The Dubai International Financial Centre (DIFC) is a global financial centre strategically located between the East and West, providing a stable and secure platform for businesses and financial institutions to tap into the emerging markets of the Middle East, Africa and South Asia (MEASA). The Centre’s internationally recognised and independent regulation, common law framework, tax-friendly regime, and enabling environment to make the ideal hub to access the region’s rapidly growing demand for financial and business services. DIFC fills the time-zone gap between the leading financial centres of London and New York in the West and Hong Kong and Tokyo in the East. Guided by its core values of integrity, transparency and efficiency, the Centre continues to play a pivotal role in meeting the growing financial needs of the region. It has commissioned this report titled “ The Next Frontier: The future of finance in the MEASA ” from the Economist . This latter’s Intelligence Unit explored the forces shaping the future of financial services, focusing on market, technology and policy enablers within the context of the Middle East, Africa and South Asia. It notably found that not only there is a strong preference for cash, but 86%, 66% and 46% of adults respectively do not have traditional bank accounts. As far as the MENA North African region is concerned, the large informal sphere of business financial transfers is notoriously known for its ability to side track thus remaining independent from any State interference, guidance or control with consequences as rightly described in this report of which its Executive Summary is reproduced below:
The Middle East, Africa and South Asia (MEASA) region is already poised to shape financial innovation. With a combined population of over 3bn, deepening mobile connectivity, and growing prominence as a trade and investment hub, MEASA will be a source of both demand and supply for more and better financial services. For companies that move quickly, this is a multi-billion-dollar opportunity to bank on the future of a diverse region. Some firms are at the vanguard of financial innovation, using smarter business models and the latest technologies. The rise of “challenger” providers—often from different industries, such as telecommunications and e-commerce—is bringing even more varied financial services offerings to a far larger community of individuals and businesses. This report, which draws on expert interviews and country analysis, assesses the state of finance in MEASA, the factors shaping the future of key financial subsectors, and the regulatory framework and best practices required to enable the delivery of these services. Key findings of the report: Gaps in financial services present an opportunity for financial companies—both traditional and nontraditional players. A growing young population across MEASA is increasing demand for digitally delivered financial services. In addition to this, women’s access to finance substantially lags behind that of men, particularly among low-income groups, as regulatory requirements for accessing formal finance, such as official ID or billing documentation, create bias against them. Even among wealthier segments of the population, many individuals remain underbanked. Taken together, this untapped potential presents an attractive opportunity for companies providing financial services. As trade and investment increase in the MEASA region, there will also be a growing market for wholesale banking and capital markets.
Overcoming a strong preference for cash in the MEASA region will be imperative to move towards a cashless economy. Across the region, the majority of utility bills, school fees and even wages are paid in cash. Building trust in digitally delivered finance will take time, despite a growing preference for it among the younger generation. A fully cashless economy may be decades away. Blockchain has the potential to change the financial architecture in MEASA, particularly for banking. Blockchain is helping to reduce high money-transfer and exchange costs by bypassing intermediaries, and blockchain-based digital registries could tackle other problems, like land expropriation. While these applications are experimental and pose regulatory difficulties, the core technologies can help to overcome some of the challenges of the existing financial system, such as money-laundering and corruption in a cash economy. More importantly, they are expected to reduce costs for financial institutions, particularly around compliance with anti-moneylaundering (AML) and Know Your Customer (KYC) rules. New business models are being developed to reach the “missing middle” of retail investors and medium-sized businesses. The rise in equity crowdfunding platforms and lower-cost portfolio investment products is unleashing new capital for entrepreneurs and businesses, and is giving middle- and lower-middle-income citizens the ability to become investors. Growth in the provision of credit, an increasing interest in private equity and a rise in venture capital are also helping to drive growth in the middle market. In Islamic finance, the approach is shifting from “sharia-compliant” to “sharia-based”. The approach to Islamic finance thus far has been to adapt existing products and services so that they comply with sharia law, for instance eliminating interest charges on credit cards and loans. Enabled by technology, companies are now developing fresh products and services that follow the spirit rather than adhering strictly to the letter of sharia principles. Governments and regulators have a crucial mandate to drive financial innovation. Governments and regulators must ensure that regulation keeps pace with advances in technology in the financial sector. There are examples across MEASA of legislation that enables a wider array of providers to enter financial services, from postal systems and telecoms