Finance june2014

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Qatar

TAKING CARE OF BUSINESS Qatar recently approved the implementation of the wage protection system as one of a number of key steps the nation is taking to reform its labour rights situation. Banks in the country await more details

By Rohan Soman and Priya D’Souza, Doha

www.bqdoha.com

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n 30 April Qatar’s Cabinet approved the recommendations of a committee that advised the payment of workers’ wages through banks binding on all employers in the country. “According to the recommendations, a comprehensive electronic system is to be created and handled by Qatar Central Bank (QCB). It will be managed jointly with the Ministry of Interior, the Ministry of Labour and Social Affairs, and the financial institutions, establishments and companies,” a statement issued by H.E. the Deputy Prime Minister and Minister of State for Cabinet Affairs Ahmed bin Abdullah bin Zaid al-Mahmoud after the Cabinet meeting, said.

The State Cabinet also approved proposals Banks await QCB directive to make the necessary amendments to the Gurung's company pays him regularly but labour law to ensure the wage protection sometimes there are slight delays. Having system (WPS) is launched and successfully read reports in Nepali language papers operates. Article 145 of the labour law (No 14 available here, he is excited about being paid of 2004) provides for imposing of fines for his salary through banking channels. Banks, delayed salary payment. This, with articles on the other hand, have expressed some 1 (preamble) and 66 (about workers' salary concerns that they hope will be addressed payment), is being amended to facilitate the when they do receive the QCB directive. installation of this e-salary payment system “Imagine what would happen if we had and make the penalties for delays and 10,000 low-income workers who are our defaults stricter. customers, and they all come to our branches enquiring about their salaries on the 26th of every month and again on the 27th and the 28th because they expected their salaries on the 26th," a banker says in remarks to bq. “The magnitude of customers would be impossible for our current resources to handle, and it would take a lot of explaining to make them understand their salaries haven’t come in yet if that is the case.” The reservation banks have voiced is clearly justified.

They don’t have the resources to handle a mass customer base.

Working with low-income workers, most of them semi-literate, would not be easy.

Last March, according to media Low-income workers, the category most reports, banking regulator, Qatar Central affected by the ruling, are happy with this Bank, asked all banks to provide account development. Gurung, 30, a Nepali, has been details of all their customers. The idea, working with a small contracting company in apparently, was to see who among expatriate Qatar for the past few years. A semi-skilled workers had bank accounts and who didn’t, hand, his monthly pay package is around so those who didn’t could be made part of the 1,200 riyals. Married, and with children, he has proposed e-salary payment system. Abdulbano access to a bank account in the hilly tracts sit A. Al-Shaibei, chief executive officer and of his home country. So he sends money home director of Qatar International Islamic Bank, mostly through friends and relatives - some- dismissed media reports and said his bank thing many Nepali workers here do. was yet to receive the QCB directive.

Official figures suggest there are an estimated 1.55 million workers in Qatar and a vast majority, roughly 1.45 million, are expatriates. bq estimates the ratio of the population with bank accounts to be half a million

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Dr. R Seetharaman, Doha Bank group CEO

Doha Bank Group Chief Executive Officer Dr. R Seetharaman said his bank heartily welcomed the proposal to launch the WPS as it would protect the interest of workers by creating a clear and transparent process between employers, banks and Qatar's government “represented by related ministries, Qatar Foundation and the Qatar Central Bank (QCB). ”While other banks have similarly lauded the government’s decision, they have a lot of ground work to cover before the e-salary payment system can be implemented. “It would depend very much on the QCB’s formal circular, as the QCB may set parametres for compliance in this regard, and this could determine the timeline to implementation.

In absence of any formal QCB guidance right now, we would be ready with a specific product or service for workers within a month or two, at the most,” says Al Shaibei.

e-salary payment solutions Doha Bank, however, is more prepared to implement the e-salary payment system. They were the first bank in the country to offer their electronic payroll service, through their Dpay payroll card, to a wide network of companies with the highest number of payroll cards in the Qatari market. They also have the experience from implementing the WPS in the UAE where they offer this payroll product through their Dubai and Abu Dhabi branches.

