The role of the Arab Monetary Fund (AMF) at this critical stage the world is going through, and what it can provide to Arab countries, is the focus of the second part of the comprehensive dialogue conducted by Economy Middle East with its Director General – Chairman of the Board of Directors of the Fund, Dr. Abdulrahman bin Abdullah Al Hamidy .
Al Hamidy said that the fund provided financial resources to a number of its member states in the form of new loans, or withdrawals from existing loans, amounting to about $2.25 billion from the beginning of 2020 until mid-2022.
Expecting the digital financial services market to exceed $10 trillion within five years, he referred to the challenges facing Arab countries in this field.
Al Hamidy said that sustainable financing operations have witnessed significant growth globally, rising from about $164 billion in 2017 to about $1.04 trillion in 2021. He said, “Our Arab countries are not immune to these developments, as our region is one of the most affected by repercussions of climate change, which necessitated efforts from Arab governments to confront these challenges.
Here is the text of the second part of the interview:
Can you explain the role that AMF plays in supporting reform efforts undertaken by Arab governments in general, and at this critical stage in particular?
In accordance with its establishment agreement, the AMF works to support economic and financial reform programs in Arab member states in a way that leads to advancing economic development and laying the foundations for Arab economic integration.
This support comes at two levels: the first by providing technical assistance to member states to formulate policies and reforms that achieve the desired national goals, and the second by providing funding to meet needs for implementing reform programs or to meet urgent challenges that could deviate countries from their reform paths.
In addition, the Fund plays a tangible role as a center for consultation and dialogue among policymakers in Arab countries. There is no doubt that the intensification of dialogue during this stage, along with financial and technical support and capacity-building activities, are key ways by which the Fund serves the needs of its member states.
Since the beginning of the pandemic in early 2020, the Fund has made tangible and proactive efforts to help member countries cope with the repercussions of the crisis, whether on the financial or technical level, or capacity building for official Arab cadres.
In this regard, it provided financial resources to a number of its member states in the form of new loans or withdrawals from existing loans. The total amount of loans and facilities provided by the Fund from the beginning of 2020 until mid-2022, amounted to about $2.25 billion.
Perhaps the most prominent thing that the Fund is doing at this stage is its issuance of a number of guiding principles with the aim of providing technical advice to adopt appropriate reforms and programs at this stage.
Also, the Fund has been making unremitting, ongoing efforts, since the beginning of the pandemic, foremost of which are those concerned with promoting financial inclusion, initiatives to develop modern financial technologies, and Arabstat in order to develop Arab statistics, among other initiatives.
How do you see the trends and developments of digital financial and banking services? What roles and programs can AMF adopt in this regard to support the transition to digital financial services?
Digital financial and banking services have witnessed accelerating activities worldwide, including in Arab countries in recent years, especially after the pandemic, and it is expected that the volume of digital financial transactions will increase, starting with e-commerce, open banking operations, or expanded financial sector services, crowdfunding platforms, and lending platforms. The digital financial services market is estimated to exceed $10 trillion within five years.
However, at the same time, the expansion and development of digital financial services face many challenges, the most important of which are the expansion of the scope of their work and the maturity of the technologies used, in addition to the governing legislative and regulatory frameworks.
Thus, it has become necessary for partnerships and cooperation between digital banking service providers engaging modern financial technology companies, data participants, and traditional financial institutions to reach the best model that achieves the interests of customers and institutions alike.
Here, supervisory authorities need to harmonize and address these challenges with the development of appropriate legislative and regulatory frameworks for the provision of digital financial and banking services.
Arab countries have adopted many policies to support the transition towards digital financial services, whether in terms of developing digital solutions or in terms of regulatory frameworks that provide an attractive environment for them, such as electronic money, digital wallets, payment service providers, open banking services, and “Buy Now, Pay Later” models.
This is in addition to increasing the effectiveness of regulatory laboratories at local levels to contribute to the generation and development of those services and solutions, with the advancement of appropriate regulatory frameworks.
It is also worth noting here the significant increase in the volume of funding directed to the development of digital financial services solutions that many Arab countries witnessed during the years 2021 and 2022.
The first edition of the annual Index of Modern Financial Technologies in the Arab Countries, FinxAr, pointed to many challenges related to local financing for modern financial technology companies and emerging companies in the Arab region, which we have started to see since 2021 in terms of increasing interest from the authorities in Arab countries, to provide financing solutions for modern financial technology companies and innovation and emerging technology projects.
In addition to this, the ongoing efforts of Arab countries, regardless of their differences, are heading towards raising the efficiency of the digital financial infrastructure, which increases the volume of services provided in an effective manner, in addition to enhancing interoperability between providers of digital financial services.
We also should not forget a very important dimension, which is raising awareness and educating users of digital financial services, especially at the level of youth, women, the elderly, and residents of remote areas.
As for the Fund’s areas of intervention, these include enhancing financial awareness and education through training and workshops, supporting the efforts of Arab countries in formulating policies that incubate digital financial services and contributing to strengthening the regulatory framework for them.
