MEA Finance - October 2021 by meafinance

October 2021

Building the Future Rola Abu Manneh, Chief Executive Officer Standard Chartered Bank UAE

October 2021

Building the Future Ahmed Mohamed Al Naqbi CEO of Emirates Development Bank

10 Market Focus | 14 ESG | 28 Family Office | 40 Banking Technology | 50 Webinar

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9/20/21 2:52 PM

In this issue...

his is it, Q4 2021, the final segment of one of the fastest passing years we have experienced. Though not gone from our lives and likely ever present, (hopefully receding further into the background), the Covid-19 pandemic has had the effect of abruptly bringing important, even vital elements into sharper focus for the regional banking and finance communities, and we reflect this through much of your October issue of MEA Finance. So, starting at page 14 we take a look at the increasing inclusion of ESG in the strategies of regional banks, with first-hand accounts describing their approach to, and efforts to ensure it becomes inherent in their business. In our cover story with Ahmed Mohamed Al Naqbi, CEO of Emirates Development Bank, he describes the pandemic as among the factors behind the launch of their new strategy and how the Bank will play a key role in the growth of the UAE economy, “As a team, we are committed to being an effective engine supporting economic growth in the country and working together to achieve the defined goals and objectives”. In the coverage of our recent MEA Finance and Oracle webinar, from page 50, our panelists debate how digitisation is at the top of the agenda of every financial institution across the Gulf, it’s uptake accelerated by the pandemic. The theme continues, though looking at digitisation across some key sectors of financial services, in this issue’s Banking Technology section from page 40. In our Wealth Management section this month, page 28, we look at how regional family businesses and family wealth is taking shape in the postpandemic era and what this means for the changing generations in families, and our Islamic Finance piece, page 38, details how Saudi Arabia is gearing up its capital markets and moving toward a front running position in Islamic finance both at home and overseas. Octobers’ Opinion Pieces, from page 54, start with a look at the rise of Muslim Millennials as a force to be accommodated in banking, “According to a Finance and Faith report 2021, more than half of young Islamic finance customers would adopt Islamic banking if it were more accessible”, then we are shown how Central Bank Digital Currency (CBDC) arrangements could become a solution to Cross Border Payment Inefficiencies, “By creating accessible and completely digital representations of sovereign backed value, most of the frictions can be removed”. In reporting of one of our Leadership Video Series, page 48, Frank Wendt, Co-Founder and Chairman of the Board at FQX AG, talks about his experience of starting an eNotes™ service, an electronic equivalent to paper based promissory notes. Finally, our market focus for October is on Oman where since coming to power, Sultan Haitham bin Tariq Al Said has made strides in implementing structural reforms to shore up the economy including measures such as the introduction of VAT and a new investment residency programme. As always, it has been our pleasure preparing this, our latest issue for you. We hope you enjoy reading it in the moments of leisure time you snatch between helping to maintain, regulate and run the engines of the economies in our region.

mea-finance.com

CONTENTS

CONTENTS 32

MARKET NEWS

Amazon Payment Services partners with American Express to expand online payments acceptance for AMEX Cardholders in KSA

Mashreq ramps up Asia operations with opening of its first representative office in Shanghai

MARKET FOCUS

Towards a sustainable future: Oman

ESG

14 18

Turning the tide Pretty Green

WEALTH MANAGEMENT

Family Values

REAL ESTATE INVESTMENT

Investing in the Surging Demand in U.S. Housing

ISLAMIC FINANCE

MEA Finance WEB: www.mea-finance.com EMAIL: info@mea-finance.com PUBLISHED BY: Creative Middle East Media FZ LLE, 19th Floor, Creative Tower, Fujairah Creative City, PO Box 4422, Fujairah, UAE EXECUTIVE DIRECTOR AND PUBLISHER : Kenneth Mitchen Email: ken.mitchen@mea-finance.com

Banking and Finance news in the MEA market

Preparing for Leadership

BANKING TECHNOLOGY

40 44

Staying relevant in the digital age

Will the Future of Banking in the Middle East be ‘Digital-Only’?

LEADERSHIP SERIES

Instrumental Change

WEBINAR

Reframing growth with core banking

OPINION

The Solution to Cross Border Payment Inefficiencies?

LIFESTYLE

Gold crystal: alchemist Hublot creates magic

38 44 50 54 58 mea-finance.com

MARKET NEWS

Amazon Payment Services partners with American Express to expand online payments acceptance for AMEX Cardholders in KSA Amex cardholders in Saudi can now shop with their Amex card on merchant and supplier websites that use Amazon Payment Services

mazon Payment Services, a payment processing service in the Middle East and North Africa (MENA) region, has partnered with American Express to offer Amex cardholders access to thousands of online merchants in the Kingdom of Saudi Arabia. American Express is a global issuer of credit and charge cards for both personal and corporate use in Saudi Arabia that is committed to offering unique products and services to its customers. Their objective is to continuously meet and exceed customers’ expectations by introducing innovative products and providing superior customer service. Commenting on the new partnership, Peter George, Managing Director of Amazon Payment Services, said: “By partnering with Amazon Payment Services, American Express will be able

to enhance and expand the online network of merchants in Saudi Arabia where American Express cards can be used, with access to the added value services for which Amex is known. Through this partnership, Amazon Payment Services are furthering our mission to enable smooth and seamless digital transactions between merchants and their customers.” The digital payment integration from Amazon Payment Services delivers a safe and secure environment for receiving and processing customer data. American Express cardholders can now shop for a much wider range of products and services offered by Amazon Payment Services merchants and suppliers. Priyan Attygalle, CEO of American Express Saudi Arabia added, “We’re very pleased about our strategic partnership with Amazon Payment Services and how it

THROUGH THIS PARTNERSHIP, AMAZON PAYMENT SERVICES ARE FURTHERING OUR MISSION TO ENABLE SMOOTH AND SEAMLESS DIGITAL TRANSACTIONS BETWEEN MERCHANTS AND THEIR CUSTOMERS 6

Banking and Finance news in the MEA market

Peter George Managing Director of Amazon Payment Services-MENA

will deliver compelling value to our mutual customers and help to ensure that Card members get more with Membership. Through the Amazon payment services integration, merchants in Saudi Arabia can now easily accept payments with Amex products, and our customers now benefit from more places to shop with their Amex cards online.” Amazon Payment Services processes transactions for thousands of businesses across multiple industries, ranging from aviation to travel and tourism, retail, insurance, real estate, government, and more. With such a diverse customer base, it has built strong expertise that supports businesses at every scale, from small and medium enterprises (SMEs) looking to establish their online presence to largescale enterprises requiring a dependable payment service to handle high volumes of transactions safely.

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MARKET NEWS

Mashreq ramps up Asia operations with opening of its first representative office in Shanghai Mashreq Bank has inaugurated its representative office in Shanghai amid a strategic push to expand its presence in China

he Shanghai representative office will serve as a liaison of f i c e, w i t h t h e p r i m a r y objective of building Mashreq’s franchise in mainland China. The office will be a key intermediary for Middle Eastern corporations with trade and investment flows into China, as well as for Chinese enterprises looking to establish operations within Mashreq’s existing international banking footprint. Ahmed Abdelaal, Group CEO of Mashreq Bank, commented: “This milestone marks a strategic step into expanding our promising footprint

“Most importantly, the office enables us to leverage our insights of the MENA region for our stakeholders, as well as provide invaluable on-the-ground knowledge of China’s economic and banking landscape. We are proud of this milestone and look forward to exploring opportunities to further expand in the future.” Abdelaal added. Tarek El Nahas, Senior Executive Vice President and Head of the International B a n k i n g G ro u p, M a s h re q B a n k , commented: “The international banking business is a significant contributor to Mashreq’s overall revenues and

WE ARE PROUD OF THIS MILESTONE AND LOOK FORWARD TO EXPLORING OPPORTUNITIES TO FURTHER EXPAND IN THE FUTURE into China. At Mashreq, we see this representative office as an instrumental initial link in fostering trade and investment flows between the UAE, wider Middle East and China. We believe there is enormous potential on the back of China’s Belt and Road initiative and the growing bilateral relationship between the UAE and China.

the opening of a representative office in Shanghai demonstrates long term commitment towards strengthening our franchise in Asia. As China continues to shape the global trade map, corporates and financial institutions are adapting and repositioning themselves in order to leverage the evolving growth opportunities.

Banking and Finance news in the MEA market

Ahmed Abdelaal Group CEO of Mashreq Bank

The Shanghai presence is of high strategic interest to us and will produce synergies with all the international offices in Mashreq’s global network.” With this latest announcement, Mashreq now operates in 13 countries, including the UAE. The UAE is considered China’s largest non-oil trading partner in the Middle Eastern and North African region. According to recent reports, UAE-China trade volume has reached over $50 billion, and the target is to expand further to $200 billion by 2030. Additionally, China’s Belt and Road Initiative is expected to significantly boost bilateral trade and will involve massive infrastructural developments such as the construction of roads, railways and shipping lines between China and more than 60 countries in Asia, Europe, Middle East and North Africa.

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MARKET FOCUS

Towards a sustainable future: Oman Since coming to power in January 2020, Sultan Haitham bin Tariq Al Said has made significant strides in implementing structural reforms to shore up the economy, drive diversification and spur long-term sustainable growth

he World Bank in August said that the three GCC countries with the largest deficits in 2020, Oman included, are projected to remain in deficit throughout 2021-23, but at narrower ratios to real gross domestic product (GDP) in 2023 compared to the economic downturn in 2020. Since January 2020 when Sultan Haitham bin Tariq Al Said was sworn in as the new ruler of Oman following the death of his cousin Sultan Qaboos, the world had its eyes glued on the Sultanate to see how the Gulf state would navigate the double whammy of the COVID-19 pandemic and low oil prices. Oman has one of the weakest credit ratings in the Gulf region compared to its oil-rich neighbors and the country is more sensitive to volatility in oil prices, meaning it was significantly impacted by

last year’s historic price crash and weak demand due to the pandemic. Like its GCC peers, Kuwait, Qatar and Saudi Arabia, Oman depends heavily on oil which accounts for 70% of the Sultanate’s exports and government revenues. However, unlike most of them, Oman has high debt, a smaller stock of sovereign wealth assets and relies on external financing that is expected to cost more to fund amid sluggish growth due to the pandemic. Despite a rebound in prices to more than $70 per barrel this year, the World Bank said that Oman needs to implement more reforms to achieve sustainable growth and economic diversification. Under Sultan Haitham bin Tariq’s Vision 2040, the Sultanate has made significant strides in implementing structural reforms to boost the non-oil

Banking and Finance news in the MEA market

economy, drive diversification and spur long-term sustainable growth. As part of the government’s broader strategy to shore up the economy, Sultan Haitham restructured government and state entities including the Gulf state’s wealth funds and introduced a 5% value-added tax (VAT) in April. The Sultanate also introduced several austerity measures last year which helped it maintain access to the international debt markets. The International Monetary Fund (IMF) expects Oman’s economy to rebound and expand by 2.5% in 2021 with around 3% average growth over the medium term, thanks to a projected increase in hydrocarbon production as well as the impact of the vaccine rollout, according to the fund’s July projection.

Fiscal woes Since taking power in 2020, Sultan

Haitham has taken dramatic measures to rein in public spending to reduce Oman’s fiscal shortfall, but the rate of adjustment lags the revenue drop. Oman approved its budget for the fiscal year 2021 earlier in January. “The 2021 budget targets a more efficient system of fiscal and financial management, which prioritizes fiscal balance, economic diversification and sustainability of national income,” said KPMG. The Sultanate projected a deficit of $5.72 billion (OMR 2.2 billion), the lowest since the 2015 financial crisis, and the government said it would approach both domestic and international markets to help plug the gap. In July, Oman’s finance ministry said that it posted a year-to-date budget deficit of $2.32 billion (OMR 890.2 million) in May, as low oil prices and crude production cuts weigh on the Gulf state’s finances. Following the surge in the actual deficit to $13.8 billion (OMR 5.3 billion) in 2016 (initially budgeted at $8.6 billion (OMR 3.3 billion), Oman seems to be successfully managing its budget shortfall and the Gulf state is on the recovery path with this year’s projected deficit lower than the deficit of 2020 by around 10% or $676 million (OMR 260 million), said PwC. In its FY2021 budget, which is based on an oil price of $45 a barrel, Oman aims to raise as much as $4.16 billion (OMR 1.6 billion) through borrowing, which covers 73% while the remaining $1.56 billion (OMR 600 million) will be drawn from reserves as the Gulf state looks to tame its widening deficit. Cash-strapped Oman issued a nineyear Sukuk to raise $1.75 billion earlier in June after drawing more than $11.5 billion in orders for its second international bond issuance this year after the Sultanate had raised $3.5 billion by issuing 10-year and 30-year bonds and tapping its existing 2025 bond earlier in the year. Oman is rated ‘junk’ by all major rating agencies. S&P Global, Moody’s and Fitch Ratings downgraded Oman’s sovereign rating twice in one year, with S&P’s second downgrade to B+ (four levels into

the non-investment grade) settling one grade lower than either Moody’s or Fitch’s. In March, the Gulf state raised $2.2 billion with a loan, more than double the amount it had initially sought, from a consortium of regional and international banks. Oman also borrowed $1.56 billion (OMR 600 million) from Oman Investment Authority and another $4.6 billion (OMR 1.77 billion) through external and internal borrowings in April to partly finance its 2021 budget deficit. According to S&P Global, the increase in the Omani government’s net debt will remain elevated through 2024, but the

Given state-owned enterprises’ increasing role in the country’s economy, the IMF urged Omani authorities to develop a “sovereign asset-liability management framework to get a better picture of the sustainability of the public sector beyond the central government budget.” The Central Bank of Oman (CBO) disbursed $20.8 billion (OMR 8 billion) in extra liquidity to banks in March as part of the Gulf state broader strategy to cushion the economy from the impact of the pandemic. However, Moody’s said that although the stimulus package that was unveiled by CBO will mitigate the impact

OMAN’S BANKS ARE WELL-CAPITALIZED AND LIQUID DESPITE A SLIGHT INCREASE IN NON-PERFORMING LOANS RATIO AND A DECLINE IN PROFITABILITY, BUT CREDIT RISK REMAINS A CONCERN GOING FORWARD DUE TO THE UNCERTAIN OUTLOOK – The International Monetary Fund

rating agency expects it to decelerate relatively to 2020 levels, on the back of higher oil prices and a fiscal reform plan. The Sultanate faces large external debt maturities of $10.9 billion between 2021 and 2022, S&P Global noted and it expects the government to rely on external debt to fund the deficits and maturing debt.

Fiscally fit As Oman is weighing ways to trim its deficit and reform the economy amid dwindling crude reserves, the Gulf state asked the IMF for technical assistance in July for debt strategy and fiscal framework. The plan will see the fund developing a program that is expected to help the Sultanate to reduce its budget shortfall over the medium term by diversifying the economy and reduce the country’s reliance on international borrowing.

of the pandemic on the economy, “the reduction in (capital conservation buffers) is credit negative for banks because it lowers their minimum regulatory solvency capital requirements during a difficult time.” The central bank also ordered Oman lenders to slash banking fees, adjust capital and credit ratios, and allow repayment postponements for up to six months, particularly for small and medium businesses. According to KPMG, Oman’s economic stimulus plan seeks to improve the investment and business environment, support small businesses, protect the labor market and the banking sector. The IMF said Omani banks are wellcapitalized and liquid despite a slight increase in non-performing loans ratio and a decline in profitability, adding that credit risk remains a concern going forward mea-finance.com

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An Kelles Director – GCC an.kelles@jerseyfinance.je

Faizal Bhana Director – Middle East, Africa and India faizal.bhana@jerseyfinance.je

With studies showing that investors in the Middle East are embracing the trend, centres like Jersey that can offer specialist ESG expertise coupled with deep experience in Shariah–compliant financing are in high demand. Earlier this year, for instance, Jersey Finance launched a new long-term sustainable finance strategy aimed at positioning Jersey as a leading centre for sustainable finance. Further, Jersey’s financial regulator recently made changes to its regime to enhance disclosure requirements around climate-related investments and counteract greenwashing, while Jersey firms are right at the cutting edge in developing measurement and analysis tools to support investors in the ESG space. Overall, this is enabling Jersey to build on the foundations of solid regulatory infrastructure and financial expertise for which it has become renowned in the Middle East. The Island is now creating a compelling proposition that can empower investors to make investments that align with their economic, environmental, and social values. UK

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due to the uncertain outlook. Despite the impact of coronavirus on the global banking sector, Oman’s banking sector remains in a relatively resilient position underpinned by strong capital buffers and liquidity. However, the sharp plunge in oil prices and difficult operating environment strained asset quality and earnings. Banks across the Gulf region have been consolidating to improve economies of scale, reduce operating and funding costs, and boost profitability and efficiency. Oman is no exception and regulators have long supported mergers across the financial services sector. Oman Arab Bank completed the acquisition of Alizz Islamic Bank through a share swap deal in July 2020 in a transaction that created a lender with more than $8.3 billion (OMR 3.2 billion) in assets.

