SEPT 2019
ISSUE 12 VOLUME 08
UK : 4 Europe:5.35
www.internationalfinance.com
US: $6
Saudi Arabia VISION 2030
From oil to fintech hub Saudi Arabia is building a fintech ecosytem from ground up --- what are the Kingdom’s challenges and advantages?
Raising the profile of Green Bonds in emerging markets
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Thailand’s wealth management industry is on a roll
Healthtechs make healthcare affordable in Southeast Asia
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International SAP Conference on Central Finance
Take Your Finance Service Delivery Model to the Next Level 18-19 September, 2019 - Berlin, Germany
Back for a second year, the International SAP Conference on Central Finance will explore how you can take your finance service delivery model to the next level. Pre-conference workshops, customer case studies, group discussions, roadmap and solution updates from SAP will demonstrate how you can utilise the power of one. By establishing one single source of data and one standard process via the SAP S/4HANA Central Finance deployment, users are simplifying their financial processes, lowering operational costs, as well as achieving better business transparency and visibility of productivity. This is the only European business-centric event specifically designed for finance professionals from across a wide range of global industries. Designed for new and existing SAP customers, hear how you can transform your finance data ahead of the pack and drive your business in an innovative direction. Find out more at http://www.tacevents.com/sapcentralfinance
SAP Conference on Central Finance 15-16 October, 2019 - Chicago, IL
Not able to join us in Berlin this September? Or do you have team members located outside of Europe? Our North American based conference, the SAP Conference on Central Finance may be better suited for you and your team. Similar in layout and content, visit the event website at www.tacevents.com/sapcentralfinanceus to find out more.
BR DESCRIPTION enUS (YY/MM) Š 2018 SAP SE or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company. These materials are provided for information only and are subject to change without notice. SAP or its affiliated companies shall not be liable for errors or omissions with respect to the materials. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany and other countries. All other product and service names mentioned are the trademarks of their respective companies. See www.sap.com/copyright for additional trademark information and notices.
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september 2019 Volume 8 Issue 12
Editor’s note Samuel Abraham Editor, international financial magazine
A vision for a tech driven future
T
he Arabian Gulf nations are making major efforts to pivot away from oil-based economies to more modern technology-based economies. Saudi Arabia’s Vision 2030 lays out one such ambitious vision. The government, regulators, and the private sector are busy in creating an ecosystem for technology-led entrepreneurship. In this issue, we review Saudi Arabia’s efforts to create a fintech ecosystem from the ground up. Fintech startups founded in Saudi Arabia typically move out of the Kingdom after a while. Now Saudi Arabia wants to stop that trend and become a hub for fintech startups. We look into what are the advantages and challenges that Saudi Arabia faces as we speak to some of the key participants in the fintech ecosystem. Continuing on this issue’s focus on fintechs, we also look at what Brexit means for fintech startups in the UK. Passporting and regulatory challenges aside, we find that most fintech startups are still keen to operate out of the UK. We have been tracking the growth in the Thai wealth management industry for some time as more foreign companies target the sector in Thailand. The result is our exclusive which explains how a surge in private wealth and robust growth in the HNWI population of Thailand is driving rapid growth in Thailand’s wealth management industry. Despite the environmental challenges that the emerging markets face, Green Bonds still have a low profile in the emerging markets. Only 3 percent of bonds issued in 2018 were Green Bonds or Climate Bonds. We also speak to some of the key leaders in the Green Bond market to find out how we can raise the profile of Green Bonds in the emerging markets. With a delectable selection of stories across Banking and Finance and key industries, we believe you will enjoy the latest issue of International Finance.
sabraham@ifinancemag.com www.internationalfinance.com
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inside
if september 2019
interview
28
24 Transforming debt collection in Asia AsiaCollect is radically transforming debt collection in Asia using AI and data
fintech innovation in saudi arabia With the key elements coming into place, Saudi Arabia's nascent fintech ecosystem is ready to innovate fintech
fintech
Analysis
82 UAE leads AI-led digital transformation in the Middle East
12
18
What's drives Thailand wealth management boom?
How does Brexit impact UK’s fintech companies?
A surge in private wealth and a rising HNWI population boosts Thai wealth management
Upheaval, relocation or business as usual? What does Brexit have in store for UK fintechs?
fintech
fintech
90 Technology uptake drives African logistics innovation
94 5G critical to Russia’s ‘Digital Economy’
98
Tech-enabled environments to drive Dubai luxury realty
Company Profile
54
76
Emerging markets Green Bonds: Raising the profile
SE Asia: Healthtech makes Affordable healthcare a reality
How do you sell the value proposition of Green Bonds in the emerging markets?
Healthtech startups are bringing affordable healthcare to the people in Southeast Asia
50 OCB: PIONEERING BANK IN DIGITAL TECHNOLOGY
70 Solid finances drive Bayt El Khebra’s growth
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www.internationalfinance.com
Opinion Nathalie Janson Euro a threat to democracy?
36
Governments' trilemma: Democracy, national sovereignty, and economic integration are mutually incompatible
46
Wesley Montechari Figueira Brazil banking dallies with fintech
Brazil’s famously closed financial system is ready for change with an open attitude to innovation
60
Kunal Malhotra How can GCC lead Sukuk market?
With concerted efforts from the governments and private sector GCC can challenge Southeast Asia in Sukuks
102
Rajan Navani UK needs immigration reform
Brexit puts UK’s position as one of the leading centres for fintech, finance, digital innovation, and AI at risk
Director & Publisher Sunil Bhat Editor Samuel Abraham Editorial Adriana Coopens, Jessica Smith, Lacy De Schmidt, Sangeetha Deepak, Kedar Grandhi Production Merlin Cruz Design & Layout Vikas Kapoor Web Developer Prajitha Rajesh Business Analysts Steve Lloyd, Sid Nathan, Christy John, Jane Paul, Mark Smith, Gwen Morgan, Sarah Jones, Ayesha Misba Business Development Manager Steve Martin Business Development Sunny Shah, Sid Jain, Ryan Cooper Accounts Angela Mathews, Jessina Varghese Registered Office INTERNATIONAL FINANCE is the trading name of INTERNATIONAL FINANCE Publications Ltd 843 Finchley Road, London, NW11 8NA Phone +44 (0) 208 123 9436 Fax +44 (0) 208 181 6550
regular Editor's note
03 06 08
A vision for a technology driven future
Trending Aramco IPO valuation at risk
News Russia and China are buying up gold
Email info@ifinancemag.com Press Contact editor@ifinancemag.com Associate Office Zredhi Solutions Pvt. Ltd. 5th Floor, Sai Complex, #114/1, M G Road, Bengaluru 560001 Ph: +91-80-409901144
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# trending Econom y
What’s driving Portugal realty?
Brexit deal ‘doable before deadline’
Jean-Claude Juncker, the President of European Commission, said that a Brexit deal is still possible before the October 31 deadline. “I think we can have a deal. I am doing everything to have a deal because I don’t like the idea of a no-deal because I think this would have catastrophic consequences for at least one year,” he said. Brexit will happen,” Juncker was reported as saying on Friday, September 20. The pound sterling breached a two month high in response to Juncker’s statement.
For a minimum investment of €500,000 in real estate, Portugal grants residence visas to investors across the globe. In certain cases, an investment of €350K in refurbished buildings in projects marked for urban regeneration also qualifies one for a residence visa in Portugal. The visa affords investors the right to live and work in any of the 26 EU countries.
By the Numbers How does the trade war affect China?
16% Fall
France, Germany oppose Libra
Protests hit HK digital banks launch
France and Germany have joined forces to oppose Facebook’s new cryptocurrency Libra. The two countries released a joint statement stating their opposition on the basis of potential risks involved. The statement said that Libra fails to convince the two countries that the risks will be properly addressed. The risks are associated with security, investor protection, money laundering, terrorism financing, data protection and financial and monetary sovereignty. France and Germany will put in efforts to tackle these challenges raised by the cryptocurrency.
The ongoing anti-government protests in Hong Kong have delayed the operations of eight newly licenced digital banks planned to start by end 2019. The Hong Kong Monetary Authority earlier suggested the launch of these banks could begin by the fourth quarter, but due to the unceasing protests, the launch of these digital banks are now expected to take place in the beginning of 2020. The launch of these eight digital banks in Hong Kong is expected to bring a major shakedown in the Hong Kong’s retail banking sector.
Curren c y
banking
in China's August exports to the US
6.5% Fall
in July exports year-on-year
22% Fall
in China’s imports from the US in August year-on-year
6 | September 2019 | International Finance
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NEWS | INSIGHTS | UPDATES | DATA
Ones to Watch
Oil and G as
Aramco IPO on despite attacks Saudi Aramco is preparing for its IPO despite the major drone attacks on two facilities. Aramco will hold its meeting with analysts and bankers as planned. The pre-IPO meeting will be hosted in Aramco’s headquarters in Dhahran. The Saudi officials have not announced a delay in IPO. Mohammed Ali Yasin, the chief strategy officer at Al Dhabi Capital in Abu Dhabi, told the media that there is a 70 percent chance of Aramco rescheduling its IPO, especially if the company is seeking a higher valuation. If Aramco continues to be a target victim of such attacks, investors’ risk perception is likely to change. Several industry analysts said that it would be logical if Aramco decides to delay its IPO, while the damage is examined.
Reuters has reported that Aramco plans to sell 1 percent this year, in a potential $20 billion deal, and another 1 percent in 2020 in Riyadh ahead of an international sale. Aramco had ramped up efforts to pursue IPO plans after putting it on hold last year. The management was considering Tokyo as a favourable destination to list Aramco shares. It recently appointed Bank of America, Citigroup, Credit Suisse, Goldman Sachs, JP Morgan and Morgan Stanley to the lead in the transaction. Aramco holds stakes in refineries in the US and India.
By the Numbers
“It’s becoming difficult for China to obtain advanced technologies and key know-how. Unilateralism and trade protectionism are rising, forcing us to adopt a self-reliant approach. This is not a bad thing” Xi Jin Ping president of China
“I am very comfortable with the approach that we’ve taken because I think it is absolutely right that this prime minister and his government gets an opportunity to set up their agenda.” Sajid Javid, chancellor of the exchequer, UK
The world economy is slowing. Is it headed toward a recession? OECD projects the world economy faces a slowdown this year and growth will barely inch up next year.
2.9% 3%
2019
2020
World economy
3.1% 3.2% 2.4%
2019
2020
G-20
2019
2%
2020
US
"The Saudi government is facing tension. Within all of this we are still safe and we are still attracting investment.” Majid bin Abdullah Al Qasabi commerce and investment minister, Saudi Arabia
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in the news
finance
banking
industry
technology
Both China and Russia want to end the global dominance of the dollar and China aims to make its own currency widely accepted globally
Only 6 percent of the Nigerian population use mobile money services, compared to 73 percent in Kenya.
Russia and China are buying up gold The central banks of Russia and China are increasing their gold holdings with the aim to diversify their foreign exchange reserves. According to the World Gold Council (WGC), central banks around the world bought 224.4 metric tonnes of gold in the second quarter. 374 metric tonnes of gold was acquired by central banks in the first half of this year, up from 238 metric tonnes during the same period last year. Mark O’Byrne, research director at GoldCore believes countries such as Russia and China are stockpiling gold due to concerns about the outlook of currencies. He also stated that with the risk of the trade war turning into a currency war looming over, the central banks are taking measures. China has been quietly stockpiling gold for many years. China’s central bank, also known as the People’s Bank of China has added about 100 tonnes of gold to its reserves since December. It's gold reserves now stand at more than 1,950 tonnes. Similarly, Russia has also been buying
gold at a faster rate than China. The Russian central bank bought 106 tonnes of the gold so far this year The WGC revealed that Russian central bank gold reserves currently stand at 2,219.2 metric tonnes. Both China and Russia want to end the global dominance of the dollar and China aims to make its own currency, the renminbi, widely accepted globally. It is also speculated that China is developing a gold-backed currency that would take the global market by storm. Both the countries are exchanging their US Dollar reserves with gold. It is also speculated that both Russia and China want to create an alternative international financial system that does not rely on the dollar. However, gold still accounts to a relatively small portion of China’s total foreign reserves. Brien Lundin, editor of Gold Newsletter believes China is targeting gold with the expectation that gold will become more valuable over time and at the same the dollar will lose its value. Experts believe demand for gold is only going to increase in the coming months.
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Mobile Money storms Nigeria with MTN MTN Group which is Africa’s leading cellular telecommunication company has launched its mobile money services in Nigeria called MoMo. During the launch ceremony in Abuja, MTN revealed that it aims to improve financial inclusion in the country by tapping into the 36 million Nigerian who still do not own a bank account. MTN believes the new services will also help Nigeria bring down its poverty rate. MTN, which acquired the licence to provide financial services earlier this year, will roll out the mobile money services in the country through its subsidiary MTN Nigeria. By issuing these licences, The Central Bank of Nigeria expects to reduce the number of unbanked Nigerians by at least 20 percent by 2020. With the licence, MTN expects to join the league of fintech companies that are driving financial inclusion in Nigeria through a network of agents. So far, around 100,000 MTN retailers have already applied to be a part of the scheme. Usoro Usoro, Y’ello Digital Financial Services
(YDFS) Director told the media that in a nutshell, the MoMo Agent is bringing banking to neighbourhoods, taking away transportation cost, providing a safe, fast and efficient means of sending and receiving money. To acquire MTN’s mobile money services, all the customer needs to do is walk up to the nearest MoMo agent and pay the money to be transferred to the agent. The MoMo agent will generate a code and give it to the receiver, who can collect the money from a MoMo agent near him with the help of the code. Other services besides the transfer of money that can be acquired through a MoMo agent include the purchase of data, talk time and also bill payments. In the last decade, mobile money and digital payment services have revolutionised the way people spend, save, and send money in the African continent, especially in countries such as Kenya; however, Nigeria has lagged behind in this regard. Currently, only 6 percent of the Nigerian population use mobile money services, compared to 73 percent in Kenya.
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in the news
finance
banking
industry
technology
Forex rules in Thailand which allows investors to move up to $1 million overseas once a year has attracted wealth managers The European regulator’s independent review of Boeing 737 Max indicates a case of lack of trust in its US counterparts. Emirates NBD plans to hold a meeting with its shareholders and further increase the foreign investment cap to 40 percent
DBS expanding Thai wealth business
Boeing 737: US, Europe mistrust
DBS Bank, which is Southeast Asia’s largest bank, is planning to double the wealth managers in its brokerage unit in Thailand. DBS Vickers, the bank’s brokerage unit will expand its current strength of 35 wealth managers by 2023. The bank is looking to take advantage of the regulations that allow Thai investors to move their money overseas. DBS Bank aims to double the Thai assets under management to $8 billion from $4 billion during the same period. The foreign exchange rules in Thailand which allows investor to move up to $1 million overseas once a year has attracted many international firms such as DBS Group and Credit Suisse,. For an in-depth feature on the strong growth of the wealth management industry in Thailand turn to page 12.
Authorities in the US and Europe are not on the same page when it comes to the reintroduction of the Boeing 737 MAX aircraft. This has become a cause of concerns for the management of major aviation companies. Angus Kelly, CEO of AerCap, the world's largest independent aircraft leasing company, said he was disappointed by the lack of coordination among regulators in the US and Europe. Earlier, the European Union Aviation Safety Agency revealed that it will conduct a thorough study of the grounded Boeing 737 MAX aircraft. Previously, the agency planned to delegate the work to the Federal Aviation Administration. The European regulator’s persistence to carry out an independent review indicates a case of lack of trust in its counterparts in the US.
Emerging markets with highest number of billionaires
China
Russia
India
Saudi Arabia
UAE
Brazil
285
102
82
57
55
49
$996 billion
$355 billion
$284 billion
$147 billion
$165 billion
$154 billion
Total billionaire wealth
Total billionaire wealth
10 | September 2019 | International Finance
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Total billionaire wealth
Total billionaire wealth
Total billionaire wealth
Total billionaire wealth Source: Wealth X
30-09-2019 13:08:17
Boursa Kuwait for oil sell-offs
Emirates NBD raises foreign cap
Boursa Kuwait, which recently got an index upgrade from both MSCI and FTSE Russell, is looking to further boost itself by focusing on oil sell-offs. The national stock market of Kuwait is looking to offer the country’s oil and gas industry, which contributes close to half of Kuwait’s GDP, to private investment, as part of a state backed five year plan. Boursa Kuwait is encouraging government-owned oil and gas companies to get listed on its exchange, so as to allow both the general public and foreign investors to purchase a stake in them. The move is expected to further boost Boursa Kuwait’s image in the eyes of foreign investors as such a listing would better reflect value of the country in the domestic stock exchange.
Emirates NBD, which is one of the largest banks in the Middle East in terms of assets, raised the foreign ownership cap to 20 percent earlier this month. The bank also plans to hold a meeting with its shareholders and further increase the cap to 40 percent. The bank’s decision to increase the foreign ownership cap follows the United Arab Emirates’ decision to ease rules to attract foreign investors into the country. Previously, foreign ownership in Emirates NBD, which is also the largest in Dubai, was limited to just 5 percent. The state owns 55.76 percent in the bank. Emirates NBD joins a list of other Gulf Banks who are adapting to similar policies to bring in more foreign funds into their economy.
Safe haven buying of gold increases prices
August 30, 2019 – $1528/oz August 30, 2018 - $1197/oz August 31, 2017 - $1311/oz Source: Gold.org
Bitcoin prices have surged over twofold this year
March 25, 2019
$3964
Sept 20,2019
$10,223 Source: Coin Desk
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Banking and Finance
feature Wealth management
Thailand wealth management
What's behind Thailand wealth management boom? kedar b grandhi
Thailand had 39,814 HNWIs in 2018, more than double when compared to 2011 and that has boosted the nation’s wealth management industry
T
hailand has seen the number of its high net worth individuals (HNWIs) more than double since 2011. According to the Credit Suisse Global Wealth Databook 2018 report, Thailand had 39,814 HNWIs in 2018, up from 14,561 in 2011. Such remarkable growth in the total number of HNWIs seems to have naturally triggered the growth of the Thailand wealth management industry. Speaking more on this, Trawut Luangsomboon, CEO at Jitta, a Bangkok-based wealth management fintech startup, told International Finance that the Thailand wealth management industry had been growing along with economic growth and increasing household wealth, which in turn had attracted both domestic and international financial companies to expand here. Indicating this had led to the
growth in the number of managed funds, he said, there were 9.9 million funds, across mutual, provident and private funds, at the end of 2018, up 140 percent from the 4.1 million funds that were present in 2008. Yuttachai Teyarachakul, head of personal financial services at United Overseas Bank (Thailand), a regional subsidiary of Singapore’s United Overseas Bank, too asserted the growth
in Thailand wealth management industry. Citing the central bank - Bank of Thailand - he told International Finance that the total wealth assets in Thailand were estimated at $400 billion in 2018. He further added that deposits and funds grew collectively at a compound annual growth rate (CAGR) of 5.2 percent between 2016 and 2018. While deposits alone grew at 3.7 percent CAGR, funds rose at 7.6 percent CAGR. This
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feature Wealth management
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Banking and Finance
FEATURE Wealth management
growth, he attributed to the country’s economic growth, buoyant capital markets, and rising household wealth. Meanwhile Luangsomboon said that apart from the above factors, the government too was responsible for Thailand witnessing such growth in this industry. He cited the example of ‘Wealth Advisor for All’, an initiative launched by Thailand’s Securities and Exchange Commission (SEC) in 2018. He explained that the SEC had under this initiative, asked 26 banks and wealth management firms to come together in an effort to standardise the then existing wealth management tools and to provide them to a larger audience so that there could be increased investments from the Thai people. Such regulatory progressiveness, he said had “allowed more products and services to enter the market, catering to a more diverse range of clientele from massaffluent and affluent to high-net-worth and ultra-high-net-worth individuals.”
Foreign wealth management firms enter Thailand A spokesperson at LGT, the Liechtenstein-headquartered private banking and asset management group, that recently opened a wealth management office in Thailand, too lauded the Thai government. The spokesperson explained to International Finance that while the government had taken several steps to boost this industry, some of the notable ones included the loosening of foreign exchange rules to allow more money to be invested abroad and permitting HNWIs to buy offshore funds directly rather than going through master feeder schemes. Meanwhile, Jitta’s Luangsomboon cited his own company as an example to indicate the growth seen in this industry.
Thailand wealth management
“Two years ago we started from zero. Now we are managing around 2,500 million baht from thousands of people trusting our investing principle and technology,” he said. With regard to UOB (Thai), Teyarachakul said its wealth business grew strongly from 2016 to 2018 with revenue and AUM increasing at a CAGR of 33 percent and 13 percent respectively and its total number of affluent customers increasing at a CAGR of 15 percent.
$400 Bn
Total wealth assets estimated in Thailand in 2018
Funds - the most popular wealth management product When queried about the most popular wealth management product sought by Thailand HNIs, Luangsomboon said funds continue to be one of the first things HNIs gravitate towards. He explained that several HNIs who are entrepreneurs, business owners, and high-level executives saw opportunities existing beyond Thailand and were keen to investing in foreign equities. But investing abroad was not as easy as it sounds and required one to know quite a bit about the foreign market of interest. However, since many of these HNIs did not have the time to do the same, they were still considering investing in funds, especially like Jitta Wealth which is AI-powered, low-cost and hands-free, making it a cost-effective solution for satisfactory performance in the long run. Meanwhile, Teyarachakul said that at UOB (Thai), its affluent customers had higher asset allocation to deposits – around 70 percent, with the remaining primarily towards funds. “In Thailand, customers typically prefer low-risk products such as current or savings accounts or time deposits, money market funds, and fixed-term funds. As mutual funds typically offer varied investments, they are increasingly popular, with
market growth of 7.6 percent CAGR compared with a 3.7 percent CAGR for deposits,” he said. The LGT spokesperson said, in his view, strict exchange fund flow regulations since long had made local Thailand banks the dominant players in wealth management, with a heavy domestic investment focus. However, now, the spokesperson said things were changing and HNWIs were increasingly looking to offshore investments so that they could seek higher returns and greater portfolio diversification. With regard to work approach, wealth management fintech Jitta combines technology with Warren Buffett’s value investment principle. Luangsomboon explained that they have developed an AI and Big Data technology that looks at ten years of financial statements to identify Buffett’s ‘wonderful company at a fair price’ stance to analyse and identify 50,000 stocks around the world. “This is our core AI technology, and it’s deeply
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feature Wealth management
“UOB'swealth business grew strongly from 2016 to 2018 with revenue and AUM increasing at a CAGR of 33 percent and 13 percent respectively” Yuttachai Teyarachakul, Head of Personal Financial Services at United Overseas Bank Thailand
9.9 Mn
funds, across mutual, provident and private funds, at the end of 2018
rooted in value investing. This alone should distinguish Jitta from our competitors,” he added. LGT (Thailand) has a holistic view and relies more on the skills and experience that it has developed as the family office of the Princely Family of Liechtenstein for over 80 years. This, the spokesperson said, differentiates it from other wealth management firms in Thailand. UOB (Thai), meanwhile has a three-principle approach to wealth management. According to Teyarachakul, they first, understand their customers’ needs and aspirations, then ensure they appreciate the risk associated with their
4.1 Mn
up 140 percent from the 4.1 million funds that were present in 2008
investments and finally the company helps them prioritise their financial goals.
