Ordinary investors prefer National Bonds

With uncertainty comes the need to save money.

The lean financial times have encouraged more UAE residents not only to go slow on their spending, but to save and invest their income in financial instruments, industry sources confirmed.

National Bonds Corporation, a UAE-based Sharia-compliant savings scheme, reported Dh1 billion in sales and five per cent growth in the number of bondholders in the first half of this year. Around 8.5 per cent of the UAE population now own National Bonds.

Mohammad Qasim Al Ali, chief executive officer of National Bonds Corporation, attributed the trend to consumers' preference to hold on to their nest egg when faced with an uncertain economic future.

"People are definitely more inclined to save in lean financial times," said Al Ali.

"The economic uncertainty we saw over the last 18 months was definitely a wake-up call for people who spend most of their income and live pay-cheque to pay-cheque, because they realised the importance of saving and the peace of mind and confidence you feel when you save for your future," he added.

Trends

The latest Mastercard Worldwide Index of Consumer Confidence, released earlier this month, showed that the overwhelming majority of UAE consumers (71 per cent) intend to save in the next six months for precautionary reasons. A significant number (34 per cent) are planning to set aside between 11 per cent and 20 per cent of their income.

Confidence levels have also dropped slightly from, 86.1 to 82.4, which means consumers are now approaching the coming months with a little less optimism. The recent score, however, is still considered high and a significant improvement from the year-ago confidence score of 29.6.

Recent economic studies have shown that equities and deposits are the most popular savings vehicles for people in the GCC. A small portion of consumers still invest in gold, usually in the form of jewellery, and real estate. Life insurance, mutual funds and pension funds also attract a limited number of retail investors.

Last year, National Bond holders accounted for 10 per cent of the UAE's population of five million. Although the percentage of bond-holders dropped this year, it is mainly because the number of residents has expanded.

"This year, 8.5 per cent of the UAE population are holding National Bonds, based on statistics that the UAE population in 2010 is estimated at seven million-plus. There has been no shrinkage in our customer base, instead, it is the growth in the population. In fact, our bondholders grew from 560,000 in 2009 to 590,000 in 2010," explained Al Ali.

Asian expatriates are biggest buyers

Asian expatriates are apparently more inclined to put their money in bonds than other nationalities.

According to statistics released by National Bonds Corporation, 40 per cent of its bondholders are Asians and 30 per cent are UAE nationals.

Arab expatriates are the third biggest bondholders (16 per cent), while only two per cent are Western expats. Other nationalities make up about 12 per cent of National Bonds' customer base.

Regulated by the UAE Central Bank, National Bonds is a Sharia-compliant savings scheme that offers financial rewards to its members.

Rewards include weekly prizes, annual profits and Takaful coverage of up to Dh125,000. More than 83,000 bondholders have already won prizes amounting to over Dh26 million, and in the first half of this year alone, 16 bondholders became millionaires.

The company's customer base recently increased by 5 per cent to 590,000 in the first half of 2010. The number of female savers has grown to 145,000. They now hold Dh1.1 billion in funds, slightly higher than the Dh1 billion in funds being held by UAE nationals.

Mohammad Qasim Al Ali, chief executive officer of National Bonds Corporation, said the increase in the number of female bondholders can be attributed to increased awareness among women about their role to help with the financial needs of the family.

"Obviously there are more women in the workforce than before so women are earning more money as a whole, but there is also greater awareness among them on their role in the family and their responsibilities," he said.

"Women are starting to realise the importance of securing their families' future and are actively contributing to it. This is one of the reasons we have seen an increase in their savings. Joint financial decision-making by the family unit is another contributor to the increase in savings," Al Ali said.

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