July/August 2024

Transformational Experience Transformational Experience

Hisham Hammoud CEO, Aafaq Islamic Finance

ROADMAP TO EMBARK ON THE GLOBAL HORIZONS

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Reflections

Welcome to your July/August 2024 issue of MEA Finance. Yes it’s August. Apparently there were seven months before the point we’re now at in this year. A length of time that sounds a lot longer than it felt.

If asked to identify the most noticeable trends or active sectors in the regional BFSI markets, we would include the following… Wealth management and family office experiencing rapid growth and development. Transaction banking continues gathering purposeful momentum, reflecting increasing regional economic heft. The business growth and start-up environment all around us, with its accompanying investment activities is gaining prominence, and regional financial businesses and banks all seem in the throes of major transformations. Of course, running through these is the never-ending presence and advancement of technology.

This issue of MEA Finance is your industry looking glass, reflecting back to you all these currently ongoing regional

We begin mirroring these tendencies from page 14 with coverage of the growing size and roles of family office in the region, with contributions from Abbey Road Investment, BNY and UBS. “The beauty and challenge of working with high-net-worth families is that no two families are alike,” observes Arjun Mittal, Founder and CIO at Abbey Road. Additional thoughts and views from our wider wealth management markets are offered by Daniel George Head of Business, St James’s Place, Middle East.

On the 12th of June this year, MEA Finance partnered with Swift for our 2024 Transaction Banking Summit. Held in Riyadh, KSA, with the working title – Optimising the Flow of Regional

Business, the event was opened by Mohammed Alsarrani, Deputy Director General of the Financial Sector Development Program (FSDP) at the Saudi Arabia Ministry of Finance. The well and avidly attended conference brought together leading executives from across the GCC, who play key and influencing roles in the increasingly important function of transaction banking. Coverage starts at page 46.

From page 26 our look at Private Equity and Venture Capital activity in the region includes input from Aument Capital Group and SC Ventures. With a vibrant start-up scene, we assess how regional conditions are shaping this sector. “Companies with strong ESG credentials are seen as more resilient and attractive investment targets,” Rupert Searle, Partner, Aument Capital, points out. Following the VC vein, Editor at Large, Oscar Wendel spent time with legendary investor, Tim Draper. Read of his encounter from page 44.

Exemplifying our era of banking and finance business transformations, the cover story features an interview with Hisham Hammoud, Chief Executive Officer at Aafaq Islamic Finance, who has led the business through a marked change since joining, and alluding to the true scope of successful progress, points out, “Our progress does not stop at digital innovation.”

As earlier referenced, technology is the lifeblood of modern banking, thus from page 38, we examine its role in the expanding appeal of Islamic Finance, then at page 42 we host a conversation between Khomotso Molabe, Group CIO, Standard Bank and Sriranga Sampathkumar, VP and GM, Middle East and Africa, Infosys Finacle on how their collaboration benefitted the bank.

Finally, our Country Focus rests on Egypt where, with the assistance of regional allies and implementation of reforms and incentives, the nation is on the path back to growth.

So now, with your latest issue in hand, or on screen, you can now sit back, read and reflect on the leading areas of activity across our regional banking and finance sectors.

Mashreq launches Bonds & Sukuk platform providing 24x7 access to trade using Mashreq Mobile App

myZoi launches UAE’s first inclusive Digital Wallet, championing social impact for the underbanked

Mashreq launches Bonds & Sukuk platform providing 24x7 access to trade using Mashreq Mobile App

Mashreq is proud to announce that it has become the first bank in the region to offer a comprehensive digital solution for investing in bonds

This solution enables clients to buy and sell bonds 24X7 using the Mashreq Mobile App. With the introduction of the Digital platform, Mashreq clients can now access a wide range of bonds and sukuk that are available in global markets. This platform provides advanced search navigation, historical pricing charts

and order status monitoring features to provide a best-in-class experience to clients.

In addition, the platform offers enhanced convenience and flexibility to our clients, by allowing them to simply ask their relationship manager to place the order request on their behalf, which they can then securely review and

Vipul Kapur, Managing Director & Head of Private Banking

approve in a few clicks via their Mashreq Mobile app. This feature eliminates the need for physical signatures and documents, thereby saving time and enhancing efficiency.

These innovative features mark a significant milestone in the bank’s commitment to providing seamless and efficient digital banking solutions.

Managing Director & Head of Private Banking, Vipul Kapur, expressed his enthusiasm about the launch, stating, “This new feature is a testament to our focus on innovation and customer-centricity. We are committed to empowering our clients with the tools they need to achieve their financial goals, and this is a significant step in that direction.”

This latest offering underscores Mashreq position as a leader in digital banking. The bank continually enhances its services to meet clients’ evolving needs. Currently this bonds platform is available to Mashreq Gold and Mashreq Private Banking clients.

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myZoi launches UAE’s first inclusive Digital Wallet, championing social impact for the underbanked

The new Digital Wallet enables underbanked employees to transfer money home to up to five people for the cost of one, reducing remittance fees and enabling savings

myZoi, an innovative fintech focused on financial inclusion and financial literacy for the underbanked has launched the first inclusive digital wallet. This follows a successful fundraise of $14 million from SC Ventures and SBI Holdings and obtaining two regulatory licenses from the Central Bank of the United Arab Emirates (UAE). The financial platform is tailored for underbanked employees while offering corporates a safe, compliant and fully digitised solution for payroll disbursal. myZoi is committed to supporting 6 out of 17 UN’s Sustainable Development Goals.

“myZoi is thrilled to be the first fintech in the space to provide personalised and affordable financial solutions for the underbanked. The power of technology enables us to innovate and reconnect

banking with society’s needs, such as supporting financial inclusion and empowering the underbanked and their families,” said Syed Muhammad Ali, CEO of myZoi. “For corporates, myZoi enables digitising payroll without altering their current processes while advancing corporates’ ESG’s social elements. myZoi seeks to support 6 out of 17 UN’s Sustainable Development Goals.”

myZoi’s Digital Wallet reduces remittance fees for underbanked employees. The UAE’s first “One-To-Many” transfer capability enables users to transfer money home to up to five people for the cost of one. myZoi is set to transform financial inclusion and financial literacy for the underbanked employees in the UAE and their families by bringing them into the formal financial ecosystem. It aims to make their daily transactional activities

safe, convenient and cost effective through a simple onboarding journey, domestic payment capabilities and instant fund transfers to their home countries.

myZoi also provides MoneyTips, an interactive gamified financial education programme which introduces concepts around responsible spending, sustainable budgeting and safeguarding money.

Corporates and partners have warmly welcomed the payroll solution as myZoi continues to collaborate with more likeminded organizations committed to make a positive impact on the future for underbanked employees.

Derived from the Greek word Zoi, which means “life,” myZoi’s mission is to improve the lives of the underserved. By including them into the formal financial ecosystem myZoi aims to create opportunities for their families to access better education, healthcare and save toward building a better future.

myZoi has received the Stored Value Facilities (SVF) and the Retail Payment Services and Card Schemes (RPSCS) Category II licenses from the Central Bank of the UAE. More recently, myZoi partnered with Apparel Group, one of the UAE’s largest retail conglomerates, to redefine financial inclusion for over 4000 of their employees.

“We’re thrilled to see our homegrown startup, backed by SC Ventures, launch a digital wallet and tailored financial solutions specifically for the underbanked and their families,” said Rola Abu Manneh, Chair of the Board, myZoi, and CEO of Standard Chartered, UAE, Middle East and Pakistan. “This innovation brings real change and social impact, providing practical solutions like affordable fund transfers and financial education.”

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Revitalisation in Progress

With support from allies, including the UAE, and a range of reforms and investment incentives, the North African country is on the road to economic recovery

Egypt’s President Abdel-Fattah El-Sisi began his third six-year term in April after a miraculous economic turnaround that was spearheaded by a $35 billion investment pledge by the UAE and renewed International Monetary Fund (IMF), European Union (EU) and World Bank Group support.

Since coming to power a decade ago, President El-Sisi has implemented structural reforms to maintain macroeconomic stability and promote sustainable long-term growth.

Speaking during his swearing-in ceremony, the Egyptian President vowed to implement “comprehensive institutional reform” to streamline public spending, generate revenue and move towards “more sustainable paths for public debt.”

“While geopolitical tensions and their impact on Egypt remain challenging, the authorities have stayed the course

to preserve macroeconomic stability through fiscal discipline, tight monetary policy and a shift to a flexible exchange rate regime,” the IMF said in June after reaching a preliminary agreement that is set to unlock the next disbursement of the country’s $8 billion loan.

The fund said the stage is set for accelerating structural reforms that will be critical to sustainably raising private sectorled growth while urging the government in Cairo to include measures to improve the business environment in its reform agenda.

The North African country’s $50 billion rescue saw it emerging from the worst currency crisis in decades to become the hottest trade in emerging markets. Egypt’s reforms have been critical in stabilising the economy and the value of the pound, which is expected to attract foreign investors back to the country and end its worst economic crisis in decades.

Egypt allowed its currency to weaken by almost 40% against the dollar in

March, the pound’s third devaluation since early 2022, when the foreign currency shortage worsened.

However, the devaluation of the pound is expected to exert pressure on banks’ capital ratios. Fitch Ratings cautioned in March while highlighting that the move by the central bank “should be neutral for Egyptian banks’ ratings, which are constrained by the sovereign’s ‘B-’/stable rating.”

The government has ramped up efforts to fight inflation, including devaluing the pound amid investment inflows from Egypt’s GCC allies, as part of the country’s broader strategies to turn around the economy after the war in Ukraine crystallised pre-existing vulnerabilities and triggered capital outflows.

Egypt listed more than 30 companies in which investors could bid for stakes in February 2023 across different sectors of the economy, including finance, energy, real estate and ports.

A $50 billion lifeblood

Growth in Egypt’s non-oil business soared to record highs in almost three years in May, according to a survey by S&P Global, finally approaching growth territory as inflation cooled and foreign currency became more available after a steep currency devaluation.

The S&P Global Purchasing Managers’ Index (PMI) for Egypt, which measures

the performance of the private sector, climbed to 49.6 in May from 47.4 the month before. Though still below the 50 threshold that separates expansion from decline, it was the highest since August 2021.

The reading confirms an economic turnaround is taking hold in Egypt after authorities devalued the pound by as much as 40% in March to resolve a grinding two-year crisis and chronic foreign exchange shortage.

The rapid change of fortune, made possible by a massive investment accord with the UAE, helped the North African nation to reach new financing deals with the IMF, the World Bank and the EU. The UAE is investing $35 billion in real estate after acquiring development rights to the coastal headland of Ras El-Hekma, a region on the Mediterranean coast.

Egypt received $14 billion from the UAE in May, the second tranche of the landmark investment deal with the Gulf state after the Arab world’s populous nation received initial transfers of $15 billion in February. The third tranche of the investment is expected to come from existing Emirati deposits in the Egyptian central bank.

“The $35 billion investment deal from Abu Dhabi’s ADQ in Ras El-Hekma has alleviated near-term balance of payment pressures and, if used judiciously, will help Egypt rebuild buffers to deal with future shocks,” said the IMF.

The UAE had indirectly become partowners of a slice of Egypt’s tourist legacy. ADQ and ADNEC Group jointly acquired a 40.5% stake in TMG Holding, valued at $882.5 million, in January. The Egyptian hospitality firm purchased stakes from seven state-owned hotels – including Aswan’s Old Cataract, the Winter Palace in Luxor, Mena House in Cairo and the Cecil Hotel in Alexandria.

Earlier in June, the IMF and the government in Cairo reached a preliminary agreement that will help unlock the next disbursement of the North African nation’s $8 billion loan.

WITHDRAWING THE STATE AND MILITARY FROM ECONOMIC ACTIVITY AND LEVELLING THE PLAYING FIELD BETWEEN THE PUBLIC AND PRIVATE SECTORS IS KEY TO ATTRACTING FOREIGN AND DOMESTIC

PRIVATE INVESTMENT IN EGYPT

– Kristalina Georgieva, the IMF Managing Director

The staff-level agreement, which must be approved by the fund’s board, will give Egypt access to about $820 million.

Furthermore, the World Bank said in March that it intends to provide more than $6 billion of financial support to Egypt over the next three years. The bank allotted $3 billion towards government programmes and $3 billion to the private sector.

The program will focus on increasing opportunities for the private sector, “strengthening the governance of stateowned enterprises, and improving the efficiency and effectiveness of public resource management.”

The EU also pledged about $8.1 billion (EUR 7.4 billion) in aid, loans and grants that would be disbursed through 2027. The funding program will prioritise economic stability, investments and trade, migration and security.

Fitch Ratings forecasted that Egypt’s foreign exchange reserves would increase by $16.2 billion in 2024 to $49.7 billion despite a widening current account deficit to 5.2% of GDP. “We forecast foreign exchange reserves to rise further to $53.3 billion by 2025, equivalent to 5.6 months of current external payments,” the rating agency said in a statement.

The recovery in remittances due to greater exchange rate confidence contributes to a projected narrowing of the current account deficit to 2.3% of GDP in 2025. Beyond the increased foreign currency liquidity it brings, hopes

are high that Ras al-Hekma and other similar projects will further stimulate activity in Egypt’s private sector.

An economic turnaround

Egypt’s El-Sisi instructed Prime Minister Mostafa Madbouly to assemble a new government in June. The new Cabinet, which was sworn in earlier in July, comes as the Arab world’s most populous country pushes ahead with the implementation of a series of economic reforms after securing more than $50 billion in aid and investments.

The new ‘competent and experienced’ government is tasked with spearheading structural reforms, bolstering private sector growth, attracting and increasing foreign investments, and keeping prices and inflation in check.

“Withdrawing the state and military from economic activity and levelling the playing field between the public and private sectors is key to attracting foreign and domestic private investment in Egypt,” Kristalina Georgieva, the IMF Managing Director, said in a statement in March.

Structural reforms such as reducing trade, investment and administrative barriers make it easier for foreign companies to do business in the country, make it attractive to its young population and have a positive impact on trade flows in general.

The opportunities for investors are numerous in North Africa’s biggest market, with a population of over 111 million, which has been expanding by

2% on average over the past decade, according to the World Bank.

Last year, Egypt expanded the ways to acquire citizenship, including the option to pay in instalments, to address the shortage of foreign exchange that contributed to the country’s economic crisis.

The latest regulations allow citizenship to be bought in several ways, including buying state-owned property for at least $300,000, participating in a venture with a $350,000 investment or depositing $100,000 in the state treasury. The authorities said another option is a $500,000 deposit that would be refunded without interest.

The Egyptian Cabinet approved the country’s record budget of $134.1 billion (EGP 6.4 trillion) for the 2024/25 fiscal year earlier in June. The government increased public expenditure by 29% to reach EGP 3.87 trillion, representing 22.6% of the projected GDP for the fiscal year.

A significant portion of the 2024/25 state budget, EGP 40.5 billion, was allocated to stimulate economic activity, with a particular focus on the industrial and export sectors. Egypt expects tax revenues to grow by 30.5% to exceed EGP 2 trillion.

“General government debt/GDP is projected to fall to 84.5% of GDP of 2024/25 fiscal year from 95.9% for 2024/25 fiscal year, on primary surpluses and robust nominal GDP growth,” said Fitch Ratings.

The IMF projected that GDP growth will reach approximately 4.4% in 2024/25, which positions the North African country favourably in terms of global economic growth.

THE $35

BILLION

INVESTMENT DEAL FROM

ABU DHABI’S ADQ IN RAS EL-HEKMA HAS ALLEVIATED NEAR-TERM BALANCE OF PAYMENT PRESSURES AND, IF USED JUDICIOUSLY, WILL HELP EGYPT REBUILD BUFFERS TO DEAL WITH FUTURE SHOCKS

– The IMF

Bolstering the banking sector

Having come through Egypt’s worst economic crisis in decades relatively unscathed, the country’s banking system is ready to reap the medium- and longterm benefits accruing from the dramatic rescue by the UAE, the IMF, the EU and the World Bank.

The $50 billion investment enabled the Central Bank of Egypt (CBE) to weaken the pound by 40% in March, closing the gap between official and black-market foreign exchange rates while raising interest rates by 600 basis points in a bolder-thanexpected move against the country’s soaring inflation.

However, despite the CBE restrictions on hard currency withdrawals and foreign credit card purchases that were introduced last year – Egyptian lenders’ finances have remained in a healthy state.

The health of the country’s banking system is inherently linked to the sovereign and public sector. However, among emerging markets, Egyptian banks are notable for their significant exposure.

To attract more foreign investments, the government in Cairo launched its initial public offering programme, with

plans to divest stakes in 35 state-owned companies to strategic investors by the end of June 2024, as outlined in Egypt’s state ownership policy.

As part of ADQ’s $1.85 billion investment across a series of companies in April 2022, the Abu Dhabi fund acquired a 17% stake in Commercial International Bank, Egypt’s largest private lender, for $910 million.

However, the sale of stakes in other Egyptian lenders, including Union Bank, Banque du Caire and Arab African International Bank, has not yet materialised, in part due to past concerns over the value of the pound and broader economic uncertainty. Saudi Arabia’s Public Investment Fund was on the brink of acquiring Union Bank in February 2023, but the deal fell through over disagreements on price.

