with suboptimal outcomes.

Based on our experience, there are prominent differences between the wealth creators and the next generation who will inherit the wealth. Firstly, the older generation tend to be more handson when it comes to managing the family wealth or even the family businesses, compared to the next generation. Secondly, the next generation is likely to have different approaches or interests. They may be more inclined to explore newer technologies and asset classes such as artificial intelligence and the metaverse. While the older generation prefers to keep investing and philanthropy separate, we are seeing the succeeding generation pursue active interest in sustainable and impact investing. This is primarily because, on average, they are much better educated and tend to have a stronger stance on social and environmental issues.

We firmly believe that succession planning for families should not follow a one-size-fits-all approach. At Farro Capital, we commit substantial time and resources to ensure we obtain a 360-degree view of our clients’ needs. With each client, we strive to gain an in-depth understanding of the family’s values, their desired unique legacy and their long-term objectives. This process involves considering various factors, including understanding every family member’s unique needs and concerns, assembling a team of trusted advisors with the right expertise, and giving the

family access to the right network and pool of information to make informed decisions to grow and protect their family wealth and legacy. The outcome we are aiming for is to meet their present needs while also capture new and long-term opportunities. By doing so, we ensure these decisions align with the family and business’ evolving values, purpose, aspirations and legacy.

How has the ending of the era of low interest rates affected strategic asset allocations?

Strategic Asset Allocations, by definition, are meant for long term. In an era of low interest rates and easy money supply, valuations had reached obscene levels, resulting in a correction in broader

We are also witnessing increased investments into clean energy. Countries lacking fossil fuel resources, as a result of geographical constraints, are in the process of massively ramping up their renewable energy capacities. However, we believe this shift is driven by concerns related to energy security, rather than solely being motivated by climate change considerations.

How is the increasing role of technology changing family office services?

We have witnessed the previous dominance of software, which is now giving way to artificial intelligence (AI) overtaking software itself. Many of the Family Office forums we participated

markets to more reasonable levels. From our perspective, the core allocation has not changed much. However, we have tactically increased our allocation to high grade fixed income and also added duration. At the same time, we have also increased our allocation to alternatives, primarily hedge funds and select venture funds.

Are current geo-political circumstances and climate related concerns changing patterns of investment?

We have already seen the impact of geopolitics on certain key markets and we do not anticipate that this trend will be reversing any time soon.

in, as well as industry conversations featured discussions on AI and how it is changing the world order. This includes its impact on the operational and investment aspects of Family Offices.

The essence of a Family Office, which revolves around managing the family dynamics, remains rooted in emotional intelligence (EI), an area where technology and AI still have a long way to go. That said, the rapid advancement of technology and the continuous stream of innovation certainly have had a profound impact on family offices’ approach towards investment strategics, operational processes, talent recruitment and decisionmaking capabilities.

THE ESSENCE OF A FAMILY OFFICE, WHICH REVOLVES AROUND MANAGING THE FAMILY DYNAMICS, REMAINS ROOTED IN EMOTIONAL INTELLIGENCE (EI), AN AREA WHERE TECHNOLOGY AND AI STILL HAVE A LONG WAY TO GO

A Growing Network

Sandeep Chouhan Group Chief Business

Transformation and Technology Officer at Network International identifies the factors behind their recent growth, what is driving their prospects in Africa, the positive affects standardisation has in the payments markets and how they remain a regional leader in their competitive field

What do you think has been behind the increases in 2022 that Network International experienced over the previous year?

Network International has been a digital leader in payments for many years across the Middle East and Africa. In 2022, we saw the introduction of new stores of value in our acquiring businesses both in the Middle East and across most of Africa. The arrival of mobile money completely changed the landscape through which we were bringing solutions to our consumers.

The arrival of APIs and Open Banking has allowed us to accelerate the transformation that our clients, and over 200 banks that we serve across the region have seen, allowing a rapid increase in their ability to participate in a payments ecosystem. These things have really brought new experiences and are inviting many more companies, disruptors

Sandeep Chouhan, Group Chief Business Transformation and Technology Officer

and payment disruptors to come in, such as the telecommunications people, the retailers, transportation providers, healthcare providers; everybody seems to be jumping in and wanting to offer a payment product.

The sophistication and the evolution of digital wallets has been another reason that we are seeing an unusual growth in the payment space, particularly for us. Our stack is a very modern stack that is completely cloud ready and we already offer our services in multiple clouds. Our payments have API-led capabilities, which allows us to offer open finance and to support all these features too. And with the ability to build a tokenised payments rails system, it means that we are accelerating the digital agenda of our clients. We are able to bring very extensive analytics and rich insights into the payments capabilities to our clients, which is very highly valued. Additionally, our ability to bring in deep AI tools that are driving much better management of fraud, compliance, credit and loyalty, allows us to really accelerate the complexity of our offering in a very sophisticated way. So, these have been big game changers through 2020 and we believe that we are going to continue to make investments in keeping our platforms modern as we go through the coming years.

While the bulk of your business stems from your Middle East segment, do you expect to see Africa taking a bigger proportion in the coming years?

Africa is showing a much higher rate of growth, particularly as the payments infrastructure is going through a complete transformation on the back of technology and particularly the use of mobile money capabilities. This is really changing the consumer behavior of both the banked and the unbanked population. And as you know, Africa has such a large unbanked population that is now entering the mainstream of payments. The convenience that mobile

money offers and the reach that mobile infrastructure is offering, means that the growth rates are outstripping any other part of the world at the moment. We at Network International are already a very strong presence across forty-two countries in Africa and we feel we are best positioned to benefit from that growth in the economy.