The UAE was the first country in the Gulf to introduce the e-payment mode for workers.

Called the Wage Protection System, it was put in force in mid-2009. Select banks and exchange houses, not all, that are part of the network offer it mostly as part of their corporate social responsibility but they do receive a token commission. They have dedicated ATMs and branches in worker-dominated localities for the convenience of the beneficiaries.

There is no need to open bank accounts for workers, as is the practice in neighbouring UAE, say many banking industry insiders. “It depends in part on the companies as well,” says Al Shaibei. “One possible product that

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would meet this need is a kind of prepaid ATM/ credit card approach, whereby the company funds a single account and workers can withdraw their relevant salaries based on their own individual card numbers/IDs – hence a kind of prepaid concept. If workers do need to open bank accounts, I believe the banks are ready to accommodate the requirement.

It would be a one-time event to do so, which would be similar to how the banks handled the recent IPO; resources can be re-allocated temporarily to support the process if needed.”

Most banks in Qatar require a minimum monthly salary of QR4,000 for a person to open a current account, considerably higher than the average wage of most low-income workers in the country. In the recent months, some of them have also been considering raising this minimum.

“They (low-income workers) may have such accounts, but as I said earlier, it depends on whether the QCB will detail any specific parameters for implementing this; the approach that each bank will take in relation to; and each of the bank’s operating model and cost structure. It is not necessary for workers to have savings or current accounts; it is possible, but then, the question is whether it

products as well, but are awaiting the QCB’s final instructions on the individual characteristics of each bank as to what the final product or service provided would be. “In terms of loans or financing facilities, low income workers, I believe, are eligible just as any other workers are, subject to compliance with the QCB’s instructions on consumer credit and each of the bank’s finance and risk management policies,” says Al Shaibei. Doha Bank trusts they will continue with their record of offering innovative products, “be it receiving their salaries, making remittances, daily purchases or even responsible borrowing.”

Challenges can be overcome “The challenges would depend on whether the QCB specifies any details for the implementation of this wage payment process,” says the QIIB CEO. “In terms of the system per se, most, if not all, Qatari banks’ current systems and processes can cater for the mandatory wage payment requirement; the challenge then would be to develop a product or service that is able to meet the needs of the employer companies and workers within current systems so as to avoid development costs and or other overheads.”

Doha Bank also points to challenges in the logistics needed to cater to such a large segment spread all over Qatar especially in remote locations, but they are quite certain they have a clear advantage with a product that already takes care of many of the aspects that will be required to implement the WPS. Official figures suggest there are an estimated 1.55 million workers in Qatar and a vast majority, roughly 1.45 million, of them are expatriates, most of whom are engaged in the private sector. Doha Bank says it estimates that a quarter or a fifth of the country's population may be white-collar. bq thus estimates the ratio of the population with bank accounts to be half a million.

“In terms of loans or financing facilities, low income workers are eligible just as any other workers are, subject to compliance with the QCB’s instructions on consumer credit and each of the bank’s finance and risk management policies“ is necessarily beneficial for all parties involved – the employing company, the workers themselves, and the banks providing the service,” says Al Shaibei.

Doha Bank concurs. “There are number of options we can choose from depending on the segment and the size. Treatment of each segment will be different whether in terms of accounts and cards offering. We are already offering a complete payroll solution to this specific segment; we know that more than 90 percent of low-income workers remit money to their families in home countries and we have lately enhanced our product to offer remittance and exchange services - this is a very important option the Dpay payroll card delivers,” says Dr. Seetharaman.