Italy’s Intesa Sanpaolo Group is negotiating with Egyptian authorities to acquire the remaining 20% of the Bank of Alexandria (AlexBank) it does not own.

Bloomberg reported in February that Qatar Islamic Bank and Kuwait Finance House had both completed due diligence on United Bank, with the potential deal valued at approximately $467.5 million (EGP 22 billion).

Going forward, Egypt’s domestic banking sector remains highly liquid, with significant deposit growth from a low base of financial inclusion. However, Fitch Ratings projected that currency depreciation in March lowered the banking sector’s standard equity Tier 1 ratio (13% at end-2023). The ratings expect an improvement in capital in H2 2024, with profits projected to grow by at least 50% year-on-year this year.

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Guardians of Wealth

While historically focused on wealth preservation, family offices in the GCC are now increasingly shifting their attention towards identifying and capitalising on growth opportunities

The GCC region’s wealth management landscape is undergoing a once-in-ageneration convergence that presents family offices, wealth managers and private banks with unique opportunities to redefine their services.

The shift is paving the way for the segment to support high-net-worth individuals (HNWIs) in achieving financial goals while positioning themselves for a more prosperous future.

“Family offices understand the necessity of adaptation, whether it’s due to the increasing importance of succession planning among enterprising families in the Gulf region or the need to assist with private market investments in areas such as technology and sustainability,” Emirates NBD said in a blog post.

Family offices go wherever wealth goes. The GCC region is emerging as a hotspot for HNWIs, with Dubai projected to attract as many as 6,700 millionaires in 2024 and Abu Dhabi and Riyadh ranking high on Henley & Partners’ Cities to Watch list.

The GCC region is witnessing an acceleration in trends such as succession planning, alternative investment options, wealth preservation, digital transformation in wealth management and a growing interest in sustainable investing.

Family businesses play a crucial role in the economies of many GCC countries. These enterprising families understand the importance of succession planning and wealth transfer.

The Dubai Centre for Family Businesses introduced three toolkits tailored for family enterprises in 2023,

while the Dubai International Financial Centre unveiled the global centre for family businesses and private wealth to foster growth and ensure the long-term sustainability of family enterprises.

Meanwhile, Saudi Arabia has been experiencing unprecedented transformation across various domains since the launch of Vision 2030 economic diversification agenda in 2016. This transformation is creating vast opportunities for businesses of all sizes, including family enterprises.

Lombard Odier said in a report that HNWIs in the Middle East have a strong desire to leave a lasting legacy to the next generation and society more broadly.

A study of 300 established HNWIs by the Swiss private bank in the Middle East shows that almost 90% believe that their family business is set up for an efficient wealth transfer to the next generation, whilst 24% have complete estate planning in place.

Family offices in the GCC region are the engines of economic growth and a driving force behind diversification, as many family-owned businesses in the region are evolving into multinational conglomerates with diverse portfolios.

Charting a path

Family businesses in the Gulf region wield substantial economic influence, accounting for more than three-quarters of the workforce in the private sector. For governments in the GCC and beyond, enterprising families are vital to meeting ambitious goals for private sector growth.

“Family is the cornerstone of traditional Middle Eastern culture, while familyrun businesses are the lifeblood of the economy in the region,” Arnaud Leclercq, Partner Holding Privé and Head of New Markets at Lombard Odier said in a report.

However, as these businesses transition through generations, sustaining growth, harmony and direction becomes increasingly difficult due to dilution.

Furthermore, inter-generational sensitivities create challenges in maintaining peace among family branches, further complicated by the growing number of stakeholders with each successive generation.

Industry specialists say wealthy individuals and enterprising families recognise the importance of succession and wealth transfer planning and are considering how best to involve the next generation, including family offices.

Family offices are rapidly emerging as a significant segment of the region’s wealth management industry.

“Family offices can help with succession planning in many ways, not least in terms of asset management, investments and wealth structuring,” Desmond Teo, EY Asia-Pacific Private Tax Leader, said in a blog post.

“They create a much more formalised structure for ongoing planning and management for family members present and future, which is essential when considerable wealth is in the picture.”

Succession truly tests how well a family can manage the transition from one generation to the next. It involves not only passing down ownership of businesses, property and other assets but also addressing broader financial concerns such as philanthropic foundations and art collections.

FAMILY OFFICES UNDERSTAND THE NECESSITY OF ADAPTATION, WHETHER IT’S DUE TO THE INCREASING IMPORTANCE OF SUCCESSION PLANNING AMONG ENTERPRISING FAMILIES IN THE GULF REGION OR THE NEED TO ASSIST WITH PRIVATE MARKET INVESTMENTS IN AREAS SUCH AS TECHNOLOGY AND SUSTAINABILITY – Emirates NBD

Nurturing the next generation of leaders in a family business is, unsurprisingly, a delicate mix of good corporate practice and good parenting. Governments in the GCC are implementing tailored initiatives to mitigate risks in generational transitions and enhance growth prospects.

Abu Dhabi issued a new ownership governance law in 2022, prohibiting the sale of shares or dividends of familyowned businesses to individuals or companies outside the family. The law requires family partners’ approval before a shareholder can sell an equity stake to a non-family member.

The Dubai Chamber established a family businesses centre in 2023 to offer technical and administrative support, ensuring smooth generational succession. The Dubai Centre for Family Businesses aims to facilitate effective succession planning and contribute to the growth and sustainability of family businesses in the emirate.

Last December, the centre unveiled three toolkits designed to empower enterprising families: succession planning for family businesses, establishing family offices and fostering productivity through streamlined family communication. These tools aim to ensure business continuity and facilitate successful transitions between generations.

Meanwhile, Saudi Arabia’s National Center for Family Business offers a set

of tools to motivate family enterprises to adopt best practices. It works with family businesses, the government, advisors and consultants, and the general community too, to create an ecosystem that supports the continuity and growth of family businesses.

Supporting the future of family businesses has become a strategic priority for governments across the GCC, especially in the UAE and Saudi Arabia. By offering targeted support, these nations are not only mitigating the risks associated with intergenerational handovers but seizing growth opportunities in various key industries to diversify the economy away from heavy reliance on oil.

A fertile environment

Millennials and Generation X stand to gain the most from the $84 trillion Great Wealth Transfer over the next decade, according to a study by Altrata. In the Middle East, 19,038 high-net-worth individuals are expected to transfer a record $604 billion to the next generation by the end of the decade.

“As Millennials and Generation Z begin to accumulate wealth, their investment needs are likely to transform the institutional wealth management function,” Saod Obaidalla, Executive Vice President and Head of Private Banking at Emirates NBD, said in a blog post.

“Impact investing, which combines financial returns with social and

environmental benefits, is seeing an upsurge in interest, with 59% of family businesses in the Gulf region ready to take the lead in sustainable business practices.”

While it is unclear just how great an impact the Great Wealth Transfer will have on the market, the willingness of younger investors to press for more variety in investing choices could create new opportunities for everyone in the years to come.

Family offices need to adapt to the distinct preferences of Millennial and Generation Z investors, tailoring their services to meet the unique needs of this new generation.

The concept of the family office dates back to the 1800s. In 1838, J.P. Morgan’s family established the House of Morgan to manage their assets, and in 1882, John D. Rockefeller Sr. founded his family office, which remains active today.

Centuries later, in 2007, the Rockefeller Foundation introduced the term ‘impact investing’ to foster a community of investors focused on high-impact, sustainable investments. Since then, both family offices and the impact investment sector have grown significantly in terms of assets and sophistication.

Family offices have more flexibility than most investment entities to adapt their strategies to a value-aligned approach that can strengthen family legacy beyond individual generations.

Wealthy families and their family offices are well-positioned for impact investing, given their substantial capital reserves and long-term, multigenerational objectives that align with this strategic approach.

“The next generation of family office members, who are more attuned to the immediate impacts of climate change, are increasingly influencing investment decisions towards sustainability,” Laurent Capolaghi and Lars Goldhammer, Partners at EY Luxembourg, said in a blog post. These inheritors are expected to amplify further the role of sustainable investments in family offices globally.

BY

EMBRACING AI-DRIVEN SOLUTIONS, FAMILY OFFICES CAN ENHANCE OPERATIONAL EFFICIENCY, OPTIMISE INVESTMENT STRATEGIES AND DELIVER PERSONALISED CLIENT EXPERIENCES THAT SET THEM APART IN THE MARKET

– Eton Solutions

Sustainable or impact investing continues to gain momentum unabated. The investment theme focuses on excluding specific companies, sectors or countries that conflict with environmental, social and governance (ESG) principles. ESG investing has evolved into a respected strategy embraced by both family businesses and family offices.

The age of change

Globally, family offices are increasingly embracing technology, with artificial intelligence (AI) revolutionising wealth management, investment decisionmaking and client interactions. These advancements provide unparalleled insights and efficiency improvements across the board.

A global study by Deloitte shows that nearly half (43%) of family offices are developing or rolling out a technology strategy in 2024.

For decades, family offices have held onto the hope that technology would address significant inefficiencies in wealth management. AI represents a transformative shift in their approach, fundamentally changing how they operate and deliver value WWto the wealthy families they support.

Once a laggard in the adoption of technology, wealth management is accelerating digitalisation, deploying AI, Big Data, robotics and other technologies to enhance client’s experience and trust—which is central to private banking relationships.

“By embracing AI-driven solutions, family offices can enhance operational efficiency, optimise investment strategies and deliver personalised client experiences that set them apart in the market,” according to Eton Solutions.

For every family office partner, building and strengthening client relationships is the most valued asset. With shifting demographics and the ongoing wealth transfer in the GCC region, the next generation of HNWIs is no longer satisfied with traditional face-to-face meetings and bulky printed reports.

The younger clientele expect a more tech-savvy approach, with access to real-time information and seamless transactional capabilities. “Due to the complexity of their work, family offices must aggregate and analyse vast amounts of research, data and analytics to meet these evolving expectations,” according to EY.

Looking ahead, the landscape of family offices and their investment strategies is undergoing a significant transformation. Family offices in the Middle East allocate an average of 15% of their portfolios to real estate, which is higher than the global average. They also tend to use high-quality, short-duration fixed income for portfolio diversification less frequently than their global counterparts. However, major geopolitical conflict within the next year and a financial market crisis within the next five years are among the chief concerns for these family offices.

Investment Intelligence

Niels Zilkens Head of Wealth Management, Middle East at UBS takes us through the leading considerations and investment priorities of the growing family office market across our region, noting the increasing popularity of artificial intelligence as an asset class, with sustainability coming to the fore as a leading concern

Is advancing economic development in the region resulting in a noticeable influx of family office service providers?

Yes, advancing economic development in the Middle East has resulted in a noticeable influx of family office service providers. Among the aspects that most contribute to this trend are: economic diversification, with several Middle Eastern countries particularly in the Gulf Cooperation Council region (GCC), actively pursuing plans aimed at reducing dependence on oil revenues, which has led to the growth of other sectors such as finance, real estate, technology and tourism; the significant concentration of HNWI and UHNWI individuals seeking to manage and grow their wealth, demanding increasingly sophisticated wealth management services; an ever improving regulatory framework, providing favorable conditions for family offices to establish themselves and operate

in the region; a growing awareness and education amongst wealthy families in the Middle East about the benefits of professional wealth management. We have had a presence in the Middle East for 60 years and are optimistic about the future growth and prosperity of this region. By living our purpose here, we are confident that we can continue to deliver best-in-class service to our clients and grow our impact over the coming years.

Are we seeing a rise in the growth of single-family offices across the region?

Wealth transfer is accelerating, supported by new regulations in some ME sub-regions. According to our 2024 Global Family Office (GFO) Report, the main purpose of the family offices surveyed in the region is generational wealth transfer, but also diversification away from the operating business. In fact, we see a trend towards more professionalised FOs, in the form of single FOs, which organisationally are clearly separated from the operating business (in the past they tended to be more businessembedded); the larger and more established FOs in the region have a good level of governance in place but only 63% have a formalised investment committee, hence there is room for further fine-tuning. Finally, there is a growing

Niels Zilkens, Head of Wealth Management, Middle East at UBS

interest throughout the region in obtaining advice on family office setup based on international best practices.

Which currently are the most notable developments in the roles of family offices in GCC countries?

In the Middle East, family offices often choose to work with experienced teams to effectively manage their wealth, handle tax considerations and plan for inheritance. Currently, the investment climate suggests a careful and observant approach, highlighting the importance of preserving wealth strategically in this region. Family offices are showing a preference for private credit and equity investments as opposed to public markets, as they believe this can lead to more attractive returns. It is interesting to note that leading family offices are approaching their investments with a sense of calculation and caution. Some clients are even willing to compromise the liquidity of their assets in exchange for better

ARTIFICIAL INTELLIGENCE IS THE MOST POPULAR THEME, WITH 75% SAYING THEY PLAN TO INVEST IN THIS AREA OVER THE NEXT 2-3 YEARS

AS THE TOPIC OF SUSTAINABILITY MATURES, FAMILY OFFICES NEED MORE INFORMATION AND ADVICE

philanthropy, which goes beyond pure investment management.

What do you notice as the leading priority of our region’s HNWIs at this time?

Compared to their global peers, Middle Eastern family offices have a strong focus on real assets and growth. They have on average the highest allocations to real estate (15%) and a higher-thanaverage allocation to Private Equity (28% vs the average 22% globally). On the flipside, at an average 11% they have among the lowest allocations to fixed Income. Looking forward over the next five years, they plan to add the most to public and private equity as well real estate, partly at the expense of cash. Artificial Intelligence is the most popular theme, with 75% saying they plan to invest in this area over the next 2-3 years.

Are sustainability and geopolitical concerns taking greater precedence in investment decision making?

businesses or plan to do so in the future. As the topic of sustainability matures, family offices need more information and advice. Better data analytics to measure the impact of investments and/or business operations would help in achieving sustainability and/ or impact goals, according to 37% of respondents.

How are both single and multifamily offices adapting to the inevitable progression of technology and AI?

returns. Additional developments include progressively supporting generational wealth transfer and their principles on a number of activities ranging from investments to family management, next generation development and

Yes, as showed in our latest GFO Report, over the next 12 months Middle Eastern family offices are most concerned about a major geopolitical conflict (68%). With climate and nature increasingly in the spotlight, sustainability is becoming an increasingly important topic affecting not just family offices’ investment portfolios, but also the longterm outlook of operating businesses. More than half (57%) of family offices with an operating business are either taking sustainability considerations into account already for their operating

Single and multi-family offices are increasingly recognising the importance of technology and AI and integrating it into their operations. It is a powerful tool to increase efficiency by supporting employees with their work, allowing them to invest more time and resources to client relationships and services and finally create value for clients. AI will improve but not replace personalised service by family offices or accountants. While AI and machine learning have the potential to change many aspects of the family office ecosystem – from enhanced operational efficiency to optimised investment strategies and more personalised client experiences – they will have to be implemented in a risk and regulatory compliant manner. In terms of investment themes, generative AI has emerged in our 2024 GFO report as the most popular one, with three quarters (75%) of family offices in the Middle East stating it is likely to be an area of investment in the next two to three years.

Growing Family

Shadi AlNasr Director, Client Strategist, Global Family Office International at BNY provides a clear overview of the growing Family Office sector across the region, showing how this market is adeptly changing with the economic, societal and technological developments of our times

Is advancing economic development in the region resulting in a noticeable influx of family office service providers? Advancing economic development in the Middle East is indeed resulting in a noticeable influx of family office service providers. As the region continues to

diversify its economies beyond oil and gas, there is a growing demand for sophisticated financial and advisory services tailored to the unique needs of family offices. One of the primary drivers of this trend is the increasing wealth among families in the Middle East, necessitating more comprehensive

wealth management solutions. Service providers are stepping up to offer a range of specialised services including investment management, estate planning, tax advisory, philanthropy and governance. For instance, in Saudi Arabia, there is a burgeoning market for bespoke investment strategies that align with Sharia-compliant principles. Additionally, the regulatory frameworks in these regions are evolving to support and attract more family offices, making it an attractive destination for service providers. Moreover, the introduction of corporate taxes in the UAE has significant implications for family offices and their wealth management strategies. There is a growing demand for expert tax advisory services to navigate these new regulations and optimise tax efficiency. Technology and digital transformation are at the forefront, with providers offering advanced solutions in cybersecurity, digital assets management and fintech integration to enhance operational efficiency and security.

Are we seeing a rise in the growth of single-family offices across the region?

Absolutely, we are witnessing a significant rise in the growth of singlefamily offices across the Middle East. This trend is driven by several key factors but most notable economic diversification. As these countries diversify their economies beyond oil and gas, there is a surge in wealth creation, prompting affluent families to establish single family offices to manage their assets more effectively. The UAE has introduced favourable regulations and a robust legal framework to attract and support family offices, making it a hub for wealth management. The introduction of 100% foreign ownership in various sectors and the creation of free zones

Shadi AlNasr, Director, Client Strategist, Global Family Office International, BNY

tailored for financial services have significantly contributed to this growth. There has been a substantial increase in the number of single-family offices, with estimates suggesting a growth rate of over 15% annually in recent years. Dubai, in particular, has become a magnet for UHNWIs, with around 3,000 millionaires relocating to the city in 2022 alone, making it one of the top destinations globally for wealthy individuals. In Saudi Arabia, the Vision 2030 initiative is transforming the economic landscape, encouraging the growth of private wealth and the establishment of family offices. The number of family offices in Saudi Arabia has grown by approximately 20% over the past five years.