Low returns and family succession key challenges While the industry is set to be in an upswing, it has its own set of challenges or obstacles for growth. Speaking on the same, Jitta’s Luangsomboon said, that while the need to invest is growing, the willingness to dive into the market headon is not. This, he attributed to low returns investors were witnessing from several wealth funds. This obstacle, he said can be overcome if wealth management firms start focusing more on delivering
this value to customers. This he said would be the key and could be achieved by leveraging technology, being more transparent and educating customers. Speaking on the first, he said, technology could help wealth management firms reduce their operational costs and increase profits for its clients. Citing Jitta Wealth, the private fund belonging to his own company, Luangsomboon, said “Jitta Wealth is powered by algorithms and software that help us reduce the paperwork, cut out redundant processes and keep our operational costs low so we can focus our resources on the thing that matters the most: keeping our customers happy.” With regards to overcoming the issue of transparency, he said this too could be achieved by using technology. He said, considering JItta was completely software-based, their investment methodology would be the same, whether it is ten or 100 years from now. This way, he said, his clients would
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Banking and Finance
FEATURE Wealth management
never be left in the dark about where their money is getting invested into. Finally, in terms of educating customers, he said, Jitta had placed a heavy focus on this as it was essential for customers to understand the logic behind successful stock investing and are able to assess independently what they have to do to profit from the stock market. Another obstacle, according to Luangsomboon was regulations. He explained that while the Thai government was open to new solutions and business models, it was not working at the same pace as Jitta was. He explained that while it has been not been an easy experience working with Thai regulators to adjust local laws to account for the nature of fintech operations they were confident that this would bring a huge difference to the industry and their fight for change would be fruitful. Meanwhile, UOB’s Teyarachakul said that one of the challenges for this industry was related to succession, wherein wealth is passed on from one generation to the next. He explained that the country’s wealth is predominantly held by family-run businesses who also happen to be among Thailand’s biggest employers. And as these businesses mature, they will need to overcome certain challenges, for instance succession planning, in order to preserve their wealth for the next generation. This, he said, will in turn have implications for the growth of this industry over the long term. In this regard, Jitta’s Luangsomboon, however, had a different perspective. The new generation said were self-reliant and liked full control of the decision-making process and relied on their own self-directed research and advice and trusted
Thailand wealth management
Trawut Luangsomboon, CEO of Jitta
technology more than any human counterpart. He further added that it was projected that in 2020 half of the total assets under management of $100 trillion will belong to this new generation, making it imperative for wealth management businesses to plan accordingly to ensure it is ready for this future scenario.
Younger tech-savvy generation seek digital convenience With regard to the use of technology to disrupt wealth management in Thailand, Luangsomboon was of the view that the wealth banking industry was lagging behind when compared to other financial services, like banking, stock brokerage, investment funds, and financial advisory. He said while these segments had been quick to incorporate new technologies, wealth management
is still very much personal and based on human-to-human relationships. He however was quick to add that while human relationships may be the preference of the older generations, the growing, younger tech-savvy generation seeked digital convenience and this was something they saw not as a threat but as an opportunity. He added that as a startup, they were advocating on behalf of investors for better return on capital, more transparency and a fairer fee structure so their clients can earn more bang for the buck. Their technology, he added would not only help their clients achieve all this but would also help them regain control of their own financial future allowing them to lead their lives much more peacefully. The LGT spokesperson too said technology was key and it was an important part of its development strategy,
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feature Wealth management
Mapping the Wealthy in Thailand in 2018 - Rapid Growth of Wealth
Wealth
particularly in Thailand, where the rate of adoption is particularly faster compared with other developing markets. “Eventually, most if not all our operational and client-facing processes will be digitalised, which will not only enable us to work internally end-to-end even more efficiently and keep on top of regulatory demands, but will also give our clients unrivalled functionality and user experience,” the spokesperson said.
Government easing regulations will have a positive effect With regard to the government’s role in boosting this industry, UOB’s Teyarachakul said the government could ease regulations, such as the income tax deductible benefit. This, he said would encourage investors in their wealth creation and diversifying their portfolios.
Number of Number of HNWIs in 2018 HNWIs in 2011
$1 million-$5 million
32,105
1,273
$5 million-$10 million
3,908
787
$10 million-$50 million
3065
69
$50 million -$100 million
293
43
$50 million -$ 100 million
373
4
$ 500 million and more
70
3
Meanwhile Luangsomboon suggested that the government should keep pace with companies such as Jitta with regards to having an open mind to new solutions and business models to help boost the growth of this industry. “Understandably, the world is changing quite rapidly and it’s already challenging for even a small, lean organisation like ours to keep up, let alone a large national institution with many working pieces. But I think we can work together to transform this industry. New technology can fuel tremendous growth of this industry, we just need to do it together to make that happen,” he explained. The LGT spokesperson however said the government could play a key role in developing the local talent which, in turn, would help boost this industry. “One of the main areas where the government can help the industry is to boost schemes that attract local and experienced professionals to return from overseas and up-skill local talent to deepen the talent pool,” the spokesperson explained.
However, despite such challenges and government shortcomings, Luangsomboon said the future outlook for this sector looked positive. He said Thailand is likely to see this industry grow as the country moves toward an ageing society, low interest rates, and heightened awareness about investment necessities. he also reasoned that the government would help the industry grow. “We see the government and related agencies pushing harder for new innovations by working with fintech firms, carving out new regulations in response to changing technologies.” UOB’s Teyarachakul too was confident that this industry will continue to grow even amid a few challenges. “Despite the potential impact from global trade tensions and financial market volatility, we expect the number of Thailand’s affluent individuals and their wealth to continue to increase,” he said.
editor@ifinancemag.com
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UK Fintechs Brexit Impact
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How does Brexit impact UK’s fintech companies? IF Correspondent
A smooth landing is essential for the UK’s fintech sector after Brexit, if the UK has to retain its edge as a top financial services centre in Europe
T
he financial services sector is the heart of the UK’s economy after manufacturing fell along the wayside decades ago. With the prospect of a hard Brexit looking ever more likely than not, UK’s financial technology companies and the investors who invest in these companies face unpredictable outcomes. With the fintech industry reliant on the EU for talent and capital, what is the stance that investors and fintech companies should take in the face of surmounting uncertainty? The changes that happen to regulatory licences for fintech companies, and to passporting rights as well as visa regulations for EU and nonEU nationals are key to the future of the fintech
industry and financial services in the UK. So, why is the fintech sector important to the UK’s economy and the Brexit discussion? It’s all about high quality jobs and, more importantly, its about the UK retaining its edge as a leading financial services centre in Europe much after Brexit. Speaking exclusively to International Finance, Nick Chouksey, financial services director focusing on fintech at consulting group PwC, said there were in total 76,500 people working currently in this sector across the UK and this was expected to grow to 105,500 by 2030. In terms of the number of firms, he said there were 1,600 fintech companies operating across the UK and this was estimated to more than double by
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UK Fintechs Brexit Impact
2030. These figures, he attributed to a report on UK FinTech jointly released by the Department for International Trade, HM Treasury, and Innovate Finance.
Outlook for fintech sector in the UK
What happened after the referendum?
76,500
In terms of the impact since the 2016 referendum decision, Chouksey said the UK’s decision to leave the EU had certainly not impacted the growth of this sector in the country. He said this was evident with the increasing number of fintech businesses being incorporated and the significant investments being made into them by both domestic and international investors. Pablo Mayo Cerqueiro, mergers and acquisitions correspondent at Londonheadquartered media firm Acuris, told International Finance that it was worth noting that fintech startups in the UK had raised just under $3 billion in the first half of 2019. Cerqueiro cited this number from a report by Innovate Finance, an independent membership association that represents the UK’s global fintech community. According to the report, this cumulative fund raise represented 85 percent of the total capital UK fintech startups raised in all of 2018. Among the 123 investment deals that the UK fintech startups witnessed in the first half of 2019, the two largest deals were at Greensill Capital, a provider of working capital finance for companies globally, and OakNorth, a provider of business and property loans for small and medium sized companies. According to the report, the two companies attracted investments of $880 million and $440 million respectively. These figures further accentuate Chouskey’s views. Meanwhile, a representative at
2019
people working in fintech sector
1600
fintech companies across the UK
2030
105,500
people working in fintech sector
3200
fintech companies across the UK
Revolut, a UK fintech company that offers banking services such as currency exchange and peer-to-peer payments, said they too had not seen any impact since the 2016 referendum decision. “For us it is business is as usual. Nothing much has changed,” the spokesperson told International Finance.
UK fintechs growing irrespective of Brexit Revolut, which was founded in July 2015, about a year prior to the referendum decision, today has 12,000 employees and operates across the UK, Europe, and Australia with plans to expand into the US, Canada, Singapore and Japan this year the spokesperson said, indicating that the company is growing irrespective of the UK’s decision to leave the EU. Chouksey too had similar views. He said there was currently no negative impact on fintech companies. This, he said was because of two reasons. One, he said was because the exact impact of Brexit
was still to be seen and second he said was amid “the need for newer, more tech enabled solutions in the financial services sector.” He, however, added that while UK had not seen any impact, they had seen a change in the international fintech landscape amid UK’s decision to leave the EU. “Shortly after the referendum in 2016, a number of European cities, notably Berlin, Paris, and Amsterdam, started to actively compete for new fintechs to set up their operations in those cities rather than the UK. While setting up in one of these cities rather than perhaps London, and thus being in the EU was clearly appealing, it certainly has not stopped fintechs being established in the UK. Instead, what it has perhaps done is enhancing the European fintech landscape, helping to bridge the gap between the key European financial services centres,” he explained. Going forward, however, Chouksey
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Nick Chouksey, financial services director, consulting group PwC
said there could be some challenges the UK could face once it eventually leaves the EU. The loss of passporting of regulatory licences is one of the most significant impacts Brexit could have on the entire financial services sector, he said, before adding that fintech companies would then be required to obtain a secondary regulatory licence in an EU jurisdiction to allow themselves to serve EU customers. “Banks, asset managers, and insurers have been considering plans to establish EU regulated entities since 2016, and although the majority of fintechs are not as far advanced as the more traditional financial services businesses, this is still very relevant to them,” Chouksey said. He further suggested fintechs to be agile and responsive to this kind of a new environment. “Practically, this will start with fintechs ensuring they meet their regulatory obligations under their new EU regulation. Perhaps the key point here is not just to meet the new regulators compliance requirements but
ensuring that the new operating model has been executed by the time the UK leaves the EU.” The Revolut representative and Acuris’s Cerqueiro too voiced the same concern. They said UK companies may have to get a separate EU licence in the event of a hard Brexit. Additionally, both of them also said they may have to also get an office in Europe, to ensure access to EU markets after Brexit. Indicating the readiness of UK companies to face this challenge, Cerqueiro said TransferWise, an online money transfer service founded in January 2011, had already applied for a licence in Belgium earlier this year. The Revolut representative said it too was prepared for this challenge if it faces a hard Brexit situation. The representative explained that while the fintech company already has an operational electronic money licence in the UK, it had applied for and received one for Europe as well last year. And
while this is currently not being used, Revolut will make it operational in the event of hard Brexit or if the need arises. “It is a little bit of annoyance but we have to fulfil whatever obligations are required by various regulatory authorities after a hard Brexit,” the representative said. As for an office in Europe, the Revolut representative said, the company already had an office in Poland with over 500 employees, one in Portugal with about 200 employees, an office in Lithuania, with a new technical office getting ready in Berlin as well. “So basically, we are well prepared and have taken all the necessary steps to ensure our business runs as usual and our customers are not affected despite a hard Brexit,” the representative said. With regard to the impact on customers, the Revolut representative said there would be none. Of the six million plus customers Revolut has, over half of them are based in Europe and in the case of a hard Brexit, it would transfer EU clients under the Europe licence, the representative said. The representative added there may, however, be some minor changes in the terms and conditions which these customers may have to agree to in the app.
Talent crunch ahead? Apart from potential regulatory challenges, a few media reports had said that the UK could find it difficult to get the right talent following its exit from the EU amid the potential loss of passporting rights. With regards to this, Chouskey said it was unlikely that country would struggle for talent, with the UK being a key financial services centre having a very strong universities and academic environment. He added that they perhaps would be more
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likely to be impacted, by an increasing competition for talent rather than lack of talent. “Certain fintechs are likely to choose to set up in an EU country rather than the UK, thus potentially drawing talent to particularly EU cities and fintech hubs. However, even with the loss of passporting rights, it is still likely that those UK regulated fintechs will only establish a small presence in a new EU market and look to maintain their current UK operations. As such, roles and opportunities should remain in the UK, which should continue to prove attractive to talent. Perhaps where we will see changes is the mix of the talent pool driven by the impact on immigration both into and from the EU as a result of Brexit,” he explained. Meanwhile, the Revolut representative said that the financial industry as a whole was struggling for technical talent and this would not be a specific Brexit-related concern. The representative explained that only 25 percent of its 500 staff in London were from the UK and that the remaining 75 percent who were from Europe, Canada, US, Asia and other parts of the World, would not mind staying back in the UK. “From the employee’s perspective, I am sure our existing employees will not mind shifting here even if passporting rights are gone. Also, we are hiring up to 30 people a month and they have not shown second thoughts to move into the UK to work for us and we do not think this would change after Brexit either,” the representativeexplained before adding that the situation would of course become more clear from October. The representative further added that the UK government had assured companies, in general, that it will support retaining talent in the country even in
UK Fintechs Brexit Impact
case of a hard Brexit. “Will the UK be less attractive to work in after Brexit? I don’t think so. According to what the government has been saying over the last couple of months, high skilled employees will be given the rights to remain. They will not be asked to leave. Moreover such technically skilled people will also be allowed to enter London easily,” the representative said. Apart from such direct challenges, PwC’s Chouskey said the fintech sector could see an indirect impact once the UK leaves the EU. He explained that there were a lot of discussions that Brexit could have a negative impact on the overall UK economy and its currency and this would in turn have a domino effect on fintech companies.
Revolut
25%
of its 500 staff in London were from the UK and that the remaining
75%
from Europe, Canada, US, Asia and other parts of the World, would not mind staying back in the UK
Will investments continue? So, amid all these potential threats, one question that persists in almost everyone’s minds is whether investors would show the same interest in British fintech startups even after an actual Brexit. With regards to this, Chouksey, replied in the positive. He said that while the fintech industry could see some impact as the UK negotiates its exit from the EU this year, the overall landscape looked positive, especially with regards to being an attractive investment destination. “Investors will continue to invest in fintechs in the coming years due to the requirement for financial services to move towards a digital, cloud based industry, with a significant element of the technology development and innovation coming from fintechs as new entrants to the financial services market.” He however said what might change investment decisions would be the return on investment margins. Investors, he opined would check if
other asset classes would provide better value to them when compared to fintech companies “as a result of the changing economic landscape as we move into a post-EU environment”. Meanwhile, the Revolut representative too spoke on this aspect in the positive. The representative said that funding will not go away and the UK will continue to see a lot of investor interest. “We have various venture capitalists on board. They have all made it clear they are not going anywhere even if there is a hard Brexit,” the representative added. Indicating that fund raising plans were still part of the agenda for UK fintech companies, Cerqueiro said that the UK based peer-to-peer lender Zopa was currently looking to raise capital for its digital bank in the UK. He also gave the example of London based Starling Bank. This digital, mobile-only challenger bank, he said, was also eyeing further fundraising later in the year.
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partnered with the FinTech Alliance and was “working closely with a number of fintech businesses to support them with the implications that Brexit may have on their businesses, including providing support with regulatory approvals, labour and immigration considerations, and operating model changes among other services.”
Passporting rights a key factor
The government had been very supportive in recent years, of not just the fintech sector, but the broader financial services industry and was keen to ensure this remains a critical part of the UK economy. The UK government’s role When queried on the role the UK government and PwC could play amid such Brexit-related challenges, Chouskey, said the government had been very supportive in recent years, of not just the fintech sector, but the broader financial services industry and was keen to ensure this remains a critical part of the UK economy. He cited the example of FinTech Alliance, a community-driven
platform for the whole fintech Industry that had been set up in partnership with the UK government. According to its website, all profits made from this platform would be reinvested back into the fintech sector, “providing a fully inclusive environment to support fintech growth and empower UK business with comprehensive information, services, and intelligence.” PwC on its part, too, he said had
Chouksey suggested that the government should continue to invest in the sector accordingly going forward. This, along with the setting up of the FinTech Alliance, makes the future of UK fintech look positive, he concluded. Meanwhile, the Revolut representative said the government should champion the continuation of passporting rights and fast tracking of visas. The former, the representative said, would be beneficial not just for companies in the UK but even for those across Europe as well. This would further ensure things would remain as they are, at least from the employment side of things. With regards to fast tracking of visas, the representative said this was very important considering there is a shortage of software professionals and data scientists and such steps would ensure UK continues to remain the best country to work in. Will the positive stance of the investors on UK fintechs continue in the event of a potential hard Brexit in October this year? Well, the actual implications are unknown and while there will be a few regulatory and workforce challenges, it seems that in the UK, both the government and fintech companies are well prepared to face them head-on. editor@ifinancemag.com
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Interview
Tomasz Borowski CEO and Founder, AsiaCollect
Fintech
A Singapore fintech startup is introducing radical transformation to the heavily manual debt collection process in Asia using data and AI
Transforming debt collection in Asia if correspondent
Debt collection in Asia typically involves small time agencies who use hostile calls and physical confrontation to get debtors to pay back their loans to banks and other financial institutions. Since long, this field has been bereft of innovation. Asking someone to pay back his or her loan is never easy. On the other hand each unpaid loan represents an opportunity cost. The bank, financial institution or fintech could have used the same money to lend capital to another consumer who might have repaid it promptly. Nonperforming loans (NPLs) are a threat to both the financial institution’s bottom line and everyday operations. Introducing radical innovation in the loan recovery process is a Singapore fintech startup that largely eliminates physical action with a Software as a Service solution and specialised services leveraging data and artificial intelligence – AsiaCollect. AsiaCollect’s CEO and Founder Tomasz Borowski tells International Finance in an exclusive interview how AsiaCollect intends to digitally transform and industry given to strong legacy practices.
International Finance: The debt collection process in Asia has a lot of physical touch points and sometimes involves hostile action by collection agents. In terms of use of technology what is the difference that AsiaCollect is bringing to the market in Asia? Tomasz Borowski: The debt collection industry in emerging Asian markets are typically still managed by small, provincial collection agencies, who don’t have the adequate resources to invest in proper infrastructure and systems, relying heavily on manual phone calls and traditional field
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AsiaCollect debt collection
collection where unqualified agents use hostile and intimidating methods to recover debt. This poses a huge reputational risk to the banks and non-bank lenders that use these agencies. We saw an opportunity in using advanced technologies like machine learning and AI to transform the way debt is collected and managed, drawing from my experience running operations at a large retail bank in Eastern Europe.
One difference of AsiaCollect to other CMS companies is that it buys the NPLs of financial services organisations. How does this model work and what does AsiaCollect do with the purchased NPLs? Our integrated credit management suite includes outsourcing and advisory in debt management – this is what is typically offered by other collection agencies as well. As you mentioned, we also purchase unsecured consumer non-performing portfolios. In the first case, we get in touch with originators who are not necessarily banks – they can be finance companies, fintechs, and other lenders. We manage collections on behalf of our clients. It is usually for a period of three
months. We are more like a servicer, while the case is still on the balance sheet of the lender. In the second case where we purchase portfolios, we become the owner of those loans. So the loans are transferred to our balance sheet and we can start performing actions as AsiaCollect becomes the new owner of that debt. Keeping in mind the type of loan or portfolio we purchase, we can work on it for three or four years depending on the model we use. Before we purchase the portfolio we have to evaluate every single debt from different angles and based on the estimation, prepare the price offer. We spend quite a lot of time on analysing all the portfolio details, it mainly depends on the case and can last between a few days to a month. We analyse the portfolio using our purchasing model. The purchasing model is fed with the information about portfolios that we previously worked with. Each portfolio we analyse has hundreds of characteristics that we check, such as demographic data and behavioural history that we take note of. Following the analysis, we check how the clients with similar characteristics performed previously and whether there is a possibility of debt
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Interview
Tomasz Borowski CEO and Founder, AsiaCollect
We use deep learning models to convert voice to text with support of multiple Asian languages to automate our QC process and we are researching and experimenting more exciting AI features such as emotion recognition and psychological profiling.
recovery from them in the future. Grouping such debtors into homogeneous groups and estimating the potential recoveries and costs for each group ends with sending the offer. Once the portfolio is purchased the process is automised – we upload the portfolio into our platform, apply the strategy that best suits the portfolio and all further actions are executed by our system.
What is the process you follow to bid and evaluate the NPL portfolio to achieve the best results for all parties involved? With regards to bidding, we need to take into consideration what would be the extent of our investment into this process. This means we need to look into all the actions we will need to perform on debtors, how much it will cost and what could be the potential recovery from the portfolio. This way we will also be able to offer a pricing to all our clients. Then we sign an agreement and the data is transferred. After that we choose and apply the strategy that is the most efficient for portfolio with such characteristics. One of our differentiating factors is our local experience in working with different portfolios and customising individual strategies. These strategies are constantly challenged by alternative strategies applied simultaneously to find even more efficient ways of higher recoveries: a never ending, champion-challenger approach.
Could you describe with an example how AI and ML come into play in AsiaCollect’s CMS solution? AsiaCollect CMS solution is fully driven by Data and AI. AI is playing significant roles in our solutions
Fintech
from every aspect: we use predictive calling to improve the efficiency of our agents. We built machine learning models to predict the best timing, channels and strategies to reach the debtors to increase the recovery rate and better experience for the debtors. We use deep learning models to convert voice to text with support of multiple Asian languages to automate our QC process and we are researching and experimenting more exciting AI features such as emotion recognition and psychological profiling.
AsiaCollect’s target is to make the debt recovery process in its Asian markets completely automated. Do you think that eliminating the human touch points in debt recovery in a market like Asia is feasible and how will you achieve it? I’m not sure the market has reached a stage where the operators could be fully replaced now. But I strongly believe that from three to five years it will be possible. Currently, we already try to minimise the human involvement in the collection process by using the IVMR, Email and SMS campaigns and by sending letters. Our integrated solution for call centre agents is equipped with the dynamic scripts: Using the internally developed voice to text model, we analyse clients` answers so that in the future, we can replace our operators, who currently read the scripts displayed on the monitor by the system, with virtual agents.
For banks in Asia that are used to physical collection of debt, moving to an AI and ML based system of recovery with behavioural analysis is a major cultural change. How will AsiaCollect work with banks and financial institutions to bring them to the point of using such third-generation debt recovery solutions? I agree that sometimes originators believe that physical contact with the borrower is the only powerful way of collecting the debt. We are trying to convince the financial institutions to give us a chance and to prove that despite the ease of changing the SIM card in the region, we are able, by using our cutting-edge technology to reach their clients without conducting field visits. We have helped almost 50 lenders minimise their losses on outsourced portfolios, amounting to us managing over 265,000 loans every day.
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AsiaCollect debt collection
I am really interested in transforming the early stage markets, professionalising the collection activities and helping the borrowers to be more responsible and financially literate.
AsiaCollect acquired CreditSeva in India. What are your targets for the India market and what is the strategy that you will use to achieve the target?
key factors is market size and growth potential of the markets we have already entered.
Previously, we were focused on expansion in Vietnam and Indonesia. We are still exploring the Indian market, trying to find the best expansion strategy. Large BPOs and hundreds of collection agencies are already on the market but I believe the market in India is large enough to accept a new player – one that is AI-driven and focused on digital collections. Currently, we are focused on offering a Smart Agent SaaS (Software as a Service) solution and convincing originators that debt collection is possible without field collection.
How do you visualise technology transforming the credit management services market in Asia in the next five to ten years and what role does AsiaCollect plan to play in it?
The markets you have chosen for your debt collection system, be it Indonesia, Philippines, Vietnam or India are some of the hardest regions to collect debt. What inspired the group of European entrepreneurs behind AsiaCollect to focus on these markets? The reason why we reach out to those markets is not because they are the hardest to recover, but because of the very early stage of the collection industry in those markets, thus the opportunity to accelerate the changes. I am really interested in transforming the early stage markets, professionalising the collection activities and helping the borrowers to be more responsible and financially literate. Of course, one of the
I strongly believe that our example would help other professional collection agencies to expand to South Asia and help to accelerate the change from manual, inefficient, and people driven high-risk collection practices to digitalised collection, without reputational risk for lenders and threatening borrowers. Also, I see ourselves being more active in working with industry players (lenders, collectors) and regulators to make professional, responsible debt collections the norm. We have already started working with industry associations in Indonesia, Vietnam, and in India.