Economic overhaul Sultan Haitham bin Tariq is leaving no stone unturned in his efforts to bolster flagging public finances, slash subsidies, introduce VAT and restructure government-related entities as part of medium-term plan to overhaul the economy. Cash-strapped Oman started levying a delayed 5% VAT in April 2021 following the lead of Gulf neighbors. The VAT is aimed at ensuring the Sultanate’s financial sustainability after the Gulf state accumulated huge amounts of debt over the past few years to compensate for its dwindling oil revenues. Oman expects to get around $780 million (OMR 300 million) from the implementation of vat this year. Trimming public debt and restructuring public institutions and companies is one of a series of steps taken by the Sultanate to improve fiscal efficiency after sensitive reforms had lagged for years. Since coming to power, Sultan Haitham merged several state entities, including the sovereign wealth funds, and appointed finance and foreign affairs ministers and a central bank chairman – portfolios that were held by the late Sultan Qaboos. Oman merged the State General Reserve Fund and the Oman

Investment Fund in June 2020 into a new wealth fund Oman Investment Authority, a new entity with $17 billion assets under management. Oman established a new state-owned energy company, Energy Development Oman (EDO), as part of the government’s efforts to use its largest oil block to raise debt. The energy firm owns a 60% interest in Block 6, which is one of the biggest crude deposits in the region and has a

expected to shore up the economy of the Gulf region’s largest oil producer outside OPEC, is aimed at trimming Oman’s deficit down to 1.7% of GDP by 2024. However, the implementation of the plan which is unheard of in the oil-rich Gulf region is still currently being studied. As part of the Gulf state’s medium-term fiscal plan, Oman is also considering redirecting state subsidies on electricity and water to only those groups who need

THE STIMULUS PACKAGE THAT WAS UNVEILED BY THE CENTRAL BANK OF OMAN WILL MITIGATE THE IMPACT OF THE PANDEMIC ON THE ECONOMY, BUT THE REDUCTION IN (CAPITAL CONSERVATION BUFFERS) IS CREDIT NEGATIVE FOR BANKS BECAUSE IT LOWERS THEIR MINIMUM REGULATORY SOLVENCY CAPITAL REQUIREMENTS DURING A DIFFICULT TIME – Moody’s

production capacity of 650,000 barrels a day. Royal Dutch Shell holds 34% in Block 6 while Total owns 4%. The Sultanate is also in talks with Saudi Arabia which is considering developing an industrial zone in the country. A Saudi delegation, led by Investment Minister Khalid al-Falih visited Oman in August, the latest step as the two Gulf neighbors looks to consolidate and expand the economic relations and mutual investments between the two states, according to state-run Saudi Press Agency.

Structural reforms Although Omani authorities dismissed the reports, the Sultanate plans to introduce an income tax on high earners in 2022, according to a 2020-2024 economic plan that was released by the finance ministry last November. The move, which is

it, rather than subsidizing all users. The Sultanate also plans to expand its visafee exemption to more than 100 countries in a bid to boosts tourism. Oman also announced in June that it would start granting long-term residence visas to foreign investors as part of the country’s wide-ranging reforms to fix its finances. The decision to introduce a new investment residency program mirrors the visa reforms by the UAE in recent years to offer longer-term residencies and citizenships, to investors and certain professionals. The dual shocks of COVID-19 and low oil prices tossed the world economy into the greatest recession since World War II, but Sultan Haitham has introduced several reforms including the implementation of VAT and Oman’s 20202024 economic plan to make government finances sustainable. mea-finance.com

ESG

Turning the tide Conscious investing is attracting growing attention from investors and policymakers alike in the GCC due to the strategy’s promise of utilizing a range of non-financial information to better align finance with long-term value and societal values

he pandemic crisis did not only bring the greatest recession since World War II, but investors are calling it the 21st century’s first ‘sustainability’ crisis, one that is acting as a wake-up call for decisionmakers to prioritize a more sustainable investment approach, said J.P Morgan. Sustainability, which incorporates environmental, social and governance (ESG) concerns, is increasingly topping the agendas of most companies globally. While reacting to the Intergovernmental Panel on Climate Change (IPCC) report on climate change in August, the UN SecretaryGeneral António Guterres cautioned that global warming is dangerously close to spiraling out of control, saying it is “Code Red for Humanity”. Deloitte said that although sustainability might not be the first boardroom topic one

may think of, it is central to corporate competitiveness and is vital for a company’s continued ability to operate. Though ESG practices appear to be in the initial stages of implementation across the GCC region, with teething troubles around consistency and financial materiality, the six-nation bloc of oil-rich Gulf countries is spearheading economic diversification away from heavy reliance on oil revenues to advance sustainable growth. Meanwhile, conscious investing is attracting growing attention from investors and policymakers alike across the Gulf region owing to the strategy’s promise of utilizing a range of non-financial information to better align finance with long-term value and societal values. The pandemic crisis is expected to put the Islamic finance industry back on

Banking and Finance news in the MEA market

ESG investors’ radar. In its report, Islamic Finance Outlook 2021 Edition, S&P Global said that the twin shocks of COVID-19 and low oil prices have created opportunities to accelerate and unlock the long-term potential of the Islamic finance sector. “Investors representing more than $45 trillion in assets under management have already agreed to drive climate change action across their portfolios,” Karin Oertli, the COO, Personal and Corporate Banking and Switzerland, UBS said in a report published by the World Bank. Hence, ESGs are increasingly becoming an integral part of how the global financial services sector operates. Analysts believe that sustainable financing together with technological innovation and digitalization in the financial services sector is instrumental to sustainable innovation and growth and the transition to a less carbonintensive economy. “The alarm bells are deafening, and the evidence is irrefutable: greenhousegas emissions from fossil-fuel burning and deforestation are choking our planet and putting billions of people at immediate risk,” Secretary-General Guterres said earlier in August.

Towards sustainability Though green bonds have been a rare sight in the Mideast, many corporates and sovereigns borrowers have been issuing fixed-term securities to raise funds for projects with environmental benefits such as renewable energy projects.

As large public institutional investors are gradually incorporating ESGs into their investment mix, Abu Dhabi Investment Authority (ADIA) is reportedly studying how to incorporate sustainable investing factors in its indexed equity investments. First Abu Dhabi Bank became the first Gulf bank to issue $587 million green bonds in March 2017. Last June, the Abu Dhabi-based lender also issued a $96.77 million five-year Hong Kong dollar-denominated green bond through a private placement. Qatar National Bank (QNB) is also another regional bank that made its foray into the green debt market. The Qatari bank issued a $600 million green bond last September signaling a growing investor appetite for these instruments in the Gulf region. S&P Global hailed QNB’s green, social and sustainability bond framework saying it is fully aligned with four components of the green bond principles and the social bond principles that make up the sustainability bond guidelines. The UAE, home to the Dubai Financial Markets, Nasdaq Dubai and Abu Dhabi Securities Exchange, made female

THOUGH SUSTAINABILITY MIGHT NOT BE THE FIRST BOARDROOM TOPIC ONE MAY THINK OF, IT IS CENTRAL TO CORPORATE COMPETITIVENESS AND IS VITAL FOR A COMPANY’S CONTINUED ABILITY TO OPERATE – Deloitte

WEALTH MANAGERS ARE MOVING TOWARDS ESG-INFORMED INVESTING WHILE RETAIL BANKS ARE CREATING NEW SUSTAINABLE BANKING AND INVESTING PRODUCTS AND SERVICES – KPMG

representation on the boards of all listed companies compulsory in March to foster gender diversity. Since the enactment of the law in March, Dubai’s Emaar Properties, telecoms major Du, Abu Dhabi National Oil Company for Distribution, and Dana Gas have all appointed female board members. Damian Regan, Director, Audit & Assurance, Deloitte Middle East, said, “It is time for Middle Eastern companies to be part of the global response to these ESG issues and take action in the development of their response to and reporting of ESG; recognizing their role in driving a more equitable and sustainable economy and society, both now and in the future.” In Saudi Arabia, the state-owned electricity transmission firm, Saudi Electricity Company, raised $1.3 billion dual-tranche green Sukuk last September. Egypt became the sovereign in the Middle East region to sell green bonds. The Arab world’s populous country raised $750 million from the issuance last year. Although the outbreak of coronavirus slowed down the implementation of ESGs, it is evident that banks continue to embrace the strategy as new banking products and models are being developed, tested and commercialized. KPMG said that wealth managers are moving towards ESG-informed investing while retail banks are creating new sustainable banking and investing products and services.

Islamic finance Though not mutually exclusive, Shari’ah-

compliant financial instruments offer a framework that embodies the social and ethical values of ESG investing, providing Middle East investors with an opportunity to adopt more sustainable, responsible investment strategies while tapping into the potential value of conscious investing. S&P Global said that funds raised from green Sukuk typically support investments in renewable energy or other environmental assets such as solar parks, biogas plants, wind energy projects, as well as renewable transmission and infrastructure projects. The pandemic crisis is projected to boost the appetite for sustainable instruments in the GCC region as governments and corporates look to revive their economies amid diversification from hydrocarbon-based economies and transition to sustainable financing. Islamic finance social instruments can help core Islamic countries, banks, companies and individuals economically affected by the pandemic to navigate these choppy waters, with market participants eyeing Qard Hassan, Zakat, Waqf, and Social Sukuk, said S&P Global. As GCC sovereigns and corporates are tapping debt markets – taking advantage of low borrowing costs and investor demand for higher returns – to finance projects that were shelved last year and plug their ballooning deficits, analysts expect Shari’ah-compliant social instruments to widen the appeal of Islamic bonds beyond traditional markets in the Middle East and South Asia to include ethical investors in West. mea-finance.com

Sustainable debt covers a variety of instruments, from the well-established green bonds to the fast-emerging category of sustainability-linked loans. With a new global record of sustainable debt issuance hitting $465 billion in 2019, a 78% increase compared to $261.4 billion in 2018, sustainable finance is a fast-growing category of fixedincome securities. Islamic banks in the GCC region are witnessing a growing frenzy for green bonds although the appetite is still in its infancy as more investors are committing to responsible investment. Last year, the overall green bond market was worth over $230 billion, and it reached $2 billion in the Middle Easr region with the potential to grow further. Last October, Abu Dhabi’s Etihad Airways issued a five-year “transition” $600 million green Sukuk to support its shift to a greener future. Etihad is the first airline to issue a sustainabilitylinked Islamic bond as it seeks to slash its carbon emissions level in half by 2035 and reduce emissions to zero by 2050. Having issued its $1.2 billion debut green Sukuk in November 2019, Saudibased Islamic Development Bank also tapped the international debt markets with a five-year $1.5 billion sustainability Islamic bond to support its member states to mitigate the fallout from the COVID-19 pandemic. Though overall Sukuk issuance is gathering steam in some of the world’s largest financial hubs such as London, the market for green Islamic bonds remains small compared to the conventional Sukuk market. Last year, total Sukuk issuances reached $205 billion and only $6.2 billion of that was in green Sukuk, said Moody’s.

Sustainable finance “ W h il e s o me b i g q uesti o ns a nd uncertainties exist, it is clear that bank executives can no longer afford to take a ‘wait and see’ approach,” said KPMG. As the world is emerging from the pandemic and starts to map out the

future, regulators, oversight authorities and policymakers are expected to take the lead in calling for the need for greater adoption of ESG. Investors are ramping up pressure on banks to some extent due to the increasing recognition that conscious investing, in particular issues to do with climate change, represents material risks that must be managed. This has seen several lenders refusing to renew loans on existing fossil-related projects such as coal mining to improve their carbon disclosures. However, as investors strive to ensure the profitability of their investments in these shifting operating conditions, KPMG said data showed that

align its business activities to the goals of the Paris climate agreement. HSBC previously came under fire for financing harmful environmental investments and the bank is Europe’s second-largest financier of fossil-fuel companies after Barclays since the end of 2015, according to Bloomberg. JPMorgan Chase & Co. also unveiled its carbon reduction goals for clients in line with the Paris financing commitments in April as it faces mounting pressure from shareholder activists to align its funding activities with their climate change commitments. The Wall Street bank appealed to its oil and gas clients to reduce the intensity

THE ALARM BELLS ARE DEAFENING, AND THE EVIDENCE IS IRREFUTABLE: GREENHOUSEGAS EMISSIONS FROM FOSSILFUEL BURNING AND DEFORESTATION ARE CHOKING OUR PLANET AND PUTTING BILLIONS OF PEOPLE AT IMMEDIATE RISK – UN Secretary-General António Guterres

ESG-related funds outperformed the markets in the first quarter of 2020 — when the pandemic crisis hit. Before the outbreak of the coronavirus, several global banks including HSBC and Goldman Sachs had already made significant strides towards greener finance and the trend is expected to soar post-pandemic. “The quantum of ESGrelated announcements coming out of banks before COVID-19 was staggering,” said KPMG. In October 2020, HSBC said that it aims to reach a net-zero carbon client portfolio by 2050. The London-based bank also pledged to support its clients with between $750 billion and $1 trillion in funding and investments to contribute towards low carbon transition in a step to

of direct and indirect emissions, plus emissions from the combustion of oil and natural gas. JPMorgan Chase’s appeal to clients comes a month after it unveiled $2.5 trillion to lend, invest and provide other financial services over the next decade to advance long-term solutions projects that address climate change and address social inequality. Globally, almost all sectors including the fashion industry are focusing more on environmentally friendly and sustainable investments amid pressure from clients, consumers, shareholders and regulators to align with ESGs. British luxury fashion major Burberry Group, French telecoms firm Orange and Germany auto giant Daimler have all sold green bonds underscoring growth in the ESG debt market. mea-finance.com

ESG

Pretty Green Gareth Thomas Head of Global Banking, MENAT, HSBC provides MEA Finance with insights into the appetite for sustainable related financial products in the region, detailing some of the findings of their just published Global Sustainable Financing and Investing survey and how they are integrating ESG principles into their services and day to day operations

Banking and Finance news in the MEA market

escribe the appetite for ESG based investment opportunities in the region?

Sustainable finance and investment in the Middle East, North Africa and Turkey (MENAT) continues to grow and develop, influenced by an ever-changing combination of forces that are driving change among issuers and investors. HSBC globally is committed to aligning the financed emissions from our portfolio of customers to net zero by 2050 or sooner, in line with the Paris Agreement goals. To help get there, the HSBC Group has set a target to provide between US$750 billion and US$1 trillion of finance and investment, worldwide by 2030, towards the transition.

Our latest Global Sustainable Financing and Investing survey, published in September, shows that the valuesbased belief that it is right to care about environmental and social issues is driving the behavior of issuers and investors. Our survey is conducted annually and gathers opinions from more than 2,000 capital market issuers and institutional investors, asset allocators and asset owners, covering 19 industry sectors and this year it shows this trend very clearly, with 42% of respondents saying they have a firming in their belief that it is right to care about the world and society, and the same proportion saying increasing regulatory demands require them to pay greater attention to these issues. MENAT is the only region, according to our global survey results, where these two forces are given as the top two drivers of behaviour. It clearly shows the rising importance of ESG issues in this region and their influence it is having on both investors and issuers. We know the appetite is strong for economies across the region achieve their climate targets – we saw a six-fold increase in 2020 versus 2019 in sustainable and transition finance activity in the region – which is why in January 2021, we formed a dedicated Sustainable and Transition Finance Team for the Middle East. The Team has deep technical knowledge of the Environmental, Social and Governance (ESG) opportunities and challenges facing our customers, as well as the evolving regulatory space and its impacts. The team works with all of HSBC’s bankers to provide advice, expertise and financing solutions to customers across all sectors and segments – no matter what stage of the sustainability journey they are on.

H ow i s t h e ra n g e of E S G investment opportunities you offer clients expanding? Responsible or environmental, social and governance-focused investing has been developing in MENAT during the past few years, as our annual surveys have shown.