Perhaps some of the most important principles and guidelines issued by the Fund in the last two years are: digital identity, know your customer electronically, encrypted assets, alternative financing tools, and others.
With the increasing interest in the repercussions of climate change on the financial sector, how do you see efforts to confront the risks of climate change? And how do you support the endeavors of the Arab countries towards the transition to green and sustainable finance?
Climate finance policies have become an important axis among the priorities of authorities, central banks, and ministries of finance, not only in providing financing for environmentally friendly projects, but also in creating new practices and business models in financial and investment sectors that take into account environmental dimensions, and contribute to achieving environmental, social and governance standards issued by these nations united, as an important step towards achieving sustainable development goals.
Many governments and regional and international organizations have launched a number of initiatives to promote green and sustainable finance, and to support the move towards a more sustainable economy, as the need to respond to the risks posed by climate change has become more urgent, and these measures have begun to be embodied in the form of legislation and regulations, and many of the financial institutions have practically implemented internal systems to evaluate and monitor the sustainability of their activities.
Accordingly, sustainable financing operations have witnessed significant growth at the global level, rising from about $164 billion in 2017 to about $1.04 trillion in 2021.
Arab countries are not immune to these developments at the international and regional levels, as our region is one of the regions most affected by the repercussions of climate change in light of an increasing need for progress in achieving sustainable development goals, which called for efforts from Arab governments to confront these challenges.
The Green Middle East Initiative was launched, which is a unique initiative launched by the Kingdom of Saudi Arabia in the first quarter of 2021, aims to unify and coordinate efforts of various countries in the region to achieve environmental preservation and reduce the risks of climate change.
This is in addition to a number of other initiatives launched by Arab countries such as the UAE, Egypt, and Morocco to support opportunities for the transition to a green economy.
In this context, there is also a growing interest within a number of Arab countries in supporting the transition to a circular carbon economy.
The Arab region will also host three of the next four sessions of the World Climate Conference, in an expression that highlights the interest and keenness of our Arab countries to support the efforts of the international community, and work to enhance awareness of the issues and policies necessary to confront the risks of climate change.
The Fund is keen to keep pace with the priorities and concerns of its member states in order to promote the transition to a green and sustainable economy, by issuing a set of “general guiding principles on how central banks should deal with the repercussions of natural disasters and climate changes on the banking system and financial stability, in addition to reports, studies and papers related to green and sustainable finance and climate change. Moreover, efforts are also geared to organizing workshops and training courses with the aim of enhancing skills in dealing with climate change and laying the foundations for green finance.
Can you tell us about the Buna platform and its role in relation to cross-border payments?
The Buna Platform for Arab Payments (the Regional Institution for Arab Payments Clearing and Settlement), which was completed by the Arab Monetary Fund with the support and participation of Arab central banks, is an integrated system specialized in providing clearing and settlement services for payments in Arab and international currencies, and garnering international acceptance. It enables financial and banking institutions in the Arab region and beyond, including central and commercial banks, to send and receive inter-bank payments in the Arab region and others located abroad in a safe, reliable, cost-effective, and highly effective manner.
The platform also offers a wide range of innovative and competitive services, taking into account recent developments and trends in payment and settlement process systems and technologies.
Perhaps the fact that the platform has a compliance check feature, which is the only regional payment system that has this feature, is another factor that enhances the added value of its services.
It is important to note that the platform’s objectives are to develop inter-Arab trade and investment exchanges, thus strengthening Arab economic and financial cooperation and integration, by encouraging the use of Arab currencies in clearing and settling Arab transactions.
This is as well as linking with the main trading partners of the Arab countries, in order to enhance the growth and efficiency of payments between Arab countries and with various global markets.
Therefore, hopes are very high for the role that the Buna platform can play regionally and internationally in enhancing the efficiency of cross-border payments and providing innovative options and services in this regard.
What has the Arab Trade Finance Program provided during the current crisis?
Since the beginning of Covid-19 in 2020, the Arab Trade Finance Program, in which the Arab Monetary Fund has the largest share, continued to provide support to its partners from banks and sovereign bodies to help alleviate financial and economic challenges resulting from the pandemic, through financing channels and credit lines for the purpose of providing financing to basic commodities such as food and energy products.
The program participated in syndicated loan operations to finance commercial operations related to the import of energy products for domestic production and consumption.
From the beginning of January 2020 until June 2022, the program provided financing for eligible business deals on credit lines totaling $3.565 billion, and during this period, national agencies drew on credit lines totaling $2.5 billion.
Also, within the scope of unfunded credit facilities operations, the program participated in risks involving a number of commercial operations, as the total operations amounted to about $148 million during the period between January 2020 and June 2022.
During the coming period, the program aims to expand the operations of syndicated loans, whether in the traditional or Sharia-compliant format.
The program’s efforts continue to update the databases of the Arab Trade Information Network, where the data of companies working in the field of export, import, and manufacturing in different Arab countries are stored, and the number of these companies in the database has reached more than 18,000 companies.