In terms of rules and regulations are there any challenges that you face for your CMS in Asia and how do you overcome them? I don’t see any obstacles in particular, but in India, for example, we are required to obtain an expensive licence for purchasing debts. From a cost perspective, this is mitigated by a much lower cost of such in Vietnam. editor@ifinancemag.com
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cover story fintech
Fintech startups play a key role in
Saudi Vision 2030 With regulatory, infrastructural, and talent challenges getting resolved, Saudi Arabia might be on the cusp of a fintech revolution Samuel Abraham
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financial innovation Saudi Arabia
S
audi Arabia is attempting to create a fintech ecosystem from the ground up with the active support of the government. Fintech innovation is part of Saudi Crown Prince Mohammed Bin Salman’s Saudi Vision 2030 to transform the Saudi economy away from its reliance on oil to a more technology driven modern economy. The government reinforced its plans by creating one of the world’s largest sovereign wealth funds, with an estimated asset size of $2 trillion. The fund will be deployed to transform the economy and create employment.
The Saudi government showed its clear intent to support fintech innovation by creating Fintech Saudi in 2018. Saudi Arabia has seen fintech innovation before, but typically fintech companies created in Saudi Arabia prefer to relocate elsewhere when they needed to scale. This tendency to relocate was driven by the lack of infrastructure, talent, and supporting regulations. Fintech Saudi’s motive is not only to ensure that more fintech startups are created in Saudi Arabia but also to ensure that they stay in Kingdom when they grow. Fintech Saudi was launched by the Saudi Arabian Monetary Authority (SAMA) under the Financial Services Development Programme. So, which are the forces behind the fintech innovation in Saudi Arabia? How does fintech innovation in Saudi Arabia differ from the UAE? What are the challenges and the prospects for fintech startups in Saudi Arabia and how do they fit into the Vision 2030 plan? In a report published to mark one year of Fintech Saudi’s operations in April 2019, Nejod Al Mulaik, the director of Fintech Saudi notes the key milestones reached in the development of the fintech community. This include
the launch of the fintech regulatory sandbox, the first Fintech Tour, and the release of the Fintech Access Guide. The April report by Fintech Saudi identifies 20 fintech startups in Saudi Arabia. As reported by International Finance in June, SAMA had licenced an additional 14 fintech startups in the middle of this year. 11 of the 20 Saudi fintech startups identified by Fintech Saudi in its April report are in the payments space. A majority of the 14 fintech startups licenced by SAMA in June were in the lending or payments spaces.
Tech entrepreneurship the cornerstone of Vision 2030 Entrepreneurship, especially involving technology, is a cornerstone of Vision 2030 and a critical lever for achieving goals such as finding new sources of economic growth and employment, according to Nawaf Al Sahhaf, the CEO of Badir Program, a tech incubator allied with the elite King Abdulaziz City for Science and Technology, which is actively nurturing Saudi startups including fintechs. “Over the last few years, the Saudi government has recognised the potential of entrepreneurs and invested heavily in creating a startup ecosystem
One of the world’s largest sovereign wealth funds, with an estimated asset size of
$2 trillion The government’s target of the share of digital payments transactions by 2030
70%
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“We are also exceptionally proud to be the first bank to introduce voice biometrics technology in Vietnam,” - Rebaca Tan, AVP– Analyst, Moody’s Investors Service
“Over the last few years, the Saudi government has recognised the potential of entrepreneurs and invested heavily in creating a startup ecosystem by implementing large scale public programmes focusing on supporting startup technology companies” Nawaf Al Sahhaf, CEO Badir Program
Saudi Vision 2030 seeks to raise the contribution of SMEs to the GDP to 35 percent from 20 percent currently. It underscores SMEs and startups as an important pillar of the economy that will support innovation, create jobs, and drive exports. by implementing large scale public programmes focusing on supporting startup technology companies,” Sahhaf told International Finance. Ammar Bakheet is a leading Saudi entrepreneur and founding partner and CEO of Raqamyah platform, which was one of the Saudi companies to receive a fintech licence from SAMA early this year. “Saudi Arabia is pushing for fintech adoption by Saudi banks and financial institutions. The sandbox team are acting as enablers for new companies to come and offer fintech solutions to the market. I have to insist that this role of the Saudi government is very positive,”
Bakheet told International Finance. Raqamyah is one of the fintech startups planning to operate in the peer-to-peer (P2P) lending space for SMEs. A key motivation for innovators in the fintech space in Saudi Arabia is the government’s efforts to move toward a cashless economy. Bakheet told International Finance that Raqamyah platform is inspired by the fact that the government is very keen to encourage fintech startups to provide fintech solutions for underserved segments like SMEs as the government believes it is very important for the SMEs to play a bigger role in the economy. In fact, the
Payments ripe for disruption Typically, payments innovation is one of the first frontiers of fintech innovation in nascent fintech ecosystems globally. Islam Al Bayaa, head of advisory at KPMG Al Fozan and Partners, told International Finance that Saudi Arabia is also likely following the same model. “Although Saudi Arabia is probably not currently as developed as some of the recognised fintech centres, but given the young, tech-savvy population, there is potential for rapid development in the Kingdom. Globally we are seeing trends both where tech is migrating from initial payments offerings to other
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broader offerings and vice-versa from other offerings to include payments platforms. These trends are likely to emerge in Saudi Arabia also,” Islam Al Bayaa said. The potential for payments disruption is immense in Saudi Arabia as currently less than 20 percent of the payments transactions are digital and given the government’s target of achieving 70 percent digital payments transactions by 2030. Network International is a fintech payments company that has been included in SAMA’s fintech regulatory sandbox this year. Samer Soliman, managing director of Network International for the Middle East, told International Finance, “The Kingdom of Saudi Arabia is one of the largest payments markets in the Middle East and Africa and we see great opportunities there over the medium term. Digital payments adoption is low at the moment, only around 15 percent of transactions, but the government has initiatives in place to drive this up to 70 percent by 2030. When you couple that with the largest GDP in the region and a large population under 25, you can see excellent potential in the Saudi market.” Nawaf Al Sahhaf, the CEO of Badir Program also told International Finance that in fintech, payments innovation is a priority given the government’s goal of achieving a largely cashless society by 2030. The opportunities for fintech innovation in payments are also because of the legacy challenges in the banking system in Saudi Arabia. At present the majority of debit, prepaid, and acquirer processing is processed onshore by banks to meet regulatory requirements – in fact only credit cards can be processed out of the country. The banks use legacy infrastructure and, following the trend
financial innovation Saudi Arabia
across the globe, many of them are keen to outsource this function to avoid major investment in upgrading their systems as they have to meet growing demand. This outsourcing trend will also help drive payments innovation in Saudi, as the banks increasingly look to fintech companies to acess sophisticated products, said Soliman.
Disrupting existing payments services Currently payments fintech startups in Saudi Arabia are looking for ways to disrupt existing payments services with their own propreitary technologies,
given that a market of the size of Saudi Arabia which is heavily cash dependent is primed for disruption. “Looking at the banks, at the moment, 80 percent of all processing is insourced across the Middle East and Africa and that’s particularly true in Saudi Arabia. You will see the benefits of payments technology like Network International’s coming through as banks increasingly seek to outsource these functions, avoid the considerable capex involved in upgrading their own systems and benefit from the economies of scale that fintech companies like Network International can offer,” said Soliman. Alongside this trend on the
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cover story fintech
“The Kingdom of Saudi Arabia is one of the largest payments markets in the Middle East and Africa and we see great opportunities there over the medium term” Samer Soliman, managing director of Network International for the Middle East
merchant side, is the government’s plan to build out a digital payments economy and move two million SMEs into taking digital payments by 2030. “These two trends mean technological advancement across the Saudi payments ecosystem is inevitable,” added Soliman. One of the factors driving payments innovation in Saudi Arabia is the surge in ecommerce transactions. Rising ecommerce inevitably drives payments innovation in countries with low digital payments penetration and young populations like Saudi Arabia. The collaborative model of fintech disruption in which established banks
and financial institutions collaborate with emerging fintechs instead of solely competing with them is also set to take root in Saudi Arabia. This is because banks have a significantly high cost structure and conducting small transactions, say in the sub SR1 million category, is not cost effective for banks. Says Raqamyah’s Ammar Bakheet, “Collaborating with fintechs helps banks fill the gaps as well and overall it is a win-win situation for both. They can now target segments they were not targeting earlier.” Bakheet adds, “Take our company for instance, our ledgers could have banks, financial institutions,
individual lenders. You may ask why banks will like to partner with us and lend when they can do it themselves? In the words of a CEO of a bank – there are things that we do not know or are not willing to do, but now more than ever if there are other people doing it, we should be willing to partner with them and do it.” Nawaf Al Sahhaf of Badir Program backs up the fact of the collaborative relationships in the financial industry. “Digital transformation continues to be a key focus within the financial industry. We are witnessing a more pronounced collaboration between banks and the fintech community as they are working actively to partner and collaborate to create new structures, products, and services,” he adds. Scopeer, a Saudi fintech startup, is the first crowdfunding platform in Saudi Arabia. Again, the main target of Scopeer is to fill the funding gap in Saudi Arabia by providing alternative financing options for SMEs and startups. The CMA last year granted fintech experimental permits (ExPermit) to Scopeer and another fintech startup Manafa Capital to create equity crowdfunding platforms. At its launch, Scopeer had said that it plans to attract up to 10,000 investors, funds, investment firms and qualified investors, as well as individual investors who can invest up to SR20,000 in a company. Two disruptive fintech startups that have come out of Badir Program’s cohort are Tammwel and Qoyod. Qoyod sells cloud-based accounting software to startups and SMEs using a SaaS subscription model. With 600 SMEs onboard, the startup helps local businesses cover their accounting and bookkeeping needs as well as allows them to meet the unique statutory International Finance | September 2019 | 33
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Banking and Finance
cover story fintech
financial innovation Saudi Arabia
requirements of the Kingdom. The Badir Program incubated fintech startup Tammwel is an online platform that helps loan seekers to compare providers in terms of interest rate and credit score in order to help them get the best financial solution. Currently, Tammwel has more than 50,000 customers.
Is there enough talent for tech startups in Saudi Arabia? Most of the infrastructure and regulatory requirements being met, the other key need for the fintech startup ecosystem in Saudi Arabia to flourish is the human capital base. Although there are growth and job opportunities in the market, Saudi startups might struggle to hire for technical skills according to Badir Program’s Nawaf Al Sahhaf. “The exponential growth in the number of tech startups emerging across the Kingdom has made competition for talent extremely high. Central to the concern of the industry’s talent shortage, all companies regardless of their size reveal that the key issue lies in filling vacancies with qualified local candidates as there are some jobs hardest to find talent in Saudi Arabia such as programmers, cybersecurity specialists, system architects, and engineers. In fact, the talent crunch is not just a concern in Saudi Arabia, but a global problem,” adds Sahhaf. Seeing the sunny side up, Islam Al Bayaa of KPMG tells International Finance that the government and tertiary institutions are committed to improving the human capital in the technology space and the government’s efforts should provide the solution. According to a Gulf News report, 58,726 Saudi students were studying in the US in 2018. The largest segment of students
in the US were studying engineering and IT (22,240). Ammar Bakheet is of the opinion that the impact of the returning technology educated Saudi students is already being felt in the tech startup ecosystem in Saudi Arabia. “I see nationals coming back home after studying in the US and other countries who are willing to work in startups. To give you an example, we as a startup were looking to hiring people for the role of credit and financial analysts. We received 70 applications in response to an advertisement of which 25 to 30 were of students who had graduated at a foreign university and had come back home.”
The UAE startup ecosystem is different Most of the startup innovation in Saudi Arabia is driven by Saudi nationals compared to the expatriate
Badir Program is focused on its KPI of creating
600 startups
3,600
jobs by 2020
76.3 %
of the adults in Saudi Arabia see opportunities to start a business – the second highest out of 49 countries analysed
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cover story fintech
“I see nationals coming back home after studying in the US and other countries who are willing to work in startups. For the role of credit and financial analysts we received 70 applications in response to an advertisement of which 25 to 30 were of students who had graduated at a foreign university and had come back home” Ammar Bakheet, Founding Partner and CEO, Raqamyah Platform
driven innovation in the UAE. While UAE startups attract more foreign funding, Saudi startup funding seems to be more national driven. UAE has free zones and other enablers that helps it to attract foreign investors and multinationals. Saudi Arabia’s Vision 2030 is focused on seeing a new pool of talent and new Saudi corporates dominating the future economy. The government’s decision to send large numbers of students to foreign universities over the last seven to eight years dovetails with this fact. With regard to funding, Saudi startups are beginning to attract the attention of foreign venture capitalists with the Saudi government is opening up the market. KPMG’s Islam Al Bayaa says, ”As is indicated, it’s a different model in Saudi Arabia. This probably gives rise to some strengths and weaknesses when compared to the UAE model.
But what’s more important is that we expect to see tailored models in the Kingdom developed by Saudis for Saudis.” Islam Al Bayaaexpects the trend of foreign funding to develop quickly in line with economic transformation in Saudi Arabia as barriers like regulations improve. He also says that foreign investment is not be the only solution. According to Islam Al Bayaa, domestic funds will invest in Saudi startup ventures if the structures are right. Badir Program provides funding avenues through personal networks, angel investors, and crowdfunding for its cohort of startups. “While Saudi Arabia is heading in the right direction in creating a robust entrepreneurship ecosystem, it needs to up the ante in making local startups visible and appealing to venture capitalists all over the world,” says Nawaf Al Sahhaf.
A breakout Saudi fintech startup is a matter of time How does the future look like for fintech innovation in Saudi Arabia? The recent regulatory reforms have focused on reducing the roadblocks to tech entrepreneurship. Another significant boost to the sector has been the rise of accelerators and incubators across the country. The country has over 40 business incubators and several accelerator programmes, 50 per cent of which have some form of government affiliation. Overall, the startup ecosystem in the Kingdom has become much more structured in recent years and is expected to grow with the support of government and private sector players, says the Badir Program’s Sahhaf. Badir Program, which is now present in eight cities in the Kingdom is focused on its KPI of creating 600 startups and 3,600 jobs by 2020. According to the 2019 Global Entrepreneurship Monitor report, around 76.3 percent of the adults in Saudi Arabia see good opportunities to start a business – the second highest out of 49 countries analysed. What are the chances of a breakout global or regional fintech startup emerging out of Saudi Arabia? A breakout tech startup may already be here — Foodics, a foodtech started with the support of the government by two Saudi entrepreneurs offers a cloud-based allin-one restaurant management system. Started in 2014, Foodics today has global clients in countries such as Thailand and Turkey. A global Saudi fintech startup could be next.
editor@ifinancemag.com
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Currency Euro democracy
opinion
Nathalie Janson Associate Professor of Economics NEOMA Business School
Governments' trilemma: Democracy, national sovereignty, and economic integration are mutually incompatible
Is the Euro a threat to Europe’s democracy? The year 2019 celebrates the 20th anniversary of the Euro. It is an ideal time to review what has been accomplished over these last 20 years of common currency in the Euro area. Has the adoption of the Euro fulfilled the hopes nourished by Euro citizens? The answer is far from a straight forward ‘yes’ based on the surge of nationalist parties in a significant number of Euro member countries, including the founding countries like Italy and France.
The Euro-area, wonderland of economic growth and competition? The main argument for adopting a common currency is so that countries in the Euro-area
30 Year Euro Area Economic Growth 3.13
3.86 2.11
1.75
1.90
2010 1978
2000
2005
2015
4.50
2018
Source: World Bank
can achieve greater economic performance thanks to increased stability and competition, which will ultimately benefit Euro citizens as they enjoy a higher standard of living. Indeed, as explained by Robert Mundell in his famous 1961 paper ‘A Theory of Optimum Currency Areas’, sharing a common currency in an integrated trading area fosters economic growth thanks to lower transaction costs due to the elimination of exchange rate fluctuations, increased price transparency, and competition. Has the promise of greater economic performance been delivered over the past 20 years? Based on the recent report published par the European Parliament in January 2019 entitled ‘Euro project, 20 years on’, the Euro area member countries have clearly enjoyed the longest period of steady economic growth since the establishment of the Euro despite the sovereign debt crisis. As stated, “since the establishment of the Euro and until the subsequent recession in 2011, GDP grew by 30 percent”. Nonetheless, the steady growth came at the price of a relatively lower level of economic growth as in the previous expansion where ‘GDP had grown by 40 percent,’ according to a London School of Economics study. Turning to data on wage per capita as a way to capture the situation of Euro citizens, they tell the same story as the GDP data: the volatility of wage
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per capita has been significantly less volatile over the period, but the growth of wage per capita has been comparatively lower. If we had not had the 2007 financial crisis that subsequently led to the sovereign debt crisis in the Euro area, the Euro could have been looked at as a success for its members as they began to deliver steady growth and economic stability through major economic integration.
The Euro, the sovereign debt crisis, and the rise of nationalistic parties The sovereign debt crisis has been the starting point of the strong criticisms addressed to the European
Since the establishment of the Euro and until the recession in 2011, EU GDP grew by 30%. In the previous expansion GDP had grown by
40% GDP
-- the steady growth came at the price of a relatively lower level of economic growth.
Commission and to the ECB that have been accused of making the population worse off. Since 2011, the GDP growth has globally flattened and countries bailed out have clearly suffered from a decrease in their GDP. It is hard to say whether Euro members could have performed better outside of the Euro area; countries bailed out included. Indeed, countries bailed out were characterised by structural weaknesses that have not resisted the global recession after the 2007 financial crisis. In the case of Greece, it can even be argued that its membership to the Euro delayed the crisis as investors kept buying Greek government bonds as a perfect substitute for any other Euromember government bond in the belief that Euromembers would rescue any country in financial trouble sharing the burden. As it happens, this was a wrong assumption as no rules had been clearly written. It does not come at a surprise that feelings of discontent occur when the bad times come and choices need to be made. As long as economic growth was steady, everyone was more or less benefiting from economic prosperity. When came the time of recession, resources became tight, choices had to be made, and population discontent started to spread.
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Banking and Finance
opinion
Nathalie Janson
The main discontent regarded the inability of governments to pursue their own public spending agenda due to the existence of the stability pact capping government deficit and debt – even if in reality the limits have all been bypassed during the worst of the economic recession – and prohibiting the monetisation of government debt. The incapacity of countries to recover was attributed to the inflexibility of the European Commission and the ECB. The situation would have improved if governments could have spent as much as much it took to restore economic activity printing money and devaluating in order to stimulate exports. The reason for the prolonged recession was essentially due to the lack of governments’ empowerment.
Printing money is never the solution The rise of nationalistic parties across Euro member countries is a straightforward illustration of that belief. Unfortunately, economics does not work that way. Spending by printing money has never brought any restoration of economic growth as some countries in South America or Africa have experienced again recently; it is usually the road to economic chaos. Most of the time, countries that have come under pressure with the spread of sovereign debt crisis are countries that have suffered from structural problems that had not been addressed during booming times. This had been the case especially in Portugal, Spain, Greece, Italy and France. Taking a different angle, it is even possible to say that countries struggling with longlived structural issues have mainly benefited from the Euro until the sovereign debt crisis because economic prosperity hid their internal problems. To conclude we can ask ourselves if the situation of the euro-member countries would have been that different if we had not had the Euro? The answer is clearly no since the Euro brought more stability to some countries thanks to the delivery of a more credible and stable currency compared to their national counterparts (just think about the devaluation of the Italian Lira, the Spanish Peseta or the French Franc during the time of the European Monetary System!). If we take a look around the world, we can see that demand for nationalistic policies are far from being
Most of the time, countries that have come under pressure with the spread of sovereign debt crisis are countries that have suffered from structural problems that had not been addressed during booming times.
exclusive to Euro area countries. Let’s start with the election of Donald Trump in the US and the trade war he has started with China! As theorised by the economist Rodrick, governments are now facing the impossible trilemma where democracy, national sovereignty, and global economic integration are mutually incompatible, just two of the three are mutually compatible. National sovereignty is indeed hardly compatible with democracy and economic integration.
Nathalie Janson has been Associate Professor of Economics at NEOMA Business School since 2001 and teaches mainly microeconomics, money and banking, and banking organisation and regulation. She has taught in many countries, including France, the United States, Colombia and China editor@ifinancemag.com
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Banking and Finance
feature Banking
Vietnam retail banking
Vietnam retail banking: Technology is key to success kedar b grandhi
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feature Retail Banking
The ‘animal spirits’ of Vietnam’s retail banking sector have been unleashed with tech integration the only major challenge
T
he retail banking segment in Vietnam has seen stellar growth over the past decade with around 40 percent of the revenue at certain banks now coming from the retail. According to a February 2019 report by Vietnam consulting and legal firm, Ant Consulting, this retail banking growth is a result of several factors such as stable inflation and interest rates, a favourable environment for foreign direct investments, and a shift from deficit to surplus of Vietnam’s current account. Vietnamese banks also stepped up focus on retail banking in line with the increase in interest in retail banking services as well as keeping up with the policy priorities of the State Bank of Vietnam, the nation’s central bank. Today, most Vietnam banks consider retail banking as an essential part of their development strategy. However, technology integration in retail banking services remains a key challenge for Vietnam banks. Quite a few banks in Vietnam that offer retail banking services lag in data mining and processing, product development, as well as synchronisation of databases and IT infrastructure. Speaking to International Finance, Rebaca Tan, associate vice president - analyst, Moody’s Investors Services, said that retail lending in Vietnam is relatively young with around a ten-year history. She added that at the end of 2018, the country had an estimated total loan size of around $60 billion which represented about 25 percent of its GDP. Between 2014 and 2018, retail loans had witnessed a rapid growth, registering a compounded annual growth rate of around 59 percent, she added. This, she explained was because of higher incomes and greater penetration of banking services. She has a high opinion of the country's credit infrastructure. Citing credit bureaus
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Banking and Finance
FEATURE Banking
as an example, she said, these were evolving with time and had seen good progress in the last few years. Citibank, the consumer division of American financial services company Citigroup, too said it had seen considerable growth in its Vietnam operations. A Citibank Vietnam company representative told International Finance that it had established the consumer bank in Vietnam in 2009 and had since been developing its momentum and growing its market share in key business areas such as credit cards, personal loans, cash advances, and insurance. With regard to its cards business, the representative said the introduction of a suite of Citibank PremierMiles World Mastercard, Citibank cash back Visa Platinum card, and Ready Credit, had helped its credit card customer portfolio to increase substantially, making it the major premium credit card issuer in Vietnam. With regard to loans, the representative said that Citibank Vietnam emphasises flexibility and convenience of credit management for the customers, by offering cash advance services at ATMs or unsecured loans with competitive interest rates. Meanwhile, the growth story of South Korea headquartered Shinhan Bank, in Vietnam further accentuates the progress Vietnam has made in developing retail banking. In this regard, Trinh Bang Vu, head of retail and corporate banking at Shinhan Bank Vietnam, told International Finance, “Over the history of nearly 26 years, Shinhan Bank has expanded its network across the country, from the north to the south, with 36 network units nationwide until August 2019. With a wide network of branches and ATMs across Vietnam and a modern ebanking service,
Vietnam retail banking
Shinhan Bank is serving 1.4 millions of customers by the end of August 2019.”
Challenges to future growth Moody’s Tan said she believed the future of the banking industry in Vietnam is positive, just like its past, although it came with a few challenges. This, she said could be in the form of increasing competition from new entrants as well as asset quality challenges stemming from rapid growth in previous years. Meanwhile Shinhan Bank’s Bang Vu specifically mentioned there would be two challenges. “The first challenge is new standards and conditions required for the capacity, organisational structure, and operation of financial institutions to play in the market. The second challenge arises from the business model in the finance and banking industry in Vietnam in the new era,” he said. With regard to the second challenge, Bang Vu explained that Vietnam was developing in line with the developed economies in the sense that conventional retail banks would be forced to change in order to survive, as going forward, an increasing number of financial transactions could largely be done through the digital banking applications and platforms.