How do you expect the international payments landscape to be impacted by the implementation of ISO20022?

Standardisation through the efforts of ISO always brings harmony into an ecosystem. As innovation is coming, people are being pulled in various directions, but standardisation brings the ease of interoperability. So as a central provider of payment services, standardisation means local FinTechs and local payment schemes will be able to interoperate in a much more seamless manner, giving a much better experience to customers, much more ease for regulators to manage the environments and allow for processors like us to serve and deliver a great customer experience. So, bringing frictionless experiences to customers is always a critical part of what we do every day.

How does Network International stay at the head of the fast-developing payments marketplace?

Payments remains the most innovative sector within the financial services world. And the investments that are being made into the Pay-tech sector is allowing for a completely new technological infrastructure which is moving away

from messaging to tokenisation and building new railroads using blockchain based technologies.

The FinTechs out there, and the banks are solving issues and working for the development of a new range of innovative solutions that were not previously possible. The arrival of Open Finance and APIs means the movement of data has become a lot more intense and the sharing of data has become a lot more simpler and quicker. And the arrival of the Cloud means all of this can be done at a much faster pace. And with the availability of hypercompute capabilities, you are allowing to just power the engine for innovation and thereby growth in this sector.

How has the acquisition of DPO improved or changed Network International’s business?

DPO is a very successful e-commerce business and they have a very strong presence across Africa. For Network, it has brought capabilities of a very sophisticated offering to our e-commerce merchants, to our ability to participate with gateways and payment aggregators and has brought us an access to a customer reach across 30 countries in Africa, and particularly the enterprise customer segments which are really seeing a very fast pace of growth. And these are enterprises that are innovating themselves very rapidly and transforming themselves very, very quickly.

So, to be able to partner in that ecosystem, to move at that pace with agility, and creating really new stores of value has been a game changer for us. So, we see that the DPO learnings to be brought into our other markets will continue to enrich our capability and offerings.

THE SOPHISTICATION AND THE EVOLUTION OF DIGITAL WALLETS HAS BEEN ANOTHER REASON THAT WE ARE SEEING AN UNUSUAL GROWTH IN THE PAYMENT SPACE

Behavioural Finance and the Art of Execution

Investors need to grasp key aspects of behavioural finance, posits Ankur Attrey, Founder CEO and Chairman of Investments,

Lamer Capital Limited

With increasing adaption of AI, the world of Money / Portfolio Management is likely to witness shrinkage in information asymmetry. However, do you expect two top portfolio managers with same information to generate similar returns? As per Mr. Lee Freeman-Shor, it is not the case. Over a period of more than seven years (from Jun’06 to Oct’13), Mr. Lee examined 1,866 investments, made by 45 of world’s top investors. While each of these 1,866 investments represented the best money-making ideas, only 21 (or 1% of all investments) returned more than 100%. The question then arises, if money making ideas are not enough, then what do you need as an investor/Portfolio Manager?

W e believe, as an investor, you need to understand various aspects of behavioural finance and master the art of execution. In behavioural finance, Prospect theory states that people make decisions based on the potential value of losses and gains rather than the final outcome. As a result, investors are no longer rational and instead of being risk averse they exhibit loss aversion. Further, investors often exhibit cognitive and emotional biases, impacting their ability to generate consistent and high profits, illustrated by some of these biases faced by investors:

Confirmation – Looking for information / data on the company to support one’s belief, discounting contradictory information.

Loss aversion – Assigning higher

negative value for losses than positive value to gains of same amount.

Self-attribution – A belief that one’s success is due to one’s own abilities vs. situational factors.

Endowment – Valuing what one has more than something they do not own. Regret aversion – Doing nothing for fear that decision could turn out to be wrong.

Driven by these biases, investors of ten hold-on to their losing positions. For example, since the early 2021 peak in the China market, many investors held on to the falling Chinese Technology stocks driven by loss aversion, regret aversion and confirmation bias. On a similar note, investors at times hold on to stocks that have consolidated for decades due to endowment and self-attribution bias.

What is the solution?

If you go by the classification of investors made by Mr. Lee Freeman-Shor, in his book – “The Art of Execution”, you will want to be:

a. Assassin – One who recognises that market has turned against and cannot rely on himself to do the right thing – Kills all losers at 20-30%

b. Hunter – The investor who can ask the question – The stock price has fallen but nothing else has changed, is the thesis intact? And when the answer is Yes, he invests more.

c. Connoisseur – Investor rides his winners far beyond other people’s comfort zone. And actively takes small-small profits to satiate their greed. As the same time, every connoisseur, is either an assassin or a hunter.

However, most investors behave like a “Rabbit” – holding on to their losers, even adding more to a losing trade, despite clear evidence of a thesis break. Other unsuccessful investors are like “Raiders”, who book profit as soon as possible. Often, those investors who are “Raiders” are also “Rabbits” in a losing trade. As a result, such investors have a very high kurtosis and a negative skewness (lots of small winners, few big losses and no big winners).

The other solution, over and above the application of behavioural finance, is shrewd application of structured products to provide downside buffer and reduce behavioural biases. This is the solution, that we target at Lamer Capital Ltd., but this aspect, we can discuss another time.

Ankur Attrey, Founder CEO and Chairman of Investments, Lamer Capital Limited

WE BELIEVE, AS AN INVESTOR, YOU NEED TO UNDERSTAND VARIOUS ASPECTS OF BEHAVIOURAL FINANCE AND MASTER THE ART OF EXECUTION

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