There is a lot of talk about SME lending here at the moment. We ourselves have seen some results through the Mohammed bin Rashid Innovation Fund. We have dispersed one loan through the fund already and are working to increase our cooperation. There is also talk about some kind of SME guarantee scheme being developed. From my experience, these things can work; however, ultimately the most powerful partnership is where the client and bank work directly together on a risk participation basis: the client with their equity, the bank with its funding, and the ensuing interest. That is the most effective model going forward. The risk of any guarantee scheme is that people may not be as committed, since they feel that someone else is going to step in if something goes wrong. The best model is where both the business owner and the bank are committed to the relationship.
How do you qualify the level of financial education in the UAE?
Historically, this has been an area of weakness. The banks have overstretched borrowers and have not focused on consumer education. In the last three years, there has been a major push by the regulator to get more serious about proper financial education, disclosure, and helping clients understand the implications of the financial decisions they make. There has been an improvement there, but there is still room for growth. The Central Bank has done a tremendous job in terms of setting clear regulatory caps on consumer finance, loan-to-value ratios, and property settlement. In the next couple of years, there will be more progress on personal financial management, whether through digital offerings or some fintech scenarios being developed. People can now access independent reviews before making their own decisions as to which provider to choose. This means that banks have to be competitive, transparent, and disclose the right thing.
How are banks in the UAE adopting fintech in order to stay ahead of the curve?
Fintech is the buzzword at the moment, but financial technology has been around since the inception of the ATM. I am seeing more hype than reality in the UAE at this stage. At RAKBANK, we started to use blockchain technology through a company called Ripple to do our transfers and payments to India. For this, we have a strategic partnership with Axis Bank in India. We have an instant money transfer platform called Rakmoney Transfer, and we are planning to have more direct host-to-host links with banks in the Philippines, Pakistan, and Nepal. The problem is that the banks on the other side need to invest in having the same technology that we use, which takes time. Historically, this is an area where banks have not been interested. These particular clients typically earn a low salary and send a high percentage of their income back to their home country. We came up with a cost-effective solution for them that is largely digital.
To what extent is there going to be a level of consolidation in the UAE's banking sector?
There are too many banks in the UAE. On top of that, the so-called bankable population is 3-4 million people maximum. To have 50 banks serving that population is just not logical. It is just a case of whether at the end of the day the individual shareholders of these organizations feel it is in their interest to consolidate or not.