Knowledge Update

In 2020, the world went through the worst disease experience since the Spanish Flu. Coronavirus spread as no other virus did because of flights and tourism activities.

“At the time of writing this article, there are approximately 10,000 cryptocurrencies used in the market”

Historically, since the dawn of time, man has invented and developed various forms of payment. To take a shortcut, reaching the currently used fiat currencies known as a banknote.

As we all know, COVID-19 has caused severe damage to the world in all fields starting from locking people at homes to major investments such as airplane business, car factories, or oil production.

In today’s ever-changing world and with the Covid-19 pandemic going on, having basic personal financial skills is one of the most valuable things you can do to live a healthy, happy, and secure life.

The novel coronavirus outbreak that began in Wuhan, China in December has expanded to touch nearly every corner of the globe—bringing with it widespread quarantine requirements and economic distress.

The transport sector plays an important contribution to any given economy. The more advanced the transport infrastructure the more likely the economy will grow and vice versa.

United Arab Emirates (UAE) is reported to be the second-largest economy in the MENA region with a gross domestic product (GDP) of 434 billion as of 2018. In the past, for example in 2012, oil revenues contributed a third of the GDP or 70 per cent of the country's gross domestic product (GDP). This is, however, is likely to reduce as a result of recent fall oil prices. The fall in oil prices has made the UAE economy to no longer depend on oil revenues for sustained growth. The UAE government has embarked on policies aimed at diversifying its economy, for example, the 10-year visa for private investors, designed to encourage private investment and attract a wider range of economic activities.

Non–oil revenues are expected to propel and accelerate economic growth in UAE in response to the government's newly introduced policies. Oxford Economics is forecasting non-oil GDP growth of 3.6 per cent in 2019, up from 3 per cent the previous year[1]. By 2015 sectors such as the media, tourism and other non-traditional revenue earners increased to 70 percent of the UAE's GDP. The travel and tourism sector in 2015 directly contributed USD 18.7 billion which is equivalent to 5.2 per cent of the total GDP, and with the diversification policies, the economy is expected to grow at higher levels. It is estimated that by 2021, international tourists will spend $43.8 billion (Dh160 billion) on bags, shoes, jewellery, and other items at retail shops across Dubai[2], making the city one of the world’s top shopping destinations. However, the recently introduced 5 % value-added tax (VAT) in the untested territory, is likely to result in unprecedented impacts in the retail market.

The tax is argued might act as a disincentive to shop in popular retail outlets with unlikely purges in retail sales . To safeguard against a possible backlash in sales, the UAE Federal Tax Authority (FTA)[3] has announced a tax refund scheme for eligible tourists. Starting in November 2018, international tourists may request refunds of value-added tax (VAT) incurred on their purchases from registered retail outlets. Tourists will be able to claim back 85 per cent their VAT on goods they have purchased in the UAE. The remaining 15 per cent will be charged in administration fees to Planet, the global operator of the refund system. Posters on the storefronts of registered stores will be displayed for easier visibility to the visitors with minimum spending of Dh 250 to claim a tax refund. Tourists can claim the refund within 90 days of their purchase. The FTA explained that a special device has been created at the point of departure where refunds will be received from purchases of registered outlets.

Documents required include the tax invoice from the 4000 registered retail outlets, along with copies of their passport and credit cards. Departing tourists will have the option of getting their refunds in dirhams or deposited their credit cards. The scheme is designed “to attract and retain larger numbers of tourists and allows them to enjoy the UAE's unique tourism offering, especially in retail shopping" sentiments expressed by Khalid Ali Al Bustani, director-general-FTA [1] Oxford Economics is a leader in global forecasting and quantitative analysis comprising more than 1,500 international corporations, financial institutions, government organizations, and universities. [2] Data was from Dubai Chamber of Commerce [3] UAE Federal Tax Authority (FTA) is responsible for collecting of federal receipts.

Reason for Consolidations in the UAE Banking Sector

Fintech is radically changing the finance industry. Innovations such as artificial intelligence, machine learning, blockchain technology, biometric identification, cloud computing, and the use of big data are revolutionizing the industry. During the past five years, more than US$100 billion has been invested in the Fintech sector, and 73% of this investment was focused on retail banking. Thus, the impact of the current and increasing FinTech disruption is on the banking sector, and this is forcing banks to invest heavily in latest technologies for their existence or they will perish in the near future.