The banks are open to offering other banking

Mechanisms almost in place The construction industry is by far the largest employer in the private sector, with a workforce of over half a million. A massive majority of low-income workers (mainly from the contracting and construction sector) get paid their monthly wages by their employers in cash. Human resource and finance officials of some private firms point out distributing workers' salaries in cash is a nuisance as well as an expensive affair, therefore prefer the banking mode. However, many smaller companies admit they find the cash salary payment more convenient as they fear they might not be able to transfer the salaries of workers to the designated banks on time.

However, Taha Mohammad, executive manager for Dallah Contracting and Trading, was of the opinion that cash payment might not be such a

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Photo: Bosco Menezes

The government planned to build two new labour cities in Doha’s industrial zone with a capacity to house 100,000 workers and five other compounds were being built elsewhere in the country to accommodate 120,000 workers

Abdulbasit A. Al-Shaibei, CEO and director of Qatar International Islamic Bank

bad thing. "When will workers go to the bank to collect their salaries? They are busy working all day and hence prefer to get their salary in cash."

The electronic salary payment mode will make it easier for the Ministry of Labour and Social Affairs to closely monitor salary payment by companies, and prevent delays and defaults since most complaints from low-income workers relate to delays and defaults, according to diplomats from major manpower exporting countries as well as the labour ministry itself.

As the Ministry of Labour and Social Affairs makes elaborate arrangements to launch the WPS, it has, for its part, asked private companies to provide updated details of their employees and their salaries to prepare an extensive database with the interior ministry.

But how the monitoring mechanism works is unclear. It is assumed the monitoring system will be highly efficient when the online wage payments are made mandatory. The ministry is opening a dedicated department that will closely monitor the system. An extensive study to make sure the system is feasible and works has already been completed.

WPS launch in three phases Plans are afoot to implement the WPS in three phases. In the first phase companies with 500 workers and more will be targetted. In the second phase firms that have between 100 and 500 workers in their employ will be

covered. While in the third and last phase, the rest of the companies will be brought within the purview of the WPS network.

Once the system is in place, companies must transfer a worker's pay within the first week of every month or face fines. It is difficult to guess when the system will be completely operational but the implementation of the first phase could be expected within this year.

This is one of a number of key steps Qatar is taking to reform its labour rights situation.

At a Labour Day conference to address growing international concern for migrant workers building infrastructure for the 2022 World Cup, Labour and Social Affairs Minister Abdullah Al Khulaifi told media that besides the WPS, Qatar was taking steps to enforce building better accommodation and boosting the number of safety inspectors at construction sites. He said the government planned to build two new labour cities in Doha’s industrial zone with a capacity to house 100,000 workers and five other compounds were being built elsewhere in the country to accommodate 120,000 workers.

Bankers say Qatar just doesn’t have the infrastructure in place for the scale of people coming into the country. Most of them are coming in to work on the rail and World Cup projects and will return once the project is complete. “Things are happening so fast. We have only just started building the infrastructure; we don’t have it in place for the people

coming in. We can’t compare hosting the World Cup to hosting the World Expo 2020.

The latter doesn’t require the building of additional infrastructure. Most visitors coming for the Expo will stay in hotels, and besides, Dubai already has the infrastructure and is set for the next 30 years,” they say. Qatar’s situation isn’t so transient. “We will get there, but unfortunately until that happens, it is the low-income workers that will have the most difficult time simply because of their sheer numbers.”

*With inputs from Shereen D'Souza and Mohamad Shams

JUNE 2014

bq | ECONOMY+FINANCE l INSURANCE

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Qatar

Let the Good Times Roll The insurance industry in Qatar has continued to experience boom times and busts over the past decade.

Insiders seem optimistic about 2014 though, perhaps, rightly so

By Rohan Soman, Doha

Q

atar's insurance industry is expected to top its exceptional 2013 performance this year thanks to mega projects, worth billions of dollars involving risk coverage at various stages of development, being launched.

The Qatar Islamic Insurance Company (QIIC) says it expects the sector to achieve double digit growth this year again, driven by a mix of factors that include increased spending on infrastructure projects, growing awareness about insurance and rising population.

