A Study on the Role of Banking in the UAE Society

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Student: Durrab Ahmed


An economy is comprised of a number of factors and institutions that work in co-ordination or independent of each other to ensure the financial stability of a country. However the functions performed by those institutions are not understood by most. 


Banks have become an important part of our economic system but not many people are aware of the true purpose of a bank in an economic system and furthermore in a society. The role of banks is not just confined to maintaining accounts and to provide the money to account holders when and as much needed, but there are a number of other roles that a bank performs in a society that are not palpable to the common eye.


A bank’s function in a society is that of a financial institution that provides numerous financial services in order to help the people and businesses of that society to accomplish their financial goals. These banks act as intermediaries and perform a number of functions such as accepting deposits and generating loans and deriving profits from the difference in rate of interest that they pay to the depositors with that of interest rate charged to the borrowers. Through attracting savings and funding credit, these banks allow an economy’s wheel to keep moving. 


A bank is the most vital financial intermediary that connects deficits and surplus agents in an economy. In absence of banks, where would an individual or business go to borrow money or deposit their savings without the fear of theft or burglary? 


The finances coming from banks have been found as a major source of funding for most firms.  The UAE region was considered amongst the least developed three to four decades ago, nevertheless their current income level is comparable to that of most industrialized nation.


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However the economy of UAE economy has been able to leap the processes of capital accumulation that lead to economic development like other countries.  (Abed & Hellyer, 2001)

 The banking sector in UAE is fragmented as it has a total of 46 foreign and domestic banks operating in the region. The currency in UAE is fastened to US dollars and therefore the role of Central bank is partial when it comes to setting any monetary policies and controlling rates of interest however the role of central bank in formulation and monitoring of credit policies and supervision of financial sector is significant. It is the central bank whose regulations and requirements are mandatory for the commercial banks as these commercial bank are licensed under the Central Bank. (Hashmi, 2007) 

 The banking sector in UAE is a combination of Conventional and Islamic Banking and there is an increasing activity of foreign banks in the sector as well. The benefits provided by these different banks to individuals, corporations and states might be different as there exists considerable difference in their financial ratios and funding structures however UAE is amongst the first countries to enjoy a “dual-banking system” with the establishment of Dubai Islamic Bank in 1973. The creation of this bank served as a founding stone for establishment of banks working on the same principles all around the world (Masah & Sayed, 2015)

One of the many achievements in the UAE’s economic system is the creation of a strong business enabling environment that attracts local and foreign investment (UAE National Bureau of Statistics, 2009). The banks in UAE have played an important role in providing funds for SMEs. Also the role of banks is significant in regards to attracting foreign investments for a number of aspect as these banks play the most crucial function in international trade through provision of finance products for trading that considerably reduce the risks associated with exporting (Niepmann & Eisenlohr, 2014) 

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 As it comes to depositing money and using bank as an intermediary or for day to day transactions, the ideas of trust and the reputation of the banking sector goes hand in hand.

Trusting in other’s honesty is one of the core components of driving a long term relationship between a firm/industry and its stakeholders. However the scandals that often surface about fraud or unethical practices deter the confidence that people have in the financial sector especially banking. The level of trust in a banking sector may differ from country to country depending upon the policies and risk averseness of the people. According to (Bohnet et al (2010)) in tribal societies like Middle East, the trustworthiness between strangers is lesser compared to the west and that the trust in Middle East happens to be more relation-based that ought to prevent or eliminate the likelihood of betrayal.

The banks work differently at state levels and at the individual level. Similarly the importance of banking might be perceived differently by different people and corporations depending upon the amount of benefit that one extorts from banking.

 Conclusion and Recommendations

 Thus it can be concluded that banking system does in fact play an effective and crucial role in the society of UAE. All three research aims were met. Without an effective banking system in place, it will become very difficult for economy of UAE to function. It is also has a huge impact on the society and economy it operates in. Main factors that are impacted by the banking sector are Environmental, Social, Financial & Economical factors. There are many financial, economic, social and environmental benefits and positive impacts that banking systems have on the society and its communities such as providing financial support and security, reducing risk, empowering community and youth and highlighting social issues that persist in the society etc. Banks in UAE have started moving towards becoming corporate citizens and follow corporate social responsibility which has enabled them to not only advance in their field of banking but also to take their communities, customers and other such stakeholders along with them. Following were the hypothesis drawn before the research.


Hypothesis Null: Banking system has a positive impact on UAE’s society

Hypothesis Alternative: Banking system does not have a positive impact on UAE’s society. From the findings we can deduce that hypothesis null stands true i.e. banking system in the UAE has a positive impact on the society. 


In this research, it was also found that majority of the employees have positive or partially positive perceptions regarding the CSR initiatives undertaken by their banks and have trust that more positive impact is to be achieved in the future.


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This has enabled banks to successfully retain and attract their customers. Many of the banks have also improved their image and gotten rewards and recognition for the positive impact they are having on the society. Most of the banks are working towards the betterment of education, health and environment sectors in society.

There is however few banks that are still far behind and need to make efforts to become more socially responsible.


5.2 Recommendations: 

According to the findings, it was found that even many employees did not think that their banks are very beneficial for the society and environment. It can thus be recommended that a standard of benchmark needs to be set by every bank operating in UAE regarding the social and environmental role they play in the society in terms of social programs, campaigns and investments that they conduct. Hence, it can be said that even though a lot of impact can be seen from the work conducted by banks, there is still room left for improvement and if all the initiates are implemented in true spirit of improving the society, then there is no doubt that more positive impact can be expected to be seen in the future.  Also it was found that one of the best strategies of retaining and attracting more customers is by working towards the betterment of society by focusing on important factors such as Environmental, Social, Economical & Financial, therefore it is proposed that banks should increase their spending on these factors. This would give the banks a chance to give back to people. Moreover, it would also create positivity in the society and more and more people will start trusting the banking sector. According to the findings, currently 20% of the masses still say that they are not confident about the positive role played by banks in the society. Such initiatives will help turn these masses perception towards banking as well.

Author: SUC Students

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