Gareth Thomas Head of Global Banking, Middle East, North Africa & Turkey at HSBC

We have been expanding our suite of green products for all client segments, from corporates and institutions through to entrepreneurs and individuals. That approach has brought a number of “firsts” to the region this year. In the UAE, where this year HSBC marks its 75th anniversary of doing business here and the nation is celebrating its own Golden Jubilee, we’ve committed to “thinking big” across every aspect of our operations, so we’ve issued the nation’s first Green mortgages and launched the first Green deposits to give corporate and institutional clients a mechanism to make deposits in the UAE knowing their funds will be used to finance green initiatives. We’ve innovated elsewhere too – HSBC Saudi Arabia is now offering the first environmental initiative investment fund in the Kingdom, known as the HSBC Global Equity Climate Change Fund, offering eligible investors exposure to renewable energy, clean transport, sustainable water management and climate change adaptation. This provides direct access to investments that help reduce the impact of climate change and supports the sustainability objectives under the Saudi Vision 2030 programme. mea-finance.com

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The responses to our survey, however, highlight some key challenges to ESG investing’s growth and development. Positively, about a fifth of investors in the region say they have a firm-wide policy on responsible investing or ESG issues and 36% say they do not but do intend developing one. Investors in the region are, however, experiencing some challenges. Some 61% of investors – a global high although this percentage has fallen consecutively in the past three years – say certain issues are holding them back from pursuing ESG investing more fully and broadly. Top among those issues this year is a shortage of expertise and qualified staff – 44% of investors say this is a problem for them (the highest percentage regionally) up from 26% last year. Asian investors similarly say this is a problem, but it is less of an issue for their European and Americas peers. Other challenges include regulatory or legal constraints (28% - down from 36% last year), poor quality or availability of ESG data (28% - flat to last year), lack of demand among clients (27% - down from 44%), and a lack of comparability of ESG data across issuers (27% - down from 55%).

H ow d o yo u d e c i d e w h i c h causes your ESG programmes will encompass? We are committed to the transition to a global net zero economy, not just by playing our part, but by helping to lead it. We’re doing this across the bank – in our operations and supply chain – and by supporting our customers in their own transitions. Since 1 January 2020, cumulatively we have provided and facilitated US$87 billion of sustainable finance and investments. In the first half of 2021, we helped raise more Green, Social, Sustainability and Sustainability-linked (GSSS) bonds for clients than we did in the whole of 2020. Those funds pay for green projects and new technology and initiatives that open up new opportunities and avenues to net zero.

We’re increasing our portfolio of transition finance solutions to help enable even the most heavy-emitting sectors to progressively decarbonise, while helping to ensure a just and stable transition to maintain economic stability. And we apply a climate lens to our financing decisions, taking into account the unique conditions for our clients across developed and developing economies.

Please describe your own ESG initiatives? We are transforming our own operations and supply chain to net zero across HSBC by 2030, and asking our suppliers to do the same. We’re on the right path – from

ecosystems, including mangroves, to mitigate climate change and drive socioeconomic benefits such as eco-tourism and food security. We’re also leveraging our network throughout the Middle East to identify start-up firms in the region that are developing carbon-cutting technologies as part of the climate innovation workstream within the bank’s global Climate Solutions Partnership. At our 2021 Annual General Meeting, a special resolution on climate change – proposed by the HSBC Board – was backed by shareholders and provides further detail on our approach to the net zero transition, and how we will achieve our climate ambition.

POSITIVELY, ABOUT A FIFTH OF INVESTORS IN THE REGION SAY THEY HAVE A FIRM-WIDE POLICY ON RESPONSIBLE INVESTING OR ESG ISSUES AND 36% SAY THEY DO NOT BUT DO INTEND DEVELOPING ONE installing solar panels in our car park in Oman to reducing our energy, paper and water consumption worldwide, in the past decade we’ve cut our operational emissions by almost half. We’ve joined up with World Resources Institute (WRI) and WWF to form a fiveyear philanthropic partnership to help climate solutions become commercial reality and have real-world impact. The Climate Solutions Partnership is powered by US$100 million of philanthropic funding from HSBC and, with a network of local partners, aims to scale up climate innovation ventures, nature-based solutions and help to transition the energy sector towards renewables, by combining our resources, knowledge and insight. In the UAE, the focus is on the management and restoration of coastal

We’re also working with peers and industry bodies to mobilise the financial system to take action on climate change, by collaborating to develop globally relevant common standards to gauge progress. We maintain high standards of governance and meet our responsibilities to society. And we monitor and regularly publish updates on our ESG performance. They set out how we support our different stakeholder groups and do business in a responsible way. Transparent reporting is essential to building stakeholder confidence and creating value for all our stakeholders. Our ESG review – together with other publications – accords with our reporting obligations under terms of the UN Global Compact and renews our commitment to the Compact’s principles. mea-finance.com

ESG

Setting the Standard Dr. Owen Young is the Regional Head of Wealth Management, Europe, Middle East and Africa for Standard Chartered Bank and here he provides MEA Finance with an overview of the current regional market movement towards more sustainable and ESG sensitive investing, detailing the rigour applied to the requirements to meet their Green and Sustainable Product and their ESG Select Framework’s, and how recent circumstances have brought it to wider attention

escribe the appetite for ESG based investment opportunities in the region?

Up until the fairly recent the past, we have seen the appetite for Sustainable Investing come largely from the Private Banking client segment. However, in recent years the demographics in the region have changed and shifted thus

having the effect of increasing the demand for more sustainable investing opportunities. With more younger generations and a significant portion of the female population now becoming directly involved in investing and decision making, the emerging affluent and established affluent segments have started to show greater interest in terms of sustainable investing activities.

Banking and Finance news in the MEA market

These new breeds of clients are looking beyond just the generating of an income or the growth of wealth, they are also interested in how, at the same time, to make a positive impact on global issues, and therefore we are seeing a growing demand for ESG solutions becoming a critical factor in nearly every one of their investment decisions.

H ow i s t h e ra n g e of E S G investment opportunities you offer clients expanding? We define sustainable investing as investing in solutions that not only give financial returns but also generate clear social and environmental benefits. As customers have now become more curious about and knowledgeable of sustainable investing, we have also seen a corresponding increase in the appetite for this proposition. As a result, our wealth management teams across the AMEE (Asia, Middle East and Europe) region have been concentrating on working with our product partners to enable the development of more solutions that allow our clients to invest in products that are positively contributing towards ESG values and outcomes. Alongside

continuous growth and expansion of our sustainable investment universe is a robust ESG fund selection process, to ensure that all ESG products offered to our customers are properly rated and aligned to Standard Chartereds’ Green and Sustainable Product Framework.

How do you decide which causes your ESG programmes will encompass? Due diligence is an important part of the decision-making process. Given that the sustainable investing space is at its nascent stages in most parts of the world, and asset managers have different and varied approaches in developing ESG products, we have established our own in-house criteria, the ESG Select Framework for the selection of ESG products to better curate ESG Solutions. At Standard Chartered, we apply both “hard exclusions” (for example, we do not invest in any businesses that may be at all involved in controversial activities

We have set our thresholds in line with our values and industry best practice. In addition, there are major categories that we evaluate to determine whether the asset manager and product are meaningfully embedding ESG into their processes. These categories include corporate profile, ESG expertise, ESG strategy, ESG integration, and impact and measurement.

Please describe your own ESG initiatives? Our vision is to be the world’s most sustainable and responsible bank and enhancing our Wealth Management proposition with sustainable offerings will become one of the key contributors to achieving this important goal. Aside from curating and expanding our sustainable investment solutions, we are also continuously educating and training our wealth advisors internally while also boosting customer interest, knowledge, and demand.

WE DEFINE SUSTAINABLE INVESTING AS INVESTING IN SOLUTIONS THAT NOT ONLY GIVE FINANCIAL RETURNS BUT ALSO GENERATE CLEAR SOCIAL AND ENVIRONMENTAL BENEFITS

such as thermal coal mining and the like, or companies with controversial and questionable behaviours, or involved in controversial or unethical issues, such as child or forced labour), and a revenue thresholds approach depending on the activity. For example, when looking at certain industries, we make a distinction between production and distribution and apply a “hard exclusion” to the former and have a threshold approach for the latter.

While across the bank we are launching numerous initiatives towards meeting this agenda, we believe that there are still so many opportunities to drive this even further still. Standard Chartered has lined up various campaign initiatives and client engagement sessions, in partnership with different product partners and organisations which share the same belief, passion and goals with us in terms of this important proposition.

Dr. Owen Young Regional Head of Wealth Management, Europe, Middle East and Africa, Standard Chartered Bank

Has the COVID-19 Pandemic changed your ESG programmes and products and if so, then how? Post the Covid-19 pandemic, investors are increasingly focused on ESG and how it helped during the market downturn, and as a result it has come to attract much greater attention and interest. In an analysis conducted by S&P Global of ESG ETFs (exchange traded funds) and mutual funds from March 5, 2020, up to March 5, 2021, 73% of the funds grew between 27.3% and 55%, outpacing the S&P 500 index’s 27.1% rise 1. S&P, Morgan Stanley, Morningstar and academic researchers have all conducted a similar analysis with respect to the market downturn and/or for 2020, with them all reaching the same conclusions. The investors’ interest has grown, and apprehension levels around sustainable investing have fallen significantly, based on the results of our recent survey. That being said, Standard Chartered will continue to strengthen this proposition by offering more options for investors in terms of sustainable products and solutions to invest in, and to providing additional ESG data that they can use in making their investment decisions mea-finance.com

ESG

Principles with Principles Christophe Lalandre and Stéphane Monier of Lombard Odier talk with MEA Finance about how the embedding of ESG as a core principle is shaping the intentions and activities of investors and financial institutions alike

escribe the appetite for ESG based investment opportunities in the region?

Christophe Lalandre: Without doubt, we are seeing a rapidly growing appetite for sustainable investments among clients

in the Middle East. A recent CFA Institute survey found that interest in sustainable investing among private investors in the UAE is as high as 94%1. During the pandemic, many investors in the Middle East sought safety in Islamic investing, with its bias to quality companies with

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solid fundamentals and strong balance sheets. By a natural extension, given many shared values, the trend towards sustainable investing also accelerated. We also see investors’ understanding of the sustainable investment field deepening. Demand is now rising for an investment approach that goes beyond just backward-looking ESG metrics, to a forward-looking methodology that assesses future climate risks and embraces all aspects of sustainability. This might include an assessment of a company ’s decarbonisation pathway, and its alignment with the goals of the Paris Agreement to limit the global temperature rise to 1.5°C above pre-industrial levels. The recent Intergovernmental Panel on Climate Change (IPCC) report2 on the climate crisis, with its ‘code red’ warning for humanity, has only sharpened this focus. Sustainability has also climbed to the top of policy agendas in the GCC region, spurred the 2020 slump in oil prices, as well as growing populations and high exposure to the risks of climate change. Economic ‘Visions’ for the region’s main

economies have sustainability at their heart3; Saudi Arabia talks about being “another Germany4” when it comes to renewables. In the UAE, the giant solar park built in the desert aims to provide 75% of Dubai’s total power capacity from clean energy by 20505. Investment opportunities are rising. Sharia-compliant green bond issuance rose to USD6bn in the first half of 2021, double 2020’s entire issuance, according to ratings agency Fitch6. Dubai launched a UAE ESG Index in April 2020, and Saudi Arabia plans to follow suit this year. Amid fears of ‘greenwashing’, regulators are strengthening oversight of the ESG and sustainable investment market, while investor and consumer pressure, particularly from younger generations, are advancing the shift to sustainable investing at pace. How is the range of ESG investment opportunities you offer clients expanding? Stephane Monier: At Lombard Odier we have a long tradition of sustainable investing, and we are convinced that sustainability is a key driver of portfolio performance. The global economy is in the midst of an unprecedented transition to a net zero emissions model, unlocking new investment opportunities. Our role is to help clients’ portfolios navigate the risks and seize these opportunities for superior risk-adjusted returns.

OUR CURRENT FOCUS IS THE TRANSITION TO A NET ZERO ECONOMY, AS IT IS BEGINNING TO CREATE REAL FINANCIAL EXPOSURE FOR COMPANIES

Stéphane Monier, CIO Private Bank at Lombard Odier

Christophe Lalandre, Senior Executive Officer, Lombard Odier Abu Dhabi Global Market Branch

We constantly work to expand and enhance our offering. Today, we use a rigorous, science-based framework to help clients invest in line with the need to transition to a net zero world. Our approach goes far beyond the backward-looking view of ESG approaches, which assess historical business practices. Instead, as far as climate change is concerned for instance, we use proprietary tools to assess the Climate Value Impact that portfolios will be exposed to. Climate Value Impact encapsulates exposure to transitional risks and opportunities, physical risks, and liability risks. At Lombard Odier, we have already integrated a proprietary temperature alignment methodology that seeks to assess company’s alignment to the transition to a net zero economy. Our methodology remains among the best aligned to the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD) on this topic. We have launched a number of investment solutions that may help improve investors’ exposure to the transition ahead as we further advance our work on the different dimensions of Climate Value Impact. As well as incorporating Climate Value Impact analysis, we also offer clients

personalised sustainable portfolios, based around their individual values and investment preferences. How do you decide what causes your ESG programmes will encompass? Stephane Monier: Fundamentally, our fiduciary duty to preserve and grow clients’ wealth means that we constantly seek sources of superior risk-adjusted returns for their portfolios. Our research teams define our areas of focus within the sustainability field and have developed a rigorous methodology and scientific framework that underpins our investment decisions. Our partnerships with Oxford University and consultancy SystemIQ feed into our sustainable investment research, providing a platform to review our scientific assumptions and stress test our models. Our current focus is the transition to a net zero economy, as it is beginning to create real financial exposure for companies. In November, the COP26 Climate Conference in Glasgow will further advance efforts to limit global warming to 1.5°C. Yet we believe the approach adopted by many investors to reach this goal – which is to focus mea-finance.com

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on low-carbon companies – is a flawed one. It fails to spur change in today’s high-emitting sectors, including cement and steel for example, which we will still need in tomorrow’s economy. So, in addition to investing in low emitters, and ‘solution providers’ to carbon challenges, we also invest in what we call ‘ice cubes.’ These are high-emitting companies that are on the right decarbonisation pathway. As they change their business model, we believe these ‘ice cubes’ have significant potential to cool our economy and shift the dial in the transition to a net zero world. We seek to avoid exposures to ‘burning logs’, those businesses in high-emitting sectors that are taking insufficient action to decarbonise and that are therefore most exposed to transitional risks. Please describe your own ESG initiatives? Christophe Lalandre: We believe there is a natural link between an Islamic approach to investing and a sustainable approach. Islamic finance embraces some of the socially responsible metrics that are inherent to sustainable investing and can offer investors a gateway into thinking about broader sustainable investing. At Lombard Odier, we have been offering clients investment strategies in lWWWine with Islamic principles since 2012, and Shariah-compliant investment mandates since 2018. We are currently developing new Shariahcompliant investment strategies for our clients, including one that marries our sustainable investment expertise with the long-standing Shariah investment credentials of a regional player. Stephane Monier: The constant interactions with our clients have helped us to understand and meet

their needs and expectations through h i g h l y p e rs o n a l i s e d s u sta i n a b l e investing solutions. We have built new impact solutions that reflect clients’ increasing appetite to invest in a way that can deliver tangible social and environmental impact, whilst delivering financial performance. In this context, we partnered with ReforestAction in 2019, to help finance the planting of 20,000 trees in Tanzania and Peru and

investments. It pushed investors and markets to question how they assess risks and deploy capital. It reminded the global community of the link between the environment and human health, and it showed our vulnerability. In many ways, it put a spotlight on the larger, looming climate crisis, and prompted the governments to commit to rebuilding infrastructure in line with net zero goals. These shifts in the economic model

AMID FEARS OF ‘GREENWASHING’, REGULATORS ARE STRENGTHENING OVERSIGHT OF THE ESG AND SUSTAINABLE INVESTMENT MARKET, WHILE INVESTOR AND CONSUMER PRESSURE, PARTICULARLY FROM YOUNGER GENERATIONS, ARE ADVANCING THE SHIFT TO SUSTAINABLE INVESTING AT PACE collaborated with Plastic Bank in 2020 to fund the collection of more than 1,100 tonnes of ocean-bound plastic, whilst directly supporting over 3,500 children in collector communities with educational bursaries. Most recently, we joined forces with Access To Water, a Swiss foundation, to support water accessibility and quality in Senegal. Has the COVID-19 Pandemic changed your ESG programmes and products and if so, then how? Stephane Monier: The pandemic was a watershed moment for the world of

1. CFA Institute, Future of sustainability in investment management: from ideas to reality 2. IPCC, Sixth Assessment Report 3. Saudi Arabia Vision 2030, United Arab Emirates Vision 2021 4. “We will be another Germany when it comes to renewables,” Saudi Energy Minister Prince Abdulaziz bi Salman, Future Investment Initiative Conference, January 2021 5. Dubai Clean Energy Strategy 2050 6. Green sukuk market won’t ignite without Gulf governments backing,” Arab News September 2021

and market opportunities inform both our tactical portfolio decision making as well as the strategic vision for our offering. Crucially, they reinforce our conviction that sustainability is a core driver of portfolio performance. In addition to the pandemic, we’ve seen a rise in extreme weather-related events over the last 18 months, including flash flooding, droughts and wildfires, and investors are seeking better protection against these risks. Our assessment of investments’ Climate Value Impact described above aims to calculate the valuation implications of these risks for the companies in our coverage. At the portfolio level, it assesses the net exposure to positively- and adverselyexposed companies. With this approach, we hope to gain a clear focus on their financial exposure and deploy capital accordingly. mea-finance.com

WEALTH MANAGEMENT

Family Values Many family businesses in the Middle East region have grown into conglomerates with diverse portfolios, well-defined governance structures and cash flow management making them resilient to changes in the market

amily-run businesses are the engines of growth globally and a driving force behind economic diversification in the GCC region, responsible for 60% of the private sector. The outbreak of COVID-19 drastically changed the operating environment, creating significant challenges for family offices in the Middle East region, but for some, the pandemic created unique opportunities across the entire family ecosystem – the family, the operating businesses and investments, and private wealth. PwC defined family offices as organizations that are created to serve several purposes but normally to oversee and manage the financial needs of a family including effectively transfer wealth from one generation to the other.