The company's CEO, Ali Al Ghani, tells bq that Qatar's insurance sector witnessed a compound annual growth of 11 percent between 2008 and 2012. “There was stagnation in insurance penetration and that was due to the more than double GDP growth between 2009 and 2012,” says Al Ghani. According to him, Qatar's five listed companies (all national entities), which include Qatar Insurance Company, Qatar General Insurance and Reinsurance Company, Doha Insurance, Al Khaleej and the QIIC as well, together command 80 percent of the local market share and their gross written premium (GWP) was QR 2.9 billion in 2012.

However, their combined underwriting result (earned premium minus the cost of claims and operating expenses) came under

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There is the need for a "strong" reinsurance hub or syndicate locally to organise and cater to major risks…a large chunk of a local insurer's gross written premium goes to foreign sharks towards reinsurance pressure largely due to heavy fire losses in 2013 and grew by only 3 percent with some of the companies actually reporting declines in underwriting results on a year-on-year basis. Nevertheless, good investment returns eventually made sure the national insurers were out of the red and achieved increased gross profit.

requests apparently died down in the days that followed. According to Libano Suisse, fire insurance should be made compulsory in Qatar. If bank loans and joint venture investments are insured, why not cover private properties against the risk of fire as well, they argue adding, “Third party liability should be more appropriate to be made compulsory by law.”

Fighting fire with insurance

Local reinsurance hub

Qatari companies are quite efficient in settling claims but the total fire and other claims are still unknown. Fire insurance is not compulsory in Qatar and according to prominent insurer, Libano Suisse, whenever a massive fire incident occurs here, there is a huge reaction, and queries about fire insurance peak.

This happened in the aftermath of the May 2012 Villaggio Mall blaze as well. But the

A very pertinent issue the company raises is about reinsurance. Insurers purchase reinsurance to protect themselves against the risk of loss above a certain threshold. The cost of reinsurance is, obviously, deducted from gross premiums written to calculate net premiums. Currently, the world reinsurance industry dominated by the west and the Far East is worth a staggering USD 192 billion, according

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Both Libano Suisse and QIIC say there has been tremendous growth recently in the segment of motor insurance and bancassurance. Increasing purchase of luxury cars by citizens and expatriates and increasing dispensation of consumer loans are contributing to the growth in the two segments.

There has been tremendous growth recently in the segment of motor insurance and bancassurance.

Increasing purchase of luxury cars by citizens and expatriates and increasing dispensation of consumer loans are contributing to the growth in the two segments

to unconfirmed and rough estimates. The super-rich pension funds of the west provide active financing to the industry.

Speaking about the changes the company would like to see in the new law supposed to be in the pipeline to regulate the local insurance industry, an official from Libano Suisse says there is the need for a "strong" reinsurance hub or syndicate locally to organise and cater to major risks. Or, at least, the proposed legislation should address this issue with "a view" to have such facilities in place here in future. It is quite a timely and logical argument by the company since a large chunk of a local insurer's gross written premium goes to foreign sharks towards reinsurance. “Currently, the insurance industry in Qatar depends excessively on European and Far East reinsurers for reinsurance support,� adds the official.

Life versus non-life In Qatar, the life insurance segment of the insurance business continues to be a matter of concern for the industry in general as penetration remains disappointingly low. The insurers have now been thinking of focusing on this segment and mainly wooing people with investment-linked products. But some in

the industry say that while citizens being relatively wealthier and with access to the state's social security system show little interest in insurance products, expatriates are hard to attract since most of them look at their stay here as uncertain and like to opt for insurance cover in their home countries.

If life insurance, according to QIIC, is picking up here a bit it is only due to the rise in credit life insurance linked to personal loans. The segment still lags far behind its non-life counterpart. "Individual life is still not growing as it is considered repugnant to Islamic Shariah, although takaful, the Islamic alternative to conventional insurance, is there on offer but is yet to tap the potential by filling the gap," says Al Ghani.

