How is SME lending being encouraged in the UAE?
There is a lot of talk about SME lending here at the moment. We ourselves have seen some results through the Mohammed bin Rashid Innovation Fund. We have dispersed one loan through the fund already and we are working to increase our cooperation. There is also talk about some kind of SME guarantee scheme being developed. From my experience, these things can work; however, ultimately the most powerful partnership is where the client and the bank work directly together on a risk participation basis: The client with their equity, and the bank with its funding, and the ensuing interest. That is the most effective model going forward. The risk of any guarantee scheme is that people may not be as committed, since they feel that someone else is going to step in if something goes wrong. The best model is where both the business owner and the bank are committed to the relationship.
How do you qualify the level of financial education in the UAE?
Historically, this has been a big area of weakness. The banks have overstretched borrowers and have not focused on consumer education. In the last three years, there has been a major push by the regulator to get more serious about proper financial education, disclosure, and helping clients understand the implications of the financial decisions that they are making. There has been an improvement there, but there is still room for growth. The Central Bank has done a tremendous job in terms of setting clear regulatory caps on consumer finance, loan-to-value ratios, and property settlement. Most things have been effective, and it is regrettable in a way that it needs to be regulated, but that is the nature of the world in most markets. In the next couple of years, there will be more progress regarding personal financial management, whether that be through a digital offering or through some fintech scenarios that are being developed. For example, there are a couple of comparison websites in the UAE and they will become increasingly common. On these websites, people will be able to look at independent views and then make their own decisions as to which provider to choose. This means that banks have to be competitive, transparent, and disclose the right thing.
How are banks in the UAE adopting fintech in order to stay ahead of the curve?
Fintech is the buzzword at the moment. The word is new but financial technology has been around since the inception of the ATM. I am seeing more hype than reality in the UAE at this stage. At RAKBANK, we started to use blockchain technology through a company called Ripple to do our transfers and payments to India. For this, we have a strategic partnership with Axis Bank in India. We have an instant money transfer platform called Rakmoney Transfer. We are planning to have more direct host-to-host links with banks in the Philippines, Pakistan, and Nepal. The problem is that the banks on the other side need to invest in having the same technology that we use, and that takes time. Historically, this is an area where banks have not been interested. The trick for these things is finding and effective cost to serve model for those clients that you may not necessarily be doing many things with. Those particular clients might typically earn a low salary and send a high percentage of their income back to their home country. We came up with a cost-effective solution that is largely digital to be able to bank those customers effectively and still build a relationship.
To what extent is there going to be a level of consolidation in the UAE's banking sector?
There are too many banks in the UAE. On top of that, taking aside the population that we have found a cost-effective way to serve, the so-called bankable population for traditional banking is maybe 3-4 million people maximum. To have 50 banks to serve that number of people is just not logical. There should be consolidation that makes sense to everyone. It is just a case of whether at the end of the day the individual shareholders of those organizations feel that it is in their interest to consolidate or not. From a purely economic standpoint, there should not be so many banks; it is just a case of finding banks that have a logical fit.
What will be the economic driver for Ras Al Khaimah in 2018 and why?
In Ras Al Khaimah, tourism will have an important role. In addition, real estate will continue to grow because there are new areas that are ideal for overseas investment. Obviously, the potential development could speed up with the expansion of Saqr Port. Ras Al Khaimah itself has a good future in terms of room for growth. For the rest of the UAE, it is more of a business as usual approach. Moreover, Expo 2020 is starting to get some traction and we are starting to see some flow of development for that.
What role can free zones play in the developing of the banking sector in Ras Al Khaimah?
In this regard, we have signed a MoU with RAKEZ. The idea is to work together and when new companies come to the free zone, RAKBANK should be the bank of choice. That is not to say we will bank all of them, but we effectively have first right of refusal. The entire intention is that RAKBANK should be the bank of choice.