Dubai: UAE banks are gradually entering the micro-finance space by offering strictly short-term loans to blue-collar workers who would typically not feature on their loan books. The demand for such loans already exists, and for the borrowers the funds received would come in handy to meet immediate requirements.
And at the same time, ensure that they pay it back on time.
RAKBank, for one, has made strides in the micro-finance space, lending to customers with a minimum salary range of Dh750 to Dh4,500 a month to qualify.
“Customers can borrow 50 per cent of their salary up to a maximum of Dh1,500,” said Raheel Ahmed, CEO of RAKBank. “The funds are then credited to the wage card for customers to use so that they manage their emergency needs.
“The salary advance (by way of the micro-loan) is to be repaid upon next salary credit from the individual’s wage card.”
Serves a social cause too
For these blue-collar workers, banks lending to them, even within a strict range, offers them some respite compared to what they would typically have to pay private lenders in their home countries. At interest rates that are outright extortionist at times.
We have done Dh130m of lending - which we call 'social finance - to 85,000 blue-collar workers. If they are able to use the loan for an emergency, education or healthcare needs of their family back home, that creates a pretty wide social impact on the community here too
Will more banks join in micro-lending?
Some of the other banks in the country too are exploring the micro-lending possibilities and its as yet untapped potential. Through the decades, the banking sector’s focus has been on longer term loans to white-collar professionals and higher, whether it’s for personal loans, mortgages or the like.
This focus is what’s now changing. If blue-collar workers is where the immediate attention is being paid, that could shift to take on other categories of professionals too.
“The UAE’s base of single individual owned businesses and freelancers will require lending support in some form or the other,” said an analyst. “Not every single individual owned business is a tech startup or digital media content creator.
“There are so multiple businesses that would get a start from access to micro-finance.”
According to Sameera Fernandes, Chief Sustainability Officer and board member at Century Financial, "Other banks will likely see the value in this space and consider similar initiatives. The potential to make a real difference in people’s lives is compelling. Blue-collar workers play a vital role, and by offering access to microfinance, we’re opening doors to a more secure future for them and their families."
Ripe for fintechs to enter
There are fintechs that could potentially launch such lending, if they have the required licenses from the regulator. Or they could align with local banks to offer such services.
"Fintechs have already started making strides in this area, offering micro-loans and payment solutions that are accessible and user-friendly," said Sameera. "These platforms are helping to break down barriers, making financial services more inclusive."
As for accessing RAKBank's micro-finance, customers can request and 'get instant approval' of salary advances via the 'C3 Pay App without having to visit a branch or office'. "Ease of use is critical to the product - customers can access the C3 Pay App in the language of their choice," said Ahmed. "They are also displayed audio and video content in the selected language so that they clearly understand the product features and charges."
Entering the microfinance sector isn’t just about offering loans. It’s about understanding the unique challenges faced by these workers and providing solutions that truly make a difference
Record years for UAE banks
UAE banks continue to enjoy some record growth, with consistently high demand for loans from individuals and businesses. This is so even in the high interest rate situation these loans are going for.
But isn’t any push into micro-finance laden with higher risks of defaults, etc.? According to Ahmed, the strict short-term nature of the loan cuts down the risks. Plus, on a per individual basis, the sums involved would not warrant much concern.
“The customer repays the advance via their next month’s salary,” said Ahmed. “The ramp-off model is introduced to ensure that the customer has access to more income over time, thereby ensuring their financial wellbeing.
“This gradually reduces the amount the customer can borrow and ensures that the customer does not continuously remain in a cycle of borrowing.” (On micro-finance, the RAKBank fee ranges from Dh20 to Dh60.)
