In past years UAE has been one of the highest expats dominated countries (8.5 Mn i.e over 80% of total 9.7 Mn) with the major influx from Asian countries including India, Pakistan, Bangladesh, Philippines. Migrating to UAE for employment opportunities the expat population is often seen resorting to personal loans & credit cards for meeting their initial expenses. Banking & Insurance sector in the country is driven by strong & durable financial reserves contributing 8-10% of overall GDP. Complementing banking sector growth, increased virtual banking penetration via Mobile (>85%) & Online Banking Services (>90%) has prompted a noticeable shift among consumers to now preferring online channels for transactions like transfers & fund inquiries.
What are the lending patterns in the UAE?
Comprising loans to Government, Business & Industrial sector, Public, Retail & Financial Institutions, gross credit outstanding in the UAE reached AED 1.7 Tn in 2019 recording a CAGR (2014-2019) of ~5%. Occupying the highest share of ~50%, loans to business & industrial units have been increasing mainly from Dubai & Abu Dhabi region while the North Emirates region suffered a decline during 2019. With ~2x higher interest rates charged by finance companies, lending in the UAE is majorly dominated by banks acquiring >90%of credit disbursed across the country. The second most demanded category of the loan was observed to be retail lending acquiring a share of about 21%of total credit outstanding.
Retail Loans-Second most demanded Loan Category in the UAE
Retail lending in the UAE comprises loans disbursed to individuals for personal consumption purposes including Personal Loans, Mortgage/Home Loan, Car Loans and others. Post-2016 oil crisis, the banking industry observed an increased rate in NPAs & rejection rates thereby retail loan outstanding falling continuously to reach AED 361 Bn by 2019. However, trends such as falling interest rates, property prices, rising regional demands (Dubai & Northern Emirates) helped retail loan demand to gain some momentum in 2019.
Changing Dynamics of Online Loan Industry-Online Loan Aggregators
Online Loan Aggregators operating on either lead generation or customer acquisition seek to reduce the time required for loan selection processes by providing comparison across multiple loan options on the basis of parameters such as interest rates, fees/charges, additional benefits provided, etc. Increased awareness among consumers for understanding before buying, increased internet penetration rate (~99%) & ease in loan facilitation process are some of the major driving factors behind online aggregator’s industry growth of >200% (2018-2019). However stringent regulatory requirements & cumbersome documentation processes still prompt citizens to avail loans from informal channels.
Highly Concentrated Competitive Landscape
Competitive landscape in the UAE Online Aggregators Industry is observed to be highly concentrated with ~90% of market share occupied by top 4 players including Yalla Compare, Souqalmal, BankOnUs& Paisa Bazaar competing on the basis of parameters such as Conversion rates, Traffic generated, After Loan Assistance, Loan Providers, Tools & Advisory services provided. The key strategy adopted by players include diversifying product portfolios, providing comparison services across insurance, telecom, education, property, etc. thereby targeting on becoming “One Stop Solution Provider ”. With partnerships across all major loan providers in the country, the major distinguishing factor among players is the level of customized advisory services provided in the loan selection process.
COVID 19 Impacting Loan Industry
Outbreak of COVID 19 Pandemic is expected to leave a major impact across all industries. Adding to the woes, UAE suffered from plunging oil prices in April 2020 thereby contracting the country’s GDP by -3.5%. In order to minimize the dual shocks’ impact, CBUAE launched Targeted Economic Scheme providing relaxations across loan categories. In order to meet liquidity expenditures & working capital requirements, demand for personal loans, credit cards & SME/Commercial loans are expected to increase substantially in 2020.
High Potential for Online Aggregator Services
Relaxations & capping of fees/charges are expected to increase the demand for retail loans especially for personal loans & credit cards. Car sales in the UAE have been following a downward trend which is expected to continue in the future as well thereby further decreasing demand for car loans. A major shift in the consumer behavior can be expected post-pandemic with people preferring contactless online services providing opportunities for online aggregator services. On the competition front, major players are expected to invest in Artificial Intelligence & Machine Learning to match consumer needs with solutions & in overall customer segmentation.