The UAE is moving ahead with its plans with respect to the development of the Islamic economy. 2016 started with the announcement of a number of Islamic compliant transactions that further foster Dubai’s objective to become a global Islamic capital.
Islamic products are getting more popular and in a recent study by Bloomberg, it has been noted that UAE residents are inclined to choose Islamic finance loans over conventional ones. This is a major outcome confirming the growth of awareness regarding Islamic products among consumers.
Islamic banks are working on enhancing their contribution to the growth of SMEs and in the second week of January, Noor Bank initiated a detailed market study for this sector. This step has been complemented by the continued development of products to service the trade and working capital needs of SMEs. In addition, Noor Bank has developed Shariah compliant risk mitigation structures that are not commonly used in the Islamic banking space.
In this context, Noor Trade, a division of Noor Bank providing Shariah compliant products and services to SMEs, has signed an agreement with the Mohamed Bin Rashid Fund (MBRF), an initiative of Dubai SME, to support SMEs owned by UAE nationals. Under this agreement, the Islamic bank will be extending financial support to the UAE nationals for existing ventures that have been operating for more than one year, by offering financing of up to 80% of the project cost, up to a maximum of AED5 million (US$1.36 million).
Emirates Islamic, a Shariah compliant bank based in Dubai, expects an 11% loan growth in 2016. The bank, which is also the Islamic financing arm of Emirates NBD, stated that it is considering an increase in trade finance, retail lending and loans to SMEs, a segment that showed the most strain in 2015.
On another level, the Dubai Department of Economic Development has commissioned a project to assess the feasibility and subsequent establishment of the world’s first Islamic export-import bank to boost the emirate’s foreign trade. This proposed bank will provide a multiple range of products and services aimed at supporting trade flows into and out of the UAE. The view is also to assist businesses in the UAE to grow their trade flows by providing risk mitigation, financing and market access.
Gulf Marine Services has also recently secured a US$620 million syndicated debt facility combining Islamic and conventional financing. The six-year term facility will replace its existing funding facilities with no charges to the previous borrowing covenants and comprises a US$375 million term loan, a US$175 million committed capex facility and US$70 million for general working capital purposes.
A challenging year is expected for the Islamic finance sector in the UAE as a result of the plunging oil prices and other challenges that the region is facing. This should not, however, affect any of the ongoing projects and commitments that the government announced earlier in respect of the Islamic economy. We are also looking to see more Islamic finance structured loans and deals in support of the number of construction projects to be announced in 2016 in the UAE.