What currently are the most notable developments in the roles of family offices in GCC countries?

Family offices in the GCC are positioning themselves for resilience and sustained growth in a dynamic economic landscape. They are becoming more sophisticated in their capital allocation, succession planning, liquidity management and tax planning, ensuring long-term wealth preservation and growth. In terms of Capital Allocation and development, family offices are increasingly focusing on strategic investments across various sectors, including technology, healthcare and renewable energy. There is a notable trend towards global investments, with family offices allocating significant capital to international markets to gain exposure to different economic cycles and growth opportunities. Technological adoption and innovation are also high on the agenda, there is a significant interest in investing in technology startups, particularly in fintech, biotech and renewable energy, as these represent future growth areas and innovation hubs. The introduction of corporate taxes in the UAE has also led family offices to seek specialised tax planning and advisory services. They are making structural adjustments to their business operations

and investment strategies to minimise the impact of corporate taxes and ensure compliance with new tax regulations. These developments are driving family offices to adopt more professional and institutionalised approaches to wealth management, governance and investment strategies.

What do you notice as the leading priority of our region’s HNWIs at this time?

Firstly, there is a strong focus on capital allocation and diversification, we have just spoken about it. Another critical priority is succession planning and legacy preservation. Ensuring a smooth transition of wealth to the next generation is paramount. This involves setting up robust governance structures,

MANAGING LIQUIDITY EVENTS IS ANOTHER KEY FOCUS AREA

educating heirs and professionalising family businesses to ensure sustainability and growth. Alongside this, there is a growing interest in philanthropy and impact investing, driven by a desire to leave a legacy that promotes sustainable development and social welfare. Managing liquidity events is another key focus area. UHNWIs are strategically planning exits and reinvestments to unlock value and capitalise on new opportunities that align with their longterm goals. Finally, sustainability and ESG (Environmental, Social and Governance) integration are becoming increasingly important. UHNWIs are incorporating ESG criteria into their investment decisions as part of a commitment to sustainability and responsible investing. This trend

is in line with global movements and local government initiatives aimed at achieving net-zero targets and promoting environmental stewardship.

How are both single and multifamily offices adapting to the inevitable progression of technology and AI?

Both single family offices (SFOs) and multi-family offices (MFOs) in the Middle East are increasingly turning to technology and AI to streamline operations, enhance decision-making and offer better services. Automation of routine tasks like reporting and compliance, along with the use of blockchain for secure transactions, further enhances operational efficiency. AI-driven predictive analytics are also being employed to assess and manage risks by analysing market conditions and geopolitical events. Cybersecurity is another priority, with AI tools being used to protect sensitive financial data from cyber threats. The Multi-family offices are leveraging AI to provide personalised investment advice and tailored financial planning. Enhanced client portals with AI capabilities offer realtime access to portfolio performance and personalised recommendations. Some MFOs are using robo-advisors to manage smaller client portfolios, freeing up human advisors for more complex tasks. Common trends for both SFOs and MFOs include heavy investment in data analytics to gain deeper insights into market trends and client behaviours, a shift towards digital platforms and cloud-based solutions for enhanced accessibility and security and the adoption of AI-driven decisionmaking tools to improve investment strategies and operational efficiency. By embracing these technologies, both single and multi-family offices will not only improving their efficiency and effectiveness but also provide more value to their clients through personalised services and advanced investment strategies.

Increasingly Sophisticated

Arjun Mittal Founder and Chief Investment Officer at Abbey Road Investment Group, describing growth and development within the family office market, provides insights into the current thoughts and priorities of HNWIs across our region at this time

Is advancing economic development in the region resulting in a noticeable influx of family office service providers?

There is definitely a rise in the number and range of family office service providers based out of Dubai and Abu Dhabi. Yes, some of it is due to advancing economic development, but also a large part is due to demand from family offices for top tier advice and services closer to them, as opposed to being run remotely from other parts of the world. We are fans of this trend. We have long argued that as the ecosystem grows for family offices in the region, this creates a virtuous cycle of families understanding how service providers can add value to their lives, and as more service providers set up a base here, the competition should drive higher quality advice and services at better rates for families.

Are we seeing a rise in the growth of single-family offices across the region?

The short answer would be yes. While we do not have any statistics at hand to support this fact, family-owned businesses do contribute over 60% of GDP across the region, and so it would make sense that many high-networth families are seeing the value in establishing a family office to manage their personal balance sheets. The regulatory framework in the UAE is also a significant driver in attracting families to set up a Family Office. The introduction of corporate tax has also spurred families to organise their non-commercial assets more appropriately, which often are then housed under the Family Office. Finally, we have also anecdotally seen a large increase in interaction with single family offices over the last 6 months, many of which have been established recently.

Arjun Mittal, Founder and Chief Investment Officer at Abbey Road Investment Group

Which currently are the most notable developments in the roles of family offices in GCC countries?

It can be tough to generalise with family offices, as by their very nature, are designed to be specific to each family. At its simplest, the role of a family office should be to help organise a family’s assets in an efficient and organised manner, which then are managed with an appropriate investment methodology to create outcomes that match the family’s liquidity and generational needs. And, of course, the family office should be there to make the family’s life easier, whether that be financial or structuring advice, or even concierge services. From our perspective, we see all these developments happening with family offices across the region.

What do you notice as the leading priority of our region’s HNWIs at this time?

The beauty and challenge of working with high-net-worth families is that no two families are alike. And, so, we are always reluctant to generalise as every family has their own set of circumstances and priorities. However, there are some requirements we do see crop up time and again. Firstly, as families become more sophisticated and knowledgeable, they are able to unbundle services which have traditionally placed them into ‘boxes’, and which typically lacked any creativity or depth to actually address the family’s own unique situation. Secondly, highnet-worth families are keen to organise their personal balance sheets, which involves the use of structuring and tax experts to put together a framework relevant in today’s multi-jurisdictional and regulatory environment. Thirdly, we see families keen to increase the quality of investment advice they receive from their financial providers. Often and depending on the family needs, they hire internally or employ external consultants to augment and improve the P&L outcome from their

investment portfolios. And, fourthly, highnet-worth families are keen to broaden their exposure to private markets and alternative investments. The pension and endowment funds across Europe and the USA have been doing this for some time now, and with advancement in information access and providers coming to the region, families now also have the opportunity to participate in these two investment areas.

Are sustainability and geopolitical concerns taking greater precedence in investment decision making?

It all depends on the family and what is their priority, investment framework and philosophy. We do not see a big

How are both single and multifamily offices adapting to the inevitable progression of technology and AI?

Single and Multi-Family offices, as far as we can tell, are embracing technology. It starts with the use of portfolio aggregation software that gives an entire view of the family’s balance sheet, and how successful the P&L is being run. There is also access to financial information, which in today’s world is available from multiple providers, and often at cost-effective prices. This gives the families greater control and information on which to make the appropriate financial decisions. And depending on the size and sophistication of the family office, there are lots of

THE REGULATORY FRAMEWORK IN THE UAE IS ALSO A SIGNIFICANT DRIVER IN ATTRACTING FAMILIES TO SET UP A FAMILY OFFICE

push on sustainability-led decisions; it remains a nice-to-have but not critical to the decision-making process. However, before you receive a deluge of readers stating our view is wrong, I would caveat our comment with the fact that we, of course, only work with a small group of families, and maybe we are not seeing the wider picture. We are definitely seeing geo-political concerns take greater precedence in investment decisions. And this is not surprising, as high-networth families increasingly have access to investments across the globe, and so it is important to try and make a risk-reward decision within the context of what else is available that could be safer from a geopolitical framework.

other software systems to streamline decision making, information gathering and maintaining relationships with counterparties.

Again, given our reluctance to generalise, it is hard to say to what extent exactly AI is being adopted currently. Our guess is that it is still early days for how AI will be used by family offices but it is clear the potential will be huge and adoption will increase in the coming years. We suspect AI will reduce a family’s dependence on basic research and advice provided by the financial community currently, and will help sharpen both the ways portfolios will be constructed, and also how family’s will interact with their financial counterparties.

Trusted, personalised advice will stand out in a competitive Middle East wealth market

Describing a region evolving into a global wealth hub, Daniel George Head of Business, St James’s Place, Middle East points out that as client needs become more sophisticated, to demonstrate value, wealth managers must adopt a bespoke approach combined with digital capabilities

Despite an uncertain global economic outlook, the Middle East’s population of HighNet-Worth Individuals (HNWI) continues to grow each year. According to Knight Frank’s 2024 Wealth Report, the Middle East saw a 6.2% increase in Ultra High Net Worth (UHNWI) over the past year, underscoring the region’s ability to attract, sustain and deliver growth in challenging conditions.

With the continued growth of the Middle East’s high-net-worth population, and the region’s emergence as a leading global financial centre, the wealth management landscape has become increasingly competitive in recent times, with a growing list of banks and independent advisory boutiques jostling for position in this burgeoning market.

The Middle East’s strategic position as a global financial hub is only set to grow

from here, providing fertile ground for wealth managers to demonstrate their value, innovate and expand in the years to come. In this competitive landscape, experienced, large-scale advisory firms able to deliver long-term, relationshipdriven advice to individuals are wellplaced to succeed.

HNWI growth soars

The Middle East, particularly the United Arab Emirates (UAE) and Saudi Arabia, has seen a remarkable influx of HNWIs and UHWIs in recent years. According to reports, the number of HNWIs in the UAE is expected to grow by 39% by 2026, driven by favourable tax policies, political stability, and the region’s increasing appeal as a global business hub.

This surge is not just about the raw numbers; it is also about the diversity and complexity of wealth flowing into the region. Many HNWIs moving to the Middle East are internationally mobile global citizens with assets across multiple jurisdictions. They bring sophisticated expectations and a demand for bespoke wealth management solutions that cater to their unique and complex needs.

On the ground, we are seeing HNWIs from the United Kingdom, Australia and Asia moving to the Middle East after selling their businesses or seeking new career opportunities. They plan to stay in the Middle East for the long term, continue

Daniel George, Head of Business, St James’s Place Middle East

their careers, and manage their wealth in a dynamic, fast-growing, businessfriendly environment.

These trends are driving real estate, luxury and cost of living prices up in the Middle East. Dubai’s Economic Agenda – D33 or Abu Dhabi’s Economic Vision 2030, aims to aims to double the economy by 2030 and elevate Dubai and Abu Dhabi into the ranks of the top three global cities for investment, living and working – further enhancing its appeal to HNWIs and their families.

A changing market

The meteoric growth of the Middle East’s HNWI population has already catalysed changes in the wealth management landscape. Independent Asset Managers (IAMs) offering boutique advice and a more personalised approach to wealth management than banks have enjoyed early success in a field traditionally dominated by global and private banking groups.

What does this trend tell us? That increasingly, clients are seeking more bespoke solutions, more interaction with their advisers, and a greater say in their investment decisions. Today’s investors are more engaged in their wealth management strategies and financial planning journeys; they want customised wealth solutions that align with their individual needs and personal circumstances.

Clients are seeking wealth management solutions that are more personally curated to meet their financial circumstances — they want more than just financial returns, what they are looking for is a personal touch.

More sophisticated services

Despite the statistics highlighting the significant growth in the Middle East, research suggests the region is still an underpenetrated market for the wealth management sector. According to a 2023 report by Boston Consulting Group, wealth management penetration is below global standards at 33% in the GCC compared to 55% globally.

Historically in the Middle East wealth management market, banks have tended to offer vanilla products to clients. As more capital flows into the Middle East, clients will need more sophisticated and tailored wealth management products and services.

As demographics shift in the Middle East, a large proportion of overseas investors are calling places like Dubai and Abu Dhabi home. These internationally mobile clients will need comprehensive multi-jurisdictional support. During a time of geopolitical realignments and rising cost of capital, clients are looking for experts with knowledge across global wealth jurisdictions who can provide

time access to financial information. The digital transformation of the wealth management industry, accelerated by the COVID-19 pandemic, requires sophisticated digital capabilities in the Middle East, where digital adoption is high.

Differentiation will win

The Middle East’s investment market, wealth management sector, and client needs are evolving quickly. So, who is poised to succeed in this market?

With a growing population of HNWIs and UHNWIs demanding increasingly complex investment advice and financial planning services, an adviceled and relationship-driven approach

AS MORE CAPITAL FLOWS INTO THE MIDDLE EAST, CLIENTS WILL NEED MORE SOPHISTICATED AND TAILORED WEALTH MANAGEMENT

PRODUCTS AND SERVICES

holistic investment advice on everything from complex tax planning to relocation, repatriation and retirement needs.

A significant portion of wealth in the GCC remains concentrated in the hands of first-generation wealth creators, further underscoring the need for dedicated intergenerational planning, wealth transfer and succession planning across the region. The need to manage significant intergenerational wealth transfer solutions will drive demand for advice as clients seek a smooth and efficient transfer of their international assets. This includes not only the legal and tax aspects of wealth transfer but also the education and engagement of the next generation to ensure they are prepared to manage family wealth well into the future.

In addition to this, clients young and old are seeking digital solutions around their financial advice that can offer convenience, transparency, and real-

to wealth management is required. Wealth managers with significant global resources and a personalised approach to client advice will be in a strong position.

Those with a commitment to fostering long-term relationships will be able to deliver the best advice to clients and win out in this increasingly competitive environment. Firms able to combine a tailored, ongoing approach underpinned by international research capabilities and access to a wide suite of leading global investment products will have the advantage.

While the Middle East market has been underpenetrated for years, and largely underserved by banks, large, regulated wealth managers with a global footprint and strong focus on personal relationships and individual financial planning will see their market share increase as the region’s changing demographics present further opportunities.

A Robust Outlook

In a relatively healthy regional market environment, alternative investment firms in the GCC benefit from a robust pipeline of early-stage companies to invest in, supported by a vibrant and growing angel investor community

Times are changing once again for the alternative investment markets. Private equity and venture capital investments have plunged to $75.9 billion across 7,520 deals in Q1 2024, according to KPMG.

The past two years have been challenging for private equity and venture capital funds and their portfolio companies globally, impacting the availability and cost of capital, deal valuations and exit opportunities.

The higher-for-longer interest rates environment, sticky inflation, volatility in the equity markets and significant reductions in valuations of portfolio companies’ post-pandemic have led to massive economic challenges.

However, the situation is ‘somewhat’ different in the GCC region, home to some of the world’s largest sovereign wealth funds, with $4.1 trillion in combined assets under management in 2023. State investors in this region are abundant with cash from the oil boom of last year.

Though private equity investments plunged to a three-year low in 2023, Gulf countries are embracing the transformative changes reshaping our world, such as digital disruption, the rise of generative AI and demographic shifts, amidst ongoing global uncertainty.

The region’s private equity and venture capital market is uniquely positioned to benefit from these mega forces, including ongoing economic reform strategies under National Visions such as Saudi Vision 2030.

“While 2023 marked a modest downturn with the figure easing to $2.1 billion, this still represents a substantial level of investment, underscoring the resilience of the GCC region’s entrepreneurial ecosystem,” PwC said in a report April, noting that compared to other markets, the downshift in the Gulf region was comparatively low and a steady long-term upward trend is observable.

Since 2017, there has been a notable increase in capital deployment by corporations and sovereign funds, including SVC, Jada and Sanabil, Wamda, Middle East Venture Capital and Mubadala Capital.

The GCC is emerging as a bright spot for private equity investments, as the regional economic outlook looks promising, driven by robust oil prices, fiscal surpluses from hydrocarbon receipts and ongoing economic diversification programmes.

The growth in private equity and venture capital investments is being led by the UAE and Saudi Arabia, which combined account for more than 90% of the total deal amount in the region in the last five years.

GCC countries’ economic fundamentals are robust, and continued support from governments for their respective national visions will ensure the long-term success of the Private equity and venture capital market.

Scaling up innovation

GCC countries have witnessed unparalleled backing and financing for startups, especially in the technology sector, despite the decline in global venture capital funding. The region’s thriving private equity and venture capital market makes it a great place for startups to seek their next investor.

Saudi Arabia is a standout growth market in the current private equity and venture capital investment landscape.

According to Dubai-based data platform MAGNiTT, investment in Saudi startups surged by 33% year-on-year to $1.4 billion in 2023, constituting just over half of all venture capital funding raised in the Middle East and North Africa.

The kingdom has seen three years of consecutive private equity investment growth, closing 2023 with $4 billion worth of transactions. Private equity in Saudi Arabia saw a five-year compound annual growth rate (CAGR) of 66% in investment and 44% in transactions between 2019 and 2023.

Meanwhile, Abu Dhabi has ranked as the fastest-growing emerging ecosystem in the Middle East, marking a 28% growth in ecosystem value in the 2024 Global Startup Ecosystem Report by Startup Genome and the Global Entrepreneurship Network.