These trusted groups of financial and legal professionals are helping family Ultra High Net Worth (UHNW) investors effectively manage their fortunes. Family offices can potentially be briefed to follow specific environmental, social, and governance (ESG) goals as investors look to boost their legacy as well as their bottom line. T h e o u t b re a k of p a n d e m i c i s making the technology and innovation industry, real estate, healthcare and hospitality sectors, key investment areas for family offices as part of their broader strategy to diversify their portfolios. “Family-run businesses play a valuable role in the Middle East region’s private sector economy, where they contribute 60% to GDP and employ over 80% of the workforce,” said EY.

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It is worth noting that family businesses in the Middle East differ from a generational perspective. Most family-run businesses under the leadership of successors are taking a fresh look at their portfolios and operating structures, finding ways to become leaner and more competitive. Deloitte said that in response to the changing operating environment, family offices had to quickly adapt business models and strategies to ensure continuity and provide a platform to thrive. The double whammy of the coronavirus and plunging oil prices together with the evolving tax environment and ongoing liquidity issues forced several family-run businesses to revisit and calibrate their strategies. Many family businesses in the Middle East region have grown into conglomerates with diverse portfolios, well-defined governance structures and cash flow management making them resilient to changes in the market. Some of these businesses have been operating for years, building huge cash reserves that are allowing them to invest in diversified assets classes and sometimes out of the region too.

Investment trends The economic impact of the prolonged pandemic together with regulatory and

geopolitical tensions across the Middle East have prompted several key trends in family offices. Just like any other sector, family offices are being confronted by the changing market dynamics which are calling for new business models, digitalization—which is disrupting whole industries with new skillsets as well as global trade tensions and successionrelated issues. BNP Paribas said that family offices are aware of the need to be able to withstand periodic economic or financial crises and thus they deploy investment strategies based on a longer-term horizon and are more balanced in terms of risks. From an impact and investment perspective, technology and digital are undeniably a fundamental part of the business landscape in the post-pandemic era. Digital is also expected to be both an investment strategy and operational setup in the future. “Within the last five years, the technology marketplace in the GCC, and the UAE in particular, has grown and evolved from a highly fragmented market of resellers, consulting and systems integration service firms, to an ecosystem of product, service and solution providers offering artificial intelligence, data analytics and smart solutions, to name a few,” said Delloite. The place of private equity and venture capital in Middle East family offices strategies has significantly increased in importance over the past years. UAEbased MAGNiTT, a platform that connects entrepreneurs directly with ecosystem stakeholders such as funders, works with more than 21 GCC-based family offices and out of these, 10 have invested in at least one regional startup in the past 12 months. Saudi-based Kingdom Holding Company, which is controlled by Prince Alwaleed Bin Talal Al Saud, is the hallmark of family investment groups in the region. The Saudi Exchange-listed conglomerate owns stakes in French music streaming app Deezer, ride-hailing giant Uber and Chinese e-commerce firm JD.com.

In terms of investment strategies, several regional family businesses have been building liquid wealth to ensure that their future generations are well taken care of in the event the business stops being profitable. The building of liquid wealth in family-run businesses is also allowing successors to diversify their business portfolios in a bid to mitigate risks and maximize returns by allocating investment funds across different vehicles, industries, companies and markets. A study that was conducted by Deloitte showed that the appetite to invest is strong among family offices over the next 12-18 months. Opportunities in distressed and digital businesses are among the most sort after, together

social and political fluctuations. The Family Office has more than $2 billion in assets under management. “As the post-pandemic world is starting to take shape, family offices are pivoting to themes that will dominate the economy in the 2020s including healthcare technology, digital transformation, automation and robotics, smart mobility, and green tech,” Swiss investment bank UBS said in its Global Family Office Report. Globally, family offices are seeking out investments that not only earn positive returns but also benefit society. The outbreak of coronavirus has heightened anxiety about environmental and social issues. “Sustainable investing is firmly entrenched in portfolios, as more than

FAMILY OFFICES AS ORGANIZATIONS THAT ARE SET UP TO SERVE SEVERAL PURPOSES BUT NORMALLY TO OVERSEE AND MANAGE THE FINANCIAL NEEDS OF A FAMILY INCLUDING EFFECTIVELY TRANSFER WEALTH FROM ONE GENERATION TO THE OTHER – PwC

with investment opportunities that offer greater portfolio diversification.

Championing sustainability Sustainability, which incorporates ESGs and conscious investing, has gained significant traction among Middle East family offices in recent years as nextgeneration (NextGen) wealth owners are leveraging their capital to advance their social and environmental returns. Bahrain-based The Family Office said socially responsible investing is positively correlated with longterm investment returns and family offices endeavour to make impactful investment decisions that agree with investors’ values and are resilient to

half (56%) globally have allocations, with family offices in Western Europe and Asia leading the way,” said UBS. Family-owned businesses also believe in giving back to the communities they serve and society as a whole—a commitment that was shown at the height of the pandemic when several regional family-run businesses were active in supporting those affected by COVID-19. A study that was conducted by PwC in 2021 showed that 93% of Middle East family businesses engage in some form of social responsibility activities. UAE’s Al Ghurair family founded the Abdulla Al Ghurair Foundation for Education in 2016 and it provides scholarships under its open scholars learning program and STEM mea-finance.com

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Jamie Broadbent

Dr Juergen Rahmel

Alex Bornyakov

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scholars program which have benefited over 1,000 students in 17 Arab countries.

Succession planning Family businesses differ from a generational perspective and in most businesses, successors are taking a fresh look at their portfolios and operating structures, figuring out ways to become leaner and more competitive. For example, in Saudi Arabia and Kuwait, the countries that discovered oil well before their Gulf allies, family businesses are under the leadership of third and fourthgeneration investors who are leading diversification of the enterprises they inherited from founders. However, succession planning continues to be a massive challenge for family businesses across the globe, but this is particularly problematic in the Middle East where large families are more common and many of these relatively younger businesses face succession issues for the first time. However, parents in Kuwait and Saudi Arabia have become more experienced in handling the transition of power, it is evident that they learn from previous mistakes and are doing more to avoid repeating them. Establishing family protocols to regulate succession, conflict resolution, business valuations and key issues, is vital in preserving wealth and ensuring a smooth transition between generations. The succession issue has been around for the last five years and is expected to continue dominating the challenges that are confronting family offices for decades. Family businesses in the region are increasingly adopting policies and procedures that enhance the smooth transition between generations. However, these do not necessarily include key documents such as family constitutions or conflict resolution mechanisms, therefore there is still much work to be done. Moreover, some family offices have also been looking at setting common values amongst family members, the establishment of family councils and involvement of non-family members

within the company corporate structure as ways to lessen succession disputes. Values and mission are the glue that holds family offices together and they are particularly in large families once responsibility is passed down from the founder to the next generation. “Many family businesses in the Middle East are reaching a critical stage of succession – second-generation family members are already majority shareholders in 56% of businesses and 42% expect that this will be the case in five years,” said PwC. Family firms in the Middle East are also turning to foundations owing to how they provide a dynamic option that can accommodate a family’s transformation priorities and values. Nina Auchoybur, the Managing Director at Ocorian said that

Middle East family businesses have well-established protocols as well as procedures compared to other parts of the world.

Enabling environment GCC countries are implementing new initiatives to drive economic growth and enhance family offices’ contribution to non-oil GDP as part of their broader strategies to diversify their economies away from heavy reliance on oil revenues. The UAE, home to three stock markets, approved a draft law “Agency Law” allowing family-owned businesses to list on the country’s financial markets in January 2020. Meanwhile, ahead of the inclusion of Boursa Kuwait into the MSCI emerging market index in 2020, Kuwait’s Minister

FAMILY OFFICES ARE AWARE OF THE NEED TO BE ABLE TO WITHSTAND PERIODIC ECONOMIC OR FINANCIAL CRISES AND THUS THEY DEPLOY INVESTMENT STRATEGIES BASED ON A LONGER-TERM HORIZON AND ARE MORE BALANCED IN TERMS OF RISKS – BNP Paribas

foundations were first introduced in the UAE in 2017 and they have since grown to become an integral part of the Gulf state’s wealth management offering. There are currently more than 170 foundations registered in the UAE. PwC stressed that harmony within family offices should never be taken for granted—it requires work and planning and should be approached with the same level of professionalism that is applied to operational decisions and business strategy. Family governance depends on the family structure, but there are different types of rules on who comes in and at what level, and who they report to. When it comes to family governance,

of Commerce and Industry Khaled Al-Roudhan called on family-owned businesses to list on the country’s fledgling stock market—which highlights the importance of family offices to regional economies. Family businesses in the Middle East are the engines of growth and a driving force behind economic diversification across the region. The changing times require adaptability and action to ensure that potential is not wasted and that the future is secured. It is increasingly clear that a simple continuation of the traditional ways of working is not enough for family businesses to succeed in a digital and increasingly competitive age. mea-finance.com

COVER INTERVIEW

Ahmed Mohamed Al Naqbi CEO of Emirates Development Bank

Building the Future Ahmed Mohamed Al Naqbi CEO of Emirates Development Bank explains the motivations for their new strategy and how they will be playing an integral role in the strengthening and diversification of the UAE’s economy

Banking and Finance news in the MEA market

ell us a little bit about EDB and what prompted the strategy refresh?

E m i ra te s D eve l o p m e nt Bank [EDB] was established under a Federal Law issued by UAE President His Highness Sheikh Khalifa bin Zayed Al Nahyan and became operational in June 2015. Over the years, EDB has evolved from being a home finance provider to UAE Nationals to becoming the financial enabler of the country’s economic diversification and industrial transformation agenda. The Bank unveiled its new strategy in early 2021 reinforcing its identity as one of the key drivers of the UAE’s economic growth. As part of this, EDB is a key engine of growth for the Ministry of Industry & Advanced Technology’s [MOIAT] strategy within the UAE G overnment ’s ‘Operation 300bn’ mandate, providing funding options for UAE’s industrial sector. The launch of the strategy was driven by various factors and challenges faced by the SMEs, including: Limited access to finance for SMEs: Nearly 33% of SMEs have financing needs Limited financial products in the market: Shortage of products offered by banks to SMEs (for example, startup financing and working capital financing) Capital investment: 90% investments in venture capital are not made in priority sectors in the country Financing factories and large companies: Limited long-term lending, as the financing period in most commercial banks does not exceed a tenor of seven years Implications of COVID-19 pandemic: Changing consumption trends, redesigning business models globally The objective behind the launch of this strategy was to empower and enable the UAE’s industrial sector and support the country’s non-oil GDP by offering flexible financial and non-financial solutions to five priority sectors – manufacturing,

healthcare, infrastructure, food security and technology. Through this, EDB supports startups, small and medium-sized enterprises and large corporates operating in priority sectors.

Please provide details of the new strategy and how it fits into the UAE growth story? With its new strategy, EDB targets to support more than 13,500 SMEs by 2025. Today, SMEs represent more than 94% of total number of companies operating in the UAE and provide jobs for more than 86% of private sector’s workforce while contributing 60% of the country’s

also plans to establish a fund in 2022 to address equity gaps in key segments of the economy that would serve SMEs and startups. Within the ambit of this strategy, EDB recently also announced two initiatives – with a total value of AED 10 billion, which are part of the framework of UAE’s ‘Projects of the 50’ campaign to prepare the UAE for the next 50 years. The first initiative involves AED 5 billion fund for Emirati businesses. Through this initiative, EDB aims to mobilise funds to boost the contribution of Emiratis to the economy and support their growth across local, regional and global platforms, besides helping them

EDB ALSO PLANS TO ESTABLISH A FUND IN 2022 TO ADDRESS EQUITY GAPS IN KEY SEGMENTS OF THE ECONOMY THAT WOULD SERVE SME’s AND STARTUPS

GDP. To this end, EDB has allocated AED 30 billion as direct and indirect lending to finance SMEs and companies in the priority sectors. Moreover, with the new strategy, EDB not only aims to address the future challenges facing the UAE’s industrial sector but also ensure sustainable growth, while meeting the needs of the country’s accelerated development journey over the next 50 years. It also aims to diversify the country’s industrial base and support local industrial products, besides creating more than 25,000 jobs in the next five years. The overall GDP contribution of EDB and its clients is targeted to increase from AED 950 million [2020] to over AED 10 billion in the next 5 years. EDB

enhance their performance, diversify their resources and give them a boost in their careers through financial and nonfinancial solutions. The second initiative involves AED 5 billion Advanced Technology financing for companies operating in key priority sectors. Through this financing, EDB aims to support new and existing UAE-based companies to upgrade their assets to be ready for the 4th Industrial Revolution.

What is your vision as the CEO of EDB? How are you seeing this vision come to life? As the CEO, my vision is interlinked with EDB’s strategy. Operational efficiencies and cost effectiveness are the new buzzwords for us at EDB. As a team, mea-finance.com

COVER INTERVIEW

we are committed to being an effective engine supporting economic growth in the country and working together to achieve the defined goals and objectives. I bring to my current role a diverse banking experience in the UAE across multiple disciplines with a strong focus on innovation and digitisation. My goal is to drive EDB’s products and service development, along with adoption of advanced technology solutions, while delivering best-in-class customer experience. The aim is to offer ease of access to financing for individuals, SMEs, startups as well as corporates in priority industry sectors. This is a critical growth phase for EDB. The team is committed to executing our strategy and expanding its role as the financial driver of the UAE’s economic diversification agenda. I am delighted to help drive the bank’s ambitious growth and development plans. Already EDB has taken strong strides in its strategic roadmap to support the country’s economic diversification efforts in line with the vision of the country’s wise leadership. The phenomenal achievements in such a short span of time, since the launch of our new strategy, promises well for our long-term plans as a key contributor to the achievement of our leadership’s objectives. We h a ve m a d e c o n s i d e ra b l e progress in H1’2021. Our partnerships with government entities, partner banks and anchor buyers are significant milestones in our journey as it highlights our commitment to provide an allencompassing business ecosystem to SMEs and unlock immense potential for them. As we progress through the rest of the year, our immediate priority is to ramp up digitisation efforts so that can deliver best-in-class solutions to a wider customer base. As part of its efforts to create a digital ecosystem, and enable SMEs in the country, EDB has recently launched the EDB Business Banking App to support SMEs. The EDB Business Banking App

AS A TEAM, WE ARE COMMITTED TO BEING AN EFFECTIVE ENGINE SUPPORTING ECONOMIC GROWTH IN THE COUNTRY AND WORKING TOGETHER TO ACHIEVE THE DEFINED GOALS AND OBJECTIVES

Banking and Finance news in the MEA market

offers SMEs access to 24x7 secure, convenient, on-the-go digital banking services. EDB’s Business Banking App will offer a comprehensive suite of banking facilities including a fully operational business bank account, bill payments, invoicing, budgeting, and analytics.