Technology is key Both Tan and Bang Vu said they believed that technology is key and will play an active role in solving some of the challenges. Apart from this, Tan also said that risk management procedures would help. “To address these challenges, good technological and risk management procedures such as scorecards, credit checks, and borrower validation are key.” Meanwhile, Bang Vu was of the opinion that “..retail banks must
“Together with the increasing use of mobile devices and the internet, fintech could provide tools to improve access to financial and banking services for individuals, especially those in rural areas” Rebaca Tan, AVP– Analyst, Moody’s Investors Service
strive to strongly invest in technology, cooperate with fintech firms, train human resources, and restructure the business towards the lean, modern, and flexible approach.” A PwC Retail Banking 2020 report too highlights the importance of technology in the overall retail banking segment going forward. It expects the segment’s landscape to change significantly in response to various factors such as evolving customer expectations, regulatory requirements, and technology among others. And banks, it said cannot stand to remain the same and had to choose, either to be a shaper of the future, a fast follower, or to manage defensively, putting off change. “We believe that the winners in 2020 will not only execute relentlessly
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Vietnam Snapshot
90 Mn
Population - more than 90 million citizens
87%
under 54 years
20% Nick Chouksey, financial services director, consulting group PwC
hold bank accounts
3%
possess credit cards
against today’s imperatives, but will also innovate and transform themselves to prepare for the future. This future will require institutions to be agile and open, ready to explore different options in an uncertain world,” the report said. With regard to role of technology specifically in Vietnam’s retail banking space, Moody’s Tan said, there was a strong potential for fintech development in the country. This, she said was because of Vietnam’s low banking penetration – wherein only one-thirds of adults in the country possessed a bank account. “Together with the increasing use of mobile devices and the internet, fintech could provide tools to improve access to financial and banking services for individuals, especially those in rural areas”. She further added that because of
this potential, Vietnam was witnessing two developments. On the one hand, there was an emergence of several fintech startups especially those offering digital payment services. And on the other, banks in the country were building up their online and mobile banking platforms to enable existing customers handle more transactions online, she explained. Shinhan bank’s Bang Vu too said that technology would play a key role in Vietnam’s retail banking future considering both the rapid growth of the internet and the non-cash payment policy implementation in the country. “Therefore, the development of digital banks not only meets the needs of the majority of customers but also serves the needs of the banks themselves in expanding the distribution channels,
changing the competitive environment and saving its costs,” he said. Bang Vu added that technology would also bring in various advantages such as enhancing customer experience, retaining and attracting more customers, thanks to mobile banking and internet banking, and also helping improve the security for customers in transaction processing.
Current use of technology Suggesting that adoption of technology by retail banks in the country was already underway, Bang Vu said that it had launched an online product last year called the Mobile Banking SOL application. This, he said, came with features that ensured convenience and optimal security for customer transactions.
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Bang Vu added that Shinhan Bank Vietnam, as part of its focus toward technology, had partnered with fintech companies such as Momo, Moca, VnPay, Payoo, Zalo, and FPT to introduce digital banking and financial services to meet the diverse needs of its customers. He further said they were seeking more such partnerships in this space through fintech organisations and clubs. Finally, Bang Vu said his bank was continuing to invest in technology infrastructure. This, he said, included upgrading its core banking system, credit scoring system, customer identification system, data analysis system, and applying new technologies such as big data, AI, Open API, and so on in an effort to build a digital banking ecosystem. Meanwhile, Citibank too seems to be a frontrunner in the application of technology in its retail banking operations in Vietnam. Speaking on the same, its company representative, said that in an effort to support its digital transformation for customers in Vietnam, it had pushed forward several digital services aimed at improving the digital experiences for retail clients in the country. “Citi is a leading financial institution to use biometrics technology in Vietnam to enhance customer’s experience, as well as security for its consumers. We introduced Touch ID, a technology that uses finger print to verify customers using mobile banking on the smartphone. Citi also introduced a snap shot feature on mobile banking, that provides customers the quick view brief summary of all their accounts with Citi without having to log on. We are also exceptionally proud to be the first bank to introduce voice biometrics technology in Vietnam,” the representative explained.
Vietnam retail banking
Other technology achievements according to the representative included, Citi Vietnam becoming the first country globally to accomplish the milestone of 100 percent penetration with clients for e-statements, recording an 82 percent year-on-year growth in downloads of the Citi Mobile App in 2018 and finally Citi’s active app users increased by 47 percent year-on-year.
Government and foreign banks play a key role So while the future potential for this segment is positive it is also important to note that the government has played a key role in the development of retail banking sector of Vietnam. Moody’s Tan told International Finance that the government was striking a balance
between financial inclusion and systemic stability. As an example, Tan said that while the government is pushing towards greater financial inclusion, they are also wary of asset quality issues that could stem from rapid loan growth. “To this end, the State Bank of Vietnam has recently proposed stricter regulations on unsecured consumer lending for both banks and finance companies which, in our view, are credit positive because it will alleviate asset quality pressure by curbing excessive growth, which will lead to stronger risk-adjusted returns and support internal capital generation in the future,” she said. Meanwhile, with regard to foreign banks that have till date played an important role in Vietnam’s retail
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banks. “..demographic structure, stable political and social environment are also important factors in attracting foreign banks to Vietnam, especially when the global financial market become unpredictable,” he explained.
Huge unbanked population promises further growth
“State Bank of Vietnam has recently proposed stricter regulations on unsecured consumer which will lead to stronger risk-adjusted returns and support internal capital generation in the future,”
banking space, Tan indicated there was scope for more foreign banks to enter this segment. She said such banks had an opportunity in the form of partnerships with local banks or acquisition of finance companies in Vietnam, or subsidiarisation. She cited the example of Shinhan Card Company that had completed its acquisition of Prudential Vietnam Finance Company – the fourth largest consumer finance company in Vietnam by assets – in early 2018. She also gave the example
of Military Commercial Joint Stock Bank selling 49 percent of its stake in its consumer finance subsidiary to Shinsei Bank in 2017. Meanwhile, Shinhan Bank’s Bang Vu said that considering there was a huge demand for retail banking in Vietnam but only a limited supply, there was a lot of potential in the country not just for Shinhan Bank but also other foreign banks and investors. He further added that Vietnam’s comparatively better environment further attracted foreign
Overall, the future outlook for retail banking in Vietnam is positive according to the report by Ant consultants. The report explained that there was a large scope for the development of this segment in the country and the primary reason was that 87 percent of the population were under the age of 54. Citing the State Bank of Vietnam (SBV), the country’s central bank, the report further revealed that while 20 percent of more than 90 million citizens in the country held bank accounts, just three percent of the population possessed a credit card, further highlighting the scope for growth in the retail banking country. Moody’s Tan too had similar views. She said loans to the retail segment in Vietnam will continue growing over the next two to three years, buoyed by the country's young and urbanising population, whose wages were increasing steadily, and because of the increasing use of credit by consumers to make purchases.
editor@ifinancemag.com
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Banking Brazil fintechs
opinion
Banking and Finance
Brazil’s famously closed financial system is ready for change with an open attitude to innovation
Wesley Montechari Figueira Group managing DIRECTOR VBR Brasil
Rigid Brazil banking dallies with fintech Over the last few years, there’s been massive consolidation in Brazil’s banking system, reducing the number of large banks from 10 to 15 in 1990s, to the current five. These five banks manage around 71 percent of Brazil’s credit operations. Although this is less than the 74 percent it was in 2016, it still is incredibly high. The five banks are Caixa Econômica Federal, Banco do Brasil (Federal), Itaú Unibanco, Bradesco, and Santander (Private) . The reasons for this are Brazil’s complex and highly bureaucratic regulatory and tax environment which makes it difficult for smaller institutions to operate and the hyperinflation, from 1976 to 1994, that left only larger banks operating in this sector.
Between 2016 and 2018, the number of banks in Brazil dropped from 176 to 172. This was the consequence of larger acquisitions such as the purchase of Citibank’s national operations by Itaú, and HSBC leaving Brazil and selling its operations to Bradesco. But smaller institutions, such as micro credit specialists, are still being launched and while they represent a small percentage of the market, they have grown from one in 2016 to 10 in 2018.
Trends in Brazil and the USA appear to differ Bank opening rules are more flexible in
When compared to the USA, Brazil has fewer banks 6506
6263
6061
Number of Banks
7001
5836
5596
5330
5102
Brazil
4909
6001 5001
USA
4001 3001 2001
155
159
157
156
152
174
176
175
1001
Year 2010
2011
2012
2013
2014
2015
2016
2017
1
Brazilian Central Bank
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the US than Brazil, resulting in higher numbers of smaller regional banks with local market knowledge and a deeper understanding of local risks. Brazil’s concentrated banking dynamic means there are too few financial institutions impacting interest rate levels while lower interest rates will only be achieved when a ‘critical mass’ prompts change.
The fintech disruption in Brazil: A welcome change Brazil has supported entrepreneurs in creating and nurturing fintechs startups. Brazilian fintechs follow the low cost concept – a big selling point when compared to banks. And at a time when base interest rates are dropping to a historical low, fintechs in Brazil are emerging to offer quality services and uncomplicated systems to a younger audience, comprising mainly millennials, centennials, and those disloyal to big market ‘names’. In addition to these fintechs, other Brazilian fintechs such as Méliuz, Toro Investimentos and PagSeguro will undoubtedly disrupt Brazil’s traditional banking system and bring new agility and versatility to a market in need of competition. In response to these ‘challenger banks’, traditional bankers have started to acquire a number of successful Fintechs. What is not clear, however, is whether their money or appetite will run out sooner than
the entrepreneurship drive of the Brazilians. Yet another Brazilian financial innovation is the introduction of credit firms. The central bank recently approved two credit firms that prior to this, were nonexistent in the Brazilian market. This is expected to encourage greater market dynamism. The first is SDC – a direct credit company using its own resources to run credit operations through electronic platforms. It cannot access public funding. The second is SEP – a personal loan company, specialising in peer-to-peer lending. A classic financial intermediary, charging a fee to do so.
Brazil cautious on cryptocurrencies The Brazil central bank recently accepted the IMF’s recommendation to recognise ‘crypto-assets’ in its international accounts’ statistics and issued a report to the market to be alert on the risks arising from escrow operations and the negotiation of so-called virtual currencies’. The Brazil central banks report outlines that crypto currencies are not issued by financial authorities, there are no guarantees on the conversion for sovereign currencies and they’re not supported by real assets. Also, the purchase and safeguarding of crypto currencies are subject to imponderable risks, so no support mechanisms are available. Those who hold crypto currencies will be on the bank’s radar – due
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Banking and Finance
opinion
Banking Brazil fintechs
to their potential illicit origin. The central bank states that it cannot regulate or defend reputational damage caused by crypto dealing. The bank also makes it clear that crypto currencies are not legal electronic currencies. Meanwhile, international transfers are not exempt from Brazilian currency control regulation and documentary proof will be required for the transfers. Although there are no new regulations, but given the belief that Brazil has contributed to the crypto currencies’ valuation (as a haven for corrupt money and drug trafficking), the bank will keep a watching brief on the movement of cryptocurrencies with the support of new technologies.
use and will not provide a safety net for those dealing in this currency. It is equally clear that the Brazilian financial market is set to evolve and with no sign of higher inflation or interest rates on the horizon, it is a welcome boost to the economy in turmoil.
Fintechs a welcome addition to a rigid banking system
Wesley Montechari Figueira is group managing director, VBR Brasil Group, which provides audit, tax, consulting, cyber security, risk and transactions’ advisory and M&A, tax, corporate law and outsourcing services for businesses in Brazil and overseas. VBR Brasil Group is a member of Praxity Global Alliance.
The evolution of fintechs in the consolidated Brazilian market and the central bank’s open approach to them essentially favours the Brazilian citizens and adds to the dynamism of a rigidly regulated industry. However, it is clear that the central bank discourages crypto currency
editor@ifinancemag.com
Most Brazilian fintechs tend to specialise in payments, insurance, loans and debt negotiation, financial efficiency, crowdfunding, and blockchain and bitcoin. It is interesting to compare the top fintechs in Brazil. Company
Capitalisation
Founded
Characteristics
Banco Original (Digital bank)
$550 million
2010
The first fully Brazilian digital bank and first to offer a totally online bank account. It uses leading cybersecurity technology, facial recognition, and other leading techniques for user safety. Launched following the merger of former JBS Bank and Banco Matone, it has behaved more recently like a regular bank with the founder former Brazilian Central Bank President and Minister of Finance, Henrique Meirelles following previous successful business models. With over $3 billion in assets it is a solid financial institution that prefers the old Brazilian financial market culture.
Nubank (Digital bank)
$234 million
2014
Nubank started by offering clients credit cards without annual fees and interest rates below the market average. A fully digital bank, it has no branches or account managers, yet it offers ’traditional’ services, such as a regular bank accounts, interest paying deposits and other facilities. It is a growing success story, mainly due to lower interest rates and costs.
Creditas (personal credit)
$74.7 million
2012
Creditas specialises in personal loans, offering lower interest rates than traditional providers. Investors include Rockaway Capital, Redpoint Ventures, Quona Capital, QED Investors, Naspers, Napkn Ventures, Kaszek Ventures, and International Finance Corporation.
Guiabolso (personal finance)
$27 million
2012
By 2015 fintech Guiabolso had over one million clients and its numbers are growing. A financial control system helps users sync bank accounts, plan expenditure, check and secure loans and source financial advice. It has heavily invested in security and privacy technologies to prevent bank data exposure, but these are primarily for desktop users, posing a barrier for younger mobile device users.
eBanx (payment channel)
$30 million
2012
A success story among Brazilian fintechs, eBanx provides a lifeline for half the Brazilian population without access to bank services and ecommerce. Aimed at those with a mobile phone, but no credit card and bank account (who find it difficult to buy online), it is a payment facilitator, using the Boleto Bancário (bank payment note) and online debit and credit cards. It supports websites such as AliExpress, Wish, Spotify, Facebook, Airbnb and Sony PlayStation.
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company
profile
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SanJay Chakrabarty Deputy CEO, Head Of Retail Banking OCB
OCB
w
OCB: PIONEERING BANK IN DIGITAL TECHNOLOGY International Finance: Could you share some facts and figures about the digital transformation process of OCB over recent years? How did these changes help improve your business performance last year?
The internet economy of Vietnam is roughly 3% of GDP
45% of OCB's credit cards are sold through online channels
Sanjay Chakrabarty: OCB was one of the first banks in Vietnam to embark on the digital journey. We were very clear that our digital strategy had to be embedded in our core business. So, we didn’t simply go around copying ideas from developed markets and implementing them. We put in a lot of effort to understand where we could harmonise our digital strategy with our ongoing business model which includes the physical network. We worked with well-established consultants building out our roadmap and it took us a while to get full clarity on the digital transformation that we wanted to bring about. We realised that it is so much more than just technology, it is also mindset and culture. Today I can say comfortably that digitalisation and automation is part of our corporate DNA. This process has changed the way we do business. 90 percent of all new customers we acquire now have at least one online transaction in the first six months. 45 percent of our credit cards are being sold exclusively through digital channels. We have unsecured pre-approved loans that are delivered and fulfilled through digital channels. We are now selling insurance as well as investments through our mobile app — OCB Omni, platform. This has resulted in significant enhancement of customer experience. Our frontend staff work seamlessly between digital touchpoints and physical ones.
What kind of technologies has OCB been investing in upgrading your banking system and services in recent years? How’s the
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company profile
ocb
progress of implementing digital core banking system to accommodate Internet banking payment services and digital payments at OCB at the moment? The enhancement of technology is a continuous process. We upgrade, no matter how small, every month. Today we have a frontend that cuts across mobile app (OCB Omni), online banking and systems used by tellers. What that means is any customer can interface with us through any of the channels – physical or digital, and still have a consistent experience. But that’s just the frontend. At the backend we have a customer relationship management system (CRM) that gives us 360 degree view of the customer at all times. We have a workflow system for loans so that loan applications can be tracked as they go through different stages and the customers can be kept informed. Our datahub that ties in with the 360 degree customer view, can make trigger-based offers for various products on a real-time basis through mobile apps. We connect to our partners through APIs which then support frictionless payments through our bank. All these capabilities have required significant upgrade of systems, but more importantly they have called for re-orientation of mindset among people in the company who design products and customer experience. As you have alluded to in your question, one of the most primary needs for a retail customer is
to be able to make payments. For a customer to stay loyal to a bank, the bank must enable frictionless payments for most of the recurring payment needs of a customer. If the bank can’t do that it will not be relevant to the customer anymore. We understand that. So, we have built direct payment network with phone companies and utility companies, hundreds of schools, key universities and hospitals. We have also tied up with platforms that give us access to large merchant networks where we have set up our QR code based payment platform. At OCB we have also continued to enhance our credit card and debit card capabilities which were the first means for cashless payments. The internet economy of Vietnam is roughly 3 percent of GDP which is one of the highest in this part of the world and that has been made possible by banks such as ours which have relentlessly pursued digital payments.
How has OCB’s operational model and business strategies changed in order to adapt the digital transformation trend as well as to capture opportunities from the local banking sector? I would like to look at this question at a little differently. For OCB, digital transformation is embedded in operational model and business strategy. So, digital transformation does not change operational model, but it is the other way round where we are using digital capabilities to change our operational model. For instance, we have been able to build ecosystems for most of our partners across SME and retail banking product lines. Our retail banking products are used by our partners to serve their employees and customers better. The interconnectivity of products and services across different financial needs is possible only because we can build and support it digitally. Now with open APIs we support real-time interactions with most of our partners. Digital transformation has allowed banks like ours to assemble their complete suite of products and services on one single platform that the customers can access seamlessly. This is important for the customers to be loyal to banks. If a bank offering is discrete and siloed, if they cannot
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Our mobile application has been recognized as one of the best in the market. We have built products and services that are targeted at digital platforms.
build out product compositions that remove the pain-points of businesses and individuals they will lose their customers to fintechs who are so much better at addressing a narrow vertical in the financial value chain.
Interaction between banks and customers has now been considered among the biggest challenges of digital banks in Vietnam. What do you think about this view? What barriers have OCB been facing in the process of digital banking services? Interaction between customers and businesses on digital platforms for any industry is not without challenges. Besides, banking has another very important aspect to it – trust, which is difficult to establish purely on digital channels. So, for digital banks this can be a struggle. However, for OCB, we harmonise physical and digital touchpoints. We have clear understanding of the strengths that each channel brings and so this issue is not so much of a problem for us. Digital platform is great for simple transactions such as payments and paying bills or even gathering information when deciding on investments or buying insurance. However, for value added products and services such as getting a mortgage loan digital channels have to be supported with face-to-face interactions. I think the banks need to understand that clearly. Vietnam is still going through transformation of regulatory framework that will set clear guidelines for e-KYC or electronic signatures and once that happens the banks will be able to onboard lot more customers and serve them
online. This will drive financial inclusion in the country where the ratio of banked population is still quite small at 30 to 35 percent.
What are your plans and strategies to accelerate technology investment for the bank’s digitalisation process in the coming time? OCB is committed to digitisation and digitalisation. This is true not just for customer interfaces, but for every aspect of the business. We have partnered with various consultants and even Fintechs to accelerate the journey. Our mobile application has been recognized as one of the best in the market. We have built products and services that are targeted at digital platforms. Our customer service has highest ratings from end-users after we automated various process steps and reduced turnaround time for key services. We have loyalty of our partners as we have built out eco-systems for them that offer financial products to their employees and customers with least friction. We are seeing progress and value from different parts of the business coming through from digitisation and digitalisation. We understand that this is an ongoing journey. We have a company culture where we seek speed and simplicity in everything we do. The key components that sustain this drive are of course, embracing new technology, the orientation to automate as many manual processes as possible, using the data to understand customer needs at all times and present solutions rather than sell products and finally, empowering the customers to make their own choices.
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Banking and Finance
feature finance
Climate Bonds
Samuel Abraham
How do you sell the value proposition of Green Bonds in the emerging markets to balance infrastructure financing and environmental safeguards?
T
oday, with the acceleration of climate change and global climate activism reaching a fever pitch, there are virtually no corporate organisations or governments in the world that are environmentally conscious. What if you could invest in financial instruments with predictable returns that finance projects related to energy efficiency, pollution control, clean transportation, sustainable water management, and development of environmentfriendly technologies? Enter Green Bonds or Climate Bonds that are asset linked securities backed by the issuers' balance sheet to finance solutions to the earlier mentioned kinds of environmental challenges. In 2012, global Green Bond issuances amounted to only $2.6 billion. That situation has changed dramatically since then. According to a report by Climate Bonds Initiative and others, the labelled bond market size for Green Bonds in 2018 was $167.6 billion and cumulative issuances since 2007 have now hit $521 billion. In 2018, Green Bond issuances by emerging markets institutions and governments amounted $43 billion
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Emerging markets Green Bonds: Raising the profile
In 2012, global Green Bond issuances amounted to only
$2.6 bn The labelled bond market size for Green Bonds in 2018 was
$167.6 bn
or just 3 percent of all regional bond issuances, according to the World Bank’s International Finance Corporation (IFC). Emerging markets should be the centre of global Green Bond issuances considering that the emerging market nations that are facing the worst effects of climate change, compared to the developed world. So what can be done to raise the share and profile of emerging market Green Bonds? And how do you convince emerging market issuers and investors about the value proposition of Green Bonds? According to the IFC, emerging markets are not only the most exposed to climate change risks, but also face
an unprecedented challenge to decarbonise their economies, while maintaining a sustainable economic development trajectory. IFC says that one of the biggest challenges faced by emerging markets is balancing increased infrastructure financing with environmental and social safeguards to ensure that new infrastructure needs meet climate-smart requirements in the quest to build sustainable infrastructure. But, where will the capital come from?
$147 trillion of institutional capital in the world There is $147 trillion of private institutional investor capital in the
world, according to IFC. Much of this amount is located in developed markets and Organisation for Economic Cooperation and Development (OECD) countries alone account for $84 trillion. Developed countries mainstream institutional investors commonly have little exposure to emerging markets bonds and long-term infrastructure financing projects, possibly due to the scarcity of appropriate investment opportunities. Jean Marie Masse, chief investment officer, Financial Institutions Group at IFC told International Finance that leveraging this capital remains a challenge. In the developed world policy makers, issuers, and investors have
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Climate Bonds
The gaps in emerging markets is due to the fact that historically issuers have mobilised green bond issuances. The European Union (EU) took significant steps through a proposal for an EU Green Bond Standard. However, a similar mobilisation is missing in the emerging markets and investors are not aware of such investment opportunities, says Masse. The World Bank’s IFC is a pioneer in the Green Bond market. Since launching the Green Bond Program in 2010, IFC remains one of the world’s most prolific issuers of green bonds. In 2013, IFC was the first issuer to list a billiondollar green bond in the global market. This was heralded as a landmark transaction which proved green bonds as a mainstream product. To date, IFC has issued around 150 green bonds in 16 currencies worth almost $10 billion. With regard to why the emerging markets lag in Green Bond issuances and investment, Jean Marie Masse of IFC points to the lack of clear environmental, social, and governance (ESG) management practices in emerging markets. “IFC has identified a gap in the market: the absence of a global standard on green bond external reviews. As a result, green bond investors often receive incomplete or incomparable information across their green bond investments. The harmonisation of external reviews, including second opinions and other related services, will contribute to the development of accountability and quality standards for the emerging markets green bond market,” Masse told International Finance. What is the reason for the gaps in the data quality in the emerging markets? According to Masse, the gaps in emerging markets is due to the fact that historically issuers have not been formally required to
not been formally required to report their internal initiatives on ESG factors. This variations in data quality makes it difficult for investors to determine the quality of ESG analysis, as well as the relevance of this analysis to long-term financial results - Jean Marie Masse, chief investment officer, Financial Institutions Group, IFC
report their internal initiatives on ESG factors. This variations in data quality makes it difficult for investors to determine the quality of ESG analysis, as well as the relevance of this analysis to long-term financial results.
Most developed segment of thematic impact bonds As of now, the Green Bond market is today the most developed segment of thematic impact-oriented bonds. Green bonds deliver several benefits to issuers and investors. The main benefit for issuers is that they can target a larger investor base by attracting a dedicated pool of green and socially responsible investors. Positive publicity and media coverage are the other softer benefits of issuing a Green Bond. According to data from Bloomberg Barclays Indexes, in the euro market, green bonds returned 0.34 percent in 2018, while the overall investment-grade market returned 0.41 percent. In addition to comparable returns, Green Bonds provide an
additional element of transparency to ensure that the funds are used to invest in environment friendly assets. Nuru Mugambi, the curator of the Kenya Green Bonds Program, and a director of Kenya Bankers Association, explains that the Green Bond market is skewed in favour of developed nations because the development finance institutions first pioneered Green Bonds. “However, we have seen more activity in the past two years in the emerging markets and I think such activity should be supported and amplified,” she told International Finance. According to Mugambi, in developing countries, the limitations to expanding the market for Green Bonds include the need for market awareness and understanding, as well as, policy bottlenecks and capacity for the issuance of green bonds, including pipeline identification. Climate Bonds Initiative Head of Latin America, Thatyanne Gasparotto told International Finance that
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Green bond issuances in emerging markets from 2012 to 2018 Total
$140 bn 28 235 34% (cumulatively)
countries
issuers
of the issuances in US dollars or euros
key aspect here is enhancing market participants’ understanding of green bonds, its processes and opportunities. “By building local capabilities across issuers, governments and investors, we can develop a green investment pipeline,” she adds.