The emirate’s technology sector created $4.2 billion in ecosystem value from July 2021 to December 2023, representing a 28% CAGR growth rate from July 2019 to December 2021. Additionally, total early-stage funding between July 2021 and December 2023 is $284 million and total venture capital funding for 2019-2023 is $1.06 billion.

Government-led initiatives such as Saudi Arabia’s Monsha’at, Abu Dhabi’s Hub71, Dubai’s Dtec and DIFC Fintech have therefore bolstered the growth

Experienced investors

GCC sovereign wealth funds have significantly increased their presence in private equity and venture capital, contributing to a noticeable uptick in deal activity in the alternative investment market. The state investors are playing a vital role in propelling private equity deals in the region and beyond.

GCC wealth funds are increasingly turning to external managers with existing capacity to take on capital for particular market exposures, which would take funds themselves time to build.

Global SWF indicated in its 2024 Annual Report that while private equity and venture investment grew in 2023, the strategies have changed markedly as sovereign investors seek to externalise dealmaking in private equity.

GCC SOVEREIGN FUNDS ARE INCREASINGLY TURNING TO EXTERNAL MANAGERS WITH EXISTING CAPACITY TO TAKE ON CAPITAL FOR PARTICULAR MARKET EXPOSURES, WHICH WOULD TAKE FUNDS THEMSELVES TIME TO BUILD

– Global SWF

of the regional venture capital market. Similarly, events such as Biban and LEAP in Saudi Arabia and GITEX Global and Expand North Star Dubai in the UAE contribute to the growth of the GCC’s venture capital market by connecting ideas with capital.

Dubai Financial Market launched ARENA in May, an initiative that allows venture capital firms to sell the shares of private companies they own on the new platform. GCC countries and private investors recognise the potential of innovative technologies and digital economies, fostering an ecosystem that supports innovation and entrepreneurial ventures.

The research consultancy firm said GCC sovereign funds are increasingly turning to external managers with existing capacity to take on capital for particular market exposures, which would take funds themselves time to build.

The shift comes at a time when Silicon Valley investors are touring the Gulf, seeking to build long-term ties with sovereign investors such as Saudi Arabia’s Public Investment Fund (PIF) and Abu Dhabi’s Mubadala Investment Company, amid the worst funding crunch for venture capital firms in almost a decade.

Mubadala formed a joint venture with Alpha Dhabi in January 2023 to lend as much as $2.5 billion over the next five

PRIVATE EQUITY AND VENTURE CAPITAL

years through a private credit platform that will leverage the fund’s partnership with Apollo Global Management.

Last October, the Abu Dhabi Investment Authority (ADIA) said it is channeling more of its firepower into private equity investments as the fund positions for growth in private markets, including private credit.

Qatar Investment Authority launched its first venture capital Fund of Funds in February, pledging more than $1 billion in global and regional venture capital funds. The initiative seeks to attract international venture capital funds to Qatar and the wider GCC while contributing to the growth of the region’s venture capitalists base and entrepreneurs.

Sanabil Investments, the venture arm of PIF, disclosed its ties to more than 50 venture capital and private equity firms, including Blackstone and KKR, in April 2023. The investment firm deploys around $3 billion annually into venture, growth and small buyout assets worldwide, according to its website.

Global asset management firm BlackRock said in April that it plans to launch a new investment platform in Saudi Arabia, backed by up to $5 billion from PIF. The platform would be focused on Saudi Arabia, but it will span investments across the MENA region, including infrastructure and credit within private markets and equities in public markets.

The trend of increased GCC sovereign fund investments in private equity and venture capital is set to continue, driven by the need for economic diversification

WHILE 2023 MARKED A MODEST DOWNTURN WITH THE FIGURE EASING TO $2.1 BILLION, THIS STILL REPRESENTS A SUBSTANTIAL LEVEL OF INVESTMENT, UNDERSCORING THE RESILIENCE OF THE GCC REGION’S ENTREPRENEURIAL ECOSYSTEM

– PwC

and the pursuit of high returns. This ongoing engagement will likely foster innovation and economic growth both within the GCC region and globally.

A global perspective

Private equity and venture capital investors have been grappling with higher borrowing costs, economic uncertainty and sluggish fundraising. As the investors have been slow to return capital to pension funds and other key investors, once-reliable clients are maxed out on the cash they’re willing to allocate to such investments.

“Private credit activity during the COVID-19 pandemic was robust compared to those prior years, 2023 was normalised, and the asset class continues to grow,” David Miller, the Head of Global Private Credit & Equity at Morgan Stanley, said in a blog spot, adding that the 2024 landscape will continue to support private credit, through increased private equity activity, decreasing interest rates and capital structure optimisation.

PRIVATE CREDIT ACTIVITY DURING THE COVID-19 PANDEMIC WAS ROBUST COMPARED TO THOSE PRIOR YEARS, 2023 WAS NORMALISED, AND THE ASSET CLASS CONTINUES TO GROW

– David Miller, The Head of Global Private Credit & Equity at Morgan Stanley

Private equity and venture capital investments plunged to a near five-year low in the first three months of 2024, according to investment intelligence firm PitchBook, as high interest rates weighed on funding for companies despite significant investments in the GenAI space.

Meanwhile, GenAI has emerged as a transformative force reshaping industries, economies and societies worldwide, but how private equity and venture capital investors in this new technology across different countries varies considerably.

The value of private equity and venture capital-backed investments in GenAI companies more than doubled in 2023, defying the overall merger and acquisition activity slump. GenAI investments by private equity and venture firms reached an announced value of $2.18 billion in 2023 compared to the $1 billion prior-year total, according to S&P Global Market Intelligence data.

The strength of the private equity and venture capital landscape in the GCC is matched by a healthy venture capital scene, a boon for technological innovation — a key development pillar for most GCC countries.

Since the global financial crisis of 2008/09, private credit has grown exponentially as banks became more risk averse in lending, spurring non-bank institutions to meet unfulfilled demand from corporate borrowers. The investment class is projected to exceed $3.5 trillion by 2028, according to BlackRock.

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PRIVATE EQUITY AND VENTURE CAPITAL

Venturing Ahead

Rupert Searle Partner at Aument Capital assesses the regional Private Equity and Venture Capital market, highlighting that it remains robust with significant growth expected in many sectors

How are the region’s private equity and venture capital markets faring at this time?

Despite global economic and geopolitical uncertainty, the private markets sector in the GCC has shown resilience. Overall, the region continues to show substantial growth potential thanks to its attractive economies and progressive leadership.

Private equity in the Middle East remains robust, especially in sectors like technology, healthcare and consumer goods. According to a report by the Middle East Private Equity Association, PE deals in the region hit $15

billion in 2023, showing sustained investor interest. This growth is fuelled by ongoing economic diversification efforts in places like the UAE and Saudi Arabia which are keen to continue reducing their reliance on oil revenues, buoyant economic fundamentals and accompanying increases in inbound private capital from outside the region.

Venture capital markets have been a bit more volatile. Over the past 18 months, there has been a significant decline in VC funding in line with global trends. Even so, the UAE and Saudi Arabia remained active with the highest levels of funding in the region, with activity in the earliest stage funding rounds remaining most resilient.

In H1 2024, MENA experienced a notable contraction, with total funding dropping by 34% to $768 million and deal count decreasing by 18% to 211 deals. Despite the decline, the number of investors increased by 32%, indicating sustained interest in the region, according to a report by MAGNiTT. Total VC funding in the Middle East reached around $2.8 billion in 2023, down from $3.6 billion in 2022. We have, however, started to see signs of funding pick up again and expect this to accelerate towards the end of this year.

How positive a factor is the active rate of start-ups in the region for the venture capital market?

Start-ups are very important not only for the VC industry, but for the wider economy – they are the drivers of innovation, which helps a country become more competitive. The region has seen a surge in entrepreneurial activity, driven by supportive government policies, ecosystem enablement, increased funding access and a growing appetite for innovation. The attractiveness of the Gulf and the UAE in particular, both as a lifestyle destination and a stable economy with an increasing ease of doing business, is also having the effect of attracting globally-mobile technological and entrepreneurial talent, further driving the regional start-up ecosystem.

Regional economies including the UAE and Saudi Arabia are seeing growing levels of start-up activity, with numerous incubators, accelerators and innovation hubs being established to foster and support this ecosystem. Last year, we saw more than 500 new start-ups launch in the region, mainly in fintech, e-commerce, healthtech and edtech. Ambitious state and SWF-backed AI projects are also on track to make the region a globally significant development hub in a range of strategically targeted verticals.

Rupert Searle, Partner, Aument Capital

Which factors were behind the 23% drop in regional venture capital funding deployed in 2023?

Several factors have played a part in the current reduction in VC funding in the region. Following a similar trajectory seen in the US and most other key VC markets around the world - albeit at initially slower rate , VC deployment began to soften in the region in 2022. The trend deepened in 2023 as the matrix of higher inflation, rising interest rates and geopolitical tensions caused investors globally to be more cautious and risk averse.

The VC market had seen unprecedented growth over previous few years globally, in part fuelled by a sustained period of historically depressed interested rates and given further impetus by the pro-tech tailwinds of the global Covid crisis. A drop in capital being allocated to the asset class was a natural market correction once interest rates started to rise and the pandemic receded.

A reduction in capital being deployed also took hold as existing investors of pre-slow down funded start-ups encouraged companies to decrease cash burn and extend runways in order to seek to avoid dilutive ‘down-rounds’. Other global headwinds have also played a part including a less favourable exit environment, with fewer IPOs and strategic acquisitions, making investors more selective and cautious about their investment horizons.

Are ESG concerns changing the region’s private equity and venture capital markets?

Yes, ESG concerns are increasingly influencing these markets; growing numbers of investors and fund managers recognise that ESG considerations are crucial for sustainable development and long-term financial performance. Governments in the region, particularly in the UAE and Saudi Arabia, are both implementing policies to promote sustainability and increasing obligations on financial market participants to ensure ESG transparency, and institutional

investors are demanding that portfolio companies adhere to ESG principles, driving PE and VC firms to integrate ESG criteria into their investment processes. Companies with strong ESG credentials are seen as more resilient and attractive investment targets.

in solar and wind power, are attracting significant interest. The e-commerce sector is growing at a faster rate than anywhere else in the world, and investments in logistics and supply chain technologies are increasing to support this growth. Additionally, the demand

COMPANIES WITH STRONG ESG

CREDENTIALS

ARE SEEN AS MORE RESILIENT AND ATTRACTIVE INVESTMENT TARGETS

While this is part of a global paradigm shift, there are also significant local factors at play. In a post-COP 28 world, a number of the major hydrocarbon economies in the region are becoming powerfully committed to enhancing their sustainability credibility. Investment into clean energy, climate and related sustainability technologies are also key components within regional governments’ strategies for economic diversification into future-proofed knowledge-based industries of the future.

Which sectors in our region are likely to experience the most private equity and venture capital activity?

This region is still very much at the early stage of it’s a period of rapid economic expansion and diversification, so we expect to significant growing PE and VC activity in many sectors. The technology sector, particularly fintech, continues to attract substantial investment due to the region’s young, tech-savvy population and high internet penetration rates. The healthcare sector is experiencing increased investment due to rising demand for quality healthcare services and advancements in healthtech, medtech and biotech, a trend further accelerated by the COVID-19 pandemic. With a growing emphasis on sustainability, renewable energy projects, particularly

for online education and digital learning solutions is rising, leading to increased investments in innovative education platforms and tools.

Do you expect to see increasing use of SPACs over private equity funding?

It seems unlikely that SPACs will return as a major market theme any time soon, and certainly not at the expense of private equity funding.

SPACs offer companies an alternative route for going public, offering quicker access to public markets without the lengthy and expensive IPO process, and also gained some popularity with investors a few years ago as a way of gaining exposure to higher risk assets on attractive terms. However, in the ‘new normal’ of higher interest rates and investor risk aversion, SPACs are less attractive to allocators.

Private equity funding, however, remains crucial for the region’s continued economic growth. PE firms provide more than just capital, they offer strategic guidance, operational expertise and longterm support, which are essential for scaling businesses. SPACs can have their place, not least in terms of helping create eventual liquidity for early PE investors, however, regulatory and market comfort would need to grow for this to become a major theme in the region.

Gathering Steam

Acknowledging a currently more cautious approach from some investors, Gautam Jain Member at SC Ventures nevertheless describes a vibrant economy attracting growing interest, with ESG concerns reshaping the private equity and venture capital landscape

How are the region’s private equity and venture capital markets fairing at this time?

Globally, we are seeing some improving activity as global private equity and venture capital deal value surged in Q2 2024, with global VC investment rising to a five-quarter high of US$94.3 billion — as outlined in KPMG’s recent Private Enterprise’s Venture Pulse report.

Within the region, Saudi Arabia leads the venture capital funding with approximately US$412 million in the first half of 2024. Despite a slight dip of 3 percent year-onyear (YoY) in the number of deals, Saudi maintained its dominant position in the Middle East and North Africa (MENA) region for total venture investment value for a third consecutive year.

Looking ahead, we expect investors will continue to focus on profitability and sustainable business models, similar to SC Ventures’ focus on ensuring the ventures we build, operate and invest in are commercially viable. We also expect investors to continue focusing on fintech companies that leverage emerging technologies such as AI to support and enhance their business models. Within the SC Ventures ecosystem, our ventures are increasingly incorporating AI, as a way to evolve their business models. For example, Olea, our trade finance platform, harnesses GPT-4 to significantly improve the accuracy of invoice Optical Character Recognition (OCR) within their trade finance operations. TASConnect, our bank agnostic supply chain finance platform, seeks to create models to identify risks across 46 factors in the three verticals of supply chain, credit and ESG risk by processing real-time news feeds to project their impact. letsBloom, our cloud platform-as-a-service, offers the secure adoption of AI/GenAI solutions in regulated industries.

Gautam Jain, Member, SC Ventures

How positive a factor is the active rate of start-ups in the region for the venture capital market?

The UAE has retained its spot as the top funded ecosystem in the region with 91 UAEbased startups raising US$455.5 million. The active rate of startups is a crucial indicator of our region’s economic vitality and innovative potential — and the startup ecosystem in MENA has experienced remarkable growth in recent years.

The vibrant ecosystem of innovation and transformation attracts local and international venture capital to further support the growth of these startups, creating a virtuous cycle of an economically thriving startup ecosystem for the region.

We see tremendous potential in the region, which is why in January we opened an office in Abu Dhabi to tap into the region’s dynamic technology and business ecosystem. We already have two of our portfolio companies, myZoi, and Zodia Markets, based out of Hub71, with the third one, Solv, setting up very soon. Solv, is a B2B E-Commerce marketplace for SMEs, which facilitates commerce in a trusted environment, while easing access to finance and business services through one seamless digital experience. This supports UAE’s national agenda of facilitating Trade and growth of SMEs in the region. In addition, we are planning to bring other portfolio companies to the region based on market opportunity and fit, and working with several partners to explore incubating new businesses for the region. We have also set up a fund focussed on Digital Assets in partnership with SBI based out of DIFC.

Which factors were behind the 23% drop in regional venture capital funding deployed in 2023?

The 23% drop in regional venture capital funding in 2023 can be broadly attributed to a complex confluence of global and local factors, such as headwinds from the challenging economic environment and higher borrowing costs. These factors

likely impacted the overall sentiment in the VC ecosystem in 2023, leading to a more cautious approach from investors.

Despite the downturn in 2023, we are seeing improvements in activity globally and we expect to see this trend stabilise for the rest of the year.

Are ESG concerns changing the region’s private equity and venture capital markets?

ESG concerns are undeniably reshaping our region’s private equity and venture capital landscape. In December 2023, the UAE announced a US$30 billion fund to catalyse private sector climate investments — the Alterra Fund is readying its next round of deals most recently.

We’re witnessing a paradigm shift where ESG considerations are becoming integral to investment decisions rather than being viewed as separate criteria,

Which sectors in our region are likely to experience the most private equity and venture capital activity?

For the region, fintech (US$38 million), contech (US$30 million) and proptech (US$19.6 million) were the top three leading sectors by investments in June 2024.

We see strong potential in the region and increased interests in fintechs in the digital assets space. In November 2023, we partnered with SBI Holdings, a Japanese financial conglomerate, to establish a Digital Asset fund in the UAE. The joint venture is an important vehicle for us to explore the emerging digital assets ecosystem opportunities regionally and globally. The joint venture will leverage SC Ventures’ experience in digital assets through our ventures such as Libeara, Zodia Custody and Zodia Markets.

THE UAE HAS RETAINED ITS SPOT AS THE TOP FUNDED ECOSYSTEM IN THE REGION WITH 91 UAE-BASED STARTUPS RAISING US$455.5 MILLION

and we believe this trend will continue to accelerate, creating new opportunities for impactful and profitable investments.

At SC Ventures, sustainability and inclusion is one of our four high-conviction themes. When we incubate ventures, we are interested in ones that can rewire the DNA in banking and reconnect financial institutions and society to address the challenges of a new economy. For example, myZoi, our fintech focused on financial inclusion and literacy for the underbanked, recently launched the first inclusive digital wallet for lowincome employees. myZoi’s Digital Wallet reduces remittance fees for low-income employees, allowing users to transfer money home to up to five people for the cost of one.