Tell us about your key partnerships, announcements, and initiatives? E D B h a s a c h i eve d c o n s i d e ra b l e milestones in the past six months, which include the launch of its credit guarantee and co-lending program with various partner banks, partnership activation with the MOIAT, and the successful issuance of its second AED 750 million bond. E D B a i m s to b u i l d i m p o r ta nt partnerships to ensure continuous development. These partnerships include private and government entities to ensure that opportunities are identified for economic expansion, diversification and integration of the bank’s products and services to support the government’s economic priorities. Among the partner banks that EDB has signed the credit guarantee and co-lending programs for SMEs in the UAE, which includes Commercial Bank of Dubai, RAKBANK, National Bank of Umm Al Qaiwain [NBQ], Mashreq Bank, First Abu Dhabi Bank [FAB] and Emirates NBD. As part of the MoUs, the partner banks can offer up to AED 10 million financing to a SME, and 50% of the facility amount will be either guaranteed or co-lent by EDB. EDB has also signed MoU with the Sharjah Chamber of Commerce and Industry [SCCI] to foster the development and growth of UAE-based manufacturers, exporters, and SMEs through financial support. Similarly, EDB has signed a strategic agreement with Dubai Industrial City to provide innovative financing and banking solutions to SMEs and support the growth of vital national industries such as advanced manufacturing and logistics.

Other agreements to boost the SMEs and supply finance chain ecosystem include MoUs with Zoho Corporation, a global technology company with a broad portfolio of cloud-based business solutions, to promote the growth of SMEs; a partnership with Beehive, UAE’s first peer-to-peer [P2P] lending platform to assign AED 30 million funding to qualifying SMEs, among others. Moreover, EDB, in partnership with YAP, a leading UAE-based fintech, launched the EDB Business Banking

the UAE’s position on the international industrial map, leading to what the bank calls a strategic transformation for the future. EDB aims to be a key partner in the next growth stage by empowering and enabling the UAE’s industrial sector and enhancing the competitiveness of its domestic productivity locally, regionally, and internationally. The bank is working towards strengthening and diversifying the country’s economy through several pillars stated in its

AS PART OF THE MOU’s, THE PARTNER BANKS CAN OFFER UP TO AED 10 MILLION FINANCING TO A SME, AND 50% OF THE FACILITY AMOUNT WILL BE EITHER GUARANTEED OR CO-LENT BY EDB App to support small and medium-sized enterprises in the UAE. The EDB Business Banking App offers SMEs access to 24x7 secure, convenient, on-the-go digital banking services. With the App, business account IBAN is issued in a matter of minutes and account activation completed in 48 hours. The launch of the Business Banking App underlines EDB’s commitment to create a digital ecosystem enabling SMEs to plug and play, anywhere in the UAE.

What is EDB’s future roadmap? For EDB, the primary objectives are to support the UAE’s non-oil GDP by offering flexible financial and non-financial solutions to priority industry sectors. The bank aims to play an influential role in collaborating with MOIAT that will lead the development process, to enable the country’s industrial sector and raise the competitiveness of UAE products, which will ultimately enhance

new refresh strategy, which focused on initiatives to promote industrial growth and industries of the future. These pillars include ‘Accelerating the country’s industrial development and supporting the adoption of advanced technology’, ‘Enhancing the role of SMEs in the economy’, ‘Promoting entrepreneurship and innovation’ and ‘Providing home finance to Emiratis’. This strategy will significantly boost the industrial sector’s contribution to the country’s non-oil GDP, support the In-Country Value proposition and create highly skilled employment opportunities. The bank is perfectly positioned to achieve its objectives by developing the economic infrastructure to have advanced industrial and technological foundation in the countr y, thus improving the overall productivity and competitiveness locally, which offers UAE companies a competitive advantage globally. mea-finance.com

REAL ESTATE INVESTMENTS

Investing in the Surging Demand in U.S. Housing Tim Haywood Regional Vice President of Middle East at Walton International Group explains that despite the ominous backdrop of the global pandemic, US housing is experiencing a positive market with factors ranging from shifting inventory models to demand for more affordable homes helping to fuel the market

lthough a bleak economic outlook is not usually accompanied by a booming housing market, this is exactly what the U.S. has experienced during the global pandemic – arguably the least likely time for soaring demand for new homes. Yet fuelled by low inventory, among other factors, the evidence is compelling. Even the recent backdrop of emerging concerns in recent months about “an overheated market” hasn’t derailed the momentum. For example, annual home price gains hit a record high in June, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. Considered the leading measure of U.S. home prices, data released at the end of August showed continued increases across the country. Year-on-year, there was a 18.6% annual gain in June, up from 16.8% in the previous month. Further, while the market has begun to cool due to higher costs, estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban

Development (HUD) showed that July recorded a slight gain of 1% for sales of newly-constructed single family homes. The annual rate, however, was 27% lower than a year ago. “Steady sales reflect the increased appetite among homebuyers due to low interest rates, especially in lowerdensity suburbs,” said Tim Haywood, Regional Vice President of Middle East at Walton International Group, the real estate investment and land asset management company. Interestingly, this also reflects a longerterm, pre-pandemic trend that creates enticing opportunities for investors – from wealthy individuals to family offices and institutions alike – to access robust, consistent supplies of developable land that can facilitate the current growth trajectory in the U.S. residential home market. At the same time, as the homebuilding industry has shifted to more of a “just in time” inventory model , there is reason to think about land investment in a new way.

Banking and Finance news in the MEA market

Tim Haywood Regional Vice President of Middle East, Walton International Group

Navigating new supply-demand dynamics Historically-low mortgage rates and the shortage of inventory are expected to continue to keep the U.S. housing market strong as far as demand goes. For example, the 30-year fixed-rate mortgage (FRM) averaged 2.87%, according to the results of the latest Freddie Mac Primary Mortgage Market Survey (PMMS), as of early September. This was down from 2.93% 12 months earlier. Notably, the agency has projected a relatively competitive average mortgage rate for 2022 – 3.7% for a 30-year fixed loan. Supply will also remain a key factor. The National Association of Realtors (NAR), for instance, believes the construction of long-term housing fell 5.5 million units short of historical levels over the past 30 years. Freddie Mac research, meanwhile, suggests the U.S. needs 3.8 million more homes to meet the housing demand. A significant chunk of the appetite in the past few years has come from millennials, both in the younger (22 to 30 years old) as well as older (31 to 40 years old) segments. These groups comprise the largest share of homebuyers, at 23% and 14% respectively, according to the NAR. In particular over the past 12 months, a growing number have been able to capitalize on lower mortgage rates to

fulfil their desire to buy their own home for the first time. Yet low stock, among other factors such as lifestyle choice, has influenced their decisions in terms of location. “There is an ongoing shortage of available homes in the U.S., so first-time buyers will need to consider new options. As recently as this month, new research from Realtor.com suggests a housing shortage of some 5.24M homes in the U.S., an increase of 1.4M from 2019. explained Haywood. Among these alternatives are suburban homes, which have become more sought after across the country since the pandemic started. A research report by Zillow, the real estate firm, found that 47% of millennial homeowners live in the suburbs, as opposed to urban and rural areas. Affordability has been a key driver, but in addition the suburbs offer larger living spaces and, in some cases, more modern houses, ready-made communities with amenities on-demand. Millennials are also willing to be patient in their search for a suitable property. “Demand for affordable homes with more space in newer suburban communities has accelerated, amid work-from-home policies that will likely continue for the foreseeable future,” said Haywood. “This gives millennial homebuyers a greater opportunity to move into good school districts, a bigger home and not have to commute every day of the week.” Such factors have contributed to the shift in Southern California, for example, from coastal areas into the so-called “Inland Empire”. U.S. census numbers released in August 2021 showed Riverside and San Bernardino counties added more than a third of a million residents

Walton’s EFPDL Project: Crystal Waters, located in Tampa, Florida

between 2010 and 2020, with Beaumont ranking first among Inland cities in terms of growth rate (44%), followed by Lake Elsinore (36%) and Menifee (32%).

New regions for investment consideration Recognizing the inventory dilemma, the homebuilding industry has increasingly been looking to secure development land, or lots, through Option Agreements, rather than pursue the traditional “land banking” model of the past. As a result, national homebuilders can align land acquisition with their home sales activity, therefore allowing them to better manage their balance sheet exposure to long-term land assets. “We are seeing an incredible demand for housing right now that is rapidly depleting homebuilders’ future land inventories,” explained Haywood. “We are therefore working on the acquisition of land assets that are one to two years away from

1. https://www.spglobal.com/spdji/en/index-announcements/article/sp-corelogic-case-shiller-index-shows-annualhome-price-gain-topped-186-in-june/ 2. https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_123 3. https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-stay-flat 4. https://www.housingwire.com/articles/us-housing-market-is-short-5-5-million-homes-nar-says/ 5. https://www.newsweek.com/freddie-mac-analysis-says-us-needs-38m-more-homes-meet-housing-demand-1625034 6. https://www.nar.realtor/research-and-statistics/research-reports/home-buyer-and-seller-generational-trends 7. https://www.zillow.com/blog/zillow-group-report/millennials-drive-housing-market/ 8. https://www.pe.com/2021/08/20/how-much-did-your-inland-empire-city-grow-in-the-2020-census/

development in high-growth regions of the U.S., with signed interest from public homebuilders who are keen to secure future development land inventory in markets where they are already active, to meet the increasing demand from homebuyers.” In short, as homebuilders take down the land on a phase-by-phase basis, investors receive regular cash flow in the form of annual distributions as the land is taken down by the homebuilder, and as homes are built and sold. Ultimately, this shift in demand among homebuyers and more flexible approach to aligning interests of all parties, also provides a new route for diversifying U.S. real estate portfolios in a way that evolves with the changing dynamics of the market. Since late 2019, Walton adapted its primary business strategy into ExitFocused Pre-development Land (EFPDL). This offers a solution to homebuilders’ long-term inventory needs by acquiring land pre-identified with homebuilders, for the future purchase of residential lots in phases for development. As of 31 August 2021, Walton had launched 15 EFPDL projects consisting of 2,800 acres of land, of which 9 projects are already in various disposition stages involving 8 national homebuilders. mea-finance.com

ISLAMIC FINANCE

Preparing for Leadership With objectives to diversify public debt via policy frameworks and an established issuance infrastructure, Saudi Arabia is gearing up its capital markets and moving toward a front running position in Islamic finance both at home and overseas By Mushtak Parker

audi Arabia is increasing its involvement in and leadership of the Islamic finance industry both at home and abroad. The Kingdom’s Islamic finance policy has rapidly evolved over the last few years intertwined by several key funding drivers for the economy and financial system per se. These include the demands of the ambitious Saudi Vision 2030 including the futuristic Neom Mega City Project and encompassing the Kingdom’s economic and social reform agenda, estimated at a total cost of SAR12 trillion (US$3.2 trillion); the MENA region’s US$1.6 trillion infrastructure project pipeline; the objectives of Riyadh’s Fiscal Balance Programme to bridge funding gaps in the Budget and Financial Sector Development Programme, one of Vision 2030’s realization programmes; push towards digitisation; a robust domestic investor base and the fact that foreign

investors can now invest in local currency Sukuk through Tadawul (Saudi Stock Exchange), which also has an active secondary trading platform. Riyadh cannot finance the above through revenues alone. It also looking towards raising US$55bn through a strategic privatisation programme, of which US$16.5bn will be in the form of public-private partnerships. At the “G20 Infrastructure Investors Dialogue: Financing Sustainable Infrastructure for the Recovery” in June, Saudi Minister of Finance Mohammed Al-Jadaan emphasized that “securing financing for sustainable development and quality infrastructure are ongoing concerns for the G20. The persistent infrastructure financing gap calls for swift actions in this area.” The international impact of Riyadh’s Islamic finance policy is implicit. At the September 2021 Annual Meetings of the Islamic Development Bank (IsDB) Group in Tashkent, Saudi Arabia teamed

Banking and Finance news in the MEA market

up with the Uzbek Government and the IsDB to launch an US$100m Economic Empowerment Fund for Uzbekistan (EEFU), to which IsDB is contributing US$20m, Saudi Arabia US$45m and the Uzbek government US$35m. Financing will include credit lines, M u ra b a h a fa c i l i t i e s a n d e q u i t y participation. The Saudi rationale is to support SMEs through this debut impact investment fund in Uzbekistan, but at the same time engage the participation of Saudi companies in export and investment as part of Riyadh’s policy to increase the contribution of the non-oil sector to GDP and reduce dependency on oil. According to Saudi Eximbank, non-oil exports increased by 52% year on year in Q2 2021 to SR65.66bn (US$17.51bn). The aim, says Khalid Al-Falih, Saudi Minister of Investment, is to gradually increase the fund size to US$500m. On the demand side, the record 3-tranche US$6bn debut international

Mudaraba/Tawarruq Sukuk offering in June of Saudi Aramco, the world’s largest integrated oil and gas company, attracted more than 100 new investors across the globe, thus co-opting a new cohort of investors into the Islamic debt finance universe. Khalid Al-Dabbagh, Aramco Senior VP Finance, confirmed that “our inaugural international Sukuk offering led to the largest order book ever recorded globally for a dollar-denominated Sukuk transaction, with orders exceeding US$60bn.” Saudi Aramco and its various subsidiaries are regular users of Islamic finance and Islamic debt market instruments including Sukuk and syndicated Murabaha facilities. Another Sukuk debutante, ACWA Power, in which Saudi sovereign wealth fund, Public Investment Fund has a 50% equity stake, similarly saw diverse investor uptake for its SAR2.8 billion (US$746.67 million) Sukuk in June. “The success of this issuance, underpinned by favourable cost of funding and terms, marks a new phase in diversifying our company’s funding sources to cater for future growth, reinforcing our strong track record in delivering power and desalinated water reliably and responsibly to communities in the Kingdom and around the world,” stressed Kashif Rana, CFO of ACWA Power. It is in the fixed-income sector that Riyadh is leading from the front as one of the most proactive issuers of sovereign Sukuk, albeit largely in Saudi riyal coupled with the annual foray into the international US dollar market. Saudi sovereign and corporate Sukuk issuance volume are second only to Malaysia. But the upward growth trajectory suggests that it could be only a matter of time when the Kingdom overtakes Malaysia given the growing funding demands of its economy. The National Debt Management Centre (NDMC) of the Saudi Ministry of Finance (MoF), for instance, issued its ninth consecutive monthly issuance of riyal-denominated sovereign Sukuk in

