H.E Abdul Aziz Al Ghurair, Chairman of UAE Banks Federation, delivered a speech during the Foundation’s Business Breakfast for Social Investment Forum on May 23, 2013 in Abu Dhabi. Followed by the Launch of the Foundation Nationwide Financial Literacy Program in Collaboration with the Financial Sector. This event has proven to be a powerful platform for discussing issues related to youth and how the business sector can support their development.
During the opening ceremony, H.E said: Financial literacy which is critical in managing personal finances is not at par with international standards among young UAE Nationals. Emirates Foundation has taken up this challenging task of making our youth aware of financial discipline required to avoid pitfalls of over-borrowing and to allocate their earnings into productive consumption and investment. The challenge of creating a financially literate nation is something that affects all countries.
While the financial collapse of 2008 was the result of multiple complex factors, the excessive borrowing or over leveraging by individuals was undoubtedly a key contributor. We are not immune to this phenomenon of over leveraging in the UAE. We are all concerned about the growth in personal debt of young UAE Nationals and its impact on our social fabric. In the UAE, we are now seeing a long-term trend of consistent growth in personal loans. Figures from the UAE Central Bank show a 17.4% increase in 2012 only in personal lending for consumption purposes.
A survey carried out by the National Family Status Observatory last year revealed that 59% of Emirati families in Abu Dhabi spend 24% of their monthly income servicing loans; 56% of those surveyed said that the main purpose of their loan was to finance consumer goods – cars, phones and the like. These figures are clearly alarming and indicative of a lack of understanding and awareness of how to use retail financial products wisely.
Too many of our young people leave school or university with only a very basic grasp or understanding of how to manage debt, and how to invest for the future. When they face easy access to complex products ranging from credit cards to sophisticated leverage investment products and mortgages, they falter. Equally, they fall prey to temptations and pressure from peers to acquire material possessions beyond their income levels and get tangled in never-ending cycle of debt.
We all know availability of credit is a basic need for the growth of any economy. However, easy credit and its misuse can also lead to economic meltdowns as we have seen happen many times in different markets. The key for economic prosperity is managing the credit prudently for long-term value creation.
As bankers, it is our responsibility to ensure that our customers understand our products and services and use them for the right purpose. It is in the interest of banks that we educate our customers in prudent financial management practices. We also must exercise self-discipline and refrain from reckless lending practices.
Banks can play a major role in promoting a holistic culture of savings, acquiring debt for value creation and having a broad based understanding of personal finances. However, this effort has to include all concerned in this space - from parents to schools to universities to banks and government agencies, and above all the willingness and participation of the UAE youth themselves.
The UAE Banking Federation is in the process of formulating a code of conduct for the banks which includes issues like responsible lending and customer education. We are expected to finalize the document in the next few months, and thereafter we will launch a campaign to educate the people on these issues.
We need all entities and organizations working with young people to unite with the financial sector and create a national drive to improve our collective financial literacy. This is why I am delighted to see Emirates Foundation officially launching today its nation-wide program on Financial Literacy. “إصرف صح” or “Spend Right” in English. This is the product of a year-long development process that has united academia, the banking sector, private and government sector officials, and many other organizations dealing with financial issues.
We will be hearing more shortly about the initiative and I believe that this program can make a real tangible positive contribution to our society. It takes a long-term approach to sharing and disseminating knowledge while also building local Emirati champions to promote understanding and expertise. We have seen various initiatives in the past with a similar goal, but I believe this is the first ever UAE-wide national program that unites all those institutions interested in promoting Financial Literacy across the entire country.
I hope today’s event gives you all an opportunity to learn more about this issue. I hope you become more familiar with the Foundation’s program and understand how you can support it.