Our ventures are also committed to building within the Middle East’s burgeoning digital asset ecosystem. Zodia Markets’ Co-Founder and Head of Partnerships Nick Philpott recently relocated to Abu Dhabi to strengthen ties to the Middle East.

Do you expect to see increasing use of SPACS over private equity funding?

While SPACs exploded in popularity during the pandemic, the total number of IPOs since has fallen by more than 90% in three years from 2021 to 2023. The global cooling of the SPAC market has also impacted the region, and we don’t foresee SPAC activity bouncing back anytime soon.

Transformational Experience

During his time as CEO of Aafaq Islamic Finance, the business has transformed into one of the most dynamic providers of Islamic financial services in the region. Hisham Hammoud CEO of Aafaq Islamic Finance explains what lies behind theses successful changes, what makes Aafaq stand out in the market, and outlines their path ahead

How would you say that Aafaq has changed in the two years since you took the CEO role?

In the two years since I assumed the role of CEO at Aafaq, the company has undergone significant transformation and achieved remarkable growth. Our customer base has expanded by almost 15 times, a testament to our unwavering commitment to putting the customer at the centre of everything we design and build. This growth also reflects our dedication to understanding and meeting the evolving needs of our clients.

One of our most noteworthy accomplishments has been the digital transformation of the onboarding and servicing process, spearheaded by the introduction of the Aafaq digital app. This app has revolutionised our operations, providing our customers with unprecedented convenience and streamlined access to our services. It has made financial transactions more accessible, faster and more efficient, reinforcing our position as a forwardthinking financial institution.

Our progress does not stop at digital innovation. We have made substantial investments in both technology and our people. By adopting cutting-edge

Hisham Hammoud, CEO, Aafaq Islamic Finance

technologies, we have enhanced our service offerings, improved security and increased operational efficiency. Our investment in people includes continuous training and development programs, ensuring that our team is equipped with the latest knowledge and skills to serve our customers effectively.

Moreover, we have undertaken a comprehensive streamlining of our internal operations. This focus on efficiency has allowed us to reduce costs, improve service delivery times and increase overall productivity. Our commitment to operational excellence ensures that we can deliver the highest quality of service to our customers consistently.

Strengthening our brand has been another critical area of focus. We have launched various brand-building initiatives to enhance our market presence and reputation. These initiatives have included targeted marketing campaigns, strategic partnerships and community engagement programs. As a result, Aafaq is now recognised as a trusted and reputable name in the financial industry.

Overall, the last two years have been a period of profound transformation and growth for Aafaq. We have laid a solid foundation for sustained success, driven by our investments in technology, people and operational efficiencies. Our focus on customer-centric innovation and brand strengthening ensures that we are wellpositioned to continue leading the market.

What do you identify as your greatest achievement since joining Aafaq Islamic Finance?

As a member of the Aafaq Islamic Finance team, the most significant accomplishment has been leading the process of updating and modernising our services through the implementation of digital technologies. This endeavour has substantially boosted our market share and enhanced brand trust among both individual and corporate customers, resulting in a substantial rise in investments. Our extensive brand-

building initiatives have strengthened our market position and reputation, establishing Aafaq as a frontrunner in the Islamic finance industry.

Our key achievements include the launch of the Aafaq Digital App, a comprehensive platform offering instant approvals for credit cards and personal finance products, which has streamlined customer experiences and enhanced accessibility to our services. We also established digital branches designed for self-service transactions, enabling

OUR PROGRESS DOES NOT STOP AT DIGITAL INNOVATION

customers to efficiently manage activities such as onboarding, applying for a product or service, conducting enquiries, making payments, talking to customer service team at their convenience. Over the last two years, to meet the evolving customer needs, we have also diversified our product portfolio with new offerings within the credit cards, personal finance and deposit products. These initiatives have contributed to significant growth in our customer base, underscoring our success in reaching a broader audience and delivering enhanced value to our clientele. Financial inclusion is another area where we have made significant strides in the last couple of years. This is an area close to my heart as providing access to financial services, transforms the lives of people.

Sustainability has been another area of focus. We have taken multiple initiatives from eliminating the need to print documents within the organisation, to moving to a co-located data centre, to making customer facing services fully digital thereby eliminating the need to submit reams of documents.

These accomplishments have collectively strengthened Aafaq Islamic Finance’s market position, making it a leader in the Islamic finance industry and enhancing our reputation for innovation and customer-centricity.

Aafaq have recently opened fully digitally integrated branches. Please tells us about that journey. The recent accomplishment of establishing three fully integrated branches in the UAE marks a significant milestone in our ongoing digital transformation process. This initiative represents a major step forward in our commitment to offering our customers a hassle-free, quick and safe banking experience. Our new branches are equipped with cutting-edge technology, enabling customers to conveniently access a wide range of financial services. The branches offer several advanced features. Self-Service Kiosks enable customers to conduct transactions like digital onboarding, Card printing, applying for a product or service and making payments, reducing the necessity for in-person interactions and minimising wait times. Instant Approvals streamline credit card and personal finance applications through integrated digital apps, ensuring swift and seamless service. Additionally, customers can receive personalised financial advice via virtual consultations with our financial advisors, facilitating expert guidance without requiring physical appointments. The new setup offers multiple benefits to customers. Convenience is enhanced through user-friendly digital branches, enabling quick and efficient transaction completion, ideal for busy schedules or those preferring digital interactions. Advanced technology ensures robust security, safeguarding all transactions and building trust in data protection. Additionally, by minimising in-person visits and reducing waiting times, financing efficiency is improved, resulting in better customer experiences and increased satisfaction.

By embracing digital innovation, we are not only improving customer satisfaction but also setting new benchmarks in the financial services industry. This initiative showcases our dedication to leveraging technology to enhance our services and maintain our competitive edge.

We firmly believe that this marks the start of a new era for fintech at Aafaq. Our dedicated team has put in countless hours to make this vision a reality, and we are thrilled about the boundless opportunities that digital integration offers. We will continue to invest in technology and innovation to provide the highest quality experience for our customers.

This strategic move not only solidifies our position as a leader in the Islamic finance industry but also reinforces our reputation as a forward-thinking financial institution and digital service provider. We are committed to expanding our digital presence even more and continuously evolving to meet the changing needs of our customers.

How is the retail finance side of the business performing at this time?

Aafaq Islamic Finance is experiencing tremendous growth in its retail banking sector. This surge is driven by the high demand for our credit cards and personal finance solutions. To make applying for these products even easier, we recently launched a user-friendly digital onboarding process. This aligns perfectly with our commitment to “Finance Made Easy.” The streamlined application experience has been a resounding success, expanding our customer base by 13 times.

We have focused on enhancing accessibility and convenience for our customers through digital innovation. This approach has not only attracted new clients but also contributed to a high rate of customer satisfaction and retention. Despite economic challenges, our retail finance sector has shown impressive growth, underscoring our strategic management and operational efficiency.

Our retail financing portfolio, including credit cards, caters effectively to the diverse needs of our clientele. By prioritising innovation and maintaining a customer-centric approach, we ensure that our offerings evolve with market demands. This commitment has established us as a trusted partner in financial services, fostering long-term relationships built on mutual success and satisfaction.

Looking ahead, we remain dedicated to leveraging technology and market insights to continue delivering tailored solutions that empower our customers to achieve their financial goals confidently.

What are your future plans for your retail finance business?

At Aafaq Islamic Finance, we are excited about the future of our retail finance business. Our main goal is to expand our product offerings and create seamless processes that make financing easy and accessible for everyone.

In line with our strategic shift, we are transitioning our focus from corporate products to retail offerings. We aim to become the leading Islamic financial solution provider in the region. We are committed to growing our portfolio with new financial products designed to meet the changing needs of our customers. Whether it is personal finance, or credit cards, we are developing solutions

tailored to different customer segments. By integrating the latest digital technologies, we are streamlining our processes to provide personalised and efficient services.

Our mission is to offer simple, hasslefree financial solutions that improve the customer experience. We believe that making finance easy and accessible can help individuals achieve their financial goals more effortlessly. As we continue to grow, Aafaq Islamic Finance is dedicated to enhancing our services and exploring new opportunities to better serve our community.

We are focused on innovation, customer satisfaction and ethical financial practices. By fostering longterm partnerships, we are committed to supporting the financial aspirations of our customers and contributing to the economic well-being of our community.

Tell us about your Wakala and Sahobat Investment Deposit products.

Our Wakala and Sahobat investment products are essential components of our investment offerings at Aafaq Islamic Finance. The Wakala investment deposit is structured to offer appealing returns through a sharia-compliant investment approach, with Aafaq acting as an intermediary to manage the customer’s funds.

We are expanding our investment product line with multiple variants such as the flexi Wakala deposit, which offers flexible investment terms, the multiyear Wakala deposit for long-term investment stability, and the overnight Wakala deposit for short-term, high-liquidity options. These innovative products are designed to meet the varied needs of investors, offering a wider selection and customised solutions to our clients.

The Sahobat investment deposit is a significant product, providing attractive returns while strictly adhering to Islamic banking principles. Through ongoing innovation and expansion of our investment product offerings, we strive to deliver our customers with the most advantageous investment opportunities and facilitate their financial progress.

What currently distinguishes Aafaq from other Islamic Finance providers in the region?

What sets Aafaq apart from other financial service providers in the region is our steadfast commitment to innovation and our unwavering focus on meeting the diverse needs of our customers. At Aafaq Islamic Finance, we have pioneered the development of fully digital branches, revolutionising convenience and service efficiency for our clients. This innovation

aligns with our goal of enhancing accessibility and responsiveness across all touchpoints of our service delivery. Our competitive edge is further bolstered by an extensive range of financial products that include customised corporate finance solutions and distinctive investment options tailored to various client needs. Beyond corporate finance, our retail finance services, such as credit cards and personal finance solutions, are seamlessly integrated into our Aafaq digital app. This platform serves as a userfriendly hub that empowers customers to manage their finances effortlessly, reflecting our commitment to enhancing financial management convenience.

Additionally, our design focus centres on three guiding principles – Easy Process, Instant Solution and Guaranteed Service. This approach ensures that our financial solutions are not only accessible but also reliable, meeting the expectations of our clients effectively. By combining advanced technology with comprehensive sharia-compliant solutions and personalised service, we cultivate trust and satisfaction among our clientele, solidifying our position as a trusted financial partner in the region.

Looking ahead, Aafaq Islamic Finance remains dedicated to pushing boundaries in Islamic finance, exploring new avenues of growth and continuously evolving to meet the dynamic needs of our clients and the broader community.

What do you want to accomplish for Aafaq Islamic Finance in the coming years?

Looking ahead, our vision for Aafaq Islamic Finance is to position ourselves as a frontrunner in the industry, known for pioneering and delivering groundbreaking financial solutions while maintaining a strong focus on customer satisfaction.

Central to our strategy is the expansion and enhancement of our digital services, aiming to provide greater accessibility and convenience for our customers. This includes further developing our Aafaq digital app and introducing cutting-edge digital solutions that streamline financial interactions and empower our clients.

Aafaq Islamic Finance is committed to expanding its product range by introducing tailored financial solutions that address the evolving needs of both individual customers and businesses. Our goal is to foster enduring customer relationships built on trust, reliability and exceptional service standards. By supporting small and medium-sized enterprises (SMEs) as well as large corporations with innovative financial solutions, we aim to contribute significantly to economic growth and prosperity.

Furthermore, we are determined to increase our regional and international footprint, establishing Aafaq as a benchmark for excellence in Islamic finance globally. Our ambition is aligned with our mission statement, to engage our talented team in developing innovative solutions with customers at the core. This mission underscores our commitment to continuous improvement and customercentricity in everything we do.

We aim to be the UAE’s favourite destination for digital Islamic financing, setting new benchmarks for innovation, reliability and customer satisfaction. Our mission is to engage our talented team in developing innovative financial solutions that prioritise our customers’ needs at the core. We are dedicated to delivering exceptional service, fostering long-lasting relationships built on trust and integrity. Through our efforts, we contribute to economic growth by supporting businesses and individuals with ethical and sustainable financial practices. By focusing on these objectives and adhering to our mission and vision, Aafaq Islamic Finance aims to deliver exceptional value to our stakeholders and uphold our dedication to ethical, sustainable and customer-focused Islamic finance solutions.

Technological Momentum

With Islamic finance now entering what has been described as the third phase of its evolution, and supported by the increasing application of technology, it seems poised to maintain its growth and continue to expand its appeal

Digital transformation has been a longstanding trend in Islamic finance, but it has gained momentum in the recent past, driven by the rising popularity of financial technology (fintech) firms and innovative operating models.

The Islamic finance sector is rapidly growing, with an increasing number of fintech firms and neobanks offering shariah-compliant structured finance solutions. The adoption of innovative technology such as blockchain, artificial intelligence (AI) and the cloud is expected to have a positive impact on the Islamic finance sector, creating new benefits and opportunities for banks and consumers.

“Though technology is agnostic to either Islamic or conventional finance, the untapped opportunities within Islamic finance are eminent,” Suhaimi Ali, Assistant Governor of Bank Negara Malaysia, said in an address at the 3rd Annual Islamic Fintech Leaders’ Summit in Kuala Lumpur.

“We can consider this from the perspective of traditional roles of Islamic financial institutions, as well as from a collaborative viewpoint, given the emergence of fintech companies offering diverse, innovative and potentially disruptive solutions.”

The $3 trillion Islamic finance market continues its growth path and

is projected to grow by around 10% per year in 2023/2024, similar to 2022. However, S&P Global said the industry is being confronted by two interrelated challenges – the high complexity of structures and transactions that reduce its attractiveness beyond core Islamic markets and a significant concentration in the Middle East and Southeast Asia.

The increased digitisation of Islamic finance and collaboration with fintech companies holds the potential to fortify the resilience of the industry in volatile environments while paving the way for new growth opportunities.

S&P Global said that improving access to bank services through digital channels, issuing sukuk or Islamic bonds on a digital platform using blockchain technology, and advanced cybersecurity measures can bolster Islamic finance’s ability to withstand challenges.

The impact of innovative technologies on Islamic finances comes in four parts: connectivity, automation, innovation and decision-making. These advancements allow financial institutions not only to acquire customers and cross-sell but

also streamline operations, advance customer engagement and elevate overall user experience.

Pockets of opportunity

Global Sukuk issuance is projected to reach approximately $170 billion in 2024, compared to $168.4 billion in 2023 and $179.4 billion in 2022, according to S&P Global.

The surge in Sukuk or Islamic bond issuance has pushed the total global outstanding Sukuk to an estimated $875 billion, spanning 27 currencies and surpassing the size of both the European high-yield market and the Swiss bond market.

Saudi Arabia, the Arab world’s biggest economy, raised $5 billion in May through the sale of dollar-denominated Sukuk as the kingdom seeks to plug its budget deficit and fund its economic diversification drive under Vision.

The issuance was followed by a string of offerings from countries such as Bahrain, Indonesia, the Philippines, Egypt and South Africa, as well as numerous financial institutions, development banks and government-related entities across the Middle East.

Saudi Arabia’s Public Investment Fund raised $2 billion through the sale of Islamic bonds in February, Abu Dhabi’s Mubadala raised $1 billion in March and Sharjah Islamic Bank issued a $500 million Sukuk in June.

However, the issuance of Islamic bonds faces hurdles such as higher issuance costs, time-to-market complexity compared with bonds and bank loans, and standardisation gaps. The industry is largely fragmented and plagued with several challenges, including the uneven implementation of rules and the probability of human error due to the multiple intermediaries involved in the issuance process.

The rapid advancement in financial technologies, increasing socio-economic pressures and infrastructure investments are opening doors to disruptive innovation in Islamic capital markets.

The tokenisation of Islamic bonds by leveraging blockchain technology holds the potential to reduce the various costs associated with the issuance process.

“Blockchain technologies hold promise to modernise Shariah compliance through embedded smart contracts, updated and transparent management of obligatory charitable giving (Zakat) and a more efficient platform for Sukuk issuance,” said Moody’s.

Islamic finance operates on principles that prohibit interest, uncertainty and involvement in speculative activities. Blockchain technology has features that align well with these principles by promoting transparency, reducing fraud and facilitating decentralised transactions.

its efficiency and, ultimately, its value proposition for investors and issuers,” said S&P Global.

Higher digitalisation and fintech collaboration present a great opportunity for the sector to streamline and strengthen processes and practices to broaden the appeal of Shariah-compliant financial products beyond core Islamic finance markets in the Middle East, Africa and South Asia (MEASA) region.

Digital banking

The drive for digitalisation has benefitted the banking side of the Islamic finance industry as more financial institutions are now offering their products via digital platforms. Shariahcompliant banks are fast-tracking and

THOUGH TECHNOLOGY IS AGNOSTIC TO EITHER ISLAMIC OR CONVENTIONAL FINANCE, THE UNTAPPED OPPORTUNITIES WITHIN

ISLAMIC FINANCE ARE EMINENT

– Suhaimi Ali, Assistant Governor of Bank Negara Malaysia

Furthermore, the global Islamic finance industry continues to grow its assets rapidly, but only in a few core markets.

