Customers of National Bonds can soon get their savings to work for them - by tapping loans at lower rates. Image Credit: Supplied

Dubai: UAE residents could soon start using their savings with National Bonds to take out short-term loans. Since all such loans would be backed up by their existing savings, borrowers get to pay lower interest rates on these loans.

National Bonds’ initiative is timed to perfection with the current consumer mindset, where higher interest rates have them worried about committing to big-ticket purchases such as a car or a home or for other purposes. The UAE Central Bank has matched the successive rate hikes done by the US Federal Reserve, the latest being earlier this month. And more are coming.

Already, the UAE consumer financing marketplace is seeing a sharp uptake in BNPL (Buy Now Pay Later) financing, which comes with 0 per cent interest and where the individual pays back what’s owed over 4-6 months, typically.

The National Bonds’ plan is to allow its customers access to bank lending, typically for loan tenors of 1- to 3- years

National Bonds’ CEO, Mohammed Qasim Al Ali, makes a point that the actual lending will not be done by the company. Instead it will get banks/third-party lenders to do the needful.

“We are not a bank, we are ‘half a bank’ - which means that we take the customer liabilities, let’s say investments, but we don't lend,” said Al Ali. “We cannot lend because we are not a (full-fledged) bank.

Instead, we talk to banks and finance companies, and offer to take a pledge from the customer on whatever they have with us and lend against that. We are talking to many banks, and we already have an equation with Dubai Islamic Bank."  

This lending program will be a ‘priority’ for National Bonds this year, the CEO added.

“For banks, this means that they will have almost a (fully) covered loan with our customers,” said Al Ali. “For example, say, an individual has with us Dh100,000, and the bank lends them Dh70,000. But the cover is Dh100,000, so, they can offer fully covered loans.

“We are talking to banks about providing this at a lower rate. Remember, this is not against the salary certificate. This is against funds that exist in National Bonds. Our customers are looking for such facilities, so if we can work together with banks and offer something that is lower than the market.”

At the moment, we are licensed as an investment company under Securities and Commodities Authority (SCA). We are not a bank, we are half a bank

- Mohammed Qasim Al Ali of UAE's National Bonds

Why get into covering loans?

“Because we find that people are redeeming the money they are holding with us for their needs,” said the CEO. “Instead of redeeming their savings, we want them to pledge their bonds or sukuks, so that they can still earn a profit and prizes from us. Because the bank, when they take a collateral from the consumer, they give it back (once the loan is paid back).”

Multiple incentives to save

Last year, National Bonds introduced the ‘golden pension’ scheme, in a bid to get UAE residents to think beyond the mandatory gratuity schemes from their employers. Since then, National Bonds has signed on with some high workforce organizations such as Dubai Taxi. The pension program can have take in contributions from the employer as well as individuals.

On the take up rates, Al Ali said: “It takes time. You are trying to change cultures and mentalities. Most of the (gratuity) funds, especially in the SME sector, are not even funded and are only on paper.

“I have spoken to a couple of big corporates who are on the right track and keep the funds aside in a bank so that they generate something. The most important thing is to convince the employer that it is time to start, even if they cannot fund the previously accumulated amount, which may be a million, two million or three million dirhams.

“Start fresh, because eventually the government may decide to make it mandatory for the private sector to fund the end-of-service. It is better to be ahead of the game and look after your employees.

“This is getting through to big companies, but smaller ones still struggle with liquidity and cashflow. We suggest they start gradually with lower contributions, and as they feel more stable, they can increase the contributions.”