Sovereign green bonds as inspiration With regard to developing a solid pipeline of green bonds in emerging markets, Thatyanne Gasparotto is of the opinion that sovereign bonds from national governments provide a powerful signal to local stakeholders, both potential issuers and investors, about the value proposition of green bonds. “In Latin America, we are already seeing the impact of the Chilean bond in stimulating debate. We saw a similar effect following the Nigerian and Fijian sovereign Green bond issuances in emerging markets, and in Europe from the initial Polish and French issuances,” Gasparotto told International Finance.
2018 issuances
$43 bn
3% of total bond issuances in emerging markets. Green bond market in emerging markets (2018e)
$136 bn
0.5% of outstanding EM bonds Potential outstanding green bonds in emerging markets- 2021
$210 bn - $250 bn
The second action point she suggests is building a green bond market from the ground up. She calls for active market development programmes at the local level involving all the key finance stakeholders, including regulators, issuers, major banks and insurers, verifiers, pension funds, and other potential investors. It is key to identify sectors, opportunities, investment pipelines all with the aim of getting the first round of bonds into the market, according to her. She also calls for active involvement and support from the relevant multilateral development banks and development financial institutions in issuing Green Bonds. In March 2018 Indonesia issued the very first sovereign green sukuk in US dollars. The five-year issuance raised $1.25 billion and, as expected, it reached a broad range of investors including Islamic, conventional, and green investors. In fact, the Indonesian green sukuk was oversubscribed, signaling the growing market demand for sustainable
and responsible investments or green bonds. In February this year Indonesia again issued another green sukuk worth US$ 750 million with a five-and-a-halfyear maturity period. With regard to the Indonesian green sukuk issuance, James Kallman, the Chief Executive Officer of Praxity network member firm, Moores Rowland Indonesia (MRI), told International Finance, “It’s good news anytime a bond’s oversubscribed and this is pretty impressive, particularly for a country that historically has a low Islamic finance penetration.” Another emerging markets sovereign green bond pioneer is Nigeria, which issued the first Climate Bonds certified sovereign green bond by an African nation in 2017. The five-year debt issuance of N10.69 billion due 2022 will see proceeds used to invest in projects that would reduce Nigeria’s carbon emissions by 40 percent by 2030. In June this year, Nigeria’s Debt Management Office announced that the country’s second sovereign green bond offer has been oversubscribed by 220 percent. The offer for N15 billion yielded a total subscription value of N32.93 billion. Confirming the success of the African nation’s green bond programme, the DMO said that the number of subscribers for the second issue had doubled when compared to the first issue in December 2017. In Africa, the Kenyan government has been very progressive in developing environment-friendly policies and signalling the market towards promoting a green and circular economy. says Mugambi about the prospects of green bond issuances in Kenya. In Asia, no discussions about green bonds can be completed without
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Climate Bonds
“Together with the Green Bonds Program Kenya partners we also are engaging mentioning the giant strides that China has made. China’s official China Daily newspaper said that the country’s green bonds revolution is part of a project to turn the country from the biggest global source of environmental pollution to the global leader of climate change mitigation. In 2018, Chinese institutions issued $30 billion worth of green bonds that met international green bond classification norms. James Kallman of Moores Rowland Indonesia says that, with three of the world’s four most populous countries and two of the largest democracies in Asia, including Indonesia, Asia Pacific is the region where we can expect greater attention and growth in green bond issuance, particularly given the multi trillion-dollar infrastructure needs. “As with most products and services, no company can ignore the China market and China is embracing green finance in full throttle. They have announced huge green bond issuance plans for the Belt and Road Initiative, plus domestically there may be no bigger threat to the leadership than the environmental concerns of the population,” adds Kallman. But in the emerging markets, were the thinking of investors in driven by value, how do you convince investors that Green Bonds have a value proposition beyond ethical investing and safeguarding the environment? James Kallman tells International Finance, “Ethically managed companies not only make society better, they also have strong brand identification and consistently produce better returns over time. There is simply no bigger ethical issue today than climate change and in a highly corporatised, globalised world, corporations have a higher recognised responsibility not only not to do bad, but to do good.” Development financial institution
the National Treasury to see how to incentivise innovations, such as green bonds, through fiscal policy that attracts both issuers and investors,” - Nuru Mugambi, the curator of the Kenya Green Bonds Program, and a director of Kenya Bankers Association
IFC says that to develop the Green Bond market in emerging markets, the institution will work on model green bond transactions issued by emerging markets issuers, release market research reports to disseminate information about the opportunities in green finance in emerging markets and develop tools to communicate about it. “Mobilising public and private institutional investors to deploy billions of dollars in capital for climate investments is essential to alleviate the impact of climate change. The award winning Amundi Planet Emerging Green One (EGO) Fund does just that: as the largest green bond fund in the word, the fund is helping to scale climate finance in emerging markets,” says IFC’s Jean Marie Masse.
How do you ensure that green bonds are actually green? Green bond investors need to be wary of ‘greenwashing’ of projects that are not environmentally friendly. A power producer in China, for example, once issued green bonds worth $150 million for a 2000MW coal fired power project. How do investors ensure
that Green Bonds are actually green? Climate Bonds Initiative's Gasparotto says that the emerging markets have several guidelines - the Green Bond Principles and Climate Bonds Standard, for example. “There are several stock exchanges in Latin America that already have green bond listing guidelines with others under consideration. So there are developments at market level happening now,” she says. A consortium of the world’s leading investment banks established best practice guidelines called the “Green Bond Principles” (GBP) in 2014. Ongoing monitoring and development of guidelines is now conducted by an independent secretariat hosted by the International Capital Market Association (ICMA). The GBP outlines the required transparency, accuracy, and integrity of information to be disclosed and reported by issuers to stakeholders. However, the Green Bond Principles do not provide details on what constitutes ‘green’. Moores Rowlands’ Kallman says that while there are several similar standards, over a period of time it is inevitable that the most vigorous, most consistent, and most
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“As with most products and services, no company can ignore the China market. They have announced huge green trusted one will become the accepted as the golden standard. Kenya, for example, has established a Green Bonds Program which has taken a comprehensive approach that incorporates international best practice into the local context. The programme partners include Kenya Bankers Association (KBA), Nairobi Securities Exchange (NSE), Climate Bonds Initiative, FSD Africa, and FMO. “The programme has adopted the International Capital Market Association (ICMA) Principles and Climate Bonds Standards for green bonds. Moreover, the Kenya Capital Markets Authority has released issuer guidelines that recognise these two global standards as acceptable standards for green bond certification, "says KBA’s Nuru Mugambi. The GBP recommends that the use of proceeds to be disclosed in the form external reviews at the time of green bond issuances, and then through annual impact reports released by green bonds issuers. IFC conducted a study to analyse the scope and quality of ESG data collected by leading ESG data providers and identified market constraints. First, there are gaps in data reported by companies in the emerging markets. Second, ESG data providers use proprietary ESG scoring frameworks, which differ with respect to material relevance, indicator selection, and weightage. These differences result in conflicting ESG analysis and scores. Third, ESG reporting standards and guidelines differ across and within emerging markets. Even when companies report on the same topics, the data they report may not be comparable. To solve these challenges, in the first half of 2019, IFC has explored ways to improve material ESG reporting,
bond issuance plans for the Belt and Road Initiative, plus domestically there may be no bigger threat to the leadership than the environmental concerns of the population,” - James Kallman, Senior Advisor and CEO, Moores Rowland, Indonesia
including working with an ESG data provider to increase the scope of coverage of emerging market issuers as well as broadening the coverage of collected ESG indicators.
IFC for the use of AI and ML in ESG management Jean Marie Masse of IFC told International Finance that IFC is also exploring ways to use of artificial intelligence and machine learning to support ESG data collection and analysis. He observes that opportunities exist to complement IFC’s work with ESG data providers to expand coverage of emerging market issuers and widen real-time information collection consistent with the IFC ESG Performance Indicators using AI and ML. “Overall these efforts will play a key role in increasing market transparency and catalyse additional opportunities and investments in quality emerging markets green bonds. This is fully in line with IFC’s developmental mission and the green bonds in emerging markets are at the beginning of what we expect will be a fast-growing pace
of new issuances meeting mainstream investors investment criteria, mobilising critical funding to help emerging markets cope with the consequences of climate change,” says Jean Marie Masse. James Kallman of Moores Rowland Indonesia tells International Finance that mass adoption and mainstreaming of green bonds is inevitable, including in emerging markets. “Corporations are for profit animals and thus will follow consumer preferences, and relatively quickly so, in this age of information and disruption. Take the case of electric vehicles. Previously a niche space for a few brand lines and, of course Tesla, today there will be no automobile companies without an EV strategy. And this industry is a case in point for the entire green economy. There have perhaps been few companies in history with a lower cost of funding than Tesla. No capitalist company wants to ignore those funding benefits, the unique branding, or the consumer and institutional loyalty,” says Kallman.
editor@ifinancemag.com
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Banking and Finance
Islamic Finance
opinion
Kunal Malhotra head of credit trading SHUAA Capital
With concerted efforts from the governments and private sector GCC can challenge Southeast Asia in Sukuks
How can GCC lead Sukuk market? The global issuance of Sukuks by public authorities (sovereigns), financial institutions, and corporates reached $123 billion in 2018 ($116.7 billion in 2017). The first half of this year has seen a particularly strong performance with the value of Sukuks issued globally hitting $87.4 billion, according to the latest figures from Moody’s Investors Service. About 30 percent of this issuance was in US Dollars. This also represents a 36.5 percent increase compared to the same period last year and while second half activities are expected to moderate, overall Sukuk issuances are up 6 percent year-onyear at $130 billion, illustrating why Islamic finance hubs around the world are competing to
Global issuance of sukuks 2018
Why has Southeast Asia dominated the Sukuk market?
2017 H1 2019
$123 Bn
increase their share of the issuances of such an attractive financial instrument. The market continues to be led by Southeast Asia, particularly Malaysia, which saw a 41 percent increase in volumes to $53 billion in the first half – most of the issuances being in local currency Malaysian ringgit. In the GCC, issuances rose 9 percent to $26.5 billion with Saudi Arabia accounting for just under half of that. In total in 2019, Moody’s expects Sukuk issuances from the six members of the GCC to climb to approximately $48 billion, slightly higher than the $46 billion achieved in 2018. An area to watch out for will be the local currency Sukuk issuances from the GCC mainly in Saudi Arabian riyal. In the last couple of years, over more than $ 20 billion has been issued for regional accounts.
$116.7 Bn
$87.4 Bn
Benefiting from a well-established framework and supportive ecosystem, Islamic bonds in Southeast Asia, especially Malaysia and Indonesia, are by far the most dominant financial instruments locally. In part, that is due to the attractive fundamentals of the Malaysian industry leaders. Malaysian Sukuks in general have demonstrated steady and decent long-term returns, exhibited lower volatility, and generated higher yields relative
Source: Moody's Investor Service
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to comparable fixed-income securities. In addition to their appealing risk-return profile, Sukuks also enjoy advantageous tax treatment in Malaysia. Malaysia’s tax framework is conducive for both Sukuk issuers
and investors, and robust capital market regulations and policies have further instilled market confidence in these securities.
The engines of GCC Sukuks
Regional sukuk issuance H1 2019
Malaysia
$53 billion Up by 41%
GCC
$26.5 billion Up by 9%
The GCC has witnessed an unprecedented growth in local fixed income markets in the last couple of years, with decent size issuances in the conventional and Sukuk space. Countries like Saudi Arabia and Oman have issued almost $86 billion in the last three years following the drop in oil prices to fund their deficits. The issuance programme from the entire GCC region has been predominantly in US dollars, while GCC has witnessed a growth in the local currency market as well especially with the Saudi Arabian riyal Sukuk issuances. The funding has played an important role in easing the liquidity pressure in local markets, where the market has opened to receiving funds from foreign investors. Indeed, Sukuk issuances have mostly been led by sovereigns and quasi-sovereign entities in the GCC, while among regional corporates, UAE and Saudi corporates and financial institutions are proving to be the most active in issuing Sukuks. Year to date out of the $26.5 billion issuances – about $ 11 billion
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Banking and Finance
opinion
Kunal Malhotra
has been issued in US dollar — with the biggest ones being Saudi Telecom and the Government of Sharjah – each around $1.2 billion. Along with the benchmark issuances from sovereigns and GREs, the GCC has also witnessed an increase in demand from investors on lower rated or unrated corporates (approximately 25 percent of the $11 billion has been below investment grade names). Following this demand, the GCC had a first-time issuer – The First Group, which is a local property and hospitality specialist – issuing a dollardenominated five-year Sukuk listed at the London Stock Exchange. As the sole arranger and underwriter for this listed Sukuk, SHUAA Capital saw good demand from regional and international sukuk and conventional houses. Overall the risk appetite and willingness to look at smaller issuers have increased with market participants looking for credits with strong fundamentals rather than just ratings. The GCC has also seen Dubai driving innovation in the region as a way of further enhancing its status as a global centre for Sukuks. In May, regional retail and leisure conglomerate Majid Al Futtaim Group issued the first corporate green Sukuk in the MENA region, demonstrating how Sukuks can tap into broader market trends such as SRI (socially responsible investing). With many of the region’s governments focusing on knowledge and innovation as a way of diversifying their economies in a post-oil era, the potential for GCC nations to lead the way in Sukuk innovation will undoubtedly play a part in growing their market share of Sukuks overall – for example in the potential application of new technologies such as blockchain. Similarly, one of the limiting factors for the growth in Sukuk issuances has historically been the limited number of existing Shariah scholars and skilled personnel. As Islamic Finance continues to gain prominence in our region, and governments invest in their education provision, this is becoming less of an impediment.
Gaining more momentum Investors in the GCC region are keen to see further efforts being made to close the gap with Southeast Asia. Governments can play their part in this by
With governments focusing on knowledge and innovation as a way of diversifying their economies in a post-oil era, the potential for GCC nations to lead the way in Sukuk innovation will undoubtedly play a part in growing their market share of Sukuks overall
boosting regulations that encouraging Shariahcompliant product standardisation. In addition, the governments can increase transparency, as well as market access and availability of timely information – for example, the UAE’s establishment of the Higher Shariah Authority. Meanwhile, the private sector can support and embrace policymakers’ efforts, as well as educate their clients about the benefits of Sukuks as a financing mechanism. With this shared determination, the GCC can be confident in its ability to build its status as a market leader in Sukuks.
Kunal Malhotra is head of credit trading at SHUAA Capital, a Dubai-based financial services provider which offers fully integrated financial services to corporate and institutional clients as well as family businesses and high-net-worth-individuals. editor@ifinancemag.com
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Banking and Finance
Interview
Yehia Badawy co-founder, Rain
Currency
Rain is the first Arabian Gulf cryptocurrency exchange to enable users to buy, sell and store bitcoin, ethereum, litecoin, and ripple
Rain, the first Arabian Gulf cryptocurrency exchange if correspondent
Cryptocurrency innovation and regulation is a mixed bag in the Arabian Gulf, except may be in a few places like Bahrain. While certain governments in the region have completely banned the use of this digital asset that is designed to work as a medium of exchange, a few have taken a positive stance toward it. Some of the Middle Eastern countries that have deemed cryptocurrencies illegal include Oman, Saudi Arabia, Qatar, Jordan, Kuwait, and Lebanon. They have cited risks of using virtual currencies for money laundering and supporting terrorism as well as the volatility of bitcoin, the world's biggest cryptocurrency and its involvement in financial crimes and cyberattacks as some of the reasons behind their decision. However, some countries like Qatar and Saudi Arabia have shown their willingness to explore blockchain, the technology that enables the existence of cryptocurrency. For instance, in Saudi Arabia, a few government agencies have tied up with American companies to foster the development of blockchain in the country. Riyadh Municipality’s technology partner, Elm Company has partnered with IBM to allow placing government services and transactions on the blockchain. Meanwhile, some Middle Eastern countries have been supportive of both blockchain and cryptocurrency. These include Bahrain, Iran, Turkey and the UAE. While some of these countries have already planned or plan to, setup a legal framework for cryptocurrencies, most of them are said to have also shown their willingness to explore blockchain, as well. Bahrain however stands out among these countries for being the most proactive and for taking several initiatives towards such a financial digital
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Bahrain cryptocurrency exchange
transformation. Specifically with regard to the cryptocurrency, its most recent initiative includes, issuing the final rules on a range of activities related to such digital assets. A CBB statement in this regard said, “Crypto-assets operating under block chain distributed ledger systems have drawn much regulator attention globally, and the CBB rules are aimed at ensuring that the related activities are brought within the regulatory perimeter and are subject to comprehensive regulatory and supervisory measures.” Such support at the government level has led to the burgeoning of several blockchain and a few cryptocurrency startups in the region across different verticals. Bahrain based cryptocurrency exchange, Rain, stands out for becoming the first company in the Middle East to acquire a CRA licence and for securing seed funding. According to a July 2019 statement, it said, “We are happy to announce that Rain has acquired the Crypto-Asset Module (CRA) licence from the Central Bank of Bahrain (CBB). Rain is the first crypto-asset brokerage to earn a regulatory licence in the Middle East and joins an elite group of brokerages internationally. In addition to the licensure, we are
also pleased to announce that we have closed a seed round of $2.5 million.” In an exclusive interview with International Finance, Yehia Badawy, co-founder at Rain tells more about the challenges faced by Rain and the innovations that the company plans to introduce.
International Finance: What are the challenges faced by Rain since its founding it in 2016? Yehia Badawy: The Rain team was united by the belief that bitcoin and other cryptocurrencies will lead to a financial system that is fast, inexpensive, and accessible to everyone. We hail from the cryptocurrency industry having spent time at Abra, BitGulf, Bitquick, Digital Cotton, Glidera, and Kraken. For bitcoin and cryptocurrencies to reach mainstream adoption, the industry needs brokerages all around the world to provide access to the network. Through our research, we found many companies serving this function around the world. However, it became clear the Middle East was underserved. Over the last three years we have spoken with regulators, banks, and built meetup communities in the
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Banking and Finance
Interview
Yehia Badawy co-founder, Rain
Currency
By becoming a licenced exchange, we are able to form more lasting relationships with our banking partners and payment processors. This has led to more stable banking relationships, better pricing, lower fees, and predictable deposit and withdrawal schedules for our customers."
Middle East to help legitimise this new technology. It took a considerable amount of effort and perseverance to meet with the different regulatory bodies in the region, and align on a shared vision. After conversations with many regional regulators, it was clear to us that the Kingdom of Bahrain is the best home for an early crypto-asset brokerage in the region. We began working closely with the CBB, as well as other forward thinking institutions, such as the Economic Development Board (EDB) and Bahrain Fintech Bay (BFB). In September of 2017, we were invited to join the CBB’s regulatory sandbox, starting our journey toward being the first licenced cryptocurrency exchange in the Middle East.
What does being the first company in the whole of Middle East to receive a CRA licence mean for the company? By receiving the crypto-asset licence, Rain has demonstrated that we comply with the Central Bank of Bahrain requirements around capital adequacy, cyber security, insurance, reporting, corporate governance, and a number of other factors that ensure that our company is prepared to serve institutional and retail customers. By becoming a licenced exchange, we are able to form more lasting relationships with our banking partners and payment processors. This has led to more stable banking relationships, better pricing, lower fees, and predictable deposit and withdrawal schedules for
our customers. We are very proud of this accomplishment as it leads to a more stable and safe service for cryptocurrency customers across the Middle East.
What significance does receiving this licence have on Bahrain and the Middle East as a whole? We believe Bahrain is a major fintech hub in the region, and this new development will further cement its position. Cryptocurrency companies and enthusiasts now have a clearer path to success.
Which are the other regions where Rain has applied for a licence? When do you expect to receive them? We believe in regulatory redundancy, and are constantly working with regulators in the region to increase awareness, and become as compliant as possible.
What is the outlook for innovation in cryptocurrency in the Middle East? We are proud to have led the way for a cryptocurrency hub in the GCC. We are confident that more companies will emerge in Bahrain and the region.
How does Rain plan to use artificial intelligence? We are constantly looking to make our service more secure and user-friendly, so we are open to implementing new technologies that will assist us in achieving those objectives. One application of AI is in our compliance system that monitors transactions and ensure they are adhering to our policies.
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Bahrain cryptocurrency exchange
What are the ways in which cryptocurrencies can be misused? How will Rain curtail these possibilities? We embarked on a journey to become a licenced and regulated company to work with regulators and make sure that best practices are being applied to all facets of our business. We apply best in class technologies to ensure that we are enabling legitimate use of cryptocurrencies only.
What are Rain’s future plans over the next three years?
How will Rain utilise the $2.5 million it raised recently? With a licence secured and our initial seed capital raised, we believe that this is the foundation of a company that will last for decades. Rain will maintain focus on our mission to create a top international exchange and provide a way to buy, sell, and store cryptocurrency in a regulated, secure, and compliant way. We also plan to expand the team to meet growing customer support and engineering needs, as well as invest in new technology.
We are already serving clients in Bahrain, UAE, Saudi Arabia, Kuwait, and Oman where our client base continues to grow on a daily basis. Rain clients can buy, sell and store bitcoin, ethereum, litecoin, and ripple via our website www.rain.bh or our iOS or Android application. As a brokerage, our clients buy from Rain and sell to Rain. We plan to launch an exchange soon, where clients can buy and sell from each other. Through the brokerage, we will be offering lower transaction fees, similar to the global standard. We expect the exchange to be available by the end of 2019. We think this is the right timing as the region matures, with increased liquidity and demand.
How does Rain serve institutional clients? Through Rain Desk, institutional clients, family offices, and HNWIs receive a bespoke service tailored to their specific needs, in addition to the facilitation of over-the-counter transactions. Rain Desk offers clients a dedicated account manager, deep liquidity, and secure custody options.
Is Rain’s only source of revenue, the transaction fee it charges on cryptocurrency purchases?
With a licence secured and our initial seed capital raised, we believe that this is the foundation of a company that will last for decades. Rain will maintain focus on our mission to create a top international exchange and provide a way to buy, sell, and store cryptocurrency in a regulated, secure, and compliant way."
Yes, that is correct.
How many individual and institutional clients does Rain have? Where do you see this number in three years? We have seen increased demand from retail and institutional clients, especially in the past year. We see this number growing consistently as the regulatory environment matures, and more companies are established in this space. editor@ifinancemag.com
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ﺑﻴﺖ اﻟﺨﺒﺮة ﻟﻠﺘﺄﺟﻴﺮ اﻟﺘﻤﻮﻳﻠﻰ
chnolease כ
Bayt El Khebra: One of Egypt’s fastest growing non-banking financial services companies
The Non-banking financial intermediaries are starting to play an important dual role in Egypt’s financial services sector. They complement the role of banks, filling the gaps in their diversified range of financial services. They also compete with the commercial banks in a race to be more efficient and responsive to the needs of customers. Bayt El Khebra is one of the fastest growing companies among the non-banking financial intermediaries in Egypt. Bayt El Khebra is characterised by its solid financial position due its high equity level Bayt El Khebra has one of the highest equity levels in the Egyptian market Bayt El Khebra employs specialist staff and systematically upgrades the skills of the staff using a road map for continuous learning through training courses in Egypt and abroad Bayt El Khebra strongly believes that customers are our partners and we always support them and advise them to help reach their goals. We provide specialised and specifically tailored financial solutions to our clients Bayt El Khebra is a smart financial house running fully automated and updated IT systems with the highest level of security and confidentiality Bayt El Khebra provides clients unique services in engineering consultations and project management Bayt El Khebra has a special unit for crisis management to act immediately in case if our clients are facing any problems or crises
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Bayt El Khebra operates in two main sectors:
1- Finance - 3 companies: Leasing - Bayt El Khebra Technolease Factoring - Bayt El Khebra Technofactoring Real estate Finance - Bayt El Khebra Technoinvestment 2- Investment - 3 companies: Real estate development and asset management Bayt El Khebra Technoinvestment Tourism activities: Bayt El Khebra Technotours Corporate and retail activities
Bayt El Khebra’s innovation plans
To develop the financial leasing industry, Bayt El Khebra Group has launched its EasyLease programme targeting smaller financial leases with a maximum of EGP50 million or $3 million per contract in response to the expectations of many customers who seek to join the clients of the Bayt El Khebra Group's companies. Along with the factoring and real estate finance companies, Bayt El Khebra plans to establish new microfinance and epayment companies that confirms the group's integrated formula for dealing with its customers. The aim of the company is to drive financial inclusion in Egypt by introducing all segments into the financial and banking system. This will be achieved through the financing of small and medium enterprises and microfinance.