“The GCC region still accounts for the largest share of global Islamic finance assets (45.4%), followed by the rest of the Middle East and South Asia (25.9%) and Southeast Asia (23.5%),” according to BNY.

S&P Global said in its Islamic Finance Outlook 2024 Edition that Islamic finance is a collection of local industries rather than a truly globalised sector and Saudi Arabia and Kuwait drove most of the growth in banking assets in 2022. Malaysia and GCC countries accounted for a large portion of the Sukuk market during the period under review.

“ Leveraging emerging technologies could help Islamic finance enhance

enhancing the digitalisation of intricate processes, as well as end-to-end customer experiences, in parallel with traditional banks.

“We saw many new digital banks open in Malaysia and Indonesia in Asia, Bahrain and Saudi Arabia in the Middle East, and Türkiye and the UK in Europe,” ICD-LSEG said in a report in February.

Shariah-compliant neobanks’ success is often attributed to several key features, including their digital and mobile-centric services, robust user experiences, cloud-based platforms with a modular architecture, lean and agile technology-first culture and the development of emotionally relatable brands.

A recent study by Boston Consulting Group revealed that neobanks in the

ISLAMIC FINANCE TECHNOLOGY

GCC will account for more than $2 trillion in market size by the end of the decade, growing at a CAGR of 53.4%.

Ajman-based Ruya, a digital-native Islamic community bank, is the latest Shariah-compliant neobank to join the GCC’s growing challenger bank ecosystem after receiving preliminary approval from the UAE central bank in February.

“Ruya is not just another bank. We are a new style of Islamic bank, catering to the growing demand for more ethical, convenient and digital-first banking solutions, particularly among younger customers,” Marwan Obaid Al Muheiri, Vice Chairman of Ruya, said at the launch of the challenger bank earlier this year.

ICD -LSEG Islamic Finance Development 2023 report identified fintech, digital banking and AI as catalysts that had material impacts on the development of Islamic banking in the decade leading up to 2022.

Globally, there are more than 560 banks that adhere to Islamic principles and the number is set to grow further with the licensing of new neobanks, such as Australia’s first Islamic bank, Islamic Bank Australia. This digital bank aims to attract the growing tech-savvy Muslim population in the country.

In 2021, Boubyan Bank-backed Nomo Bank launched in the UK as a Shariahcompliant cross-border neobank offering multi-currency accounts. It partnered with Abu Dhabi Commercial Bank (ADCB) and Al Hilal Digital Bank,

allowing UAE customers to apply for UK home financing via the ADCB-Nomo and Al Hilal-Nomo banking apps on their smartphones.

Digital banks are emerging in core Islamic finance markets, which are in line with global trends, because of new licensing frameworks that financial regulators are introducing. Unlike the incumbents, digital banks are not burdened by legacy infrastructure.

The growth of Islamic banking neobanks represents a significant trend in the financial industry, driven by a combination of technological innovation, demographic factors and increasing demand for ethical and Sharia-compliant financial services.

Islamic fintechs

The full potential of Islamic finance will be unlocked through technological innovation. The GCC region is witnessing a significant surge in fintech innovation, driven by technological advancements and a burgeoning youth demographic seeking digital solutions. Accompanying this surge is the rise of Islamic fintech firms.

The global Islamic fintech market is experiencing an upsurge, estimated to reach $306 billion by 2027, with an average annual growth of 17%, according to DinarStandard’s Global Islamic Fintech Report 2024 edition.

“Countries across Asia, Europe, the Middle East and the US have created dedicated startup hubs, venture capital initiatives, regulatory sandboxes and

BLOCKCHAIN TECHNOLOGIES

(ZAKAT) AND A MORE EFFICIENT PLATFORM FOR SUKUK ISSUANCE

– Moody’s

funding programs to develop Shariahcompliant fintech innovations, helping to fuel this trend,” said BNY.

Islamic fintech innovation has the potential to increase the efficiency of the Islamic finance sector and promote financial inclusion in some key markets, such as Indonesia and Bangladesh. Indonesia, the UK, the UAE, Saudi Arabia, Qatar and Malaysia are home to 59% of Islamic fintechs currently operating globally.

Qatar is a significant player in the Islamic fintech ecosystem, boasting the sixth-highest number of Sharia-compliant fintech firms globally (24 out of 417) and ranking as the 8th most conducive ecosystem for such innovations, according to a report by DinarStandard.

The UAE’s leading fintechs include Beehive, a Dubai-based peer-to-peer lending platform that provides Shariahcompliant financing and solutions for small and medium- sized enterprises (SMEs), and Aafaq Islamic Finance - which offers banking, financing and Takaful solutions.

Meanwhile, Indonesia boasts 61 fintech companies, including peer-to-peer lending platforms and digital bank Hijra (formerly Alami), neobank Bank Aladin, the digital payments portal LinkAja and the Islamic investment platform Tanamduit.

These Islamic fintech firms, along with digital-only banks, are competing directly with traditional brick-and-mortar Islamic banks.

“Globally, there are already 34 Islamic digital challenger banks and 163 Islamic fintechs offering financing services,” Moody’s said while projecting growth in the Islamic fintech sector due to the regulatory shift towards digitalisation and evolving open banking regulations.

The Islamic finance sector is now entering what industry experts call the third phase of its evolution. With technology firmly integrated into existing financial frameworks, the focus is shifting to the benefits that innovative technologies such as the cloud and blockchain can deliver to enhance the way financial institutions operate, offering improvements in operational efficiency and cost savings.

Standard Bank’s Remarkable Journey with Infosys Finacle STANDING TALL IN THE AFRICAN BANKING LANDSCAPE:

Khomotso Molabe Group CIO at Standard Bank and Sriranga Sampathkumar VP and General Manager – Middle East and Africa, Infosys Ltd. discuss how they have partnered to ensure that one of Africa’s leading banks remains in touch with all its customer communities

Amidst the vast continent of Africa, Standard Bank Group stands as the continent’s largest bank by assets, boasting over 150 years of banking excellence. As Africa progresses towards a digital future, Standard Bank leads the way with a customer-centric approach, strategic partnerships and significant investments in digital transformation and advanced technologies. The bank’s unwavering commitment to innovation and customer satisfaction positions it

not just as a key player, but as a visionary leader, actively shaping the future of banking across the continent.

This conversation between Khomotso Molabe, Group CIO – Personal and Private Banking at Standard Bank and Sriranga Sampathkumar, Vice President and General Manager – Middle East and Africa at Infosys Finacle breaks down the bank’s longstanding success piece by piece and helps understand the strategic vision behind becoming one of the most progressive banks in Africa.

With a remarkable presence across 20 different markets in Africa, Standard Bank stands as an inspiration for banks in the continent.

Sriranga: Thank you, KK, for dedicating your time to this conversation. To start with, could you help us understand some of the top drivers shaping the African banking fraternity?

KK: Our approach is determined by how we think about Africa’s growth. The easiest way is to look at the state of Africa now and how it will change over the next 7 to 10 years. Africa is a young and growing continent. We estimate that by 2030, we might have 1.7 billion people on the continent, and a majority of them will be young people looking to move from rural settings to urban areas. They will look towards banks to help them realise their dreams and aspirations.

This brings us to the second driver – the use of mobile technologies and cell phones. Africa is a continent with significant growth in terms of mobile penetration. With reduced data prices and emerging technologies, it becomes easier for Africa to leapfrog other markets. However, the core focus is on how we enable this young population to realise their dreams and aspirations, which shall collectively revolutionise the continent.

Khomotso Molabe, Group CIO, Standard Bank

Sriranga Sampathkumar, VP and General Manager – Middle East and Africa, Infosys Ltd.

Sriranga: Standard Bank’s growth and its presence across multiple countries is well-known. Since Africa is such a large continent, banks must have a solid infrastructure to support this growth. Could you tell us about the bank’s infrastructure to facilitate customer engagement, operations and growth across the continent?

KK: We are a pan-African financial services company, operating in 20 complex and different markets. We need to have an anchor to approach markets that already have scale and desirable growth and markets where have just entered and beginning to grow.

Our strategy has three key anchors. The first, and perhaps the most important is transforming client experience. The second is delivering efficiencies. When both of them are done together, we’re able to deliver well to our shareholders. Our investments in technology infrastructure are driven by client wins. We value winning and differentiation first, and then focus on creating efficiencies as it doesn’t help to be a very efficient bank if you don’t have clients. Hence, it is observed that in many markets where we have good client engagement, it’s a result of engaging with our clients quickly.

Moving down the technology stack, we have partnerships with experts. For example, Finacle is a key partner for us. We run core banking across 16 countries. We will never be experts in core banking, which is why we need a strong partnership that allows us to deliver the three pillars of our strategy.

Sriranga: There’s an ongoing digital evolution and market disruption, including in Africa. Like M-Pesa in Kenya, many digital initiatives are happening across mobile and internet in various countries. How does Standard Bank intend to approach this digital disruption, and what steps do you think are going to help you?

KK: Today, everywhere you go, you hear about digital transformation, and all our competitors and partners approach it differently. As Standard Bank Group, we want to remain both a human and a

digital bank, enabling us with flexibility to solve our clients’ problems. So, there can never be a scenario where we are either a digital-only bank or a humanonly bank. There are some geographies where mobile adoption is low, especially smartphones. Here, we will go with a solution that works on a normal analog phone but also ensure that it works with our physical branches or contact centers as well. So, we will always be an omni-channel provider of services in many instances.

For high growth markets, we again strategise according to our clients’ requirements. We will either invest on our own, invest with partners, or look at specific ecosystems where we’ve got advantages over other people. For example, a large portion of Standard Bank, 20%, is owned by ICBC Bank of China. So, when it comes to trade between Africa and China, we obviously have certain advantages because of that relationship. We can leverage that relationship to help informal traders in Lagos to source goods and services and make them more competitive. Therefore, the reason for them to be our clients is much more than just having a bank account.

Sriranga: Looking forward, what do you think are the three or four key areas Standard Bank will focus on in the coming years?

KK: Let’s break it down into three horizons: the next 3 years, 3 to 5 years and beyond. In the current horizon, we need to invest heavily in digitalisation initiatives to save our customers’ time. By giving back time to our customers and automating routine tasks, we can unlock possibilities for our colleagues to meaningfully engage with clients and better understand their problems as our clients don’t come to us just for banking; they are striving to attain certain outcomes.

Then we move to the next set of things, which is to deeply know our customers – what I call personalisation. While customers give us lots of data, most organisations can just remember when it’s your birthday. We want to be able

to anticipate customers’ behavior and personalise at scale. In the next horizon, we leverage this trust built over the years as core to fulfill our customers’ needs. For instance, in the housing ecosystem in South Africa, customers come to us for a mortgage bond, but they are actually looking to build a home for their family. We built a solution that helps them search for a convenient house, helps with the mortgage, and finally helps maintain it over time.

This paves the way for us to focus beyond-banking opportunities, generating the next set of revenues to sustain us in the third horizon.

Sriranga: Finally, Infosys Finacle has been your partner for a long time. What are the key things you look for in this partnership, and what are your expectations?

KK: When we look at Infosys Finacle, we want to ensure that the fundamental aspect that brought us together remains intact. For instance, when we started this journey, it was all about finding the right core banking platform that will run across countries. After we found success there, we realised that the ecosystem has changed. We needed Finacle to continuously provide the right technology to each country and remain a key advisor to us.

So, we keep a close eye on how Finacle is evolving its platform over time and make sure it remains relevant, flexible and scalable, allowing us to continuously scale our business. Our partnership needs to be agile and responsive to evolving requirements and market dynamics. We expect Finacle to be a partner equipped with the ability to move with agility and flexibility while we understand our clients better and move accordingly.

Sriranga: As we conclude our insightful discussion, I want to extend my heartfelt gratitude to Khomotso Molabe for his valuable insights. With eyeopening insights, he aptly described how Standard Bank is setting a benchmark for all other African banks in an ever-evolving banking landscape.

Visionary Venture Capitalist Navigating Tech’s Hype Cycle

Oscar Wendel Editor-at-Large MEA-Finance, spent time with legendary VC investor during the recordings of his TV show ‘Meet the Drapers’ in Paris and London and joined him for a private lunch and a roundtable where Tim discussed market predictions and his career in venture capital

Tim’s impressive track record includes being a seed investor to companies including Baidu, Tesla, Skype, SpaceX, Twitch, Hotmail, Robinhood and 22 other unicorns. He has not only created global wealth but, it could be said, changed the world, with his influence extending beyond investments as creator of viral marketing, which played a crucial role in the successes of Hotmail and Skype.

Tim is renowned for his ability to spot the next big thing in a career that spans decades, consistently placing winning bets on innovations deemed speculative or unviable. His well-honed investment philosophy is both forwardthinking and deeply rooted in the cyclical nature of technological advancements. Tim’s father founded Draper & Johnson Investment Company and served as the former chairman and president of the Export-Import Bank of the United States. Tim’s grandfather was the founder of Draper, Gaither and Anderson, and also served as the first ambassador to NATO.

Each of these three generations have in turn paved the way for venture capital as we know it today.

At the recent roundtable in London, Draper delved into the concept of the hype cycle, a framework that illustrates the trajectory of new technologies through phases of excitement, disillusionment and eventual integration into everyday life. “The hype goes up, then it comes down, Draper explained.

“Everyone thinks it’s over, and that’s when the engineers and producers do

their work. At the top, people get excited about all the amazing possibilities – think the internet, Bitcoin, AI. But when the bubble bursts, it’s the innovators who stay and push boundaries.”

Draper’s investment strategy has often been ahead of the curve. He saw potential in technologies that others dismissed. His early bets on Bitcoin and other cryptocurrencies, despite widespread scepticism, are a testament to his belief in backing the unseen and the unproven. “We’ve been investing in these technologies when others were feeling pessimistic, Draper noted. “Now, we’re seeing crypto investments increase to about 40% of our portfolio. The rest is spread across trade, transportation and space.”

ELON HAS OPENED UP NEW HORIZONS, ALLOWING US TO THINK DIFFERENTLY ABOUT WHAT’S ACHIEVABLE

Draper highlighted how Elon Musk’s ventures have expanded the realm of possibility, particularly in space exploration. “Elon has opened up new horizons, allowing us to think differently about what’s achievable,” Draper said. His enthusiasm extends to healthcare, where AI is revolutionising diagnostics and personalised treatments. “Computers are now diagnosing and creating therapies that outperform the average doctor,” Draper observed. “This shift towards personalised healthcare, based on genetics and individual experiences, will drastically improve outcomes.”

Draper explained that the most significant opportunities often emerge from what he calls the ‘other’ category – those ideas and ventures that are unexpected and surprising.

“I can predict trends, but I can’t anticipate what an entrepreneur will bring to us. That’s where the real magic happens,” Draper stated. His track record includes investments in companies that pivoted dramatically from their original concepts to achieve unprecedented success. For instance, Skype transitioned from shared Wi-Fi to revolutionising global communication with free calls, and Tesla evolved from a drivetrain supplier to a leading electric vehicle manufacturer.

Draper’s philosophy on entrepreneurship and innovation is encapsulated in his view on pivoting. “All our greatest companies pivot,” he asserted. “They start in one direction but adjust course when they see customer needs and market opportunities.” He cited examples like Hotmail, which shifted from creating websites to developing a viral web-based email service, and Baidu, which transformed from a search engine into a leader in paid search advertising with his guidance.

The key to these pivots, according to Draper, is listening to customers and being willing to adapt. “Entrepreneurs often hit a wall and then realise there

might be a simpler path by listening to what customers want,” Draper explained. “Sharing ideas early on is crucial because it leads to new reactions and ideas, enhancing the original concept.”

Draper also stressed the importance of resilience and perseverance in startups. “Every investment I’ve made has gone through challenging phases before turning around,” he said. “Markets are high, and people jump in for the money. When markets dip, they’re the first to leave. That’s when we find the true innovators who are in it for the long haul.”

His approach to investment is underpinned by optimism and a focus on the future. “You have to be an optimist as an investor,” Draper emphasised. “The world continues to improve. Look at the past century – no electricity, no plumbing. Every failed venture contributes to the progress. MySpace led to Facebook, and every entrepreneur pushes the boundaries forward.”

Draper’s investment strategy is not about certainty but about probability and potential. He employs a Monte Carlo simulation approach, calculating the odds of success and failure to evaluate

expected value. “I look for that special factor, that X factor,” he explained. “Uniqueness is key, though sometimes being a fast follower, like Baidu in China, works too.”

His global perspective is crucial to his success. Draper has been a pioneer in investing in emerging markets, including China, where he was among the first Silicon Valley venture capitalists to invest. “No one else was investing in Chinese startups at the time. I took the risk, and it paid off,” he recalls.

As Draper continues to navigate the complexities of global markets, he remains focused on the future, looking for the next big idea. “Good venture capitalists read a lot, but I like to experience places firsthand,” he said. “It gives me a different perspective, beyond what’s in the papers.”