The retail banking experience:

Even individuals who have access to a bank account and who are able to go into a nearby branch, often don’t want to because the experience is so unpleasant. Investors and Fintech entrepreneurs have recognized that traditional retail banks have failed the consumer in this respect, and are developing new technologies that allow for a more enjoyable financial experience.

Challenger banks:

These are banks, such as the United Kingdom’s Monzo and Starling Bank, that are purely digital. These banks conduct most of their operations via mobile phone, providing fast, painless and pleasant user experience. From the investor’s perspective, it costs up to 50% less to set up the digital infrastructure for a challenger bank than for a traditional bank, and challenger banks require up to 90% less staff to run them. Moreover, their use of automation and sophisticated data technology means they are highly efficient financial service platforms, forcing established retail banks to reinvent their business models in an effort to keep up.

Recent events:

Some banks in the GCC have already merged, few are in the process of merging, some have announced their intentions for the merger, and many are in the preliminary discussions on merging. In my opinion, this increasing trend among the GCC banks forming alliances or merging is basically to survive the Fintech disruption and the challenges from new entrants from the non-banking sector and I doubt what kind of synergies they are going to achieve – it is a survival strategy.


Disclaimer: The above is personal opinion expressed as part of academic exercise.

Dr. Manuel Fernandez, mfernandez@skylineuniversity.ac.ae, Skyline University College, Sharjah, UAE

Written by: Abdula Ali Elabed

Financial statement lending places most of its emphasis on evaluating the information from the firm's financial statements (balance sheet and income statement). Financial statement lending information is often hard data and it’s a type of transaction-based lending.

The terms of the loan contract and decision to lend are principally based on the strength of the balance sheet and income statements. Financial statement lending is best suited for relatively transparent firms with certified audited financial statements. Thus, it is likely the technology of choice in bank lending to large firms. However, some small firms with long histories, relatively transparent businesses and strong audited financial statements also qualify for the financial statement lending.

Lenders rely on financial statements to obtain critical information about the financial health and risks of businesses. The average lenders don’t have ongoing inside access to the day-to-day operations of a company. Instead, they rely on the financial statements to provide accurate, readily comparable information, and observe the profitability and value of a business. A lender can review the financial statements to assess liquidity, cash flow, leverage and overall solvency.

Asset-based lending:
Asset-based lending is a type of lending where the collateral is generally the account receivables and inventory. Asset-based lending information is often hard data and it’s a type of transaction-based lending. The credit decisions are principally based on the quality of the available collateral. This type of lending requires that the bank intensively to monitor the turnover of these assets. It is available to small firms of any size, but requires that the firm have high-quality inventory and receivables available to pledge as collateral.

When this type of lending is referred to as fixed-asset lending, the main data are estimated values of the real estate, motor vehicles, or equipment leased or pledged as a collateral. Fixed asset lending is quite cheap for the bank since it doesn’t involve any continuous monitoring activity and only requires an evaluation of the pledge assets when the loan is provided. Hence that it is very monitoring-intensive and relatively expensive for the bank.

The most important benefit that the company gets from using asset-based financing is improved liquidity. The facility can provide financial stability and predictable cash flow when it used correctly. This can help to stabilize operations for companies that are growing rapidly, have seasonal revenues, or have tight cash flows. Also, it is easier to get than loans and lines of credit, more flexible than other types of financing, and it can be obtained quickly (The application and underwriting process is much faster than qualifying for a conventional loan or line of credit).
In addition, it has fewer covenants than conventional lines of credit, can be used as a stepping-stone to other products, and have lower costs than comparable solutions, such as factoring. On the other hand, it’s have costs. In the asset-based lending, the lender gets to seize the assets in the event of failure of repayment, and the high rate of interest on the assets which lead to the limit of lending to be lower in this approach. Also, it requires a lot of monitoring and auditing, and it has many appraisal costs and the up-front legal costs of this system are high.

Useful tips for managing personal finances.
Life is all about making ends meet. This is particularly true in case of a common man with a meagre income to meet his family expenses. Needless to say everyone is