Interestingly, set up in 1995, the QIIC was the first Islamic insurer in Qatar to have begun offering takaful products. Its investment-cum-insurance scheme 'Sanabel' launched more than a decade ago was a big hit with both citizens and expatriates. It was discontinued by the government a little later though, and was re-launched after that.

Islamic insurance products became somewhat popular here in the years that followed and according to international audit firm Ernst and Young, takaful grew in double digits

According to QIIC, non-life premium continues to dominate Qatar's market with a share of as much as 95 percent in GWP. Life premium, thus, comprises less than 5 percent. Alpen Capital notes that insurers in the GCC region ceded around 40 percent of their non-life premiums to re-insurers in 2011, compared to just 18.5 percent for the UK in the same year.

The cessation is even higher in the case of Qatar. In 2012, according to Oxford Business Group's Qatar Report 2014, Qatar's five national insurers ceded QR 1.88 billion (USD 515 million) from their total GWP of QR 3.96 billion or 48 percent, a relatively high rate by regional standards.

Figures cited by OBG for 2011 and 2012 suggest that gross premiums of the top five national insurers were QR 3.76 billion and QR 3.96 billion, respectively, while their net premiums were nearly half: QR 1.9 billion for 2011 and QR 2.02 billion for 2012. The OBG report shows that the underwriting result of Qatar's top five insurers was QR 681.3 million in 2011 and QR 651.6 million in 2012 (slightly less), while their investment income (from interest and dividends from equities) was higher at QR 744.5 million and QR 706.3 million in 2011 and 2012, respectively.

According to the Qatar Central Bank's annual report for 2012, there were 22 insurance firms operating in the country. They fell into two categories: those registered with the Qatar Financial Centre (QFC) and the ones earlier regulated by the Ministry of Economy and Commerce (formerly, the Ministry of Business

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In 2012, Qatar's five national insurers ceded QR 1.88 billion (USD 515 million) from their total GWP of QR 3.96 billion or 48 percent, a relatively high rate by regional standards Ali Al Ghani, CEO, Qatar Islamic Insurance Company

and Trade) and now supervised by the Qatar Central Bank (QCB). It is now the responsibility of the QCB to license and supervise insurance companies.

New insurance department at QCB QCB Governor H.E. Sheikh Abdullah bin Saoud Al Thani told OBG in an interview the central bank is in the process of setting up a separate insurance department and aims to frame a comprehensive set of regulations for the sector in line with international best

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practices. Efforts are afoot to develop an effective and harmonious regulatory framework for insurance firms in consultation with other regulatory agencies. "In this regard, we would lay greater emphasis on governance, prudential standards, group supervision and macro-prudential surveillance," says the governor. "All these factors would contribute towards healthy business expansion of both domestic and foreign insurers in Qatar."

The governor said he expected the local insurance industry to achieve stronger growth. Explaining why insurance penetration

was not so high in the country, he said the comprehensive social security system (in place for citizens) had a role to play. In addition, compulsory insurance in most segments is not mandated by law. This is expected to change with the recent announcement of the broadening of the mandatory insurance pool in the health sector, he said. Launched in the middle of last year, the compulsory health insurance scheme entered its second phase on 30 April this year and now covers all nationals and most diseases.

Sheikh Abdullah, though, didn't say when the new set of insurance regulations would see the light of day. The law in force regulating the insurers, until it was amended, was passed 48 years ago, in 1966. The QCB was given the authority to regulate the insurance sector in 2012 vide the law that amended the 1966 legislation, and within the purview of the QCB have come the QFC-registered insurers as well.

Qatar's insurance industry is currently, however, looking forward to the new legislation. Al Ghani says he expects there may be a requirement to increase capital. He is of the opinion that to provide further fillip to the sector, more insurance should be made mandatory. *With inputs from Shereen D'Souza and Mohamad Shams