1- Write a report on Sustainability in Financial Institutions in UAE Market in 1750 words with reference to APA.
Global standards for environmental and social risk management are the process that considered by the financial institutions of UNITED ARAB EMIRATES. The financial institutions are trying to develop sustainable finance products. Financial institutions have to deal with two major components managing environmental risk and social risk.
In the year 2016, 14th UNEP FI roundtable meeting being held in Dubai, UNITED ARAB EMIRATES for the first time. On the global partnership of UN Environment and the financial sector, the UNEP FI was founded for the identification and promoting of best environmental and sustainable practice on the operations of all the financial institutions. On that meeting the UNEP FI reported “Connecting the Financial System and Sustainable Development: Market Leadership Paper”. This report contains the procedure of change in financial institution (Nobanee&Ellili, 2016).
Importance of Sustainability in Financial Institutions in UNITED ARAB EMIRATES Market
In January 2015, the United Arab Emirates cabinet issued a prospectus, which consisted UNITED ARAB EMIRATES green agenda 2015-2030. Such agenda is the process to constitute UNITED ARAB EMIRATES growth strategy that was ascertained by the Federal Reserve and the local authorities of the country. Systematic evaluation of the social risk and the environmental risk can by ascertain by strengthening the portfolios of the financial institution. The banks should follow liberal policies in order to eliminate risk arising from environmental and social issues. Minimisation of financial liability needs to be considered (Cherian et al., 2017). The important credentials to make sustainability of the financial institutions is that identifying probable opportunities for innovative product development. Further, the sustainability can be obtained by creation of financial products and services of commercial nature in endurance of environmental and social benefits.
By conducting them, the financial institutions will enjoy renewable energy, energy efficiency, cleaner production processes and technologies, carbon finance, and sustainable supply chains and many more features. Further, the financial institutions can create long-term value to the business if they effectively manage the opportunities and risks involved in environmental and social probabilities (Nobanee&Ellili, 2017). The financial institutions that are complying with the above to possibilities will differentiate themselves from their competitors. The financial institutions will gain the reputation and trust of the investors and the stakeholders.
Impact of sustainability in financial institutions in UNITED ARAB EMIRATES market:
To correspond with the vision 2021 and to make UNITED ARAB EMIRATES among the best countries in the world on golden jubilee of the union several steps and initiativesare being undertaken for promotinginnovation in UNITED ARAB EMIRATES. The steps that were taken upby the officials of UNITED ARAB EMIRATES are represented and discussed in this report. The growth of the UNITED ARAB EMIRATES increased to 4.4 percent in the year 2018. Whereasthe International Monetary Fund suggested that, the growth was expected to pick up by 2017 .As of increase in rebound ininvestment, manufacturing and trade. Based on observation by International Monetary Fund the expected growth will be 3.5 in the year 2017 and 3.6 in the year 2018. Whereas the growth rate of 2016 stood at 3.1 per cent (Nobanee&Ellili,, 2017). The rise in growth rate is supported by the “buoyant financial markets as well as the cyclical recovery in manufacturing and the trading business. The commodity prices that recover from the early of 2016 is because of the labialisation of the oil supply restrictions and the stronger activates and the expected global demand. . InUNITED ARAB EMIRATES there are two types of financial institutions exists. Thenon-banking institutions of the UNITED ARAB EMIRATES are those institutions, which conducts the intermediaryactivates outside the scope of banking activates. On the other hand, the banking institutions are the ones that conduct the banking relatedactivities. Non-banking institutions playa major role in the economy as well as the banking of financial institutions (Sbia et al., 2017). Investment companies, insurance company’s pension funds are consideredas non- financial institution. This represents NBFIs, which was license by the CBUNITED ARAB EMIRATES, as finance and investment companies. In this analysis the insurance companies and the pension funds are not considered rather the investment companies are consider into account.
The contribution of insurance companies in the financial structure of the country is very low as compared to the contributions of the banking sectors. The overall contributions is decreasing in trend. The decreasing rate by 3.5% to AED 59.8 billion in 201722 which stood at2016: AED 62.0 billion. Which is approximately 2% of the banking system assets of the UNITED ARAB EMIRATES. The financial institutions represents 70% of the non-banking financial institutions, which was licenced by the central bank. Moreover, the two largest finance companies almost holds the 30% of the contributions of the company’s assets. The financial system or the economy might be affected by the credit intermediation activates as the main transactions channels. The credit intermediationsactivates are the main transmission channels that contain the risks of non-banking financial institutions, which affect the economy’s financial systems (Kuzey&Uyar, 2017). By depositing the money in the banks, the non-banking financial institutions provides the liquidity in the economy but the non-banking financial institutions contributions of the total banking deposits amounts to .02% of the total deposits of the bank because the Potential risks from the volatility of their deposits in the banking institutions is low. The total contributions of the finance companies are 5.7% in the year 2017, which amounted to 43.0 billion. Further, a negative slope has been observ, as the lending activities of the financial institutions are narrower. The total loans contracted for the year was only 1.5% that is less than -22.5% compared to 2016. Itis also observed that the financialinstitutions is constant on the portfolios and composition on such. On the contrary, the non-banking organisation is providing loans in the business sector of the company while the banking institution providing loans for real estate business and the personal loans. Further CUABE has recognised the two systematic payments system the UNITED ARAB EMIRATESFTS and the ICCS to ensure that the payment structure is associating with the global standards (Tlemsani& Al Suwaidi, 2016). The payments systems are createbased onPFMIs. It is concluded by the analysis that the UNITED ARAB EMIRATESFTS and the ICCS are following the wholly or partly all the major principals of PFMI. CBUNITED ARAB EMIRATES is concentrating about the required measures relevantfor the action plans, which fully comply with the international payment systems. Further, a similar program initiated for the retail payment system purpose known as the UNITED ARAB EMIRATESDDS (UNITED ARAB EMIRATES Direct Debit System).
