Customers can secure loans from banks, leveraging their savings held with UAE's National Bonds as collateral.
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No need to dive into pricey car loans or home mortgages when you've got National Bonds in your corner! This ingenious money-saving venture is set to revolutionize the way UAE citizens think about their savings. Rather than splurging their hard-earned savings, individuals can now pledge their National Bonds to secure lendings at reduced rates.
National Bonds is targeting those who prefer to steer clear of high-interest loans, offering an attractive alternative for the everyday borrower – short-term lendings with lower interest rates, thanks to the security provided by existing savings. The UAE Central Bank has catch up with the Federal Reserve's recent rate hikes, the latest one taking place just earlier this month. With more increases on the horizon, it's no wonder people are on the lookout for cost-effective borrowing options.
The surge in Buy Now Pay Later (BNPL) financing is a testament to the growing demand for more flexible payment options. However, National Bonds aims to take it a step further by providing access to bank lending for finance tenors of 1-3 years.
Mohammed Qasim Al Ali, CEO of National Bonds, is quick to clarify that the organization is not lending out money, but rather putting individuals into contact with banks and third-party lenders. "National Bonds is not a bank, but rather a financial institution in the making," explained Al Ali. "We handle investments, but we don't lend. Instead, we talk to banks and financial institutions and take a promise from our customers on their holdings with us and offer that as collateral."
Al Ali went on to say that this lending program is a significant focus for National Bonds this year. For banks, this means they will be able to offer nearly fully collateralized car loans to their customers. For instance, if a customer has Dh100,000 in National Bonds, a bank could lend them Dh70,000, knowing the collateral is Dh100,000.
National Bonds is also negotiating with banks and financial institutions to offer these loans at a reduced rate, keeping in mind that this is not against wage certification. Instead, it is against the funds that exist in National Bonds. With this strategy, National Bonds hopes to provide a service that is lower than the market rate.
Why the shift towards secured lending?
People are increasingly cashing out their National Bonds for various reasons, and Al Ali believes it's time to encourage them to pledge their bonds or sukuks instead. "By pledging their holdings, people can still earn income and prizes from National Bonds," he said. "A bank will take the collateral and return it once the loan is paid back."
Multiple perks for savers
In 2014, National Bonds introduced the 'gold pension' plan, aiming to inspire UAE residents to consider additional retirement savings options beyond employers' mandated gratuity schemes. National Bonds has since onboarded major companies like Dubai Taxi. The pension plan program allows for contributions from both employers and individuals.
When asked about take-up rates, Al Ali expressed that changing mindsets takes time. "A lot of the (gratuity) funds, especially in the SME market, are not even funded and are only on paper," he said. "I have spoken to some big corporates who are on the right track, keeping funds in a bank so that they can generate something. The most important thing is to encourage the company to start, even if they cannot fund the previously accumulated amount, which may be a million, 2 million, or 3 million dirhams."
Al Ali emphasized that it's better to start small, gradually increasing contributions as financial stability improves. This message is resonating with large firms, but smaller companies are still dealing with cash flow issues. National Bonds urges these smaller companies to start small, making lower payments as they gain more financial footing.
Individuals who prefer to avoid high-interest loans and seek cost-effective borrowing options might find National Bonds useful, as they provide access to bank lending for finance tenors of 1-3 years, using one's existing National Bonds holdings as collateral. In addition, those seeking a supplementary retirement savings plan may find the 'gold pension' plan offered by National Bonds attractive, as it allows for contributions from both employers and individuals.