September 2021 with a three-tranche SAR6.675 billion (US$1.78 billion) offering across 8, 12 and 15-year tenors. This means that for the period January-September 202, the NDMC has raised the equivalent of a staggering SAR66,227.414 million (US$17,657.25 million) through nine domestic sovereign Sukuk issuances – the single largest volume by any sovereign in the world. This is way above the SAR50,393 million (US$13,433.13 million) volume for FY2020. T h e N D M C ’s D o m e st i c S u ku k Issuance Calendar for 2021 commits to a consecutive monthly Sukuk issuance strategy from January to December 2021 all under the unlimited Saudi Arabian Government Saudi Riyal denominated Sukuk Issuance Programme. No other jurisdiction has committed to such a dedicated domestic Sukuk issuance regime in 2021. Saudi Arabia is edging ahead because it has an established issuance infrastructure complete with government policy frameworks, whose objectives inter alia is to add to a diversified public debt fund raising strategy and to the development of the Saudi Sukuk and Islamic Capital Market. “We believe government debt issuance can be instrumental in addressing the absence of a benchmark yield curve and contribute to the development of the Kingdom’s debt capital markets. We believe that continued issuance by the Saudi sovereign could attract more attention from investors given their search for higher-yielding investments in an era of low interest rates. The availability of a well-functioning domestic debt capital market can also help expand the Saudi banking system’s funding sources,” stressed S&P in its recent Sukuk report. NDMC confirmed that this year’s issuance plan will continue to be “through diversified funding sources which include domestic and international Sukuk and bond issuances as well as new financing channels, including Government Alternative Financing, [and] Supply Chain Financing, in

addition to unifying domestic Sukuk issuance programmes.” Several government-linked entities are buying into this embracing Islamic finance initiative. In September, Saudi Eximbank signed two landmark Facultative Reinsurance Agreements with The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the ECA of the IsDB Group, whereby ICIEC would provide Shariah-compliant Credit Reinsurance Cover of up to 70% of Saudi Eximbank’s exposure under a Multi-risk Documentary Credit Insurance Policy Commercial and Political Risks issued to the Original Insured up to the agreed Credit Amount Limit. The aim of Saudi Eximbank is to help Saudi banks to provide more credit facilities to local corporates for the export of non-oil products. “These agreements,” emphasized Oussama Kaissi, CEO of ICIEC,“consolidates our long-standing partnership with the Saudi Export Program and now the Saudi Eximbank in supporting export development and FDI in Saudi Arabia.” SAMA like other regulators is also prioritising the launching of Digital Banks (DBs) in traditional Islamic finance markets, partly expedited by the vagaries and disruption caused by the COVID-19 pandemic. In July, the Saudi Cabinet approved two digital banking licences to local promoters to establish STC Bank and Saudi Digital Bank. Digital banking, says SAMA, is in line with its role in keeping pace with the latest developments in the financial sector in a digital economy. To that end, 16 Saudi Fintech companies have to date been licensed by SAMA to provide payment services, consumer microfinance and digital insurance brokerage. The Saudi Central Bank (SAMA) this year also introduced the Islamic Finance Research Translation Program aimed “at consolidating the Kingdom’s leading role in the field of Islamic Finance and at encouraging and advancing scientific research, in addition to leveraging i ts o u tc o m e i n s i d e a n d o u ts i d e the Kingdom.” mea-finance.com

DATA SECURITY BANKING TECHNOLOGY

Staying relevant in the digital age The financial services sector in the Middle East region is abuzz with talk and activity on digitalization strategies including Open Banking and its regulation, digital payments, customer digital journey and how banks can develop robust customer acquisition and engagement

he outbreak of the COVID19 pandemic created some exceptional challenges for all industries, but it created unique opportunities especially in the financial service sector by accelerating and strengthening the transition towards digital banking at unprecedented speeds. No function, service, or department seems immune to the wave. The financial services sector in Middle East region is abuzz with talk and activity on digitalization strategy including Open Banking and its regulation, digital payments, customer digital journey and how banks can develop robust customer acquisition and engagement. This year’s edition of Fintech SURGE, which is being held under the theme ‘The Global Hotspot Accelerating The Fintech Movement, and is running parallel to the 41 st edition of GITEX Technology Week 2021 is showcasing the latest

developments in the financial services sector from digital banking to paytech, insurtech and wealth management. The event, which counts MEAFinance among its backers, will see some of the financial industry’s biggest technology revolutionaries and host trail blazing talks. Following the outbreak of coronavirus, digital payments volumes in the GCC region soared to record highs, generating, by some estimates as much as 10 years’ worth of growth in the adoption and deployment of technology and digitisation across B2C, B2B, and P2P spaces in just over 12 months. “Payment services providers including banks are leveraging on these adoption rates as an impetus to accelerate digital projects, but significant challenges and risks remain,” said PwC. Apart from payments, the pandemic brought about more than a decade worth of changes in the way banks do business in just a few months. According to KPMG,

Banking and Finance news in the MEA market

“With 80% of revenue growth predicted to come from digital offerings and operations over the next three years, financial services providers should continue transforming their operating models and investing in key enablers such as integrated cloud platforms, agile ways of working, intelligent automation, AI, blockchain, and advanced data and analytics.” In wealth management and private banking, COVID-19 is driving pre-existing trends by changing the way wealth managers deliver advice and serve their high-net-worth individual (HNWI) clients. BlackRock said coronavirus is accelerating digitization of processes and c lient propos i t ion s, a sh ift towards centralized portfolio and risk management amid increasing focus on responsible investing while emphasizing the role of wealth managers in supporting socio-economic ecosystems. Similarly, though insurance has lagged other sectors in digitalizing its core business and embracing customer experience-led approaches, InsurTech is expected to revolutionize the industry. Insurers are leveraging how technology is deeply embedded in people’s lives by weaving technologies into their product and service offerings, and how they are delivered to customers.

Digital banking The current operating environment for financial services providers in the Middle East is putting to the test their digital

transformation journeys and, in some cases, forcing the c-suite level to revisit their transformation strategies and make customers the focal point of their digitalization drive. “Digital transformation is no longer a luxury, but a necessity. Banks that are agile, flexible, and willing to transform their business models will be the ones that succeed, and secure their financial strength for future growth,” said KPMG. The regional financial service sector’s digitalization drive is partly self-motivated. GCC banks are pro-innovative and industry experts expect them to continue to dominate the financial services industry as the sector goes more digital. Similarly, the banks’ technology-savvy customers and regulatory initiatives such as regulatory sandbox and open banking will also accelerate the banks’ digital transformation. The UAE’s Mashreq Bank and Emirates NBD pioneered digital-exclusive banks for SMEs with NeoBiz and E20 respectively in September 2019 to support one of the country’s most important sectors. These were unveiled two years after the Emirati lenders had launched their lifestyle digitalonly banks, Mashreq Neo and Liv., to serve the banking needs of the country’s young and mobile-enabled population. Digitalization in the banking sector is swiftly changing the field of play where incumbents are facing increasing competition from nontraditional entrants who are billing on customer experience as their point of sale. The UAE’s first independent digital banking platform, YAP, was unveiled in March 2021. Other neobanks that are expected to launch soon include Zand, the first Shari’ah-compliant digital-exclusive bank, while ADQ is also considering setting up a digital bank using a legacy banking license of First Abu Dhabi Bank. Kuwait’s Agility Public Warehousing applied for a digital bank license in August as the logistics major looks to tap into the financial services sector, thanks to the changes in customer behaviour, evolving needs and expectations. Bahrain-based

Bank ABC also launched a digital bank in 2019. ila Bank—an AI-powered and data analytics digital-exclusive bank is operational, and it started offering credit cards and loans to Bahraini customers in March. The digital bank is expected to launch its services in Jordan this year before expanding its regional footprint into Egypt. Meanwhile, in Saudi Arabia, the cabinet allowed the ministry of finance to issue the Gulf state’s first set of digital banking licenses to stc pay and a group of companies and investors led by Abdul

payments is evolving faster than any other area of financial services,” said EY. The competition between players in the payments sector can be considered a battle to achieve competitive advantages using precise strategies to obtain favorable positions. To maintain a competitive edge in a crowded market or adapt to changing operating environment, payment services providers across the GCC must understand the needs and expectations of their customer base. The ongoing shifts toward e-commerce, digital payments (including contactless),

DRIVEN BY CHANGES IN DIGITAL TECHNOLOGY, CONSUMER DEMAND AND COMPETITIVE FORCES, THE WAY PEOPLE MAKE PAYMENTS IS EVOLVING FASTER THAN ANY OTHER AREA OF FINANCIAL SERVICES – EY

Rahman bin Saad Al-Rashed and sons company in June, converting the two firms into digital-exclusive banks.

Payments Payments remain one of the best performing financial services product but unfortunately for banks—traditionally the main providers of payments services— this momentum is no longer extending to most of them especially under the current operating conditions. Technology giants, fintech firms, merchants and social media giants have all created their contactless payment offerings. The outbreak of the pandemic and the containment measures that were introduced thereafter undoubtedly accelerated a string of existing trends in both consumer and business behaviors while introducing new developments that saw the use of digital payment methods surpassing the use of cash and debit cards. “Driven by changes in digital technology, consumer demand and competitive forces, the way people make

instant payments, and cash displacement have all been significantly boosted in the past six months, said McKinsey. The COVID-related restrictions that were introduced by regional governments to curb the spread of the virus shifted consumer and business behavior towards e-commerce platforms making it imperative for financial service providers to provide seamless payment solutions. A study that was conducted by Mastercard in the Middle East showed that 70% of the participants are using some form of contactless payment method since the outbreak of the pandemic due to safety concerns while 81% of the respondents noted that they would continue using digital payments post-pandemic. Boston Consulting Group and Swift expect the global digital payment sector’s revenues to hit the $1.8 trillion mark in 2024, from $1.5 trillion in 2019, buoyed by the continued transition away from cash, sustained strong growth in e-commerce and electronic transactions and greater innovation. mea-finance.com mea-finance.com

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Wealth and Asset management The ability to swiftly innovate and effectively meet client expectations while capturing future growth segments is turning into a core asset in the financial services sector. Since the pandemic hit, wealth managers are being confronted by the task of balancing the traditional approach to risk management with the need to respond quickly to a crisis that has created massive changes to their operating environment. To adapt to the changing times, several wealth management firms across the Middle East region are already investing in innovation, delivering new digital products and services to their clients. Deloitte urged wealth technology (wealth-tech) managers, who are spearheading this change, to consciously eradicate working silos to foster enhanced top-down collaboration, innovation and alignment across the organization to best serve its clients. According to industry experts, digital transformation in wealth management must be fostered by integrating skills in innovation, human-centered design, digital technology, risk and overall leadership. It is worth noting that just like any other banking product digitalization within wealth management span the entire value chain from client onboarding to relationship management, investment recommendations, and fulfillment and trading. Wealth management firms’ digitalization strategy should be a holistic approach that makes clients the focal point for product roadmap through the assessment of customer segments and the overall value chain—this is to determine which customer touchpoints need to be kept in-person and which can be made more self-serve. The growth of “automated wealth managers” or Robo-advisors is also revolutionizing the wealth management industry with unprecedented force. By leveraging algorithms to offer financial advice for a fraction of the price of a real-life client advisor, Robo-advisors are growing at a rapid pace, doubling their

assets under management (AUM) every few months. The Middle East wealth management market went through a remarkable shift long before the outbreak of the pandemic as regulators embraces Robo-advisors or digital financial advisories. The Central Bank of Bahrain issued directives on Roboadvice in 2019, affirming the Gulf state’s position as a leading digital financial hub. Saudi Arabia’s market regulator also gave two firms, Wahed Capital and Haseed Investing Company, the green light to test their digital financial advisory services as the kingdom moves to adopt financial technologies as part of its economic diversification drive.

operations which on its own exposed gaps in the industry’s digital capabilities and raised cybersecurity concerns. The way Middle East insurers will respond to the fallout due to the pandemic and the changing operating conditions amid long-term shifts such as technology innovations and evolving consumer preferences will be critical. Deloitte said that generating continuous innovation in insurance policies, sales strategies, operations, and customer experience could turn out to be the biggest differentiator in 2021 and beyond. As more insurers are increasingly focusing on adding new technology capabilities to their businesses, acquiring

ROBO-ADVISORS TRANSLATE CLIENT INPUT INTO INVESTMENT LOGIC SUCH AS RISK OR LIQUIDITY FACTORS AND PROPOSE ADEQUATE INVESTMENT OPPORTUNITIES WELL BEYOND SIMPLY HIGHLIGHTING A HANDFUL OF ETFS OUT OF A FEW THOUSAND OF POSSIBILITIES – Deloitte

“Robo-advisors translate client input into investment logic such as risk or liquidity factors and propose adequate investment opportunities well beyond simply highlighting a handful of ETFs out of a few thousand of possibilities,” said Deloitte. The UAE’s Commercial Bank of Dubai also unveiled its Robo-advisory app CBD Investr in April. The platform offers the bank’s clients access to globally diversified and personalized portfolios of stocks, bonds, and other asset classes using low-cost exchange-traded funds.

InsurTech The pandemic and impact on economic activities triggered an overnight shift in customers’ needs and expectations, while compelling virtualization of insurance

mature InsurTechs could be increasingly attractive for legacy insurers provided they can make a near-term impact on operations. Dubai-based Addenda, an InsurTech firm that uses distributed ledger technology to streamline processes between insurance companies have signed over five legacy insurers including National Takaful Company (Watania) and Al Wathba Insurance onto its integrated Blockchain platform since graduating from DIFC’s FinTech Hive accelerator program in 2018. The emergence of new technologies is offering the financial services sector a window to be more innovative and efficient in service delivery, but it is also opening the door to new entrants such as fintechs, global retail giants as well as card networks and neobanks. mea-finance.com mea-finance.com

DATA SECURITY BANKING TECHNOLOGY

Will the Future of Banking in the Middle East be ‘Digital-Only’? Sriranga Neelathali Sampathkumar VP & General Manager - MEA, Infosys Ltd. discusses the rise of digital-only, financial institutions in the Middle East which has a large tech-savvy population driving digital demand

ver the last several months, COVID-19 has undoubtedly emerged as the biggest disrupter, forcing customers (and banks) to embrace digital banking channels. However, the popularity of digital banking had been growing steadily even prior to the pandemic, driven by factors such as growing smartphone penetration and a tech-savvy population. Take the case of Liv., the digital-only lifestyle bank from Emirates NBD. Even

prior to the pandemic, it emerged as the fastest growing bank in the UAE by customer acquisition - attracting more than 370,000 customers at 20% of the acquisition costs of a traditional institution. Remarkably, more than 80% of its new customers came via referrals. But what the pandemic has done is that it has rapidly accelerated the pace of this transformation, exposing the gap between progressive banks offering fullfledged digital services and the digital

Banking and Finance news in the MEA market

Sriranga Neelathali Sampathkumar VP & General Manager - MEA, Infosys Ltd

laggards. With newer competitors such as neo banks and digital-native fintechs offering superior customer experience through innovative digital solutions, the banking landscape is set to become extremely competitive in the post COVID world. The Abu Dhabi Global Market (ADGM), an international financial centre (IFC) has a Digital Banking Framework that focuses on banks seeking to establish digital banks or branches of digital banks, as well as for firms with innovative value propositions. Customers, especially millennials, have grown accustomed to experiencing the very best of what technology has to offer, with the likes of Google, Netflix, or Amazon being a prominent part of their daily lives. Smartphone penetration in the Gulf Cooperation Council (GCC) region is at 96 percent. The digital payments market in Middle East & North Africa Digital is expected to grow at a CAGR of 15.39% between 2021-26 as per Mordor Intelligence. Saudi Arabia expects that 70 percent of its payment transactions will be digital by 2030. For banks to survive this shift, digitization is the only answer.

Preparing for a Digital-only Future As banks evolve towards a digital future, here are the primary considerations that they must keep in mind as they plan their transformation journey:

End-to-end Digitization The key to success for any digital bank is a faster go-to-market strategy and innovative offerings. A trusted technology partner can help create the Market place and enable them to meet these demands. A robust digital backbone that extends end-to-end across people, products, processes, and technology landscape is absolutely essential to building and scaling a truly digital offering. A reliable, robust, cloud agnostic platform like Finacle enables easy handling of large transaction volumes with the flexibility to cater to occasional seasonal spikes.

Enabling end-to-end digitization means providing the right setup and tools for remote working and adding digital capabilities to every step of the banking process – right from origination to closure. In addition, judicious use of automation to allow for straight-through processing of requests with minimal manual intervention is important to scale digital services effectively.

Reimagining Processes Designing a superior digital experience isn’t about taking existing processes to

and convenience need to be at the heart of all decision-making around building digital banking experiences. For instance, are your customers ready for a completely digital banking experience? Do you need to augment digital services with an offline, personal element by either retaining certain branches or offering at-home servicing for a certain period of time? At the same time, digital services must be aligned with the needs of your business customers too. For instance, as retail outlets get automated, how will this impact digital payments at the store?

IRRESPECTIVE OF THE CURRENT STAGE OF DIGITAL READINESS, THE FUTURE OF BANKING IN THE MIDDLE EAST IS CLEAR. PROGRESSIVE BANKS WILL NEED TO KEEP EVOLVING THEIR DIGITAL OFFERINGS IN LINE WITH CUSTOMERS’ EXPECTATIONS, AND TRADITIONAL BANKS MUST RAMP UP THEIR DIGITIZATION EFFORTS RAPIDLY IF THEY HOPE TO SURVIVE AND THRIVE IN THE NEW NORMAL the cloud or building a digital equivalent of legacy processes. Instead, it calls for a complete overhaul of the process – reimagining the journey through a digital-only lens. The transformation must encompass every aspect right from customer interactions and employee transactions all the way to risk management and cybersecurity. The impact extends across the entire gamut of operations, including the front, middle and back offices.

Customer Centricity Given that customer experience and satisfaction are the chief drivers for all digitization efforts, customer preferences

How can the bank design a payment mechanism that can help retailers offer a truly contactless experience?