The priorities allotted by the central bank for the payment system are as follows:
Ascertain the business community plans for all the payments system, which are recognised by the UNITED ARAB EMIRATES.The central bank is cautious about the effectiveness and the efficiency of the electronic payments systems. As well as the central bank providing the technical and logical support to the payment service providers so that the service provider can easily accustomed by the new regulatory structure (Jensen, 2018). The central bank is working towards strengthening the position of the UNITED ARAB EMIRATES in the regional payment ecosystem. There primary focus of the central bank in the year 2018 is to implement at least one regional projects at the GCC level and at the Arab regional level.
The central banks Amis on the settlement of the integration of cash leg of the securities by the UNITED ARAB EMIRATESFTS, whichis the RTGS system of the country. Therefore the various process and payment system are enhanced and integrated.
Further to use, the debit card as a source of funding the e commerce transaction the central bank launched UNITED ARAB EMIRATES Payment gateway system.
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Implication on the financial institutions of United Arab Emirates:
As the UNITED ARAB EMIRATES is one of the world’swealthy countries generates huge profits majorly from the exploration of crude oil and the petroleum products. The country’s financial institutions must be able to respond with the global standards. The UNITED ARAB EMIRATES is one of country in sub continental who are holding a substantial position in the global economy there for it is very important that the financial institutions are performing well in terms of the performance that is recorded by them. The financial institution are the key helping hand of the construction of the country. Thegovernment controls the monetary policies and regulation by the help of financial institutions. Therefore, the government ensure the needs of the economic system of the financial institutions to ensure that they are being capable to perform the requirements of the economy. The central bank of UNITED ARAB EMIRATES is the parent organisation that directly or indirectly works on the enhancement of the overall banking structure of the company (Jensen, 2017). The central banks also regulates the non-financial institutions for the contribution in the economy. The financial infrastructure of the country is supposed to work more efficiently as they are working according to the guidelines of the international Monetary Fund and other global institutions who workto construct the infrastructure of financial institution in the economy.The financial institution of the country must comply with the guidelines of the central bank. Only implementation is not enough to pursue the objective the central bank must ensure the regulations of the financial institutions. The central bank must consider the banking structure of various developed and developing countries so that the organisation can take lessons and initiated them in the financial structure of the county. The regulatory bodies of insurance sector as well as the investment sector will perform a major role to obtain sustainability of the financial institutions.
From the above discussion, the conclusion is made that the financial institutions are required to develop certain features so as to ensure that the overall financial infrastructure of the country becomes satisfactory. To enrich the global needs and to associate with the standards of the international Monitory Fund the country should focus on the various payment system of financial institutions. Further to communicate with the growth of the country the financial policies are the key functional areas which should be followed. The control of all the financial institution lies with the central bank of UAE therefore it is also responsible for the implementation of the policy and the guidelines to the different financial institutions of the country. Further, the central bank must provide the infrastructural support to the financial institutions.
Cherian, J., Jacob, J., & Farouk, S. (2017). A review on carbon trading: new age enterprise for sustainable development and profitability with special reference to UAE. World Review of Science, Technology and Sustainable Development, 13(2), 117-132.
Jensen, S. (2018). Policy Implications of the UAE’s Economic Diversification Strategy: Prioritizing National Objectives. In Economic Diversification in the Gulf Region, Volume II (pp. 67-88). Palgrave Macmillan, Singapore.
Kuzey, C., &Uyar, A. (2017). Determinants of sustainability reporting and its impact on firm value: Evidence from the emerging market of Turkey. Journal of Cleaner Production, 143, 27-39.
Nobanee, H., &Ellili, N. (2016). Corporate sustainability disclosure in annual reports: Evidence from UAE banks: Islamic versus conventional. Renewable and Sustainable Energy Reviews, 55, 1336-1341.
Nobanee, H., &Ellili, N. (2017). Does Operational Risk Disclosure Quality Increase Operating Cash Flow of UAE Islamic and Conventional Banks?.
Nobanee, H., &Ellili, N. (2017). Impact of Economic, Environmental, and Social Sustainability Reporting on Financial Performance of UAE Banks.
Sbia, R., Shahbaz, M., & Ozturk, I. (2017). Economic growth, financial development, urbanisation and electricity consumption nexus in UAE. Economic research-Ekonomskaistraživanja, 30(1), 527-549.
Tlemsani, I., & Al Suwaidi, H. (2016). Comparative analysis of Islamic and conventional banks in the UAE during the financial crisis. Asian Economic and Financial Review, 6(6), 298.