Bayt El Khebra eyes expansion
The position that Bayt El Khebra has achieved in Egypt makes it able to aspire to expand its activities to the overseas markets in the Middle East, Africa, and Asia.
Bayt El Khebra’s Corporate Social Responsibility endeavours
The success of the group is based not only on professionalism, but also on its belief in and commitment to social responsibilities through its charitable association for social development, which is named after Khaled Abdallah the group founder. This association is funded exclusively through a large percentage of the group's profits and does not accept any donations from others at all.
An award-winning company
Bayt El Khebra was awarded the most innovative financial solutions company award recently. We consider the award a respectable recognition of our efforts for continuous innovations.
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company
profile Solid finances drive Bayt El Khebra’s growth
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Bayt El Khebra Group
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With a commanding leadership in Egypt’s financial services market, Bayt El Khebra eyes overseas opportunities
IF Correspondent Initiative and national commitment were the principles on which the founder of the Bayt El Khebra Group, the late Abdullah Salam, founded the company when he issued the first commercial register in 1949, after some years of starting his business. The group later diversified its activities. Bayt El Khebra made several investments in infrastructure, including contributing to steel structure works for power plants and providing equipment for the launch of the agricultural mechanisation project in Egypt’s countryside. The investment in agricultural equipment was based on Abdullah Salam’s belief that agricultural mechanisation was essential for the community. In Abdullah Salam’s opinion, energy security was a critical factor for the growth of the national industry and he initiated a plan to provide all the necessary steel structures for the power plant of a major Egyptian iron and steel giant company in cooperation with the German company AIG. He also joined the efforts of businessmen and companies that developed projects to contribute to the requirements of the war in 1973. He continued to be committed to the society till the end of his seventies through charitable and social affairs until he passed away in 2006. Abdullah Salam set an example for Bayt El Khebra to follow and Bayt Al Khebra today follows the model that he established. The current leaders of Bayt El Khebra tell International Finance that they are always aware of the present opportunities and challenges, and respond to them based on the company’s founding principles. So, each generation transfers its expertise to the next to remain strongly in the forefront of the economic advancement of Egypt. Bayt El Khebra’s leaders tell International Finance in an exclusive interview how the company, with its unique way of dealing with each customer, has established its current leadership position in Egypt’s financial services sector.
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company profile
Bayt El Khebra
International Finance: What is the contribution of non-banking financial companies to Egypt’s economy and how did Bayt El Khebra achieve leadership in this segment? Bayt El Khebra: Compared with the financial services provided by the banks, the contribution of the nonbanking financial companies is not so big in Egypt. This is due to the nascent nature of these companies in the financial services field and this is why their contribution to Egypt’s economy is still modest. On the other hand, these companies show high growth rates compared to established companies. Bayt El Khebra achieved leadership in this segment because of its specialised policies for the sector compared to the other companies operating in the segment. Bayt El Khebra follows a policy of providing financial services to its customers in the shortest time, besides being ever ready with liquidity, whatever the value of the credit facilities needed by its customers.
Bayt El Khebra is known for its solid financial position. How did the company achieve this position? Khaled Abdalla, chairman, Bayt El Khebra.
Bayt El Khebra does not deal with all kinds of customers. We choose to deal with the elite customers. Bayt El Khebra engages these customers after comprehensively investigating their financial position, reputation, the back log of their financial
activities, and their dealings with other banking and non-banking institutions. Bayt El Khebra deeply studies each credit case covering all aspects of the case. We do not take a credit decision before knowing well that the repayment of the credit facilities are fully guaranteed. This is the reason why there are no non-performing loans at all on our books, and we never had to enter into legal action with anyone of our customers. However, if any of our customers are facing a financial problem, we help them recover their position by supporting them to solve the crises and difficulties they are facing. The integrated services that Bayt El Khebra provides for its customers helps differentiate us in facing all the financial needs of our customers including leasing, factoring, mortgage, economic consultation, project management, and crisis management.
Could you please provide us some examples of the tailored and customised financial solutions that you provide to customers? If you refer to the factoring financing sector, you will find that we offer tailored and customised diversified financial solutions to our customers. We have three customised programmes under the factoring business that fit the needs of each customer. The first is technofactoring which is provided to customers with high volumes of credit cases. The second is easy factoring for lowest volumes with other conditions that fit with this is kind of factoring programme. The third programme is the fast factoring programme that targets other kinds of customers by holding protocols with their clients using a certain amount that helps them deal with guaranteed suppliers.
What are the range of services that Bayt El Khebra provides in engineering consultation and project management? Bayt El Khebra has two financial and investment arms. The financial arm consists of three companies: leasing, factoring, and mortgage businesses through diversified financial programmes. The investment arm also consists of three companies that specialise in
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economic and engineering consultation besides project management and crisis management. We provide diversified and integrated financial services to our customers – the needs of our customers do not stop with the financial solution. So, we extend services to fulfill all their other needs as well. This is why besides dealing in financial instruments, we provide engineering consultation and project management services to our clients. Bayt El Khebra is committed to a strong partnership with all its customers from full support through evaluation and analysis to offering solutions and alternatives to helping promising projects to take off and adding to the list of successful projects in Egypt. We try to help the pioneering Egyptian entrepreneurs succeed in their fields.
The contribution of the real estate finance sector to the real estate industry in Egypt is low compared to other countries. How does Bayt El Khebra plan to revitalise the real estate finance sector in Egypt? Bayt El Khebra is currently studying the way to activate services in real estate financing through the company that it established for this purpose. This type of financial solution currently faces legal obstacles such as the percentage limit of the investor revenue compared to the value of the installment that the investor has to commit to pay periodically. On the other hand, the Bayt El Khebra’s policy is to deal with a certain volume in each financing case, and by following the legal limit, we will obliged to deal with very small volumes of credit cases, which goes against our policy. We are expecting changes to some of the recent laws that are considered to be obstacles to activating mortgage financing in Egypt.
What is your outlook for the factoring business in Egypt? How has Bayt El Khebra Technofactoring performed in the Egyptian Market? The factoring business is growing day by day in Egypt, and at Bayt El Khebra we are expecting a substantial growth rate in factoring this year.
We are targeting our existing leasing customers and covering factoring activities for them by providing them more liquidity through factoring their financial rights against others. The factoring business at Bayt El Khebra grew by at a 100 percent rate in 2018 compared to 2017. We offer integrated financial services including working capital financing, credit risk protection, and receivables management and collection, by equipping sellers and the buyers to deal with open accounts in export and import operations without the need to open bank letters of credit. We do this by providing a liquidity ratio of up to a similar amount of the value of financial rights in certain cases.
Ibrahim Mahlab, CEO, Bayt El Khebra
What is your outlook for the real estate development market in Egypt? As we said before, we are waiting for the removal of the legal obstacles facing real estate financing through a new mortgage law. At the same time, we are studying proposals to activate the real estate financing business. One of the proposals is to establish protocols with real estate promoters who offer programmes to their customers in short term finance, and we then offer longest term finance to them in collaboration with the promoters.
Egypt’s central bank has decided to provide mortgage finance to mid-income homes to drive more real estate development in Egypt. Will Bayt El Khebra’s real estate development business benefit from this move and how? No, we did not benefit from this move as this
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company profile
Abdalla Khaled, Bayt El Khebra (Left) Mohamed Khaled, Bayt El Khebra (Right)
Bayt El Khebra
privilege is directed to low and mid-income customers who are not our targeted customers, as it is our policy is to deal with a minimum number of customers with high volumes of credit cases.
Will the government’s new initiatives help expand Egypt’s tourism sector and what are the positives that Bayt El Khebra Technotour’s business sees? Certainly, the government’s new initiatives will help expand Egypt’s tourism sector. One of Bayt El Khebra’s unit companies is working in the field of planning and establishing residential communities as well as establishing and managing tourist villages and hotels. We believe that the future of Bayt El Khebra’s Technotour’s business is promising in Egypt after it achieved a very high growth rate last year.
Could you tell us more about Bayt El Khebra’s new EasyLease Programme? Bayt El Khebra Group has a launched the EasyLease programme targeting smaller finance lease contracts with a maximum value of EGP50 million ($ 3 million) per contract in response to the expectations of many customers who wish to deal with Bayt El Khebra Group. This shows the group's commitment to developing new and integrated financial tools to deal with customers, whether for fixed assets or current assets and also our commitment to financial inclusion, which is one of Egypt’s top priorities as a nation.
What are Bayt El Khebra’s plans for innovation in the payments and microfinance space? With regard to the payments space, Bayt El Khebra is following the new non-cash instruments payments law No. 18 issued in 2019, which stipulates that payments transactions will be non-cash transactions if the transaction is within a limit that the law will fix when it is issued. As for the microfinance space, Bayt El Khebra Group is analysing the proposal to establish a company for microfinance and payments, this shows the group's commitment to developing new and integrated financial tools for its customers, whether for fixed assets or current assets, to drive financial inclusion in Egypt. This will be achieved through the financing of small and medium enterprises (SMEs) and microfinance.
What are your future expansion plans for the MENA region and Asia? We are planning a major launch on the national, regional, and international levels, with new ideas to increase the scope of the group's contributions. This will be done by investing in successful global companies to increase market share in their business segments. The aim of such a step is to strengthen the group's share of the national and international markets in those segments.
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feature healthcare
affordable healthcare Southeast Asia
SE Asia: Healthtech makes affordable healthcare a reality kedar b grandhi
In Indonesia, doctor consultation at a hospital costs IDR250,000 but on Halodoc, its just IDR40,000
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outheast Asia, where access to quality healthcare is patchy, healthtech solutions are realising affordable healthcare services at scale. According to a report by Galen Growth Asia (GGA), a healthtech research, analytics and advisory firm in Singapore, this region is striking out on its own path among other Asian regions in terms of healthcare investor interest. According to the recent HealthTech Investment Landscape report, healthtech companies in Southeast Asia raised a total of $189 million in the first half of 2019. This, it said, is three times of what was raised in the same period last year with some of the noteworthy deals being Halodoc, CXA, Biofourmis, Docquity and KaHa.
How is healthtech making healthcare affordable? With regard to how healthtech is making healthcare more affordable and accessible, Julien De Salaberry, CEO at Galen Growth Asia, told International Finance, “A general rule of thumb, will be that digital health is lowering the cost of entry into healthcare for innovators and, therefore, facilitating the democratisation
of healthcare as consumers or patients seek solutions online.” Citing the noteworthy deals as examples, he said that while, Halodoc was allowing for easier and cheaper access to medicines, Biofourmis was helping reduce the cost of drug clinical trials and CXA was providing seamless access to health insurance and its consumption. Felicia Kawilarang, Halodoc’s VP marketing communications further told International
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Finance that the Indonesian healthtech company, which connects patients with doctors, insurers, labs, and pharmacies through its mobile application, was making healthcare affordable by ensuring patients paid for just the doctors service fee in a way that they do not have to bear the operating costs of running a hospital or clinic. “A consultation with a doctor in the hospital will on an average cost about IDR250,000 but at Halodoc our doctors on average cost about IDR40,000 for a 30 minute consultation,” she explained. Another example is Malaysia’s Naluri, which offers professional and confidential health coaching. Speaking more about the company, Azran OsmanRani, Naluri’s CEO told International Finance that it works with partner
insurers, corporate employers, and healthcare providers to identify at-risk populations, meaning those who have elevated levels of blood sugar and blood pressure among others and offer them a fully-digital health coaching service. In terms of how it was making healthcare affordable, Osman-Rani said while typically structured intervention programmes like a Diabetes Prevention Programme where patients receive counselling from a team of dieticians, nurses, and doctors, could cost between $1,000 and $2,000 per patient, for a four month programme, at Naluri, a similar programme which included, a before and after health screening, a mental health test and the provision of a bluetooth-connected weighing scale, would cost under $100, since all interactions were done online.
Osman-Rani further added that their solutions in traditional mental support were also more cost-effective when it came to group healthcare that is usually subscribed by corporate employers. While traditionally, in this area, support is in the form of an ‘employee assistance programme’ which comprises a telephone counselling hotline and face-to-face sessions, with Naluri, employers were assisted to identify the 20 to 30 percent of employees who are most at risk to enrol them in its digital coaching programme, where its monthly subscription rates came with unlimited chats with its psychologists and other healthcare professionals. This, he said, costs much lesser than a traditional single face-to-face hourly counselling session. A Singapore example of a disruptive healthtech solution is
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FEATURE healthcare
mClinica. Operating across Indonesia, Philippines, Vietnam, Malaysia, Thailand, and Cambodia from its headquarters in Singapore, this startup is making healthcare affordable by connecting pharmacies across South East Asia to people, using mobile technology. Its CEO Farouk Meralli told International Finance that its mobile platform helps address several challenges at the pharmacy level including patient affordability and adherence. He further explained that its platform helps pharmaceutical companies address the affordability of medications through targeted discounts while promoting long term adherence through customised health education and refill reminders. “Patients simply visit participating pharmacies and are registered in the programme by providing their mobile phone number. Through our platforms we have reduced the price of medicine by up to 37 percent and increased adherence by more than 30 percent making a tangible impact inpatient health,” he added. Another Singapore example of a disruptive healthtech company is MyDoc. Dr. Snehal Patel, CEO and co-founder at this digital healthcare provider said healthtech enabled faster and more accurate collection and analysis of important real-time health and behavioural data, thereby reducing the need for costly treatment. In addition, he said, also enabled identifying and addressing inefficiencies and wastage in healthcare to further save on unnecessary costs. Specifically, with regard to his company, which covers seven countries in Asia, Dr Patel said, they had a clear objective and business model to help the patient stay healthy and make healthcare
Southeast Asia
With Naluri, employers were assisted to identify the 20 to 30 percent of employees who are most at risk to enrol them in its digital coaching programme, where its monthly subscription rates came with unlimited chats with its psychologists and other healthcare professionals. - Azran Osman-Rani, Naluri’s CEO
more affordable by making them avoid expensive hospital treatment. And in cases where they do need to engage with healthcare professionals, MyDoc, he added, ensured they are seen quickly, by the right professionals, with costs tightly controlled and monitored.
Value addition: Healthtech simplifies data Dr. Patel added that apart from saving costs, the company was also helping its customers in reducing confusions and duplications of key information related
to their health which further saves time. “From the patient's perspective the legacy model of healthcare is very often confusing, fragmented, disjointed, and opaque. They are passed from one place to another with little to no coordination, connectivity or cohesion. Key information and data sit in disconnected silos and filing cabinets and do not follow the patient on their life-long journey in healthcare. This results in a great deal of duplication, unnecessary appointments, wasted time and gaps in healthcare data and can or do lead
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mClinica effect
Our platform helps pharmaceutical companies address the affordability of medications through targeted discounts while promoting long term adherence through customised health education and refill reminders - Farouk Meralli, CEO, mClinica
to undiagnosed health issues or, worse, misdiagnosis and very costly hospital treatment,” he said. MyDoc, however, helped avoid the same by guiding the patient through their care journey, ensuring they are referred to the right provider and at the right time apart from ensuring the patient had their health record with them for life, which would help them ask questions, consult a doctor or pharmacist any time they need to, irrespective of where they go. Naluri’s Osman-Rani, also said there were other healthtech benefits. One such benefit he said was making healthtech accessible to a larger population considering there is a shortage of medical
specialists in the region. Citing Malaysia as an example, he said, considering there are about 13 million adults in his country who had mood disorders or chronic disease risks and that there were only about 200 practising psychologists and about 600 practising clinical dieticians, conventional sessions such as face-toface therapy or counselling sessions would only help one million Malaysians and ignore the remaining 12 million who need help. Apart from this, he added that healthtech solutions such as those being provided by Naluri were making it more convenient and less timeconsuming for patients as they, unlike traditional healthcare programmes,
Reduced the price of Medicine by
Increased adherence by more than
37%
30%
do not require patients to make inconvenient transport arrangements to actually go and visit a doctor at a clinic or hospital. With regards to Halodoc, Kawilarang said that her company’s other benefits too included making people’s lives more convenient and also helping them save time. “On average in Jakarta, Indonesia’s capital city, a patient’s journey to go to hospital and back home takes a total of 4 hours 30 minutes due to traffic and waiting conditions in hospitals, while with Halodoc it merely takes seconds to get connected to a doctor and get your medicine delivered to your home,” she explained.
Technology is at the core of healthtech With regard to the technologies being used by healthtech companies, mClinica’s Meralli told that most of them were developing solutions using artificial intelligence and big data technologies. At mClinica in particular, Meralli said they employed an array of technologies including social networking technologies to connect pharmacies, machine learning to manage patient refills, and image recognition to digitise prescriptions at the pharmacy level. Halodoc’s Kawilarang too said they use AI and machine learning based solutions. These, she said were rapidly productised and taken to production, to
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Southeast Asia
“On average in Jakarta, Indonesia’s capital city, a patient’s journey to go to hospital and back home takes a total of 4 hours 30 minutes due to traffic and waiting conditions in hospitals, while with Halodoc it merely takes seconds to get connected to a doctor and get your medicine delivered to your home,” - Felicia Kawilarang, VP Marketing Communications, Halodoc
allow for efficiencies, cost savings and a distinct competitive edge. Jaffry Mohammed, head of healthcare practice and senior VP, IT at UST Global, an American digital services company which has invested in MyDoc, told International Finance that there were a few patterns of technology adoption that they were seeing healthtech companies focus on. First, he said was the leveraging of data science and deep AI for propensity of disease, triage of medical conditions, prediction of diagnosis and personalisation of treatment. Second, he said was the integration of IoT into clinical practice. In this regard, he explained that devices at home, work, and hospitals were all feeding continuous data streams that were being collected, interpreted, and converted to inputs for clinical interventions and personalisation of care plans. Third, he said was the use of augmented reality and continuous imaging in a clinical or surgical setting.
And finally, he said was the use of AI and ML for non-invasive detection of disease such as skin scans, retina scans, and even voice samples. All these were new diagnosis methods that were being enabled using such latest technologies. “This is by no means a comprehensive list. The intersection of technology and medicine continues to inform many new disruptions in healthtech,” he said.
Constant evolution key to overcoming challenges Like any industry, healthtech too faces a few challenges to grow. According to Dr. Patel the primary challenge was to get all the various stakeholders across the healthcare spectrum comfortable with using and relying on new technologies and new ways of doing things. Another challenge he said was to prove that healthtech is not only safe, secure and reliable but also more convenient, simpler, more cost-effective and, most importantly, results in improved healthcare outcomes.
The final challenge, he said was convincing payers. This, he said, was very different to convincing patients as they are motivated by very different things and have very different pain points. Meanwhile Naluri’s Osman-Rani said the challenge they were witnessing was healthcare providers being reserved in launching its programmes. This he said was understandable and was primarily because they wanted to see more clinical evidence before prescribing digital health coaching solutions to their patients. Halodoc’s Kawilarang opined that the biggest challenge that they faced was the lack of awareness for healthtech, apart from the low trust in using digital solutions for healthcare needs. Halodoc’s Kawilarang however said these challenges would naturally subside with time and with more exposure. MyDoc’s Dr. Patel too said the challenges could be overcome but it could be a slow, iterative process
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feature healthtech
The primary challenge was to get all the various stakeholders across the healthcare spectrum comfortable with using and relying on new technologies and new ways of doing things. Another challenge is to prove that healthtech is not only safe, secure and reliable but also more convenient, simpler, and cost-effective - Snehal Patel, CEO, MyDoc
that requires a lot of patience and understanding of the differing priorities and concerns of each key stakeholder. “It could not be further removed from the now infamous 'move fast and break things' motto of Silicon Valley. Healthcare is, arguably, the most guarded and sacrosanct industry of all.� He further added that it was not a one-way street as well. Healthtech companies, he explained cannot force a seemingly robust technology solution upon stakeholders and had to instead also listen to learn from the many counterparties and stakeholders within the eco-system, and constantly evolve their models and offerings to adapt to the ever-shifting landscape that they are helping to shape and develop.
Industry moving form niche to mainstream So considering healthtech faces a few challenges even as it uses the latest
technologies to make healthcare more affordable to the common man, an important question is, what does the future hold for this space? According to Dr. Patel there are many factors that indicate that the macro tailwinds for healthtech could not be more favourable. These factors, he said included large funding and investments in this sector coupled with a rapidly aging population, increased wealth, a burgeoning middle-class, heavy public and government support for technological innovation, high mobile internet penetration capable of reaching even the most remote areas and now even carrying out commercial drone deliveries. He added that the industry was also in a transition phase, moving from niche to mainstream. This was because of governments, payers, which include organisations that take care of financial and operational aspects of providing healthcare to citizens, providers and
patients rapidly adopting healthtech solutions due to their ability to solve various issues of accessibility, quality, and cost that the traditional healthcare models were ill-equipped to address. Going forward, the arrival of 5G would further boost this sector as the increased internet speeds will help overcome major barriers that are currently present in providing high-quality and affordable healthcare, Dr. Patel said. The healthtech industry is currently highly fragmented, with many highly innovative companies, each focusing on addressing and improving different parts of the complex healthcare ecosystem. However, the next few years could make it inevitable for them to all come together and once this happens, they would be in a position, Dr. Patel said, to challenge and displace many of the large, deep-pocketed incumbent legacy players. editor@ifinancemag.com
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analysis
Technology UAE artificial intelligence
AI is expected to contribute 14 percent of UAE’s 2030 GDP
UAE leads AI-led digital transformation in the Middle East IF Correspondent
PwC in a recent report said that it expects AI to contribute up to $15.7 trillion to the global economy in 2030 and the Middle East is not to be left behind in this worldwide AI revolution. With companies and organisations in the region deploying AI across various verticals to boost efficiencies, the report estimates that the Middle East could accrue two percent of the total global benefits of AI in 2030, which translates to about $320 billion. Within the region, the PwC report highlighted United Arab Emirates (UAE) as one of the countries that could lead the region in AI implementation. It said AI could contribute about 14 percent of UAE’s GDP in 2030 and this would be the largest share when compared to other countries in the region, in relative terms. This, however, seems unsurprising considering the prominence the country has given to this technology, so far. UAE made its AI ambitions evident after it became the first country in the world to have a dedicated minister for AI — Omar Sultan Al Olama was appointed as the Minister of State for Artificial Intelligence, way back in October 2017. The move had then come just days after the country’s Prime Minister Sheikh Mohammed Bin Rashid Al Maktoum announced the UAE Strategy for AI, a first of its kind in the region with the main objective to make UAE the leader in the field of AI investments in various sectors and ensure this technology is implemented
across nine sectors such as transport, healthcare and energy, to boost efficiencies.
