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From a slow start, innovative fintech could shake up finance in the GCC

Date : 23/05/2016
Author:  Marmore MENA



The article originally appeared in The National | Business.

While financial technology, aka fintech, is ascendant in most of the world, it is still finding its feet in the GCC despite several digital transformation drives initiated by regional governments.

In the West, governments play the role of facilitator in terms of policy and regulation, and in providing the right environment for innovation to flourish, leaving it to the private sector to come up with solutions. However, in the GCC, with regulations lagging in most sectors and the private sector wary of joining in, governments play a more central role in fostering innovation.

Still, fintech has begun to bubble up across the region, in payment systems (CashU), peer-to-peer lending (Beehive), crowdfunding (Eureeca, Aflamnah and Durise), online/mobile banking and online trading.

Even though cash is still king, the use of online banking, plastic cards and alternate payment systems, such as CashU, are slowly rising in popularity, mainly because of increasing e-commerce transactions. But mobile banking does not have many takers, mostly because of a lack of user-friendly interfaces, which should change over time.

Crowdfunding is one area where fintech has begun to show its potential in the region. Although it may not replace the traditional sources of funding, such as banks, private equity and venture capital, crowdfunding has provided another option for a region that is facing a severe liquidity crunch. In addition, crowdfunding, at times, focuses on motives beyond financial return, as in the case of Qatar’s Silatech, which has joined hands with Qatar Charity to launch a crowdfunding platform dedicated to funding young Arab entrepreneurs.

Fintech’s penetration into Islamic finance is still in its infancy with very few participants, such as Beehive, a Dubai-based Sharia-compliant P2P lender. However, the potential disruptions to traditional Islamic finance cannot be underestimated. From a consumer perspective, fintech provides more choices that suit individual needs at competitive cost and with easier access. SMEs that find it hard to obtain bank funding from Islamic financial institutions (IFIs) could look to fintechs to fill that gap, via Sharia-compliant P2P lending and crowdfunding platforms.

But the biggest potential impact of fintech would be the increase in reach of Islamic financial services, as an alternative to conventional finance, especially in markets where it is yet to enter. Fintech eating into IFI margins will force the latter to provide more services online and standardise offerings to customers.

Other areas where fintech is likely to have an impact, especially from a GCC standpoint, are remittances, insurance, investment advisory and online trading.

The arrival of online insurance marketplaces will lead to a homogenisation of risks and a complete overhaul of traditional channels of distribution. Technology companies could enter the insurance distribution space, leveraging on their extensive data collection and distribution capabilities, and charge insurers a fixed fee for every customer click.

According to the World Bank, the cost to a diaspora of sending money home averages 7.7 per cent globally. India, which receives the highest remittances from the Gulf region and worldwide, loses US$5 billion annually in bank transfer costs. Despite regulatory hassles in some places, fintech companies have entered the remittance space and are cutting out the middlemen.

So how close is the GCC to celebrating this fintech revolution? Currently, it is still at a nascent stage in most areas where fintech could have a potential impact. These technologies will most certainly affect the businesses of the banking, financial services and insurance industry, the biggest and most prominent sector in the region after oil and petrochemicals.

In terms of policy and regulation, the GCC still lags behind the rest of the world and change takes an inordinate amount of time to occur. However, demand from consumers is expected to give rise to faster adoption across the region. This is one revolution the GCC won’t be able to sidestep.

MR Raghu is the managing director of Marmore Mena Intelligence, a research house focused on conducting Mena-specific business, economic and capital market research.

Tags:  banking, financial, INNOVATION, payment, systems, technology

Ratings:
 Current rating: 5 (3 ratings)

Why Research Matters for the Economy

Date : 30/12/2015
Author:  Marmore MENA

Why Research Matters for the Economy

The Monday of December 21 (2015) provided another significant milestone in the ongoing saga of oil price volatility. Brent crude oil prices fell to $36.05 a barrel, the weakest since July 2004, and surpassing even the low of $36.20 on December 24, 2008. The deepening oil price fall is exacerbating concerns over widening fiscal deficits in the GCC. The following table provides a snapshot of the fiscal surplus (or deficit) situation in the GCC, from 2004 through 2016(f).

GCC Countries Fiscal Surplus/Deficit ($bn), 2004 - 2016(f)

From the above table, it is evident that only Kuwait and Qatar are estimated to enjoy a surplus in 2015. Plotting the GCC surplus/deficit from 2004 through 2015 against the average dollar price of crude Brent shows the deep correlation.

Figure: Correlation of GCC Surplus/Deficit ($bn) against the Average Annual Brent Price

Thus, diversifying the economy is an imperative for the GCC, on building a competitive knowledge economy and promoting innovation, research, and development (R&D). However, for building a knowledge economy, reliable access to data and information is required, which should be underpinned by robust research or analytics.

The 2014 Marmore research publication, called ‘Research in GCC: The Knowledge Gap’, found that in the GCC, often, inadequate availability of statistics from national authorities, lack of data from industrial associations and limited disclosures by public companies can limit the degree of research and by extension its effectiveness. Moreover, data or information often comes with significant time lags. Knowledge economy experts point out the importance of the triple helix model of innovation, i.e., government-industry-university relationships and synergies, in terms of nurturing sustainable economic development. University research, which is often considered the cradle of innovation, is found lacking in the GCC region as evidenced by the number of scientific papers published in 2014.

Table: GCC - Number of Scientific Papers


In the GCC, R&D spending, largely, has lagged global peers. Technology is increasingly going to be a critical enabler of economic change and competitive advantage. However, in order to understand what a country can do best, R&D spending has to be smart, i.e., it has to be backed up by research that is reliable in identifying suitable industry clusters and innovation ecosystems. Thus, R&D interventions have to be preceded by granular analytics.

Figure: R&D as %25 GDP

In order to accelerate the process of the knowledge economy and innovation growth, the Research in GCC: The Knowledge Gap report suggests that the GCC can take the following measures for improving analytics and research capabilities.

Table: Measure Recommended

Tags:  ECONOMY, GCC, INNOVATION, RESEARCH

Ratings:
 Current rating: 0 (3 ratings)

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