Historically, credit cards have always carried high interest rates. But in the UAE, the rates we pay are apparently among the highest in the world, averaging anywhere between 27 per cent and 36 per cent a year.
We pay more interest on our cards than many of our GCC neighbours; in Qatar and Kuwait, consumers pay about 18 per cent interest per year, while Saudis are charged up to 24 per cent.
Then again, there's also a good case as to why we should consider ourselves relatively lucky. Brazilians, for instance, are slugged up to 200 per cent a year on their credit cards, according to Reuters. Let's just pause for a moment to imagine those repayments.
"Consumers pay annual rates of up to 200 per cent for normal credit-card loans - the highest borrowing costs for that segment among the world's major economies," Reuters said last July in a story about the country's central bank tightening rules on credit-card loans backed by salaries and pensions.
The interest rates we pay on our credit cards are much higher than other types of credit - such as mortgages and car loans - simply because they carry more risk. It's not like a mortgage, for instance, that has a house as collateral. If you fall behind on your mortgage payments or stop paying them altogether, the bank knows that it can take your house away and sell it to get its money back. The same applies with your car, even though it does start losing its value the moment you drive it out of the showroom.
Credit cards are a different kettle of fish. Think about what you use your credit card for - anything from electronic gadgets to holidays to those spa visits. It's not like the bank can seize your new TV if you stop making your payments. The same goes for that fancy meal you splashed out on at Emirates Palace hotel, which you paid for with your credit card. The bank certainly can't repossess your dinner, nor can it reclaim the mani-pedi you splurged on. Credit cards are seen as higher risk, hence the higher charges.
Although it must be said here that credit-card interest rates are way too high in the UAE.
But the days of high interest rates could be coming to an end if a news report on January 31 in the Arabic-language Al Khaleej newspaper is anything to go by. Quoting an unnamed senior official at the UAE Central Bank, the newspaper said the banking regulator would announce this month an 18 per cent cap on credit cards. The aim, the official told Al Khaleej, was to curb bad loans.
So far, the banks have been quiet about the Central Bank's proposal. And who would blame them. After all, those high interest rates we pay for the privilege of using their credit cards plays a huge part in their profits. In fact, these days, it would be safe to say that it is a major driver of their bottom lines.
If the proposal is confirmed, you can bet that there will be a lot of creative number crunching going on in the back rooms of the banks. Does it mean we will say goodbye to free-for-life cards and start paying annual fees on all our cards? Will the loyalty points and other benefits that now seem to be a regular part of the 21st-century credit card come to an end?
More to the point, will the 18 per cent cap only apply to new cardholders? Hold on: does that explain why my bank rushed to replace my credit cards two months ahead of their expiry dates? Perhaps they know more than they are letting on. And here I was thinking it was just being super efficient.
But here's one idea I'd like to throw into the mix. I know consumers will love it, but I'm pretty certain the banks won't be embracing it in a hurry.
Let's come up with a quid pro quo arrangement with our banks. They slug us up to 36 per cent to use their credit cards and in return they give us up to 36 per cent on our deposits. It's only fair, right? We are using their money and they are using our money.
At the moment, my bank is offering 0.10 per cent on a basic savings account. Oddly, I've just checked the rate for my HSBC Advance savings account and there's a new note on the general information page for it that says: "Interest rate of 0.25% p.a on HSBC Advance Current account stands withdrawn effective 1st of April 2011."
Does that mean I'm not getting any interest on my money anymore? That quid pro quo idea is sounding more attractive by the minute. Although I can hear the echoes of laughter from the bankers all the way from here.
fglover@thenational.ae
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The%20specs
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THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
Company profile
Company name: Nestrom
Started: 2017
Co-founders: Yousef Wadi, Kanaan Manasrah and Shadi Shalabi
Based: Jordan
Sector: Technology
Initial investment: Close to $100,000
Investors: Propeller, 500 Startups, Wamda Capital, Agrimatico, Techstars and some angel investors
if you go
The flights
Emirates fly direct from Dubai to Houston, Texas, where United have direct flights to Managua. Alternatively, from October, Iberia will offer connections from Madrid, which can be reached by both Etihad from Abu Dhabi and Emirates from Dubai.
The trip
Geodyssey’s (Geodyssey.co.uk) 15-night Nicaragua Odyssey visits the colonial cities of Leon and Granada, lively country villages, the lake island of Ometepe and a stunning array of landscapes, with wildlife, history, creative crafts and more. From Dh18,500 per person, based on two sharing, including transfers and tours but excluding international flights. For more information, visit visitnicaragua.us.
New schools in Dubai
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
The biog:
Favourite book: The Leader Who Had No Title by Robin Sharma
Pet Peeve: Racism
Proudest moment: Graduating from Sorbonne
What puts her off: Dishonesty in all its forms
Happiest period in her life: The beginning of her 30s
Favourite movie: "I have two. The Pursuit of Happiness and Homeless to Harvard"
Role model: Everyone. A child can be my role model
Slogan: The queen of peace, love and positive energy
Company%20profile
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'Brazen'
Director: Monika Mitchell
Starring: Alyssa Milano, Sam Page, Colleen Wheeler
Rating: 3/5
The biog
Name: Ayisha Abdulrahman Gareb
Age: 57
From: Kalba
Occupation: Mukrema, though she washes bodies without charge
Favourite things to do: Visiting patients at the hospital and give them the support they need.
Role model: Sheikha Fatima bint Mubarak, Chairwoman of the General Women's Union, Supreme Chairwoman of the Family Development Foundation and President of the Supreme Council for Motherhood and Childhood.
MATCH INFO
Rugby World Cup (all times UAE)
Final: England v South Africa, Saturday, 1pm
U19 WORLD CUP, WEST INDIES
UAE group fixtures (all in St Kitts)
Saturday 15 January: v Canada
Thursday 20 January: v England
Saturday 22 January: v Bangladesh
UAE squad
Alishan Sharafu (captain), Shival Bawa, Jash Giyanani, Sailles Jaishankar, Nilansh Keswani, Aayan Khan, Punya Mehra, Ali Naseer, Ronak Panoly, Dhruv Parashar, Vinayak Raghavan, Soorya Sathish, Aryansh Sharma, Adithya Shetty, Kai Smith
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