AI investments already initiated in the UAE Businesses in the UAE, the PWC report added, had already initiated huge AI investments with the government acting as an early user of the technology. And one company that is helping UAE businesses with their AI agenda is Microsoft. Speaking to International Finance, Ihsan Anabtawi, chief operating and marketing officer at Microsoft Gulf said, that the company was providing AI solutions across several core areas and to several customers in the UAE. One such area he said, was related to developing the skill sets of people. Microsoft Gulf has recently started an AI Business School to help provide specialised curriculums focusing on AI strategy, culture and responsibility. In this regard, Anabtawi said, the company will bridge AI skill gaps, by training the current generation of youngsters to be the leaders of tomorrow. Another area, according to Anabtawi was innovation. He said that Microsoft Gulf was building coalitions for responsible innovations in the UAE, by working closely with the government and other stakeholders to create a responsible, communitycentric approach to developing AI solutions. The third area is in digital transformation. He explained this area was being enabled by spearheading the adoption of cloud and Azure AI technologies to
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Analysis UAE artificial intelligence
help its clients better engage their customers, empower dedicated cloud data centres in the UAE, to serve their employees, optimise their operations, and regional customers and help them achieve more,” he transform their products and services. explained. The final area was society. In this regard, he said Anabtawi added that their general goal was they were “generating positive societal impact by to democratise AI and make it accessible to every applying Microsoft technologies to address challengeindividual and organisation in the UAE, and areas such as the environment, sustainability, to do this it was infusing intelligence across all accessibility, and humanitarian programmes.” their products and services. “Azure AI, through In terms of specific UAE organisations, products like Azure Machine Teaching and Anabtawi said Microsoft Gulf was working with Azure Cognitive Services, provides developers companies such as Etihad Airways, Smart Dubai, and data scientists the AI tools to train custom Majid Al Futtaim Ventures and government entities data models and add vision and knowledge such as Abu Dhabi's Smart Solutions and Services capabilities to applications – simplifying the Authority (ADSSSA) and Dubai Electricity and process of bringing more advanced intelligence Water Authority (DEWA) to develop AIinto their organisations. We expect based solutions. UAE organisations looking to compete With regard to government entities, in the new global digital economy will Anabtawi said, Microsoft had signed find these capabilities invaluable.” strategic MoUs with Smart Dubai, and With regard to DEWA, Anabtawi Our goal was the Abu Dhabi Smart Solutions and said, that his company was working to democratise Services Authority (ADSSSA) as part of with this government entity to support AI and make their ongoing efforts to accelerate digital ‘Rammas’, a chatbot service built on it accessible transformation and boost adoption of Microsoft Bot Framework and hosted to every various technologies. “Microsoft believes on Azure, which was helping transform individual and AI is a key part of an organisation’s digital customer experiences using AI organisation transformation strategy, and we have long capabilities. Meanwhile, with regard to in the UAE urged public and private organisations Dubai-based Majid Al Futtaim Ventures, across the Middle East to consider that a group that operates across industries when formulating migration plans. such as shopping malls, hotels, cinema, To help them, we recently opened two and hypermarkets, Anabtawi said that
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Technology UAE artificial intelligence
they were leveraging various Azure AI solutions in an effort to gather data-driven insights that would enable the organisation to transform business models. Finally, with regard to Etihad Airways, the second-largest airline in the UAE, he said it had partnered with the company to launch the region’s first AI Academy, to reinvent the way the airline serves its passengers. An Etihad spokesperson further explained to International Finance that this academy was launched in January this year and would allow for the provision of AI training to all its employees, through a mix of selfled online training and instructorled classroom and lab sessions. This, the representative said was aimed at driving AI literacy across all of Etihad, and accelerating the identification and adoption of AI in its business.
UAE airlines heavily invest in AI An Etihad representative told International Finance that the airline had a large portfolio of partners with which it had worked together in the development of several AI projects. Of these, an integral one includes the partnership with Plug and Play and the Abu Dhabi Department of Culture and Tourism, the representative added. With regard to specific AI developments in the company, the representative said that Etihad and the airline industry as a whole, had been investing heavily in this technology. “AI in the form of datadriven automation has been crucial in advancing things like airline seat
Ihsan Anabtawi, chief operating and marketing officer at Microsoft Gulf
inventory and pricing optimisation. Many of our technology vendors and partners have been embedding AI into their applications over the last decade, audio transcription is an example.” The representative added that Etihad was applying AI solutions and automation across all its business units and areas such as its Etihad Guest loyalty programme, aircraft maintenance, onboard catering and through to corporate departments like audit and compliance. This, the representative said was expected to improve the customer experience and also ensure they operate as effectively as possible. Another company that is using AI in its operations is Liv, the UAE's first digital bank aimed at serving millennials. Jayash Patel, head of Liv, told International Finance that they recently joined
forces with US-based Kasisto – the creators of the KAI Banking AI platform for finance – to introduce Olivia, Liv’s conversational AI based chatbot. The purpose of introducing Olivia, Patel said, was to help their customers make better financial decisions through human-like conversational AI. Olivia helps customers get account information and insights on their spending as naturally as texting a friend, apart from helping customers get quick answers on how to make a local transfer or to block their card, text back account balance, answer queries on their expenditure helping them plan and manage their finances better and so on, Patel explained. Liv’s parent bank, Emirates NBD, is also known for giving equal, if not more, prominence to AI. Speaking to International Finance, Suvo Sarkar, senior executive vice president and
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Analysis UAE artificial intelligence
Expected value delivery of AI in the Middle East - 2030 AI contribution to the global economy
Middle East to accrue 2% of global value or
$15.7 tn
$320 bn
AI to contribute to Saudi Arabia's economy (In absolute terms)
2030 GDP of UAE to see highest value of impact of AI of close to (in relative terms)
$135 bn
14%
group head at the retail banking and wealth management division at the Dubai government-owned bank said, it has already made investments to develop a conversational AI-enabled voice banking ecosystem to simplify customer interactions and its first initiative under this road map is EVA (Emirates NBD Virtual Assistant). This, Sarkar, said is the first English speaking virtual assistant in the region and used conversational AI levers such as intent recognition and natural language understanding to interpret customer requests and intelligently steer the customer towards automated resolution of their requests. Apart from this, its other AI developments include a chatbot to enable staff access HR services easily. It also uses AI and robotic process automation (RPA) in other areas such as marketing to enhance communication effectiveness
and also improving operational processes. Additionally, the bank is also utilising Amazon Polly, a cloud service that uses advanced deep learning technologies, a subset of machine learning in artificial intelligence to convert written content into human-like speech, in its automated call centre to further enhance customer interactions by delivering lifelike voice banking experiences, Sarkar explained. Additionally, a significant AI development in the pipeline for the bank includes its collaboration with Amazon Web Services (AWS), to build an AI-enabled bank of the future. In this regard, Sarkar, said that they will use AWS’s AI services, along with other technologies such as data analytics and internet of things (IoT) as part of its ongoing efforts to better engage with customers and to simplify banking.
Unimaginable transformations With regard to the future for AI, the Etihad representative said they believed there would be no verticals that will be untouched by AI and automation within its company, going forward, indicating the huge potential for AI going forward. Emirates NBD meanwhile is working on building an AI and Advanced Analytics Centre of Excellence, as part of the bank’s ongoing Dh1 billion digital transformation initiative that will see the implementation of high impact AI use cases across areas such as sales, service, operations, compliance and risk, Sarkar told International Finance further indicating the huge potential for AI in the UAE. Meanwhile, Microsoft’s Anabtawi said that they firmly believed that this technology had the potential to transform communities, societies and nations, with people at the centre, in ways previously unimaginable. Citing a June report that was commissioned by Microsoft and conducted by EY, Anabtawi said, 94 percent of companies in the UAE were reported to have shown involvement in AI at executive level – the highest percentage among all surveyed MEA countries, further indicating the huge potential for AIled innovation in the UAE.
editor@ifinancemag.com
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Interview
Karim Abdellaoui regional manager,oilandgasjobsearch.com
Oil and gas
Despite persistent challenges, the outlook for global oil and gas salary hikes are higher today than two years ago
Oil and gas employment rebounds with prices IF Correspondent
According to a survey conducted by employment portal CareerBuilder across the end of 2018 and beginning of 2019 of 30,000 global oil and gas professionals, 72 percent of the respondents had a positive outlook of the oil and gas employment market in 2019 compared to just 55 percent in 2017. In addition, 75 percent are expecting staffing levels to increase over the next year. The theme emerging from the survey is that the oil and gas employment market is rebounding after two to three years of contraction and crisis following the steep decline in oil prices. Despite the fact that the oil and gas industry is still only slowly clawing back to its past position, employers are looking to hire, spend more on salaries, and training and benefits for their workforces. 45 percent of oil and gas workers have recieved a salary hike in the past year compared to 42 percent in 2017. Challenges around an ageing workforce, talent shortages and gender imbalance and gender pay gaps remain. But as Karim Abdellaoui, regional manager of Middle East and Asia at oilandgasjobsearch.com, a part of CareerBuilder, tells International Finance in an exclusive interview, it is becoming easier for oil and gas companies globally to overcome those challenges now more than ever before.
International Finance: Oil prices are just stabilising after remaining low for the past few years. What is the reason for the positive outlook in terms of future recruitment numbers on the part of employers and the reported salary hikes among employees despite the oil price situation? Karim Abdellaoui: There is a very positive outlook ahead in terms of
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Oil and gas employment
increase in salaries within the oil and gas market. What really caused that is the stabilising oil prices due to which there are a lot more investments coming into the industry now. With that, there are more projects coming to fruition, again causing an increase in salaries, not just within the Gulf markets. Asia Pacific and the Middle East markets are seeing significant opportunities for growth. In terms of growth, they are pushing it a bit more in the Middle East, but obviously things change quarter-to-quarter for projects.
What does the oil and gas employment outlook for the Middle East and North Africa look like for the rest of 2019 and further into early 2020? For the Middle East, in particular it looks very positive as there are many projects coming live. Back in 2017, the oil and gas markets were slow in general. In the Middle East, it has worked out very well even in the downturn. There are a lot of projects based in Abu Dhabi and large refining projects taking place in Oman. So, a significant amount of investments are being pumped into these particular countries — and then there is the Kingdom of Saudi Arabia, where Aramco
has released a number of projects into the market. That seems to stimulate high growth opportunities which, in turn, results in salary increases in the market. From North Africa’s perspective, Egypt as a country is seeing solid investments in its oil and gas markets. Libya and Nigeria have suffered a little bit in the recent years with ups and downs, but I think those markets are also starting to stabilise and look very positive. Also, while speaking to our old and current clients it has become obvious that their local markets are looking quite positive. Morocco, for example, is seeing a huge amount of investment in renewable energy, which is also a solid market for North Africa. That said, Gulf countries obviously lead the way in oil and gas market employment in the MENA region.
Virtually all of the Arabian Gulf nations have had major workforce nationalisation plans since the past 10 years. How effective are these nationalisation plans in increasing the share of the local native workforce in those countries? The Gulf countries and APAC have seen a rising nationalisation focus. I have been in the oil and gas market in the Middle East for 12 years. What I find is
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industry
Interview
Karim Abdellaoui regional manager,oilandgasjobsearch.com
While speaking to my clients in Egypt and Libya, I have understood that there are a lot of new investments coming in there as well. In fact, tremendous job opportunities are being created with up-and-coming projects in Africa."
that with the nationalisation, projects and initiatives from a few years ago, there is fresh talent coming in now. The type of investments in each of the Gulf countries particularly is helping a lot with the skills shortage gap we have in the industry. Now, the Emirati nationals and Saudi nationals are upskilling and developing the industry and the countries are investing more in people to bridge that gap for the future.
What will be the effect of digitalisation and automation on global and Middle East oil and gas employment? I think it is very positive. Digitalisation is obviously something that people are getting equipped with and in some ways, it is sort of early to measure that. From what I have seen of people embracing it, I think it is very positive. Although people might be worried that automation could result in job elimination, there is still a human element needed, especially in the oil and gas industry. But from a technological perspective, I think it is only natural that over time technology will evolve and work hand in hand with the human element. I also think it is being embraced in the Middle East because people are very tech savvy and companies want to be ahead of the game.
What is the oil and gas employment outlook for Africa for the rest of 2019 and early 2020? There is improvement in African countries such as Mozambique, Uganda, Tanzania, Nigeria, and Egypt. Nigeria is a massive player in the industry. So, there is a lot of movement in Africa, particularly in the North African region which gets more candidates from France, Belgium and certain parts of Canada. So, I have a more positive view with projects coming into the east, west, and some parts of North Africa. While
Oil and gas
speaking to my clients in Egypt and Libya, I have understood that there are a lot of new investments coming in there as well. In fact, tremendous job opportunities are being created with up-and-coming projects in Africa.
In the report there seems to be a marginal improvement in the share of women in the oil and gas workforce globally. What more can be done to increase the share of women in the oil and gas workforce globally and in the Middle East? At the moment, more women are coming in to the oil and gas industry, which is great. From gender diversity perspective, I think a lot more can be done. In the Middle East, for example, there are investments going into upskilling and employing women in the workforce. Recently, I was at a conference in the UAE which saw women engineers who had come through the ranks from various universities to work for the national oil companies in the region. There is a push for gender diversity. So in terms of women's employment what can be done is perhaps encourage younger generation to join the oil and gas industry.
There seems to be major investments on the horizon in oil and gas projects coming up in East Africa, especially Mozambique. Do you think East African nations will be able to meet their talent requirements internally? If not, how easy is it for these nations to attract expatriate talent? There are some solid projects coming into fruition now with a fair amount of investments and commitments from governments and private companies too in the eastern part of Africa. If you look at Mozambique, there are significant investments but obviously not as huge as in the Middle East. In Africa, things can change very quickly in the oil and gas markets. So, I think there is a very positive outlook for the region as a whole. There are many qualified east African nationals and professionals. A lot of these projects in Africa require highly technically skilled people — which means, there will always be a need to attract expat talent. However, it entirely depends on the number of projects running there.
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Oil and gas employment
"Saudi Arabia and the UAE are making massive shifts in nationalisation. With a bigger population, we can expect to see nationals enter the oil and gas industry and women as well"
What is the reason for the skills shortages in engineering and design side of oil and gas development. What is the solution to this skills shortage? Candidates in oil and gas and energy industry usually have transferable skills, or will learn additional skills that are transferable. So if there is a skills shortage in oil and gas, I would say the industry would have to look outside of it — specifically, more along the energy lines. This is because both industries tend to have talent with transferable skills. For example, over the last few years people have moved out of the oil and gas industry to the energy industry, or even into the construction industry for that matter. So I would say it is important for oil and gas companies to attract those kinds of people back into the industry by running recruitment campaigns. But, if people are not willing to come back into the oil and gas industry or there is still some sort of skill shortages in particular vertical, then it is important to analyse why they are keen on the energy industry, for example.
their recruitment needs. For example, if candidates decide to move over to another industry other than oil and gas within the energy sector, then it could become very competitive for them. So, it could become a competitive environment in some areas as oil and projects grow. But candidates will have the choice based on their skillset in in other areas which offer very niche and technical positions. Overall, 2020 looks extremely positive on the recruitment front — but obviously it all depends on the projects and the countries.
What is the oil and gas employment outlook for Asia Pacific? Which are the employment hotspots in Asia Pacific?
Looking into 2020, what are the challenges that oil and gas workers and companies that are recruiting oil and gas workers could face?
Typically in Asia Pacific, the majority of our clients are located in Singapore and Malaysia. There are quite a few investments taking place in Thailand. We have a solid number of clients in Vietnam and South Korea as well. As a result, we have seen a lot more enquiries coming through with several new jobs being posted for particular roles based on upcoming projects. So I would say it’s mostly Singapore, Thailand, and Malaysia.
Globally, I would say it depends on the country. In the US, the level of recruitment will depend on the number of projects taking place. Moving into 2020, probably in the second half of the year, it could be very competitive depending on the way oil and gas companies approach
editor@ifinancemag.com
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analysis
Logistics Africa innovation
African logistics companies are driving innovation using drones, mobile phone apps, and blockchain
Technology uptake drives African logistics innovation kedar b grandhi
The African logistics market, which is currently estimated at $150 billion, is seeing rapid innovation, especially in terms of automation and blockchain. This development, in the once traditional sector, is in part, because of the increasing smartphone penetration in the continent, according to Obi Ozor of Kobo360. The CEO and cofounder of the Nigerian freight logistics startup, further DHL's Africa told International Finance eShop app that the timing is right for helps Africans logistics innovation in Africa purchase considering the sector has goods directly witnessed tremendous from 200 US growth over the last two years, and UK online thanks to the rising popularity retailers of both ecommerce and with doorstep technology that are enabling delivery goods to be transported both locally and internationally. Hennie Heymans, CEO, DHL Express Sub Saharan Africa too had similar views on the sector. He told International Finance that the Germany headquartered logistics giant is seeing positive growth in its Sub Saharan African (SSA) logisitics business because of various factors, the primary being, the rise in ecommerce popularity and increased mobile penetration. And to make the best
of it, DHL, he said, is using the latest innovations from drones to mobile applications.
Drones, mobile applications, and blockchain lead innovation drive While mobile apps are being used to support ecommerce growth in the region, DHL has piloted drone technology in Tanzania for medical deliveries. With regard to the former, Heymans said, that with a focus to embrace digitalisation, DHL has launched a new mobile app in eight African markets for logistics, with plans to launch this in a further 40 countries across Sub Saharan Africa by the end of 2020. The platform he explained, allows DHL customers to track and coordinate the delivery of their shipments with greater ease and convenience. Additionally, it has also launched the DHL Africa eShop, a new mobile and desktop app, aimed at improving the online shopping experience for Africa-based consumers by allowing them to make purchases directly from more than 200 US and UK based online retailers, with all shipments delivered by DHL Express, to the shopper’s doorsteps. While this not only provides convenience, speed and access for online customers in Africa, it also allows them to get connected with global brands. The third innovation by DHL in the region is related to mobile payments. DHL is leveraging the capabilities of mobile money platforms to enable
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the development of a cashless trade environment which will in turn circumvent the challenges that cash presents, Heymans explained. With regard to the use of drone technology, DHL has completed a pilot project in 2018 entitled ‘Deliver Future’ for transporting medical deliveries to 400,000 residents of the Ukerewe island district of Lake Victoria in Tanzania. Across six months, DHL’s drone made about 180 take-offs and landings, flying 2,200 kilometres to transport blood samples. This helped facilitate faster blood test processing and diagnosis. Meanwhile, with regard to innovation at Kobo360, which uses big data and other technologies to aggregate end-to-end haulage operations and present it on an Uber like app, Ozor said, the startup offers various innovative features to both customers and truck drivers. While its customers have a tracking feature that provides 100 percent visibility, allowing them to view the journey of their cargo from the start till the end, its drivers have been provided with the option to use the app in multiple languages in order to suit the different backgrounds they come from. Additionally, it has also implemented a first of its kind bidding tool for both drivers and customers to assess the price of a trip before selection. Such innovation, he said is helping reduce frictions that exist in the supply chain, by turning a disparate system devoid of order into a fully
DHL’s ‘Deliver Future’ Drone Delivery in Tanzania
400,000
180
Medical deliveries transported to residents of the Ukerewe island of Lake Victoria
In 6 months, DHL’s drone made about 180 take-offs and landings
2,200 Drones flew 2,200 kilometres to transport blood samples
integrated one with deep visibility and transparency across all phases of operations. Kobo360 further claims that solving the serious disconnect between getting goods from one point to another, on time, with full visibility and product security, further empowers different sections of the society such as rural farmers to enhance their earnings by reducing farm wastages and various manufacturers by helping them find new markets.
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Logistics Africa innovation
In addition to these existing features, the startup, which recently raised $30 million from Goldman Sachs, Y Combinator and a few other companies, is in the process of building a Global Logistics Operating System (G-LOS), a blockchain enabled platform that will leverage technology to combine all activities in the lifecycle of the supply chain ecosystem into one robust system. This, Ozor said will allow Kobo360 to transition, more towards supply chain services, ensuring they work harder, smarter, and faster for all stakeholders on the Kobo platform. With regard to the use of blockchain, Tmx Global seems to be a frontrunner in its implementation in the African logistics sector. The Kenyan company which provides solutions for the domestic, regional and international courier industry, has recently launched the TMX Global Coin. This is a decentralised system based on blockchain technologies that includes supply chain stakeholders from raw material, components and parts suppliers, to finished goods and supplies transporters, and finally to the customer. It allows them to communicate with each other with the objective to reduce costs and increase shipping efficiencies by integrating information about shipments onto a secured platform, accessible to these users. Apart from transparency, it is expected to solve challenges such as delayed or inefficient deliveries, lack of accountability and poor tracking. Meanwhile, another startup that is leveraging innovative applications in the growing logistics market is Ghana headquartered
“In order to make the industry work to its full potential, we need a working transportation system from rail to roads to sea transport, as well as favourable policies to aid movement of goods across African borders.� Obi Ozor, CEO and cofounder, Kobo360
Aquantuo, which helps its customers to receive purchases made online to their doorstep. In terms of the innovation it has deployed so far, an Aquantuo company representative told International Finance that it has applied GPS, instant messaging, online and mobile payments, mobile technology and sms notifications to logistics, all in a way, that any item anywhere in the world can be purchased and delivered to the doorsteps of its clients in Ghana. In addition, Acquanto also allows for peer-to-peer logistics, where people travelling to or from Ghana, partner with the company and use their extra luggage space to transport a product either into the country or outside it. In both the cases, their technological solutions allow clients to, check the status of their package, track their request, communicate real time with Aquantuo or any of its transporters and finally make online payments. A few other such African logistics startups that are leveraging technology to boost
efficiencies include, Swiftly, a Ghana startup which allows its clients find the best freight quotes, Sendy, a Kenyan startup whose platform facilitates both ecommerce door to door deliveries and enterprise level logistics solutions, mzansigo, a South African ondemand logistics company which leverages technology to connect truck owners with people seeking to move equipment, furniture or other bulk materials within the city and Pargo, a South African smart logistics company that solves the challenges of last mile distribution by allowing consumers, companies, and couriers to send and receive parcels at Pargo points located at convenient retail stores across Southern Africa.
High customs duty and other tariffs hamper growth So while there are an abundant number of startups emerging in this space, there are a few challenges the sector, faces as a whole. According to DHL’s Heymans, these include export and import bans, variable
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Analysis Logistics
import tariffs and quotas, restrictive rules of origin and price controls, poor internet and mobile penetration in certain areas, and finally, congestion and weak infrastructure in certain areas. The Aquantuo representative meanwhile said one of the biggest challenges is the high customs duty charges for incoming goods into Africa, making it unattractive for businesses and individuals to import various products needed to run their businesses or to stay competitive.
