Demand for Islamic savings products to grow
Dubai, September 2, 2012
By Bernardo Vizcaino
Sharia compliance is the key factor driving savings decisions by UAE nationals, where an ageing population is expected to boost demand for Islamic savings products, the chief executive of Dubai-based National Bonds Corp said.
"Sharia compliance has been the number one driver of choice of savings instruments among Emiratis and Arab expats," Mohammed Qasim Al-Ali said in an interview. "We are seeing a definite increase in product demand."
The company, wholly owned by the Investment Corp of Dubai, the investment arm of the Dubai government, offers a variety of savings products including a mudaraba fund which now has 4.6 billion dirhams ($1.25 billion) in assets under management.
Mudaraba is an investment management partnership, where profits are shared on a pre-agreed basis between parties but losses are borne by the provider of the capital.
The company aims to develop a range of savings products to cater to savings demand, Ali said, but declined to give a time frame for future launches.
"We are looking into all kinds of diversified products to launch and probing the market for potential strategic partnerships," he said. "Some plans are more long-term than others."
The industry also needs to encourage a stronger savings culture in the UAE, in particular among the youth, he added.
"There is still a culture of spending, consumerism and a demand for luxury goods amongst the Emirati population, both young and old. If we can ensure that our youth are driven towards more responsible spending, then we are hitting the root cause of the problem."
The company's UAE savings index, which tracks consumer sentiment through an annual survey of behaviour and attitudes, highlights this concern.
The survey, released on Sunday, shows 87 percent of respondents don't believe their savings are adequate, said Suhail Shaikh, research director at YouGov, a market research firm that conducts the survey on behalf of National Bonds. The data suggests UAE citizens have not been putting nearly enough effort into managing their savings, Ali said.
This is a challenge because the UAE's population is expected to age. Local citizens were about 20 percent of a population of 4.1 million in 2005, according to the last census by the National Bureau of Statistics. The country is among the world's wealthiest with the fifth-highest gross domestic product per capita, estimated by the International Monetary Fund at $69,798 in 2012.
People over the age of 65 in 2005 represented only 1.1 percent of the total UAE population. That age group is expected to grow to 26.4 percent by 2050, according to the United Nations Department of Economic and Social Affairs, with similar trends forecast for other Gulf countries.
Such a demographic shift would put pressure on government retirement schemes, suggesting the need for private products.
"The ideal scenario would be a combination of governmental regulation and support, and private sector implementation," Ali said. "It is up to both parties to work together to come up with solutions."
He added: "As the general public in the UAE become more financially aware and savings-oriented over the coming years, we expect the importance placed on financial returns to increase further."
Investment Corp of Dubai took full ownership of National Bonds Corp last year, replacing the firm's board of directors with five new members. Sources familiar with the matter told Reuters that the company had invested heavily in real estate projects, a sector that was hit hard by the 2008-2010 global financial crisis. - Reuters