Discusses the most common methods of payment, such as open account, letter of credit, cash in advance, documentary collections, factoring, etc. Includes credit-rating and collection agencies in this country. Includes primary credit or charge cards used in this country. Also includes information on Foreign Exchange controls and Banking Systems, and U.S. Banks & Local Correspondent Banks.
Methods of Payment
The UAE may be a challenging place for American firms to do business, especially if they are unfamiliar with banking practices in the region. Payment recovery tends to be slower than in the United States and Europe. Payment delays of many months and sometimes years are not uncommon.
Trade financing has become increasingly common in the UAE, and most local and international banks offer services to small and medium-sized enterprises, allowing them to trade with local and international markets. Commercial Letters of Credit (LCs) are extensively used as a means of payment in overseas trade. The most commonly used types of LCs include: Sight, Deferred Payment, and Revolving. Provisions of the Commercial Transactions Law (CTL) are complementary to the parties’ intentions and who often elect to be governed instead by International Chamber of Commerce (ICC) Uniform Custom and Practice for Documentary Credit. According to the CTL, in absence of any clear indication, the LC is considered be irrevocable in contrast to international standards.
Checks are an important payment instrument in the UAE for transactions of large amounts. The Image Check Clearing System (ICCS) has accelerated check processing since it was introduced in 2008. Bounced checks are considered a criminal offense and can be punished by prison sentences.
Electronic fund transfers are widely used in the UAE. The Central Bank operates the UAE Funds Transfer System (UAEFT) the only real-time gross settlement (RTGS) system serving retail and large value payments. It also introduced the International Bank Account Numbers (IBAN) system for use by all bank customers in the country in November 2011. The system is designed to minimize the risk of errors during cross-border transactions.
The Central Bank launched the UAE SWITCH scheme in 1996, which now connects the ATMs of all but 3 small foreign banks. The scheme allows cardholders to withdraw cash from any of the 4,500 ATMs in the UAE, and through its connection to GCCNET, allows cardholders to obtain service at ATMs throughout the Gulf region.
VISA and MasterCard credit cards are widely accepted by businesses and government services. American Express, Diners, and Discover are less widely accepted. Small establishments often only accept cash. The Central Bank mandated that all cards issued in the UAE must comply with EMV standards (the MasterCard-Visa-Europay global standard for chip-secured credit cards) in 2016. Almost all backend systems, point of sale (POS) terminals, and more than 80% of cards in use are currently compliant.
Various digital payments initiatives have emerged in the last few years (the government’s Mobile Wallet, Etisalat Wallet, Beam Wallet, NOL cards, Apple Pay, Google Pay and Samsung Pay), but they are not very widely used yet. In 2017, the UAE Central Bank issued the “e-Payment Regulation” to facilitate the adoption of digital payments and regulating its infrastructure. It is still unclear if virtual currencies are prohibited in the UAE.
The three major global credit rating agencies (S&P, Fitch, and Moody’s) have a regional presence in the UAE and rate most sovereigns (local and federal governments) with the notable exception of the government of Dubai and some of its GREs. The Chambers of Commerce of Dubai and Abu Dhabi also offer customized credit reporting to their members. The government owned Al Etihad Credit Bureau started operations in 2016 and began providing financial institutions with credit scores. Many international trade credit insurers and trade credit risk management providers are also present in the UAE.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide available at https://www.trade.gov/trade-finance-guide-quick-reference-us-exporters.
Foreign Exchange Controls
The Emirati currency, the Dirham (AED, sometimes abbreviated Dhs), has been pegged to the U.S. dollar since 1980. The mid-point between the official buying and selling rate for the dirham has been fixed at AED 3.6725 per 1 USD since 1997. The government believe this promotes stability and confidence in the currency. Interest rates in the UAE tend to parallel those in the United States.
There are no currency restrictions in the UAE and residents and non-residents are entitled to hold fully convertible offshore or onshore bank accounts in the UAE or overseas in dirhams or in foreign currency.
U.S. Banks and Local Correspondent Banks
Citibank is the only U.S. bank established onshore in the UAE that offers full banking services. To service international clientele, J.P. Morgan Chase, Bank of America, Citigroup, Bank of New York Mellon, and Perella Weinberg Partners Group have licensed onshore representative offices.
Citibank, Morgan Stanley, Bank of America, Merrill Lynch, J.P. Morgan Chase, Goldman Sachs, Northern Trust, and Perella Weinberg have an offshore presence offering financial services.
A number of UAE banks either have branches in the United States or correspond with certain American banks to cater to the needs of their local and international clientele.
U.S. government trade financing resources are available to U.S. firms seeking to do business in UAE. Assistance from the U.S. Export-Import Bank (EXIM) is available for direct loans and loan guarantees to U.S. firms exporting to the UAE. The Small Business Administration’s (SBA) Office of International Trade also provides loans on a smaller scale, with a focus on new-to-export firms. The Overseas Private Investment Corporation (OPIC) is not authorized to operate in UAE due to ongoing compliance issues in the UAE regarding prevailing international labor standards. In 2013, the Dubai Economic Council (DEC), inked a $5 billion memorandum of understanding (MOU) with EXIM to support the procurement of U.S. goods and services by DEC’s members and customers for a variety of Dubai infrastructure projects.
Securities and Commodities Markets
Emirates Securities and Commodities Authority (SCA) is the governing body for all the stock exchanges, securities and commodities listed in the UAE except for the ones that are in the financial free zones.
The Dubai International Financial Centre (DIFC) is a financial free zone that opened in 2004 under the regulatory authority of an independent body, the Dubai Financial Services Authority (DFSA).
Similar to DIFC, the emirate of Abu Dhabi launched the operations of the Abu Dhabi Global Market (ADGM) in October 2015. This new financial center is also regulated by its own independent body, the Financial Services Regulatory Authority (FSRA).
The Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) that opened in 2000 are regulated by the SCA. The SCA electronically links both bourses in what it calls the Emirates Securities Market (ESM). They are the most prominent stock exchanges in the country. More than 200 stocks and a dozen of sukuks and bonds are listed in the DFM and ADX combined.
The Dubai Gold and Commodities Exchange (DGCX), founded in 2005 in the Dubai Multi Commodities Centre (DMCC) as the region’s first commodity derivatives exchange, is also regulated by the SCA.
In 2005, Nasdaq Dubai stock exchange opened in DIFC under DFSA’s regulatory authority. After years of low trading volumes, all clearing, trading, settlement, and custody functions for Nasdaq Dubai equities have migrated and are being outsourced to the DFM’s systems. To date, only 8 stocks are listed in Nasdaq Dubai, and most other securities traded are sukuks and bonds.