Improved infrastructure and policies needed The challenges that make products exorbitantly priced, the Aquanto representative said could be solved, if the government reduced these charges. With regard to challenges for logistics startups in particular, the representative said most of the financial support was being received from private equity firms and it would be beneficial to see such support from the governments as well. Meanwhile, Kobo360’s Ozor said there was still a long way to
go as Africa in terms of transport connections and infrastructural changes and that the government could play an active role in this department. “In order to make the industry work to its full potential, we need a working transportation system from rail to roads to sea transport, as well as favourable policies to aid movement of goods across African borders,” Ozor explained. DHL’s Heymans added that the overall success of the logistics sector in Sub Saharan Africa lies in investing and building strong collaborative partnerships across government, business and communities. Citing research by Ecobank, he said that Africa rates amongst the lowest with regard to self-consumption of local produce, with less than 20 percent of what is produced staying within the region and 80 percent being exported, thus signifying the importance of logistics in Africa. However, despite these setbacks, Heymans said the future potential of the sector was positive as the opportunities far outweighed
the challenges. “As mobile penetration continues to grow, it provides greater opportunities to streamline logistics and increase visibility along the supply chain. Mobile money also presents huge opportunities to streamline transactions – while there are only a few countries that have stable mobile money solutions, it is gaining traction across the region and we see the immediate benefit of embracing this technology.” He further added that with the popularity of ‘Brand Africa’ increasing exponentially in recent years, it provides great opportunities for businesses on the continent, making the time ripe for retailers to think beyond boundaries and open up their businesses to international trade. Meanwhile Kobo360’s Ozor said the recently launched Africa Free Trade Continental Agreement (AfCFTA) could catalyse intraAfrican trade and that a proper execution of this trade agreement, between 27 African Union member states, could further boost the sector as it would help explore the untapped potential of African trade. He however concluded that while all efforts should be made to improve technology adoption in the continent, the best solution would be to ensure a continuation of innovation in this sector, as it would help make the sector stay relevant and further boost the economy.
editor@ifinancemag.com
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industry
analysis
Telecom Russia 5G
The country’s is deeply committed to 5G rollout and early-stage 5G development efforts point to its ‘Digital Economy’ strategy
5G critical to Russia’s ‘Digital Economy’ IF Correspondent
Russia is a relatively developed mobile market with 89 percent of the population subscribing to mobile services at the end of 2018. Russia’s high level of subscriber penetration is impressive as it exceeds the developed markets globally and broader Europe which have corresponding figures of 84 percent and 85 percent, respectively. In fact, Russia was one of the first countries to launch 4G in the region in 2012. Russian operators have been making Russia is significant investments in one of the 4G network deployment to few markets improve coverage and speed in globally where recent years. Despite that, it has domestic only covered less than a third of digital players Russia’s network connections, outperform while half of Europe’s international connections were 4G, observed ones the GSMA 2019 report. GSMA analysts believe that growth in the number of mobile subscribers in Russia will largely remain unchanged in 2025 because of the current high level of mobile penetration in the country. Russia’s accelerated efforts to migrate to 4G and the first phase of 5G suggests that there will be further data growth. Russian operators have been testing the 5G technology using prototypes and
pre-5G standards for many years, the report noted. They are even deploying LTE-A networks which is critical for 5G migration. One of Russia’s mobile network operator MTS carried out a significant 5G trial with demo zones setup at the FIFA World Cup last year showcasing a range of 5G capabilities. The country’s deep focus on 4G rollouts and 5G launches implies that it could join the second wave of global mobile markets. The report forecasts that the first commercial 5G deployment in the country will reach 46 million by 2025, which represents 20 percent of the overall connections base. The estimated population covered will be 60 percent by then. By the numbers alone, Russia is expected to be above the global average but behind leading 5G markets such as the US, South Korea and China. The country will adopt a non-standalone deployment approach with 5G positioned as a supplementary capacity overlay to 4G, according to the report. Currently, Russia has deployed its first 5G zone as part of a five-year deal between Ericsson and European telecommunications operator Tele2. The goal is to drive network transformation spanning Tele2’s infrastructure across Russia. The first 5G pilot zone is on Tele2's commercial network in Moscow, according to Ericssion’s official press release. Another manifestation of 5G pilot launch is seen in the country as Huawei and MTS have partnered to introduce a swift network covering the full extent of Moscow. This 5G pilot scheme
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Analysis telecom
is reported to have a political significance with Huawei planning to transition its smartphones and tablets to Aurora OS developed by Russian telecom Rostelecom. Rostelecom is controlled by the Russian government — and by definition, Aurora OS has become a state-sponsored software. Recently, the media reported that Huawei will install the Russian OS on 360,000 of its tablets for use in Russia next year. The current technological divide between the US and its allies — and China and its supporters, including Russia — known as Splinternet — is stoking fear among intelligence agencies and technology giants. Huawei’s first stage of launching the Russian OS on its devices is creating a sense of loss in sector control and revenue for major players such as Intel, Google and Microsoft.
Mobile subscription rates Russia
89%
Global
84%
Europe
85%
Russian carriers ready for the 5G battle
5G-compatible smartphones are needed because the Russian Digital Economy has made it compulsory for all cities with over 1 million population to have only 5G networks by 2024.
That said, telecom players in Russia already on the 5G development or investment path. This year, MTS signed 5G cooperation agreements with global equipment vendors, in addition to launching a 5G partnership with the Moscow government. MTS identifies robust growth opportunities in Moscow comprising nearly 20 million residents. At some point, it also plans to setup a 5G lab in the city to incubate startups developing fifth generation connectivity-based products and services. Even MegaFon has started to build small 5G trial zones
with 5G field trials in mm band and EMC trials in 3,4-3,8 band. Russian carriers are rapidly completing field trials of 5G infrastructure and terminal equipment to successfully launch the technology in Moscow and other cities by 2019 end. Industry newcomer Vinsmart is collaborating with Fujitsu to create and deliver smartphones based on Qualcomm Snapdragon 5G mobile platform. The phones will be marketed in the US, Europe, Russia and other markets in April 2020.
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industry
analysis
Telecom Russia 5G
5G-compatible smartphones are needed because the Russian Digital Economy has made it compulsory for all cities with over 1 million populations to have only 5G networks by 2024. Russian carriers are already preparing to create operational networks followed by commercial networks in the next two years. Inessa Galaktionova MTS first vice president for telecommunications, told International Finance, “In terms of network infrastructure, we are planning to move from pilot zones to a broader rollout over the next several years. In line with previous technology transitions, the first priority will be covering high-density, high-traffic urban hotspots. We will then gradually shift to nationwide expansion, with 5G capex ramping up as investment in 4G phases down. Beyond basic infrastructure, we expect 5G to create fundamentally new business models and monetisation strategies, and we are in a great position to substantially contribute to these developments.”
According to a MegaFon representative, the operator will be working on small field trials in 2020 and 2021, following which a nationwide rollout base will take place depending on the trial results and market development.
Spectrum allocation is a challenge Because of the persistent absence of n78 (3.3-3.8 GHz) spectrum allocation required to support 5G in the Russian market there are challenges in implementing 5G zones, according to Qualcomm. Even though the existing 5G mm wave assignment will assist the rising demand for enhanced mobile broadband in business centres, airports, railways stations, venues, and stadiums — deficiency of EU industry standard n78 might curb upcoming 5G locations and extend breakeven time for mobile network operators investing in the technology in short to medium term. “The market is still working out the right business model to deliver 5G services efficiently and at scale.
Russia 5G adoption forecasts 50
70% 60%
40
50% 30
40%
20
30% 20%
10 0
10%
2020
2021
2022
5G connections (millions) GSMA Intelligence
2023
2024
2025
5G population coverage
0%
The other challenge is, of course, the regulatory aspect of a new, even revolutionary, technology. Telecom companies worldwide are closely engaging with their respective governments as well as global industry bodies to define the right regulatory approach, and Russia is no exception. MTS is very much involved in the discussions,” Inessa added. One of the biggest roadblocks for MegaFon was that no spectrum was allocated for 5G in 3,4-3,8 GHz band. However, it is expected that a solution will enable it to launch 5G in this band, MegaFon said. Geographically, Russia is the largest country in the world with a huge need for connectivity. This year, it launched a five-year programme with an aim to speeding up digitalisation in the economy which can be achieved by improving network availability, resilience, and security. MTS noted that 5G will play a crucial role in achieving the programme’s goal to boost industrial productivity, stimulate growth, and improve people’s lives. With Russia being one of the few markets globally where domestic digital players outperform international ones — there is a good chance for MTS to venture into new digital segments that complement its core telecoms business. It is working to build its own digital ecosystem involving fintech, media, clouds and cybersports. Speaking of mobile connectivity in the future, MTS explained that 5G will act as a growth platform in those key areas. In many ways, new digital infrastructure will advance the expansion of economic sectors from ‘classic’ software development and hardware production to science to education to healthcare to entertainment. From Qualcomm’s
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Analysis telecom
perspective, 5G services would establish new use cases for millions of mobile users — and encourage the creation of new business concepts — and jobs. In fact, MetaFon supports the discussion that 5G rollout is associated with the overall national programme ‘Digital Economy’. The operator believes that 5G will provide it with additional throughput and latency reduction to reinforce the cloud services footprint in its mobile network. With that, 5G could become the basic network for the likes of driverless cars and delivery drones. Russia is anticipated to swiftly scale 5G following the launch of its first 5G networks in 2020, according to GSMA study. Its forecasts suggest that there will be 5G commercial deployment from 2020. Moving forward, the rate of 5G adoption will factor in consumer demand and availability of compatible devices. Currently, MTS is one of Europe’s largest telecom operators with more than 75 million active users on its network in Russia. MTS further explained that 5G in contrast to the first four generations of mobile connectivity is tailored to enable massive machine-type communication (mMTC). With IoT expansion, hundreds of millions of things such as cars, wearable devices, and industrial equipment will be connected online. This means, there is a significant scope for growth among telecom operators. MTS, for example, is leading the way with the largest narrow-band IoT network in Russia. The operator is already well established to achieve incremental revenue in industrial automation and process control. For now, MegaFon only has test users on its network and the
Inessa Galaktionova, MTS first vice president for telecommunications
majority of them are expected to adopt 5G technology after 2030.
Fundamentally new experiences Yulia Klebanova, VP Business Development, Qualcomm Eastern Europe, told International Finance, “The speed of broad 5G adoption in Russia would depend upon multiple factors. Trust me, one of the most critical ones is timely resolution of Sub 6 (n78) spectrum to ensure broad coverage of 5G networks on vast territories of Russia.” The first use case of 5G will be seen in traditional mobile connectivity, with the launch of high-end 5G-capable smartphones. Inessa said, “As 5G migrates down market and penetration increases, it will play a critical role in ensuring network capacity keeps pace with the ongoing rapid growth in data consumption. Looking further ahead, enhanced mobile broadband (eMBB) will also provide users with fundamentally new experiences and ways to interact with the world around them — for instance
in VR and AR. Beyond mobile, ultra-reliable low-latency communications will have profound implications for emerging new applications, such as in edge computing, autonomous vehicles, and remote surgery.” Qualcomm, like most technology companies has the same faith invested in 5G technology. “As soon as the first 5G launches in Russia are driven by priority mm wave spectrum assignment, initial 5G networks would cover downtowns, business centres, airports, and other locations with intense data traffic consumption at megapolises like Moscow,” Yulia explained. After 5G implementation, video streaming in high definition up to 4K will become the technology norm equivalent to what 4G LTE currently delivers on audio streaming. The industry will benefit through outcomes involving lower equipment prices as production increases and minimising investment burden in the near future. editor@ifinancemag.com
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industry
analysis
Real Estate Dubai Luxury Real Estate
Chinese investors are a new rising segment of luxury real estate buyers in Dubai
Tech-enabled environments to drive Dubai luxury realty kedar b grandhi
The number of property transactions with a price tag of Dh10 million and above in Dubai stood at 194 during the first half of 2019. This was more than the 115 such transactions in Dubai in the same period last year, according to Data Finder, a UAE real estate insights and data platform. The platform, which is part of UAE’s The Property Finder Group, further stated that it expected this trend to continue because of various reasons such as revived demand for established luxury projects such as the Palm Jumeirah, Downtown Dubai, and Emirates Hills along with a lot of buyer interest for new projects such as Dubai Hills Estate and Mohammed Bin Rashid City, indicating resilience in Dubai’s luxury real estate market following recent years of slump. Supercars, luxury shopping malls, five-star hotels, attractive tourist and entertainment destinations, are some of the characteristics that has helped make Dubai the definition of luxury, Niall McLoughlin, senior vice president at Damac Properties told International Finance. This along with an ample choice of outstanding luxury properties, he added, were helping Dubai to further make a name for itself on the global map as a luxury living location, similar to New York.
Expo 2020 to drive luxury property market Robert Booth, managing director at Dubai-based property developer Ellington Properties, told
International Finance that one of the primary factors that will drive the positive momentum in the luxury real estate market going forward is the Expo 2020. “We see strong growth opportunity for the luxury real estate sector in Dubai, particularly with the positive momentum that the economy gains from the preparations for Expo 2020 Dubai. The event, set to welcome 25 million visitors, will also open doors to more international investors on the opportunity that Dubai offers – which will further drive the growth in demand for luxury property,” Booth explained. He added that the issuance of long-term visas for professionals and investors would also help build momentum in this segment. He explained this would help promote a stronger and conducive business environment which in turn would catalyse the real estate sector, including the luxury market. Meanwhile, Aqil Kazim, chief commercial officer at Dubai-based property developer Nakheel, told International Finance that the expo aside, Dubai’s growing population, which is expected to climb from 3.1 million currently to over 5 million by 2030, too would help in creating demand for this segment going forward. A spokesperson at Emaar, a Dubai real estate company which is listed on the Dubai Financial Market, however, believes there were a number of factors that will help the city continue to be the one of the most sought-after destinations for
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Analysis Dubai Luxury Real Estate
Square metres of luxury real estate that $1 mn can buy Dubai
138
London
28
New York
25
Hong Kong
22
Source: PwC
luxury property in the world. He told International Finance that these factors included the city’s connectivity, central geographic location, world-class infrastructure, variety of leisure and entertainment attractions, strong regulatory environment, and finally, the city’s cosmopolitan community. Damac’s McLoughlin said that the presence of HNWIs in the Middle East along with the high purchasing power of consumers, especially in the GCC region will also help drive the luxury real estate market in Dubai. Additionally, he said, reasonable pricing of luxury projects in Dubai compared to other popular cities worldwide would also generate demand going forward. Citing a recent report by London-based real estate services provider Savills, McLoughlin said Dubai ranked third on the list of major cities that are less expensive to buy luxury homes. In this regard, Dr. Martin Berlin, Middle East
partner and global deals real estate leader at PwC, told International Finance that the per square meter price of luxury real estate in Dubai was more affordable when compared to cities such as London, New York and Hong Kong. “A $1 million investment could get you approximately 28 square meters in London, 25 square meters in New York, and 22 square meters in Hong Kong. In comparison, a $1 million could get you approximately 138 square meters of luxury property in Dubai,” he said. Damac’s McLoughlin meanwhile added that the government too has a key role in strengthening the luxury real estate sector. While, governments across the Middle East have adopted a policy of launching initiatives that encourage increased tourism and higher investments, which in turn strengthens the luxury real estate sector, the UAE government had particularly been successful in achieving stable
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industry
analysis
Real Estate Dubai Luxury Real Estate
Luxury transactions in Dubai economic growth and prosperity in the country, especially in Dubai. While various policies in the UAE have helped the real estate luxury sector, a few significant ones include the Real Estate Regulatory Authority (RERA) and the Dubai Land Department (DLD). These regulatory bodies have developed a robust legal and regulatory framework to ensure best practices in activities like property development, marketing, valuation, sale, purchase and brokerage which in turn have helped develop a transparent environment helping attract more foreign investment, McLoughlin said. Another positive initiative by the government according to McLoughlin was digitisation. Techdriven solutions across managing contracts, broker information, and mortgage laws, he said were boosting investors’ confidence and helping Dubai hold the position as the MENA region’s most transparent real estate market. In this regard, Jyotsna Hegde, president at Sobha Realty, an Indian multinational real estate developer which has operations in Dubai, told International Finance that the UAE as a country was moving towards a digital economy with the promotion of smart technology. This, she said, would ensure a positive impact on luxury real estate market going forward. While these are some of the older government initiatives, the more recent ones that would further boost this segment, McLoughlin said were the government’s decision to allow 100 percent foreign ownership of businesses in certain sectors, long-
(Dh10 million and above):
194
in first half of 2019
115
in first half of 2018
term visas for skilled professionals and investors, and the recent introduction of the UAE gold card.
Dubai’s luxury portfolio So, while Dubai as a whole is expected to see positive demand going forward, there are specific locations within the city that is already witnessing an increasing demand. These locations according to Data Finder include the Palm Jumeirah, Downtown Dubai and Emirates Hills. Nakheel’s Kazim said they had a few luxury projects located in the iconic Palm Jumeirah. One of the completed ones, he said, was its Azure Residences, which included beachfront one and two bed apartments whose prices started at $ 367,000. Another luxury project here, he said, included the Palm Tower, a 52-storey hotel and residential tower whose first 18 floors included the St. Regis Hotel. Prices here started from $ 463,000, Kazim said. With regard to Emaar’s luxury projects, the company’s spokesperson said that one of its most prestigious projects included the Elie Saab at Emaar Beachfront. As the name suggests, this project, the representative said was being
developed in partnership with renowned fashion designer Elie Saab and will include residential units that will reflect the luxurious heritage of the fashion brand’s style and signature apart from overlooking the Arabian Sea, The Palm and Dubai Marina. In addition, the representative said that Emaar had several other luxury projects in Downtown Dubai and other locations such as Dubai Creek Harbour. Sobha Realty’s Hegde meanwhile said their flagship luxury project in UAE is Sobha Hartland, an eight million square feet waterfront community situated within Mohammed Bin Rashid Al Maktoum City. This project she said offered many residential options from a studio apartment to the most luxurious five bedroom villa, with the latter being priced at Dh 18 million. Meanwhile Damac’s, McLoughlin, said their newest luxury project Zada, was located in in Dubai’s Business Bay area and came with a price tag of £699,999 (Dh 3.2 million) for one-bedroom apartments which offered views of the iconic Dubai Canal. He added that in the past Damac had, for its luxury projects, joined forces with some of the most recognisable fashion and lifestyle brands such as Tigers Woods Design for a golf course, Italian fashion-houses such as Versace Home and Just Cavalli for its interiors. With regard to Ellington, Booth said their flagship project was the DT1, which included residential units across 20,000 square metres rising to a height of 76 metres located in close proximity to both Downtown Dubai and Business Bay.
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Analysis Dubai Luxury Real Estate
Chinese showing increasing interest Booth added that while the growing interest for its homes were primarily from UAE residents, it was seeing rising investor interest from South Asia, Saudi Arabia, China, Europe and beyond. Of these, he said, there was a significant growth in interest from Chinese buyers because of various reasons such as UAE being a key player in China’s Belt and Road Initiative (BRI) and the growing trade and cultural relations between the two countries. Sobha Realty’s Hegde too said their company was receiving most interest from Chinese investors, followed by Saudi Arabian, Indian and UAE investors. “In the first two months of 2019, the number of Chinese investors in Sobha Hartland grew by 200 percent,” she said. Nakheel’s Kazim meanwhile said that while his company has around 30,000 investors from all over the world those from the UAE and GCC constitute for the biggest investor group. Apart from them, it was seeing a strong interest from Indians, Pakistanis, British, Lebanese, Chinese, Russians, and Canadians, he added. Meanwhile, Damac’s McLoughlin citing the government’s DLD said the top investors by nationality in 2019 were led by Emiratis and Indians followed by the British, Chinese, Pakistanis, Jordanians, and finally the Saudis. Overall, these foreign buyers he said, represented 18.5 percent of the total transactions in Dubai which is equivalent to Dh30 billion.
Aqil Kazim, chief commercial officer, Nakheel
New generation buyers seek tech-enabled projects Ellington’s Booth added that this demand was however seeing some key changes. He explained that one of the latest trends they were witnessing was a strong uptake and demand from the younger generation who are design-oriented and seek culturally inspiring living environments. In addition, he said there is also a growing appetite for luxury projects with distinctive USPs. These, he said were not just restricted to just design but also relating to amenities and techdriven innovations. Going forward, Booth said that technology will be the biggest gamechanger for this segment, as the digitalsavvy new generation of buyers seek elegantly designed, functional, and tech-driven environments. The Emaar representative too believed that technology would also play a key role across all aspects of luxury real estate including construction. The representative cited his own company as an example which had recently
announced plans to build their first 3D printed home in Dubai. Meanwhile Sobha Realty’s Hegde said the most prominent trend they are observing is the introduction of mixed use developments. This, she said is something developers are actively pursuing to give residents the comfort of community living with all necessities and amenities available within convenient reach. While Dubai’s luxury real estate segment seems to be showing positive momentum, there are a few challenges it could face. These PwC’s Dr. Berlin said, included rising interest rates, fear of a global recession, and tighter monetary policies. They were capable of creating a downward pressure on the market, he added. Damac’s McLoughlin meanwhile said fall in oil prices, government’s spending restriction and potential fall in tourism could also be detrimental to the growth of the luxury real estate segment.
editor@ifinancemag.com
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industry
opinion
Brexit human resources
Rajan Navani Vice Chairman, Managing Director and CEO, JetSynthesys
Brexit puts UK’s position as one of the leading centres for fintech, finance, digital innovation, and AI under threat
Tech talent: UK needs immigration reform Less than a month ago the UK's Home Secretary Priti Patel threatened to end the freedom of movement for EU citizens overnight should there be a no-deal Brexit on October 31, 2019. This rhetoric, elevated from years of campaigning by the Home Office under Theresa May to reduce net migration to 100,000 alongside a spectacular immigration-fuelled debate for Britain’s exit from the single market, has led to a hostile environment for European nationals in the UK. Under a Brexit vision for remaining open to the world, and seeking to create a flourishing environment for businesses, the immigration policy is perhaps the biggest constraint for a global facing Britain. The current environment discounts the contribution made by European and international migrants in the UK working
95%
of the country’s small firms have never made use of the UK’s current points-based system,
in key sectors across Britain and driving the national growth, including finance, science, technology, education, health, hospitality and retail. Already the NHS is understaffed and overworked, the tech sector is short of engineering talent and the retail and hospitality sectors are losing workers each month. Under a falling EU migration, the candidate pool for companies and businesses been reduced. London is currently home to a third of the EU citizens in the UK, with 82 percent of them in middle to high-skilled jobs, indicating how reliant the capital has become on the EU workforce. The more that leave these roles, the more difficult they will be to fill and will ultimately see companies become less appealing to potential investors and will cripple their potential for growth. These concerns have been further fuelled by statistics which have revealed that the UK lost 132,000 EU workers in 2017, while employment from the rest of the world grew by 34,000 – a significant net loss in labour. According to the Edge Foundation’s report on the Skill Shortages in the UK economy, many organisations have been forced to give up on finding appropriate talent, choosing either to hire at a lower level than intended or to leave the role vacant. As per the report,
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to address the gaps left by doing this, employers spent £1.45 billion on training to bring workers up to the level required and a further £1.49 billion on temporary staffing.
Foreign talent key to digital tech The UK’s digital technology industry in particular has been a beneficiary of the global talent, with 18 percent of the industry’s three million workforce being of international origin, while the EU workforce comprised of third of these foreign workers. The total Gross Value Added per EEA worker as of 2015 was £103,000, almost double that of non-tech sector workers. Today, the UK can be proud of its position as one of the world’s leading centres for fintech, finance, digital innovation, and AI – all made possible due to the contributions of countless national and international talent. This is where Brexit needs to tread carefully. While the political machinery is working towards disengaging from the European Union, the business community is very much dependent on a cooperative arrangement with the single block. It is vital that the UK maintains strong relations with the EU bloc and
its community on a shared platform, attract the top talent and maintain a robust immigration strategy. Beyond the walls of the EU, the UK also needs to reform its current system of immigration to make it more inclusive and logical – the country needs high skilled labour from around the world in the critical sectors, as previously outlined. For this process of change, the first and foremost change would have to be in removing the net immigration targets. While it is understandable that the UK wants to control the number of foreign migrants entering the country, the net migration targets are not the smartest way of achieving this. This is where the Australian immigration process offers some pointers for the UK. Like the UK, Australia also seeks a constant flux of international skilled workforce but handles the process under a political framework. Each year, depending on the job market and the national economic performance, the Australian cabinet decides on the number of international migrants the country wishes to take. This way, the country can be sure of the talent it needs to plug the shortfall and remain confident that the influx of migrants would not strain their public
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industry
opinion
Rajan Navani
132,000 EU workers lost by UK in 2017
34,000 Workers came from rest of the world
Brexit and the UK tech skills gap in numbers
1.45bn
training cost due to skills shortfall
1.49bn
temp staffing cost due to skills shortfall
18%
of UK digital tech talent is foreign
services. For 2019, the Australian cabinet decided to take around 160,000 migrants – meaning once the quota of applicants are absorbed into the country, all remaining applicants would have to reapply the year after. This would be a far more realistic measure to control immigration than through unrealistic net migration targets. This will also help reform the public debate about immigration from the threat perception currently at play to a more nuanced and educated argument on their benefits, contribution, and most importantly the necessity.
33%
of foreign tech workers from EU
£103,000
Gross Value Added per EEA worker in 2015
will no doubt still be interested in the UK, but if they are to get assurances from the government, the country will remain an attractive prospect post-Brexit. This will be key going forward and only enhance its position in the bloc and to the rest of the world. Therefore, Brexit presents an opportunity to finally reform the UK’s immigration policy, to make it more robust, inclusive, world facing and competitive. A reformed immigration policy will help create a Britain that can compete with the best in the world in attracting tech and non-tech talent.
UK’s tech competitiveness at stake The idea that Brexit will exacerbate the talent and skills shortage in the UK is nothing new. It is also important to remember that 95 percent of the country’s small firms have never made use of the UK’s current pointsbased system, which could change considerably once Britain leaves the single block. Nevertheless, London’s status as a world city is undeniable and still remains one of the best pools for talent in Europe and the rest of the world. Investors
Rajan Navani is a VC and MD of the Indian arm of Jetline Group and the CEO and Founder of JetSynthesys. Rajan has worked with NASA’s Goddard Space Flight Centre in Maryland, USA before expanding the family business. editor@ifinancemag.com
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106 | September 2019 | International Finance
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