Abdulaziz Bin Nasser Al-Khalifa, CEO of Qatar Development Bank
The CEO of QDB discusses the role that the development bank is playing in helping the country to reach the objectives laid out in the Qatar National Vision 2030.
You have a very interesting mandate as a bank, which is to support Qatar in an area that is a critical part of the country’s National Development Strategy: building a flourishing private sector and a network of small businesses in the country. How exactly have you approached this mandate so far?
Our mandate reflects Qatar’s commitment to develop the private sector, as it strongly believes that SMEs constitute the very foundation of a diversified and sustainable economy. This is in line with the objectives of the National Vision 2030 and the National Development Strategy 2011-2016, which aim to develop the private sector as the driving engine for sustainable economic development.
For several years, the biggest challenge that small and medium enterprises (SMEs) faced, despite their proven effectiveness in supporting domestic economies and spurring job creation, was ‘the missing middle’ – the lack of financing. In its recent report “Financial Access and Stability: A Road Map for the Middle East and North Africa,” published in November 2013, the World Bank states that in the Middle East region “many important segments, such as small and medium enterprises, remain deprived of credit, and alternatives to bank finance are generally lacking, even for larger enterprises.” Therefore, Qatar’s strategy to support SMEs is to embed entrepreneurs into international value chains, set national frameworks that help them to be part of upcoming mega-projects like the FIFA World Cup 2022 and boost the competitiveness of Qatar’s SMEs.
A strategic player in this transformation is Qatar Development Bank (QDB), which is focused on diversifying the Qatari economy by promoting and strengthening private sector development in a variety of business sectors. In doing so, QDB supports the local entrepreneurs in a number of ways, including two different loan schemes Direct Lending and Al Dhameen Loan Guarantee Program. Our Direct Lending and Al Dhameen programs provide financial aid to private sector start-ups and established companies by offering competitive financing terms. Direct loans, both conventional and Islamic, are offered through project financing facilities (long-term) and raw material facilities (short-term). Our Al-Dhameen program guarantees loans to private sector companies through a number of partner commercial banks.
Of course, at QDB we recognize that starting a business requires more than just funding, which is why we also provide a non-financing support to SMEs through our advisory services to help identify and nurture promising businesses. Once businesses are mature and ready to start exporting, our export arm Tasdeer offers financial solutions, credit insurances and advisory services in addition to support in developing SME export capabilities through export development and promotion
What have been the biggest challenges of helping to establish such a culture of entrepreneurship in Qatar?
In my view, the biggest challenge to develop a culture of entrepreneurship in Qatar is lack of entrepreneurial ecosystem, especially the one focusing on youth and early stage entrepreneurs. In order address this challenge, QDB:
- Offers training for entrepreneurs on how to start business and establish industrial projects;
- Developed SME ToolKit to act as a single source for essential knowledge and information;
- Established and maintains ongoing collaboration with various local stakeholders (e.g., Bedaya, QBIC) to develop the right mindset to shape entrepreneurial culture among youth; awareness campaigns
Our recently established Qatar Business Incubation Center offers full spectrum of business incubation services to offer handholding support for entrepreneurs. On May 26, 2014 we have announced the first batch of projects to be incubated at QBIC
How do you balance financing national development programs while maintaining a strong capital position? What is the risk profile of your current portfolio?
At QDB we realize that we have a special responsibility to shore up the financing to sectors where commercial lending is either not readily available or is available at stringent terms. The fact that we are specifically interested in start up projects, which are considered to be riskier, makes us consciously take more credit risk than other players in the industry. The model that we have adopted is to take conscious risk decisions by defining a relatively higher risk appetite for approvals without compromising on the credit due diligence and risk analysis. In fact we have adopted some of the stringent credit risk evaluation standards in the industry, which include an objective risk rating model developed internally based on our own experience, inherent and residual risk analysis, separate due diligence on construction and machinery part of the project and other similar measures
With regard to our risk profile, I would like to highlight that being a development bank we have to be long on risk. However, in doing so, we have been able to control the risk within the target risk tolerance levels. Our NPLs are in the lower band of development banking industry averages and the absolute loss on any lending is close to nil. We have achieved this by being very proactive when it comes to risk management be it at the origination or administration stage. We monitor our portfolio from the day one and have implemented a comprehensive and robust risk-based loan review mechanism where we capture problems in our funding much before they become stressed. For managing our problem loans, we were able to weave together an effective distressed asset management mechanism where we leverage on our integrated business lines of Advisory, Tasdeer and Business Intelligence. Together we strive to see the ways and means of how business could be turned around.
The fact that our performance is measured by the number of successful businesses we helped to create allows us to take a different perspective on our lending relationships. It is this perspective that drives our lending philosophy and I am glad that we have been doing good and expect to do even better in the coming years.
The government’s diversification strategy starts from the move of focus from upstream to downstream in the oil and gas sector, and the creation of a solid petrochemicals industry. This sector requires heavy investment – how much of a priority is it for you and where are your areas of focus here?
Given our mandate, we are not directly involved in financing of projects in the upstream oil and gas sector. However, through our collaboration with key industry players we are promoting greater engagement of the local SMEs in their supply chain.
For example, through our ongoing collaboration with Shell, we promote local SMEs through offering them with financing and non-financing support in order to build their capacity and skills, and help them enter Shell’s supply chain. Our primary role is to identify and promote the Shell’s supply chain opportunities that may be localized. By building bridges between energy giant and local aspiring entrepreneurs, we help build the local midstream and downstream industries, upgrade capacity of local SMEs and ensure greater sustainability of Shell’s supply chain.
We have also carried out a detailed study of potential industrial verticals that may be viable in Qatar. Our study identified 5 petrochemical related verticals and 6 knowledge based verticals. While the petrochemical subsectors already have natural owners in Qatar, we strongly believe that the oil and gas sector is an important vertical for the development of Qatar. Therefore, we are ready to build on this strength by supporting projects in the midstream to downstream.
How much space is there for international companies in a development strategy that focuses on the creation of home grown entrepreneurs?
Promotion of home grown entrepreneurs is one of the critical enablers of our National Vision 2030 and the National Development Strategy 2011-2016. Being an open economy and with a high ratio of expat population living and working in Qatar, there is a strong appreciation of importance of attracting the international companies in order to build a more competitive and knowledge based economy.
As such, and in order to attract the international companies, Qatar offers a wide range of incentives, including subsidized or nominal rates for gas and electricity, no import duty on machinery, equipment and spare parts for industrial projects, tax exemptions on corporate tax for pre-determined periods and no export duty among others. Other benefits include tax free salaries, excellent medical and educational facilities and state-of-the-art telecommunication facilities.
We at QDB are ready to welcome and assist international companies that wish to expand or establish a business venture in Qatar through linking them to other government agencies and private sector organizations in order to help make an informed decision regarding the investment prospects in Qatar.
QDB has already come so far to adapt to Qatar’s growth and focus –to what extent will you look at the world’s other development banks as models to follow?
I am a firm believer in importance of learning from good practices. Therefore, at QDB, we constantly benchmark our activities and performance with several regional and multilateral development institutions.
We have already initiated a dialogue with some of them to share insights on how to address major strategic and operational challenges, review level of financial targets and KPIs, discuss capabilities and performance requirements, products and services, opportunities for refinement and so forth.
Looking at international examples, allows us to learn not only from successes of other development institutions but also from their failures, and helps us understand where we stand in the industry, and how we can improve our services to the local business community.