National Bonds Corp sees asset growth of as much as 30 percent in the next two years as the Dubai government-controlled Islamic fund manager targets women and immigrants, typically ignored by banks.
The Shariah-compliant company, with about AED5bn ($1.4bn) under management, plans to introduce savings plans for the country’s female population and retirement funds for the UAE’s 6.5 million foreign workers, chief executive officer Mohammed Qasim Al Ali said in an interview.
“There is a big vacuum when it comes to saving in the UAE,” Al Ali said in an interview in Dubai. “We’re brainstorming with our Shariah board to launch new funds to target different segments of the society that have been ignored by commercial banks.”
The financial industry is underdeveloped in most Islamic nations, in part because a segment of the population shuns banking for religious reasons, limiting project financing and stunting business growth, according to the International Monetary Fund. Shariah-based saving funds may increase financing for companies after banks, hurt by a property-led slump, squeezed lending in the region.
National Bonds invests in Islamic money markets, sukuks, income generating real estate and in UAE-based private equity companies and stocks, according to its website. The investments differ from a non-Islamic savings program in that they’re not guaranteed and represent a pool of funds received from bondholders who get their share of profit. Islam forbids paying fixed returns on investments.
Grabbing market share from banks that don’t comply with Muslim banking rules may be a challenge for National Bonds, which paid a 3.54 percent return last year.
“Some banks in the UAE are offering about 4 percent return per annum on deposits which are guaranteed by the central bank,” Ahmed Talhaoui, the head of portfolio management in Abu Dhabi at Royal Capital PJSC, which is 44 percent owned by United Gulf Bank, an investment bank in Bahrain, said in an interview on Monday. “In order to be attractive for investors, other saving options must offer more than that.”
Debt of Gulf Cooperation Council borrowers has returned 12.3 percent this year, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. Debt in developing markets gained 14 percent in the period, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.
Demand for savings plans is increasing in the Persian Gulf country, the second-largest Arab economy, after economic growth slowed to 1.3 percent last year from 7.4 percent in 2008. Twenty-six percent of the nation’s population saves regularly compared with 45 percent in the UK, according to a survey conducted by YouGov Siraj, the local subsidiary of London-based YouGov Plc, published last month.
Women in the UAE finance one-third of the transactions in the financial and banking sector, according to the website of the country’s embassy in Washington DC. They control about 20 percent, or AED250bn, worth of household wealth, Knut Storholm, partner and managing director at Boston Consulting Group Inc, was cited as saying in March on the website of UAE Interact, a government-linked information portal.
Increasing wealth of the world’s 1.6 billion Muslims, spurred by crude-oil income in the Persian Gulf and Asian economic growth, is also increasing demand for Islamic financial services. Malaysia has a Shariah-law compliant alternative for every conventional product available because of its early start, CIMB Islamic Bank Bhd.’s Badlisyah Abdul Ghani said in June.
A majority of the UAE’s Asian and Western workers prefer their home countries for depositing savings, according to the YouGov Siraj survey. Remittances from the Gulf country amounted to $10 billion in 2008, according to an IMF estimate in February, with 70 percent going to India and Pakistan. Immigrants account for 79 percent of the UAE population, government data show.
“The root cause is that we don’t have an infrastructure like Malaysia where they nurture and introduce a high-caliber of Shariah saving products,” Al Ali said. “What we need is different value prepositions for different segments of the society.”
The difference in yield between the Dubai Department of Finance’s 6.396 percent sukuk maturing November 2014 and Malaysia’s 3.928 percent Islamic note due June 2015 shrank 43 basis points since June 30 to 369, data compiled by Bloomberg show. The spread between the average yield for global sukuk and the London interbank offered rate has narrowed 88 basis points to 355 since the end of June, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows.
National Bonds, which is 50 percent owned by the emirate of Dubai, is exploring investments opportunities in the industrial and energy sectors after the Dubai property slump pushed prices down more than 50 percent since 2008.
Credit growth in the UAE has slowed to 1.6 percent this year through August from 30 percent annually from 2005 to 2008 as the global credit crunch hurt economic growth, hit loan demand and eroded bank profit. Borrowing costs in the UAE have risen 22 percent since January as banks struggled to attract deposits.
Sales of sukuk have fallen 17 percent to $11.6 billion this year compared with the same period in 2009, according to data compiled by Bloomberg. Issuance totaled $20.2 billion last year.
“There is a need for liquidity in the sukuk market,” Al Ali said. “Currently, we’re buying into existing sukuk because they’re trading at a discount. All Dubai sukuk are doing so well in terms of returns.” (Bloomberg)