Security and Compliance The banking industry is already one of the most regulated, with a host of compliance requirements. However, digital banking adds a new layer of threats around cyber security, identity theft etc. For instance, statistics suggest that financial malware in the U.A.E. jumped 42.5 percent jump in the first half of 2020 compared to the same period the previous year. Therefore, ensuring the security of banking operations is one of the topmost concerns for digital-only banks. mea-finance.com mea-finance.com

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LEADERSHIP SERIES

Instrumental Change In the first of the MEA Finance Leadership Series video interviews, we talked with Frank Wendt Co-Founder and Chairman of the Board at FQX AG, the first market-ready solution for eNotes™ built on a banking-grade Blockchain (Swiss Trust Chain). Here in a directly transcribed summary of the video, he discusses eNotes™ and the role they will play in world trade, business and finance

h a t key fa c t o r s distinguish eNotes™ from other digital payment or promissory options? First of all, I think it makes sense to define what is actually an eNotes™. An eNotes™ is an electronic equivalent to a paper based promissory note. Now, a promissory note is an instrument that is a security and has many functions. One is the function as a payment instrument, being a buyer and a supplier, but also as a debt or credit instrument, which means a borrower and the lender, and thirdly, you can even add that it’s a collateral instrument or it can function like guarantee. The beauty is it is fully standardized globally, based on common law, but also the Geneva Convention (of) 1930. And it is today fully understood, it is a very uncomplicated security which is negotiable transfer.

What are their performance advantages over other methods? Now, if you look at what are the other methods, so, it could be that you look

at factoring, reverse factoring which is very often used in trade finance, open account trading. The beauty is that you can at source, securitize payables, but also purchase orders pre-shipment and post-shipment and transfer them to the holder of, the best holder, be it the fund, be it the bank. So, it’s becoming negotiable and that means it is transferable and this means for many investors, that they can actively manage their portfolios and the balance sheets. The other benefit is that everybody knows about it already and that it’s fully electronic. That means you don’t need to use paper anymore in any way or form. And that is a big advantage if you look at global scalability.

Why do you think that FQX was the first market-ready solution for eNotes™? I think life is sometimes a bit funny because I used to work for an SCF, a Supply Chain Finance house and then I had discussions with some bankers and then I said, you know, all the solutions I see have always one or the

Banking and Finance news in the MEA market

Frank Wendt Founder and Chairman, FQX

other disadvantage, which seemed to undermine the overall business case. And then they said, you know, Frank, you know, what you’re looking for is actually the bills of exchange or promissory note. But you know, nobody wants to see paper, and then basically started three and a half years with some self-funded legal analysis and so forth; is it possible? So then, I realized that in particular, the United Nations Commission on International Trade Law (UNCITRAL) model, on electronically transferable records was already in place. And then the kingdom of Bahrain started (using) and then it was a coincidence. Parallel thinking, in a sense.

How do you feel about being one of the few asked to join ADGM’s Digital Lab? I t ’s a p r i v i l e g e. We h a ve b e e n acknowledged also in Switzerland, but to come to this region and ADGM obviously has enacted the electronic transaction regulation, which is a legal basis for electronic promissory notes, and also the usual instruments. It’s, for us is great recognition and we are fully dedicated to ADGM in particular and the ETR because that is a legal basis which we can use, not only in the UAE and in the GCC but also Mena. And from that perspective, it’s perfect match.

The UNCITRAL Model Law on Electronic Transferable Records was adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 2017. How important was this for the expansion and acceptance of fully digitised transactions? Right, the first instance, it’s a model Law, it’s not a convention. The model law I think has, through the work of many NGOs; UNCITRAL, ICC, WTO and many others, got attention by governments. And you can see that Singapore has now enacted the Electronic Transaction Act, the Kingdom of Bahrain, the first one, ADGM (also), and we see now traction in particular with the consultation period

in the United Kingdom or England and Wales to be precise, and the German government is looking at this. Plus (the) G7 has made a commitment with regards to the model law itself to enact it. What is the answer to your question? It is the fundament. If we all create tokens, and these tokens have no legal basis, the trust of investors and our counterparties is not very high, and the adoption will not be that high. There are thousands of proofs of concepts around the world but they’re all basically half the problem; the legal framework is not there. So, this is fundamental.

How will eNotes™ and fully digitised transactions change the world of trade, business and finance? I think what we see at the moment is that the overall movement of the trade finance

complexity. If you look at the letters of credit, I think we will see that they are in the future, not as used in the same volume as today, much lower.

What other benefits do you foresee coming from these landmark developments? Digitalization has always been very similar to wireless, right? One is automation. One is disintermediation. I think we will see that a lot of players might not be needed anymore to put the stamp on something or to simply sign something. It’s going to be electronic and maybe they are not even needed in this value chain. So, the value chain will change. The other factor, I believe is that with digitalization, you get global reach. Today you have a fragmented picture based on legislation, but also on electronic solutions. And I

I THINK WE WILL SEE THAT A LOT OF PLAYERS MIGHT NOT BE NEEDED ANYMORE TO PUT THE STAMP ON SOMETHING OR TO SIMPLY SIGN SOMETHING

or trade in general actually, industry is driven very heavily by either big players like Maersk, IBM, but also the NGOs like the ICC. So, the ICC, DSI, Digitalization Standardization Initiative is very important. Why? Because although you have no legal basis, you also need to make sure that you have interoperability, because you have otherwise, silos. So, we have one standard here, on standard there. So, I think we can say that the ebill, the electronic bill of lading is a negotiable instrument, or the electronic bills of exchange or what we do, the electronic promissory note will probably have fundamental implications on how we trade in terms of efficiency, global reach and more importantly, the

think this is going to change and I think we are moving into another phase of globalization, which is different to what we have been experiencing in the past. And standardization is key here, in my view. And maybe I always, I liked one comparison, if I might just put this in, if you remember, after the Second World War, we had something called the containerization. Right. And what happened is that a lot of the bulk cargo was basically turned into container shipments and that led to a complete overhaul of the entire value chain from rail to air to ship, and the efficiencies and the cost of transport dropped to a fraction of what it used to be. I think what’s going to happen here too. mea-finance.com

WEBINAR

Reframing growth with core banking Digitalization is on top of the agenda of every financial institution across the Gulf region as they seek to succeed in business and maintain a competitive edge in an overcrowded market

igitalization in the financial services sector is swiftly changing the field of play where incumbent banks are facing increasing competition from nontraditional entrants who are billing on customer experience as their point of sale. The outbreak of coronavirus created

some exceptional challenges for all industries, but it also accelerated the rate of digital transformation in the financial services sector to record highs as the pandemic had a monumental impact on consumer behavior. Oracle and MEA Finance hosted the Connect Core Banking with Finance-

Banking and Finance news in the MEA market

A Winning Digital Strategy webinar in August where industry experts gave insight into how regional banks can leverage digitalization to drive growth and boost revenues by unlocking business potential while creating new business values. T h e we b i n a r wa s o p e n e d by a presentation by Bhaskar Sahay, partner at KPMG Lower Gulf Limited, titled A Winning Digital Strategy who spoke at length about how the pandemic is aiding the growth of the disruptive economy. Sahay said that a study that was conducted by KPMG Lower Gulf in the UAE and Oman in April showed that 86% of chief financial officers (CFOs) that were surveyed acknowledged that they find digital maturity challenging and the current operating conditions have heightened the challenges that the financial service sector is experiencing. Digitalization is on top of the agenda of every financial institution across the Gulf region as they seek to succeed in business and maintain a competitive edge in an overcrowded market. Among

the challenges that banks are facing, KPMG Lower Gulf identified data quality and management, system complexity, competing priorities, and the shortage of t h e r i g ht s k i l l s a s b a r r i e rs to succeeding in a financial institution’s digital transformation. “Today, the fight is between the best data that is available within the bank, and how do we use that data to report whether it is to internal stakeholders or external stakeholders,” said Sahay. KPMG Lower Gulf also discovered that banks are being confronted by system integration and how to make the connected goal the focal point of everything that they do within the financial services industry and in some cases when they partner or collaborate with institutions outside the finance sector. Sahay said that system integration can only be achieved if a financial institution develops a very strategic focus on the technology side and is not considering a band-aid project.

A winning strategy Financial institutions in the Middle East are exploring technological innovations and new business models that include digital banking, open banking, predictive banking, and modernization of payment systems as they seek to enhance user experience (UX) and personalization of products to remain profitable and grow their market share. Deloitte said that digital banking champions are those banks who are (will) successfully offer a wide range of functionalities that meet their customer’s expectations, providing an intuitive user experience. Gary Brocklehurst, ERP Business Development and Strategy Leader at Oracle, who moderated the ‘Five Simple Pathways to a More Connected Banking Enterprise’ panel said that all financial services systems, data, people and processes within an organization are connected and unified, and c-suite level executive shouldn’t take it as a fantasy “as many organizations are already well

on the way to this kind of transformation.” Organizational transformation comes with enormous benefits including enhancing productivity by 50% and by 90% for some processes, Brocklehurst said while quoting McKinsey. “A unified finance model would reduce reporting times by 66%, getting valuable insights into the hands of decisionmakers faster,” said Brocklehurst. Asked about areas of focus when it comes to connecting data across the banking enterprise and the opportunities that come with it, Amit Lalloo – FSI Enterprise Architect, ECEMEA, Oracle,

understand budget guidance for a fiscal year—which is nine plus three forecast, and then decide on the drivers which in turn talks about the GDP percentages. “Several banks in the region use this budget as the steppingstone for planning five fiscal years in the future in terms of looking at how many new branches they will be opening, how many new territories they will be covering, along with the channels by which they will be serving the next three to five years,” said Tayade. Ibrahim Badra, ERP Cloud Solution Consultant, Oracle weighed in saying the financial services sector has gone

BANKS ARE BEING CONFRONTED BY SYSTEM INTEGRATION AND HOW TO MAKE THE CONNECTED GOAL THE FOCAL POINT OF EVERYTHING THAT THEY DO WITHIN THE FINANCIAL SERVICES INDUSTRY AND IN SOME CASES WHEN THEY PARTNER OR COLLABORATE WITH INSTITUTIONS OUTSIDE THE FINANCE SECTOR – KPMG Lower Gulf Limited

said that financial institutions are largely complex organizations that support many segments, multiple domains and a plethora of business units. Lalloo highlighted that these three entities hold the gravity of customer activities and it is core for banks to remain compliant by assessing the financial health of the organization, as well as the enterprise and its customers. Vikas Tayade, Director of Intellicore Consulting Group, who was part of the panel and spoke about Enterprise Performance Management (EPM) said that Oracle EPM solution allows c-suite executives in financial institutions to

through a tremendous transformation over the years which is having an impact on the industry itself. As the financial ser vices sector is going through tremendous change, banks are exploring ways they can effectively manage these changes and face the challenges while capturing the opportunities that are being brought by the changes in the industry. Banks in the region are implementing several initiatives whether there is a new service or product, new business model, merging and acquisitions that are happening in the industry amid complex marketing campaigns and adoption of new technologies such as collaboration mea-finance.com

WEBINAR

with fintechs, digital banking as well as Open Banking as they look to expand their reach and tap into new markets. “Oracle fusion is a well-connected system that is fully integrated and natively integrated allowing access to real-time information, taking away all those bolts that could have been pulling data from the same line and smoothly from one source to another,” said Badra. Asked why it is important to align finance and procurement to a bank’s strategy, Lokesh Khatwani, Solution Engineer at Oracle, identified four key building blocks of getting a healthy relationship and the advancements in the financial service sector. Khatwani said that these healthy relationships are enablers or come with significant rewards for banks including being able to withstand competition in the financial industry that is being intensified by fintechs as well as giving stability amid uncertainties in the global supply chain due to COVID-19. Through Oracle’s sourcing cloud, Khatwani said that banks can implement and execute several sourcing and supply strategies. He also noted that for procurement to maximize its influence and realize the value to the wider businesses, financial institutions should see the value of what procurement brings in as well as the impact it is making not only on the bottom line but also on the top line in terms of the savings being generated. Murat Civelek, Senior Director of Constellation Consulting, said that Oracle EPM is one of the world’s leading platforms that covers all topics with advanced features of active price-performance management. Civelek said the Oracle investment platform has evolved over the years with the latest cloud structure reaching record levels which is unique in the EPM market. Civelek highlighted that Oracle API offers a user-friendly interface for organizations and it can be integrated with many systems including core banking finance and operations, central hub and

data which is ready for EPM—which is useful for running correct performance management activities. The five pathways to a more connected banking enterprise include linking core banking with finance and operations, expand revenues with relationship level sales budget planning, execute projects more effectively, leverage modern procurement and seamlessly perform financial performance reporting.

An expert view

Industry experts who attended the Oracle and MEA Finance webinar highlighted the importance of digitalization in the financial services sector saying the emergence of new technologies is offering the industry a window to be more innovative and efficient in service delivery. “So when you look at core banking today several financial institutions which have been very successful on the consumer front have unraveled the advantages of having a good database around customers and then not just keeping it up to date, but using it to drive insights,” said Sahay. Oracle’s Lalloo said core banking has been around for over four decades and it is among the first systems that were

Banking and Finance news in the MEA market

developed for the financial services sector, having started as a very basic accounting system. Core banking has been evolving as the business is getting more sophisticated, taking on more features such as product management, master for product data, reference data and master of customer data in the form of a Consolidated Revenue Fund (CRF), he added. The moderator of the Financial Services Leaders Viewpoint panel, Mohamed Roushdy, who is a Fintech and Digital Transformation Advisor, raised a question on what kind of barriers do banking experts see hindering the adoption of the new platform. From his industry experience within the banking sector, Lalloo acknowledged that the financial services sector has significant challenges as they move from monolith to purposeful monolith. Darren Clarke, the Chief Financial Officer, Commercial Bank of Dubai weighed in saying that there are huge opportunities present in any finance function. Clarke said that currently, significant challenges have been in relation to capacity, efficiency, data and tools while adding that webinars offer knowledge around skills, systems, connectivity, and what banks can do in the future.

ADVERTORIAL

The Rise of Open Banking in the Middle East Thomas Reda Sales Director Middle East, ACI Worldwide (EMEA) Limited succinctly describes the reasons why open banking is here and is soon going to become the norm for financial transactions and interactions in our region

he rate at which industries are migrating from physical to digital banking platforms has grown exponentially in the last year. Rapid change is inevitable in the new normal of today’s global economy, especially in a globally connected business hub like the Middle East. The post-pandemic banking era is going to be all about providing superlative value to customers through more secure and seamless experiences. It is quite apparent then, that open banking will gain significant momentum in the face of uncertainties and massive digital transformation in both developed and developing markets. The Middle East market is no stranger to the concept of open banking since the region had already adopted new technologies required for regulatory compliance. However, its demand grew significantly during the pandemic, as many small and medium enterprises recognized the need for secure and customizable digital banking solutions. Finastra’s 2020 survey shows over 88% of UAE banks are looking to open their APIs to enable open banking in 2021, with many banks adopting it with every passing month.

Open banking is on the rise. Here’s why. The major reasons for this paradigm shift are the regulatory push of open banking adoption by countries and the proliferation of Open APIs. The number of Open API

platforms globally has grown by 47% in the first two quarters of 2020, and it is predicted that Open APIs will have a moderate-to-high impact on the banking business in 2021. A future-ready banking system entails prominent cashless payment. Saudi Arabia aims to make 70% of transactions non-cash by 2030. It is further amplified by unprecedented internet penetration and smartphone usage. Both UAE and Saudi Arabia have internet penetration of 99% and 96% respectively, with smartphone penetration of 200% and 120% respectively. All these factors combined with the need for efficient, reliable and contact-free banking solutions in the post-pandemic world have made open banking a go-to module for a future-proof transactional ecosystem.