Draper’s journey is a testament to the power of vision, resilience and the relentless pursuit of innovation. As he continues to invest in transformative technologies, his story serves as an inspiration to entrepreneurs and investors alike, encouraging them to dream big, embrace change and always look forward.

Optimising the Flow of Regional Business

Transaction Banking is and will increasingly play a vital role in our region’s prosperity. On the 12th of June, MEA Finance partnered with Swift to host a conference in Riyadh, Saudi Arabia where key stakeholders and top bank executives from across the GCC debated the growing importance of, and the changes coming to regional transaction banking

For the global corporate and transaction banking sector, the first half of the year presented a challenging operating environment marked by high inflation, elevated interest rates and rising policy uncertainty in the year of elections.

However, the GCC banking sector boasts exceptionally high returns on equity and some of the largest multiples worldwide, benefiting from improved net interest margins and robust economic growth.

McKinsey said banks in the GCC banks have maintained net interest margins that significantly exceed the global banking average at 2.3% compared with a global average of 1.4%.

The transaction banking space, which historically focused on payments and cash management, now encompasses the management of payments, cash flow, short-term cash, trade finance negotiations, international trade and financial security.

The sprawling banking division, which comprises cash management, payments, trade finance and securities and custody services, is the heartbeat of the global economy.

GCC banks play a vital role in facilitating international trade by providing their clients with a wide array of offerings, including transactional banking, which integrates cash management, correspondent banking and trade finance.

MEA Finance, in partnership with SWIFT, hosted an exclusive Transaction Banking summit themed

Optimising the Flow of Regional Business, taking place in Riyadh, Saudi Arabia. The event brought together national and regional leaders from the banking sector, corporations, technology, fintech and government entities.

The summit spotlighted trends that are fuelling the growth of transaction banking across the Gulf region, the banking division’s importance to economic growth and how digitalisation and artificial intelligence (AI) will revolutionise transaction banking.

McKinsey said transaction banking services enable enterprises to manage the inherent risks associated with crossborder trade transactions, including counterparty and country risks. These services support one of the most fundamental economic principles: the necessity for countries to import and export goods and services based on their resource availability or shortages.

The digitalisation of transaction banking continues to be a major theme within the banking sector, and financial institutions are working to augment customer experience and operational efficiencies.

Meanwhile, Cross-border payments are an integral feature of today’s world. They play a vital role in keeping the economy healthy and stable.

The push to make end-to-end money movement more instant, secure and

transparent across borders is driving the payments industry to look to enhance the customer experience continuously.

Mohammed Alsarrani, Deputy Director General of the Financial Sector Development Program (FSDP) at the Saudi Ministry of Finance, said in his welcome remarks that Vision 2030 is built on three strategic pillars: creating a vibrant society, developing a thriving economy that unlocks business opportunities and building an ambitious nation with a highperforming government.

“From the pillars of Vision 2030, more than a hundred objectives were established, with the financial sector acting as an enabler. Consequently, the

FROM THE PILLARS OF VISION 2030, MORE THAN A HUNDRED OBJECTIVES WERE ESTABLISHED, WITH THE FINANCIAL SECTOR ACTING AS AN ENABLER. CONSEQUENTLY, THE NEED FOR AN OVERARCHING PROGRAM BECAME APPARENT, LEADING TO THE CREATION OF THE FINANCIAL SECTOR DEVELOPMENT PROGRAM

– Mohammed Alsarrani

need for an overarching program became apparent, leading to the creation of the FSDP,” said Alsarrani.

He highlighted that four strategic initiatives were identified to achieve the objectives of the FSDP program: enabling financial institutions to support private sector growth, ensuring the development of an advanced capital market, enhancing savings and financial inclusion and advancing fintech growth.

To boost innovation in the financial services sector, Saudi Arabia plans to attract the world’s key fintech players to drive competition and innovation while increasing the number of fintech firms in the kingdom to between 20 and 30 by the year 2025.

Alsarrani stated that Saudi Arabia plans to boost venture capital investments in fintech companies to SAR 2.6 billion by 2025 and increase the sector’s contribution to the country’s GDP to SAR 4.5 billion.

Transaction banking & payments

Transaction banking and cross-border payments are vital arteries of the global economy, crucial for maintaining the health of global commerce, supporting international development and fostering economic growth.

Moderated by Balaji Muthu, Executive Director – MENA at Mindgate Solutions, the opening panel titled -

TRANSACTION BANKING SUMMIT, KSA

Outlook – Can Transaction Banking and Payments Help Build a Future of Strength for the Region? - provided insight into how the Middle East is poised to become the world’s leading commercial hub, driven by the region’s inherent entrepreneurial spirit, favourable demographics and ambitious visionary goals.

The discussion included the participation of Ahmad Bassam Abu Khamsin, Executive Vice President, Global Transaction Banking at SNB; Rakan Alajroush, SVP, Head of Global Transaction Banking at Riyad Bank; Reem Alshammari, Head of Treasury and Trade Solutions – KSA at Citi; Thierry Simon, CEO at Union of Arab & French Banks (UBAF), Siva Subramaniam, HeadProduct Management - Payments & Cash Management at Infosys Finacle; Nahim Bassa, SVP, Group Head of Strategy & Transformation at Bank Aljazira and Gurpreet Saluja, Executive Director, Financial Services at JP Morgan.

Much like the rest of the banking and finance industry, transaction banking is evolving rapidly to adapt to new client expectations. Powerful trends are transforming the payments ecosystem in Saudi Arabia and the entire GCC – a region that was once heavily dependent on cash.

Muthu opened the panel by highlighting that the payments sector is a rapidly evolving field and different players in the industry are “striving to secure our positions and adapt to the changes and innovations, such as AI and other technologies”.

Abu Khamsin said real-time payments is an interesting subject that aligns with Saudi Arabia’s Vision 2030 and how the entire Middle East region is adapting to the ongoing market changes in industry.

“Banks must partner with fintech companies to handle payments and cater to clients’ demands, whether they are small and medium enterprises (SMEs) or from the medium segment,” he said.

“For example, about ten years ago, supply chain financing was not widely recognised in this region. However, it has now become essential for supporting SMEs in Saudi Arabia, which is a vital part of Vision 2030.”

Alajroush concurred with Abu Khamsin that Vision 2030 has seen several multinationals setting up in Saudi Arabia, which is creating a myriad of opportunities for the financial services sector.

“The financial sector, being one of the pillars of the economic transformation agenda, plays a significant role in this growth. However, these opportunities also come with challenges,” added Alajroush.

He explained that one of the challenges that banks face is how they can meet the real-time payment requirements of the corporate sector independently. “We must partner with fintech companies, which is why this summit is so valuable. It brings together great minds, fostering collaboration on various solutions,” said Alajroush.

visibility into where that transaction has reached, causing delays, high costs and inefficiencies in managing and operating a global business,” said Alshammari.

“To address this, GCC central banks and governments have made significant strides in standardising payments and ensuring regulatory collaboration for uniform compliance and interconnected payment systems,” she added.

Transactions are becoming faster, easier to conduct and more commoditised. To harness innovative technologies in transaction banking and prepare for renewed growth, banks in the GCC region should advance digitalisation and straight-through processing.

Retracing the evolution in cross-border payments, JP Morgan’s Saluja said it is

WE MUST PARTNER WITH FINTECH COMPANIES, WHICH IS WHY THIS SUMMIT IS SO VALUABLE. IT BRINGS TOGETHER GREAT MINDS, FOSTERING

COLLABORATION ON VARIOUS SOLUTIONS

– Rakan Alajroush

Accenture said that transaction banking and cross-border payments are poised to become even more integral to the functioning of the global economy. Citing advancements in financial technology, the global consultancy firm highlighted the banking services’ role in driving growth and prosperity for businesses.

When asked about the growth of cross-border payments in Saudi Arabia, Citi’s Alshammari noted that the increasing volume of cross-border payments in the Middle East is being driven by innovations, collaborations between banks and the region’s robust financial infrastructure.

“There is often a lack of transparency with cross-border payments. When you initiate a payment, you have very limited

astonishing to think that just 15 years ago, the fastest way to transfer money from New York to London was to physically fly it from John F. Kennedy International Airport to Heathrow Airport.

She emphasised that the direction the payments industry is taking is fascinating, with innovation happening at a breakneck speed.

“Zooming out to worldwide data on consumer interactions, we identify megatrends shaping our industry’s future: platforms, online wallets, embedded systems, real-time payments and among others,” said Saluja.

Industry analysts say the approach will help the financial services sector meet customers’ growing demands for greater transparency, lower costs and improved convenience.

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TRANSACTION BANKING SUMMIT,

Embracing digitalisation can enhance documentation, testing and risk governance models, meet regulatory risk-based requirements, strengthen antimoney laundering policies and streamline change control procedures.

From a regulatory perspective, Bank Aljazira’s Bassa said harmonising regulatory regimes is essential, whether for fintechs or incumbent banks.

“While there are sandboxes, models and frameworks in place, other factors such as transaction processing, data storage, data sovereignty and leveraging economies of scale play significant roles,” he said.

Meanwhile, the payments landscape in the GCC region has evolved significantly over the years, propelled by digitalisation in the financial services sector, a trend that is set to continue driving disruptive business models within the industry.

Drawing from his more than two decades of experience in transaction banking and international trade, Simon urged fellow bankers not to underestimate the complexities involved in transaction banking and cross-border payments.

“Two decades ago, the global financial landscape saw various initiatives, including blockchain projects and collaborations among banks and commodity traders, supported by government efforts in Singapore and Hong Kong. However, these initiatives have not significantly progressed, largely due to liquidity crises and high costs,” added Simon.

He emphasised that a country-specific approach to cross-border payments is essential. Simon added, “We need a unified strategy for business corridors between two countries, involving all relevant actors, including central banks, local and international financial systems and international exporters and commodity traders.”

Infosys Finacle’s Subramaniam concluded the panel by emphasising that market infrastructure is unevenly distributed across countries. He cited an example of how the company has partnered with a provider offering lowcost Bluetooth solutions in remote areas of Africa to facilitate micro and real-time payments.

“Collaboration is vital to overcoming challenges associated with market infrastructure. Many institutions are undergoing large-scale transformations, not just for payments but also for core systems that handle account balances and embedded finance solutions like wallets,” Subramaniam added.

The advancement in the transaction banking and payments ecosystem enables corporate clients across various segments to enhance operational efficiencies. Simultaneously, financial institutions must reassess their capabilities and implement robust security measures to facilitate the adoption of real-time payments.

Risk management & mitigation

WHILE GEOPOLITICAL RISKS ARE OFTEN SEEN AS OBSTACLES, THEY ALSO PRESENT A FOUNDATION FOR OPPORTUNITIES. IT’S ESSENTIAL TO FIND THE RIGHT PARTNERS IN BANKING AND FINTECH TO HELP NAVIGATE THESE COMPLEXITIES AND ACCELERATE GROWTH IN THE PAYMENTS SPACE

– Najma Salman

Today’s banking industry is undergoing unprecedented changes, characterised by economic uncertainties, elevated interest rates, sustainability concerns, a shifting regulatory landscape and highly competitive consumercentric markets.

Therefore, new operating and business models that provide efficient and flexible infrastructures are essential. “Many banks are dedicating significant investments and resources to the consolidation and modernisation of their risk infrastructure to advance

their capabilities while increasing flexibility and scalability,” according to KPMG.

The discussion around risk management and mitigation in transaction banking was moderated by Huny Garg, Country Manager for Saudi Arabia at Swift.

The panel - Taking Risk – Management and Mitigation of Risk in Transaction Banking - had the participation of Karim Sanjakdar, Enterprise Business Development Manager at Allied Engineering Group; Damon Madden, Strategic Solution Consultant – Fraud, MEASA at ACI Worldwide; Najma Salman, Managing Director, Co-Head –Central Europe, Middle East and Africa for Institutional Cash and Trade from Deutsche Bank; Wissam Massud, Director of International Expansion and Alliances at haifin and Oleksandr Savchenko, Executive Director, Head of Trade, Working Capital & Transaction Banking at Standard Chartered Bank.

Globally, risk management practices are undergoing a significant transformation as banks adapt to the fast-paced regulatory landscape, advancements in technology, geopolitical tensions and evolving business demands.

“There are geopolitical risks, market risks, interest rate risks, operational risks, fraud risks and cybersecurity risks,” Huny said while emphasising that the list of risks in banking is endless.

“Since transaction banking is prevalent regardless of the size, region or country in which a bank operates, almost all of these risks will be encountered,” he said.

When asked about how geopolitical tensions are evolving and what challenges they pose, Deutsche Bank’s Salman said that geopolitical risks are all-encompassing, as nearly all other risks are interconnected with global geopolitical tensions.

“While geopolitical risks are often seen as obstacles, they also present a foundation for opportunities. It’s essential to find the right partners in banking and fintech to help navigate

these complexities and accelerate growth in the payments space,” added Salman.

Customers and regulators are clamouring for faster and more secure transactions, which means robust risk management is increasingly imperative for financial institutions.

Taking a cybersecurity approach, Madden noted that cybersecurity risks have been a persistent issue over the past 15 years, highlighting a significant shift from traditional card-based fraud to the digital realm, encompassing internet banking and other online financial activities.

for protection, we are entering an era where AI combats AI, adding another layer of complexity to the cybersecurity landscape,” said Sanjakdar.

Financial software firm Fenergo said 2023 underscored the escalating stakes in compliance, as banks faced a staggering $6.6 billion in penalties for lapses in anti-money laundering (AML), know your customer (KYC) and related regulatory areas.

The figure marks a significant surge from $4.2 billion in 2022, up from $5.4 billion in the preceding year, underscoring an intensified focus on financial compliance and the hefty price of non-adherence.

THERE

ARE GEOPOLITICAL RISKS, MARKET RISKS, INTEREST RATES RISKS, OPERATIONAL RISKS, FRAUD RISKS AND CYBERSECURITY RISKS

– Huny Garg

“We are witnessing a rise in scambased fraud, including coercion and other deceptive tactics. Global data breaches and cyber-attacks are increasingly targeting specific jurisdictions like Saudi Arabia, which are particularly attractive due to their high-net-worth individuals and frequent transactions,” added Madden.

Sanjakdar concurred with Madden that the financial services sector is witnessing a significant increase in transaction banking fraud, impacting numerous banks across the Middle East region.

He said cybersecurity challenges that the banking sector faces can be either financially motivated attacks such as ransomware or distributed denialof-service (DDoS) attacks aimed at disrupting the industry.

“While there are numerous solutions, particularly with advancements in AI

Meanwhile, banks should seize opportunities to use emerging technologies to reduce risk, streamline operations and build trust with customers by offering new safeguards from fraud.

When asked about how banks can guard against risks associated with open banking, Savchenko highlighted that while open banking is a fantastic concept that simplifies managing accounts across multiple banks and authorising transactions through various channels, it can be perilous without proper standardisation and clear communication channels.

“Lack of standardised data transmission can create significant risks for customers, bankers and the broader community,” said Savchenko.

“Standard Chartered operates across Asia, the US and the Middle East, and we frequently encounter fraud cases,

TRANSACTION BANKING SUMMIT, KSA

including both criminal and non-criminal white-collar activities, such as businesses fraudulently seeking credit during downturns,” he added. “One potential protection tool we have identified is addressing the lack of standardisation and trusted channels.”

Talking about the advantages of banks coming together to solve risks that the industry faces, haifin’s Massud each bank is capable of addressing issues within their control, but industrywide problems require cooperation among banks.

“To work together, banks need to build trust, comply with regulators, protect customer data and ensure cybersecurity,” he added.

The banking sector is naturally exposed to risks due to the nature of the business, which involves handling financial assets, investments, customer data and the liabilities that come with them. Similarly, risk in the financial services sector is inescapable, and banks must do everything in their power to manage or mitigate it.

Balaji Muthu, Executive Director for MENA at Mindgate Solutions, delivered a presentation under the heading, Vision 2030: The Role and Achievements of Banks with their Enablers, on the transformation within the banking sector and how financial institutions and markets are adapting to these changes while managing the associated risks.

“Banks need to pivot and innovate, considering revenue growth, customer expectations and regulatory changes. When planning any innovation—whether platform upgrades, new product introductions or services—we must consider these factors to enable growth and meet regulatory requirements while fulfilling customer expectations,” he added.

Digitalising transaction banking

Globally, the banking sector stands on the cusp of profound digital transformation. The race for supremacy in transaction banking is being increasingly defined by technological prowess.

The following panel, Help or Hinder? Technology in Transaction Banking was moderated by Suruj Dutta, Partner at EY, emphasised the prominent role digitalisation is poised to play in transaction banking while underscoring how innovative technologies will solve business problems by creating new efficiencies, speeding processes and offering solutions.

Dutta opened the panel by stating that the banking sector is upheld by three pillars: regulatory licences, public trust and technology, emphasising that the importance of technology cannot be exaggerated.