Why open banking? The entire banking sector has had to undergo a massive shift during the pandemic, with new challenges to keep the banking operations running with little to no in-person interaction. Given the need for faster and more customercentric solutions, open banking systems can offer significant benefits to banks and financial institutions. These include: Efficiency: Open banking systems use third-party APIs designed by industry experts to collect, process and distribute data from various banks

Thomas Reda Sales Director Middle East, ACI Worldwide (EMEA) Limited

to complete the transactions on a digital platform. The efficiency of an open bank in operating transactions completely outweighs the traditional means of banking. Data Security: Open banking follows strict network security protocols. The API itself ensures app-based secure transactions and access control at every stage of banking. Through procedures like API gateway, encryptions, signatures and using quotas, the app follows the most stringent security protocols. Additionally, features like KYC and encryption infrastructure, AI-enabled authentication protocols and machine learning-enabled cybersecurity processes make it a secure digital banking system. And most importantly, these protocols are updated regularly to keep up with the dynamic global banking and security landscape. Customer Experiences: Open banking systems with dedicated APIs make digital transactions more convenient and attractive to consumers. With added data security and multi-platform availability, a user is in control over their personal data. The API also helps in boosting customer engagement while catering to their banking needs in a secure, agile and future-ready way. ACI Worldwide delivers these capabilities and more, helping enterprises create a customized, efficient and secure open banking ecosystem for a seamless and successful digital transformation journey. mea-finance.com

OPINION PIECE

CBDC ARRANGEMENTS:

The Solution to Cross Border Payment Inefficiencies?

Kokila Alagh Founder, KARM Legal Consultants

Despite the unprecedented rise in cross-border trade and commerce, payments and funds transfers have been slow to catch up. Kokila Alagh Founder of KARM Legal Consultants examines whether distributed ledger technology based Central Bank Digital Currency (CBDC) arrangements between countries may solve issues including fragmented data formats, complex compliance checks and incongruent operating hours of payment systems across multiple jurisdictions

ross Border Payments – Existing infrastructure and challenges

Current cross border payments infrastructure comprises multiple parties operating at disparate speeds to authenticate transactions. The banking sector remains webbed with the correspondent banks. Correspondent banks hold deposits owned by other banks (respondents) and execute third party transactions on their behalf. Settlement between these institutions is facilitated by transactional messages transmitted over an encrypted financial network (think SWIFT), then relevant accounts are credited or debited. Such arrangements allow banks to maintain branches in multiple jurisdictions and have the ability to facilitate international payments. Retail fintech applications created by non-banking institutions such as e-wallet services (HubPay and Tiqmo in UAE, etc.) and schemes such as the Asian WeChat Pay and AliPay, often rely on correspondent banking to provide foreign exchange and

settlement services, losing transaction speed. Further, interbank settlement of cross-border card transactions relies on correspondent banking as well.

Challenges and issues Some improvements are being made. Examples of this are the integration of synchronised domestic Real time Gross Settlement systems and harmonised API protocols for data exchange across payment infrastructures and jurisdictions (for instance, Nium). That said, most transactions are still facilitated through correspondent banks. These transactions face the following issues: 1. Cost: These include compliance costs, FX conversion rates and fees, fees along the payment chain and liquidity cost for prefunding. The World Bank estimates the global weighted average cost for crossborder remittances of $200 to be 6.51%, making such remittances a costly affair. Additionally, for cardbased payments a fee of up to 10% is

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charged as card issuer/ merchant fee and FX margin. 2. Transparency: Several API-centric innovations such as SWIFT GPI have enabled end-to-end tracking of payments. However, the lack of adoption and access to these innovations means that some transfers still suffer from opacity regarding total transaction cost. Limited transparency also affects AML/CFT checks. Speed and synchronization (Liquidity and credit risk linked) The dependence on several correspondents and intermediaries, asynchronous cut-off and opening times and regulatory checks all contribute to prolonged processing periods. Non-standardized messaging and processing formats slow down crossborder payments, as mapping and format conversions are required. Speed and cost effectiveness are both consequences of interoperability and standardization. The lack of instantaneous atomic settlement

and DvP (delivery versus payment, simultaneous and immediate settlement where transfer of one asset is conditional on the transfer of another asset) also results in counterparty credit risk i.e. the possibility that a loss will be experienced because of a default by the counterparty.

CBDCs and multi-CBDC arrangements A CBDC can be defined as a digital payment instrument, denominated in the national fiat unit of account, the value of which is guaranteed by the central bank of that country. The conversation around CBDCs has gained momentum due to potential use of blockchain in speeding up transactions, although CBDCs may or not be blockchain based. Conceptually, a digital version of a national fiat currency can only be referred to as a CBDC if it is backed by a central or reserve bank of the said jurisdiction. Several central banks have already started experimenting with cross border CBDC arrangements (for example: Project Jasper-Ubin between Singapore and Canada and Project mCBDC Bridge between Hong Kong, Thailand, China and UAE). Most of the current projects focus on the interlinking wholesale CBDCs, which are meant only for licensed financial institutions that hold reserve deposits with the central bank. Unlike retail CBDCs, wholesale CBDCs cannot be used for payments by individual users. The Bank for International Settlements identifies three separate models for payment systems interoperability that can be associated with current CBDC projects: 1. M o d e l 1 (C o m p a t i b l e C B D C Systems): Revolves around creating uniform regulations and market practises across several jurisdictions. This in turn reduces the friction present in the cross-border payments system caused due to different AML/CTF compliances and data messaging standards through which transactional information is passed between financial institutions. From a technical standpoint, it involves reducing barriers to membership

t h ro u g h c o m m o n m e s s a g i n g standards. Since this model does not require a technical interface to link various CBDC systems together, it is a cheaper albeit slower model when compared to the other m-CBDC arrangement models. 2. M o d e l 2 ( I n t e r l i n ke d C B D C Systems): The most popular model amongst central banks that are currently considering incorporating interoperability features into their CBDC systems. Here, the CBDC systems of various jurisdictions are interlinked through technical interfaces or using common clearing mechanisms. For example, Project Jasper-Ubin uses Hash Time-Locked Contracts to facilitate atomic transfers between two different DLT systems (Jasper in Canada and Ubin in Singapore). 3. M odel 3 (Multicurrency CBDC Platform): Here, multiple CBDCs can be run on a single platform (for example: mCBDC Bridge and Project Inthanon-LionRock). Such models explore the possibility of setting up international settlement platforms where central banks can utilise CBDC for the execution of wholesale transactions. Such systems eliminate the need for banking relationships between certain countries as a single universal system will facilitate settlement and transfer of value.

other. Model 1 may also help reduce back-office costs for error handling and reconciliation by prescribing standardized message/data formats. Costs or premiums associated with counterparty credit risk may be reduced by atomic settlements. 2. Speed (Atomic Settlement): Due to the direct settlements over interlinked CBDC platforms, payments will no longer need to be routed through several entities. Additionally, the presence of standardized messaging formats will facilitate fully automated processing. CBDCs can operate 24/7, addressing the issue of asynchronous operating hours. Further, atomic settlement could eliminate credit and liquidity risk arising from time lag between transfers. 3. Tra n s p a re n cy : Th e p res e n c e of synchronized compatibilit y capabilities in Model 1, interlinking interfaces in Model 2, and single system of settlement in Model 3 enable enhanced visibility on prospective fees and estimated delivery time of funds prior to making the payment. The interlinking of various digital ecosystems will enable direct transfer of standardized messages between the initiator and beneficiary, eliminating information gaps in the payment chain. Additionally, CBDCs could settle instantly, reducing the need for status updates.

Resolution of extant issues and frictions by CBDC arrangements

Conclusion

The advent of interoperable crossborder CBDC systems may help reduce inefficiencies and friction in crossborder payments and also help central banks achieve the targets set out by the G20 roadmap. 1. Cost: The correspondent banking model incurs network management costs and transaction fees charged by intermediaries. With CBDC models, the number of requisite parties in cross border payments reduces. Models 2 and 3 may help with disintermediation as parties can directly interact with each

While the cross-border payments and remittances industry continues to evolve, the underlying system that is used to facilitate these transactions still needs reinvigoration. By creating accessible and completely digital representations of sovereign backed value, most of the frictions can be removed. International integration and cooperation are crucial for the successful deployment of CBDC based international payments. If coordinated successfully, CBDCs in combination with other improvements might improve the cross-border payments ecosystem. mea-finance.com

OPINION PIECE

Millennials’ Preferences Driving the Future of Islamic Banking Zeeshan Awan Head of Islamic Banking, National Bank of Fujairah makes the case for Islamic banks and finance providers as poised to benefit from the positive demographics of the Islamic World, while noting that to truly succeed, they will need to offer more than just technology

espite the challenges posed by COVID-19, the Islamic economy continues to see robust year-on-year growth, propelled by emerging factors such as the rise of ethical consumption, digital connectivity, participation of top global brands, and the surge in trade among the countries of the Organization of Islamic Cooperation (OIC). Younger customers are expected to play a crucial role in the growth of Islamic finance in terms of expanding its customer base in years to come. In an

effort to appeal to this customer segment, Sharia-compliant banks have stepped up investments in the digital space to better match their expectations for a seamless banking experience.

global Muslim population reached 1.9 billion in 2019, and is expected to grow twice as fast as the overall world population, reaching 3 billion by 2060 (a 70% increase from 2015) and will represent 31.1% of the global population. The Pew Research Center estimates that the Muslim population will also remain predominantly young in 2050, with 60% aged between 15-59 and 24% under 15 years of age. To put this in perspective, only 16% of the Muslim population will be 60 and above in age in 2050 while the same age group in Europe will represent more than 28% of the region’s population according to a report by the State of the Global Islamic Economy.

Growing Customer Base

Preference for Islamic banking

One of the key Islamic economy drivers is a young, large, fast-growing Muslim population. The Muslim demographic is one of the strongest demand-side drivers for the Islamic economy’s growth. According to the Pew Research Center’s Forum on Religion and Public Life, the

Islamic banking continues to outpace growth in comparison to conventional banking as Muslims and non-Muslims alike seek more ethical ways to bank and finance projects. According to a report by Fitch Rating in 2021, the UAE remains a key Islamic finance hub. Islamic financing

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and deposits accounted for 29% and 26% of total sector financing and deposits, respectively, at end-2020. Growth in Islamic financing continued in 2020 (3.6%) against a contraction in conventional banking.

Accessibility is a key barrier for Millennials According to a Finance and Faith report 2021, more than half of young Islamic finance customers would adopt Islamic banking if it were more accessible. The report illustrates the growing appeal of Islamic finance services around the world, as over half (53%) of young Muslims would choose Islamic banking, if barriers to entry were removed.

Future growth To sustain the recent pace of growth, Islamic banks will have to be increasingly competitive in targeting new customer segments in novel ways. Today’s millennial customers are techsavvy, geared towards ease, accessibility, and functionality and capturing this

leveraging digital banking to reach out to younger customers. National Bank of Fujairah’s Shariacompliant Islamic window, NBF Islamic, views technology as a key area of innovation and is making a series of investments to improve its services as well as increase its competitive edge. In 2020, NBF invested in new products and services as it looked to increase efficiency, help businesses overcome Covid-19 related constraints, and broaden its customer base. To date, more than 70 percent of the bank’s customers have transitioned from traditional to online banking, and in some processing areas, more than 90 per cent of transactions are now fully automated. NBF’s success in further leveraging technology during 2020 enhanced the group’s responsiveness and adaptability and complemented its growth strategy, especially during the pandemic when access to digital and online channels was key to delivering value. NBF has been constantly offering innovative solutions to meet young

Zeeshan Awan, Head of Islamic Banking, National Bank of Fujairah

Direct app that’s quicker, more secure and hassle-free.

Affluent millennials

ACCORDING TO A FINANCE AND FAITH REPORT 2021, MORE THAN HALF OF YOUNG ISLAMIC FINANCE CUSTOMERS WOULD ADOPT ISLAMIC BANKING IF IT WERE MORE ACCESSIBLE discerning and demanding group is critical for Islamic banks in order to sustain their customer base. In a very short time, they will comprise the majority of financial consumers and influencers. It is expected that Gen Z and millennials are going to be the key catalysts for growth of the banking sector. Millennials are a large demographic in the UAE and most banks are now targeting them. While conventional banking leads t h e w a y i n te r m s of te c h n o l o g y adoption, Islamic finance is increasingly

customers’ demands. As such, in 2018, NBF launched Ajyal, a tailor-made banking service aimed at supporting the financial needs and aspirations of the young Emiratis in the UAE. Built with tech-savvy customers in mind, Ajyal features the best-in-class digital banking experience. Consumers can register and open an account in just three simple steps with the NBF Instant app, taking less than a minute to become an Ajyal customer. Once onboarded, customers can enjoy easy online banking access with the NBF

As an emerging affluent segment, choices made by millennials are expected to shape product development and invigorate innovation within Islamic finance for years to come. Millennials will be the drivers of spending, investing and growth of the economy. Many of the traditional Islamic banks recognize the need to innovate, where some are stepping up their investments in the digital space to cater to the crucial changing demographics. But capturing this wallet share will need to go beyond just technology and will need to focus on customer service and experience. Few businesses are sustainable over the long term if they rely on structural advantage alone. Digital banking is an integral component of the future and Islamic banks will need to be as good as others to maintain or increase their customer base and perhaps more importantly customer satisfaction. mea-finance.com

LIFESTYLE

Hublot Spirit of Big Bang Cristal d’Or

Gold crystal: alchemist Hublot creates magic

t is said that what nature creates cannot be reproduced, as natural processes require both time and complexity. Once again, Hublot has made the impossible possible by transmuting gold into its rarest and most exclusive form: gold crystal. This form of gold is unique, it being impossible to reproduce two identical gold crystals. Beyond the fascination that gold has always exerted, it embodies everything that makes Hublot so distinctive: materials, minerals, metals; their fusion and their transformation into new forms of expression, unique and quite unexpected. An alchemy expressed both in the transmutation of the raw material

EXECUTIVE DIRECTOR AND PUBLISHER Kenneth Mitchen ken.mitchen@mea-finance.com COMMERCIAL DIRECTOR Nap Estampador nap.estampador@mea-finance.com Tel : +971 50 100 5488 SALES DIRECTOR Andrew Cover andrew.cover@mea-finance.com Tel: +971 50 931 3236

and in the chemistry created by the spirit of the watch itself. This is the Spirit of Big Bang Gold Crystal.

The mysteries of gold crystal The natural crystallisation of gold dates to a time when mountain ranges formed. It was in these crevices that jets of pressurised heated water extracted the gold, redepositing it within seams in the rocks. On rare occasions, natural conditions would allow the gold to remain in its natural state: gold crystals, the rarest form of gold on earth. Hublot has mastered a unique technique allowing natural crystallisation to be reproduced almost exactly. By

EVENTS AND MARKETING MANAGER Cris Balatbat crissyb@mea-finance.com Tel: +971 58 594 4818 ADMIN AND FINANCE MANAGER Marilyn Nainque marilyn@mea-finance.com Tel: +971 58 5025836

heating purest 24-carat gold to its melting point, its atoms are vaporised into a gaseous mixture before interlocking as the temperature is lowered, forming an open angular structure. Thousands of crystals join to create an architecture which is random, unique, and impossible to reproduce, with no more than 20% making the grade. The master dial-maker applies the gold crystals to a black dial covered with a fine layer of transparent lacquer; the manufacturing process took this craftsman a year to research and develop, and the application must be undertaken in a controlled atmosphere to ensure no air bubbles can form on the surface. It takes around twenty layers of lacquer to encapsulate the gold crystals. The dial is then polished to render the lacquer invisible, perfectly smooth and uniform.

Spirit of Big Bang Gold Crystal The Spirit of Big Bang is Hublot’s tonneau-shaped watch, and it adopts all the design codes of the iconic Big Bang: the six H-shaped screws on the bezel, the lugs either side of the case, the over moulded rubber screw-down crown decorated with the iconic H, the sandwich type construction. To provide a perfect contrast with the gold of the crystals, the Spirit of Big Bang Cristal d’Or’s case is covered in black ceramic and paired with a black alligator strap stitched onto rubber. Available in 39 and 42 mm, it will display the time for 50 hours without any winding of its Caliber HUB1710 automatic mechanical movement.

FEATURE CONTRIBUTORS: Adrian Murdoch, Mushtak Parker, Walter Sebele editorial@mea-finance.com

WEB ASSISTANT Marie Orayan web@mea-finance.com

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MEA Finance - October 2021

Articles inside

The Solution to Cross Border Payment Inefficiencies?

Gold crystal: alchemist Hublot creates magic

Will the Future of Banking in the Middle East be ‘Digital-Only’?

Instrumental Change

Reframing growth with core banking

Staying relevant in the digital age

Family Values

Preparing for Leadership

Investing in the Surging Demand in U.S. Housing

Pretty Green

Towards a sustainable future: Oman

Amazon Payment Services partners with American Express to expand online payments acceptance for AMEX Cardholders in KSA

Mashreq ramps up Asia operations with opening of its first representative office in Shanghai

Turning the tide