The discussion had the participation of Haitham Abu-Ghazaleh, Head of Enterprise Risk Management at a credit bureau in Saudi Arabia; Talat Qureishi, Vice President of Business Development Commercial EEMEA at Mastercard; Amol Bahuguna, Senior Vice President, Head of Corporate Technology, Innovation and Change Management at Riyad Bank; Balaji Muthu, Executive Director of MENA at Mindgate; Ahmad Ghandour, Managing Director – Middle East at Backbase, Waqas Khan, Head of Enterprise Architecture at Banque Saudi Fransi (BSF) and Venkata Surya Prasad Indraganti, Senior AGM, Head of Transaction Banking at Commercial Bank of Qatar.

From the bank’s perspective, Riyad Bank’s Bahuguna said the financial services sector’s focus is on digital transformation to enable customers through various platforms.

“Banks are focusing on customising solutions to address the unique needs of each customer rather than providing a generic, one-size-fits-all product. While financing and bespoke solutions are crucial, it is equally important to gain a comprehensive understanding of customers and develop a 360-degree view of their needs to build meaningful relationships,” he added.

The digitalisation of the banking division remains a dominant theme in the financial services sector. Banks in the GCC region are continually refining their core strategies to leverage digital capabilities to boost profitability, either enhancing the customer experience or improving operational efficiencies.

Indraganti concurred with Bahuguna while emphasising that the key focuses in cash management and transaction banking are real-time payments, and transparency and connectivity are essential. He urged bankers to explore these further because “banks’ preparedness to meet market requirements is critical”.

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operations, automate processes and offer customisation to meet the evolving demands of clients. Industrial experts at the MEA Finance – SWIFT summit conquered that investing in robust, scalable technology will be a critical differentiator in the future.

Qureishi said many people perceive Mastercard as just a card company, but “we are actually a technology company providing the infrastructure behind many payment processes. Our role in transaction banking, particularly with cross-border transactions, is crucial”.

“One of the major challenges we address is what I call cross-border bureaucracy, which involves navigating multiple geographies, jurisdictions and regulations, which can be quite complex,” added Qureishi.

She added that Mastercard’s global platform aims to simplify the challenges that banks face while supporting payments across various methods –whether bank accounts, cards or mobile wallets.

The necessity for digitisation in transaction banking is driven by several key factors: the increasing demand for real-time services, the rise in cybersecurity threats requiring advanced protective measures and the need for incumbents to stay competitive in a rapidly evolving market.

BSF’s Khan expressed enthusiasm for advancements in data analytics, machine learning and artificial intelligence. He highlighted that the vast quantities of data from financial institutions and partners, when combined with these technologies, have the potential to deliver profound insights.

“Though distributed ledger technologies (DLT) have been around for years, recent implementations are proving their value. We are seeing successful use cases in real-time payments, tokenisation of trade finance and supply chain finance, which offer increased transparency, speed and reduced risks,” said Khan.

“The new frontier in transaction banking will be tackled successfully

BANKS ARE FOCUSING ON CUSTOMISING SOLUTIONS TO ADDRESS THE UNIQUE NEEDS OF EACH CUSTOMER RATHER THAN PROVIDING A GENERIC, ONE-SIZE-FITSALL PRODUCT. WHILE FINANCING AND BESPOKE SOLUTIONS ARE CRUCIAL, IT IS EQUALLY IMPORTANT TO GAIN A COMPREHENSIVE UNDERSTANDING OF CUSTOMERS AND DEVELOP A 360-DEGREE VIEW OF THEIR NEEDS

TO BUILD MEANINGFUL RELATIONSHIPS

– Amol Bahuguna

when corporates, transaction banks and technology partners increase collaboration,” said Austrian bank Raiffeisen Bank International.

To undergo a true transformation, the GCC region’s transaction banking is currently exploring opportunities afforded by the latest digital banking trends, including open banking, APIs and AI.

From the technology provider’s perspective, Muthu emphasised that Mindgate’s role is to assist banks in developing their channels, offering services through APIs and ensuring regulatory compliance, all while maintaining agility and responsiveness to emerging developments.

“Over the past decade, the Middle East region, and particularly Saudi Arabia, has seen a remarkable push towards innovation and leveraging cuttingedge technology to enhance services,” said Ghandour.

He emphasised the importance of differentiating between frontend and backend systems. “While backend systems address the bank’s internal needs, frontend platforms such as Backbase’s are designed to enhance the client’s experience,” Ghandour noted.

Open banking and APIs hold the potential to create an integrated financial

ecosystem by enabling data-sharing and improving financial transparency. The rise of open banking has led to an increased competitive environment in the financial markets, and competitive markets are the perfect environment for innovation.

Abu-Ghazaleh highlighted that the Saudi Arabian market offers substantial opportunities for banks, fintech firms, payments and microfinance sectors. “Though challenges are present, they are typical across various markets. Success in Saudi Arabia depends on effectively utilising new technologies such as APIs and open banking models, which demand real-time data and regular partner evaluations to ensure continuous, 24/7 customer support,” he noted.

The regulatory environment in Saudi Arabia is notable for its proactive approach. Regulators gather feedback before issuing new policies, conducting surveys and listening to market needs. This approach contributes to a dynamic and responsive market.

Transaction banks have a significant opportunity to tap into the trillion-dollar potential offered by end clients in Saudi Arabia, the UAE, Qatar and Kuwait.

Olga J. Parra, Data & AI Brand Leader at IBM Middle East and Africa, delivered a presentation titled

Generative AI: Reinventing the Banking Process with Watsonx. She highlighted a study by the IBM Institute for Business Value, which found that only 8% of the 600 global banking executives surveyed are implementing generative AI systematically, while 78% are using it more tactically, focusing on individual use cases. In contrast, 14% have yet to adopt any generative AI solutions.

Augmenting cross-border payments

The increased pace of change in the cross-border payments market is closely connected to rapidly changing consumer demands, increased trade with emerging markets and the widespread accessibility of mobile phones and e-payment systems.

Moderated by Suruj Dutta, Partner at EY, the panel titled 2027 and Beyond: Managing and Enhancing Domestic and Cross-Border Payments examined how standardisation and advancements driven by multi-currency platforms are reshaping the payments landscape.

The discussion had the participation of Cem Soydemir, Head of Payments, Go-ToMarket, MEA at Swift; Alexis Haessler, Regional Head Middle East and Levant for ACI Worldwide; Shaikh Manzoor Sabir, Head of Cash Products at Gulf International Bank; Finali Fernando, Managing Director, Regional Head of Products, CCO and Business Management at HSBC; Ahmed Darwish, Head of Digital Delivery at Bank Albilad and Anand Sampath, Managing Director, Head of Global Payments at First Abu Dhabi Bank (FAB).

Fernando said the Group of 20 countries’ (G20) vision for cross-border payments seeks to make payments faster, cheaper, transparent and more accessible.

She emphasised that HSBC is aligning its priorities in the cross-border space to provide several features, functionalities and capabilities to meet G20 objectives.

“Providing cross-border payments is not just about moving funds from point A to point B, but ensuring the journey is seamless, affordable and most importantly, meaningful for our clients,” she said.

From a cost perspective, FAB’s Sampath concurred with Finali that transparency is one of the core aspects.

“Swift GPI has made significant strides in addressing this issue, but we still encounter some limitations and client expectations,” added Sampath. “A key expectation is the validation of payments. Clients want assurance that the payment will be executed successfully from the beneficiary country’s perspective and that the account is active.”

Regarding cost and transparency in the cross-border payments space, the most significant cost components are fees and the FX (foreign exchange) rates.

Whether domestic or cross-border, payments are expected to offer the same level of convenience, though executing a cross-border payment is significantly more complex than handling a domestic one.

When asked how institutions in Saudi Arabia are reducing friction in payments, Darwish said the kingdom has exceeded customers’ expectations with the implementation of the country’s instant payments system, also known as SARIE.

“Domestic transfers can be completed and received by the remittee within 10 to 15 seconds, thanks to the fee reductions by the Saudi Central Bank (SAMA),” added Darwish. “This cost reduction has significantly improved the customer

journey, eliminating concerns about when transfers or remittances will be received.”

He highlighted that a promising initiative is to integrate international remittances with SARIE. The integration will enable transfers between banks or across countries to be completed in seconds using the capabilities of the instant payment system.

Cross-border payments are essential to international trade. With a growing share of global trade shifting toward services such as movie and music streaming, as confirmed by the World Trade Organisation, the volume of lowvalue cross-border payments is expected to increase significantly.

“Since November 2023, the payments industry has been transitioning from a variety of legacy message and data formats to ISO 20022, a common, global, end-to-end standard,” said Swift’s Soydemir. He added that these standards apply to both cross-border payments and domestic market infrastructures.

The adoption of faster, cheaper, more transparent and inclusive crossborder payment services could spur widespread benefits for people and economies worldwide while supporting economic growth, international trade and financial inclusion.

Sabir weighed in, saying that many domestic banks have already adopted

TRANSACTION BANKING SUMMIT,

ISO 20022 while noting that the pressure on banks to adopt the payment standard stems from the need for transparency and consistency across all payment rails.

“Historically, payments have faced issues such as investigations, failures and errors. However, with the adoption of ISO 20022, these problems are being eliminated,” he added.

Meanwhile, generative AI (GenAI) could fundamentally change financial institutions’ risk management by automating, accelerating and enhancing everything from compliance to climate risk control.

From modelling analytics to automating manual tasks to synthesising unstructured content, GenAI is already changing how banking functions operate, including how financial institutions manage risks and stay compliant with regulations.

Haessler concurred with Sabir, noting that even if all banks in the Middle East implement an ISO 20022 layer over their legacy systems, each bank must still address the underlying silos within its infrastructure.

“Without changing these silos, banks won’t fully leverage the structured data that ISO 20022 provides. Simply putting ISO 20022 on the front end is insufficient for creating the mechanisms needed to harness AI for applications such as fraud management or business process automation,” added Haessler.

The financial industry is continuously working to improve the user experience by making cross-border money transfers more instant, secure and transparent. To drive growth, avoid disruption and meet the increasing demand for instant and secure payments, financial institutions and payment firms need to adapt to market innovations.

Joude Badra, the General Manager of DiXio in Saudi Arabia, delivered the presentation, Innovations in Financial Messaging, in which he highlighted that Swift is the most widely adopted network in the world, connecting over 13,000 financial institutions.

Badra said Swift’s ISO messaging, such as ISO 20022 and ISO 15022, represent significant investments by

PROVIDING CROSS-BORDER PAYMENTS IS NOT JUST ABOUT MOVING FUNDS FROM POINT A TO POINT B, BUT ENSURING THE JOURNEY IS SEAMLESS, AFFORDABLE AND MOST IMPORTANTLY, MEANINGFUL FOR OUR CLIENTS

– Finali Fernando

communities worldwide and the trend will continue with upcoming migrations to the new system.

The role of AI & the cloud GCC banks that have invested in modernising their digital core and strengthening their data capabilities are quickly adapting to changing regulatory requirements as the global economy shifts gears.

The panel discussion, Intelligence Test –The Role of AI and The Cloud in Transaction Banking was moderated by Martin Blechta, Partner at Boston Consulting Group.

The panel had the participation of Marwan Dardounh, Chief Technology Officer, IBM Saudi Arabia; Deekshith Marla, Founder, arya.ai, an Aurion Pro company; Bushra Alghamdi, Head of Artificial Intelligence at Alinma Bank and Ladle Patel, Senior AI Advisor, Arab National Bank (ANB).

“New-age players, emerging technologies and expanding regulatory compliance are transforming the banking landscape,” global consultancy firm Capgemini said while emphasising that innovations such as GenAI will distinguish competitive frontrunners.

With innovative technologies such as GenAI, a subset of deep learning technology or traditional AI, these financial

institutions have more tools at their disposal than ever to reinvent their client experience, reimagine their business and adapt to a changing environment.

Blechta said it’s evident that AI is one of the most transformative technologies the banking industry has encountered in decades. “We are witnessing a range of compelling use cases being implemented, from well-known applications like GenAI in customer service and chatbots to more advanced innovations. However, the potential of AI extends well beyond these examples,” he added.

The adoption of AI, data processing and storage and cloud computing is creating a generational explosion of opportunities in banking.

Alghamdi concurred with Blechta that GenAI is undoubtedly the hot topic right now, adding that many use cases provide risk analysis and risk assessment while reducing time spent on daily operational tasks.

“While GenAI is capturing a lot of attention, we should consider traditional AI applications, such as personalisation, early warning systems for fraud detection and anti-money laundering efforts. These are crucial trends in banking,” she added.

The advancement of AI has disrupted the physics of the banking industry, weakening the bonds that have held

together the components of incumbents and opening the door to more innovations and new operating models.

“Traditionally, banking was an early adopter of AI, and now, with the buzz around generative AI, we see a similar trend emerging in the sector,” said IBM’s Dardounh.

Dardounh explained that, in contrast to traditional AI, which requires data scientists to build and refine models from scratch through extensive training, generative AI models are already pretested and refined by specialised vendors like Meta, Microsoft, IBM and AWS.

Banks are unlocking new ways to get closer to their customers as digitalisation is reshaping the financial services sector.

The cloud offers several business benefits for incumbent banks, including increased flexibility, business agility, lower IT costs and quicker access to innovation.

Meanwhile, the cloud is the backbone of digital innovation, and it shapes the future of the banking sector.

When asked about the future of banking in the AI era, Patel from ANB highlighted that the banking industry is on the brink of significant transformation due to the advent of generative AI, especially technologies like ChatGPT and the emergence of large language models (LLMs).

“Personalised conversations and customer engagement will become central to banking operations. Banks will increasingly implement these personalised interactions as core use cases,” said Patel.

The transformative technology gives banks access to on-demand resources – such as networks, servers, storage and APIs – that can be rapidly provisioned and released with minimal management or service provider interaction.

Marla noted that as AI advances, fraudsters also adapt, employing techniques like deepfakes. “AI is now being leveraged to bolster fraud detection by analysing transaction patterns and spotting anomalies more effectively than traditional rule-based systems, allowing banks to identify and prevent fraudulent activities,” he said.

Industry experts at the MEA FinanceSWIFT summit concurred that the changes in the global landscape are opening doors for both established players and new disruptors to attract customers, innovate solutions and capture market share.

While sustainable global transaction banking is still in its nascent phase, it is poised to grow exponentially over the years, with research indicating that demand for such products far exceeds supply, with only 10% of demand currently being met.

FRIEND OR FOE:

The Evolving Relationship Between Banks and Fintechs in the Middle East

The relationship between banks and fintech companies has long been a topic of debate. Are they friends, foes, or both, asks Saad Ansari Founder and CEO, Xpence

Having spent the last 6 to 7 years dealing with traditional banks across the Middle East, I’ve witnessed firsthand the evolution of this dynamic relationship. It’s a complex dance of collaboration and competition, each side bringing unique strengths and facing distinct challenges.

Historical Context

Traditionally, banks have dominated the financial sector, enjoying a longstanding trust with consumers and businesses alike. However, with the advent of technology and the rapid growth of fintech companies, this monopoly has been challenged. Fintechs have brought innovation, agility and customer-centric solutions that have reshaped the financial landscape. This has pushed banks to reconsider their strategies and adapt to changing market demands.

Collaboration: A Win-Win Scenario

One of the most significant shifts I’ve observed is the move towards collaboration. Banks and fintechs have realised that working together can be mutually beneficial. Banks provide the scale, regulatory expertise and trust that fintechs often lack, while fintechs offer innovative solutions, agility and a customer-centric approach that banks struggle to emulate.

For example, Egyptian banks have been particularly open to engaging with

Saad Ansari, Founder and CEO, Xpence

fintechs. In one intensive week, I met with ten banks—an endeavour that would have taken me a year in my home market. It may also be surprising to some, but the most fintech-ready banks were in Saudi Arabia. I met banks that had a menu of services to offer fintechs and even had their own sandboxes for fintechs to build products.

Competition:ACatalyst forInnovation

Despite collaborative efforts, there remains an undercurrent of competition. Fintechs are not just partners but also competitors, constantly pushing the boundaries of what is possible in financial services. This competition has been a catalyst for innovation, driving both banks and fintechs to improve their offerings.

Challenges and Opportunities

The journey of integrating fintech solutions into traditional banking infrastructure is

not without its challenges. Regulatory compliance, data security and legacy systems are significant hurdles that both banks and fintechs must navigate. In my experience, the Middle Eastern banking sector, with its diverse regulatory environment, presents unique challenges and opportunities.

One of the critical challenges is regulatory compliance. Fintechs often operate in a grey area, and aligning their innovative solutions with the stringent regulations of traditional banks can be complex. Another challenge is integrating fintech solutions with the legacy systems of traditional banks. Many banks in the region still operate on outdated infrastructure, making it difficult to implement cutting-edge fintech solutions.

The biggest hurdle, however, has not been technology or regulations, but people. Finding individuals with the right mindset can transform a bank into an excellent fintech partner.

The Road Ahead

As we look to the future, the relationship between banks and fintechs will continue to evolve. Both parties must embrace a mindset of collaboration and competition, recognising that their combined strengths can drive the financial sector forward. The Middle East, with its burgeoning fintech ecosystem and progressive regulatory landscape, is well-positioned to lead this transformation.

In conclusion, the relationship between banks and fintechs is complex, characterised by both collaboration and competition. By working together, banks and fintechs can create a more innovative, efficient and customer-centric financial ecosystem.

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