Under the bonnet of... National Bonds

Under the bonnet of... National Bonds
08 February 2011

DEMAND for National Bonds, the Sharia-compliant saving scheme in the UAE, is on the up, with the number of bondholders jumping almost 10% in the past year.

There are now around 612,000 bondholders, up 9.3% on a figure of 560,000 at the end of 2009.

Bondholders receive annual profits and are entered into a monthly prize draw. Profits from its Mudaraba fund were 3.78% for 2010, figures just released show. This is slightly higher than the 3.54% bondholders received in 2009.

The strong year for the Dubai-based savings provider was topped off by it scooping the best retail product of 2010 award at the Islamic Business and Finance Awards.

However, these profits are not guaranteed – and neither is bondholders’ capital.

So, what exactly are National Bonds? cashy looks under the bonnet:

Who can own bonds?

National Bonds, licensed and regulated by the UAE Central Bank and 50% owned by the Dubai government, is a savings scheme open to UAE nationals, residents and non-residents over the age of 16. Minors can also own National Bonds, provided the bonds are purchased by a parent or guardian.

How much does it cost?

Each bond costs AED 10 ($2.72), and the minimum purchase is AED 100 ($27.23) every time you buy bonds.

There are no transaction fees for buying bonds, and accounts can be closed without penalty. However, if you want to cash in your bonds, you can only do so after an initial 30-day holding period.

What are the benefits?

Islamic law prohibits the payment of interest, so National Bonds distributes annual profits from its Mudaraba fund. Profits in the past four years have averaged 5.1% a year.

In addition to this, bondholders have the opportunity to win 22,250 prizes every month. There is one prize of AED 1 million ($272,261) on the last Saturday of every month and 5,135 prizes on every Saturday in different  prize categories: five prizes of AED 10,000 ($2,723), ten prizes of AED 5,000 ($1,361), 20 prizes of AED 1,000 ($272), 100 prizes of AED 500 ($136) and 5,000 prizes of AED 100.

Another benefit to being a bondholder is that those aged 12 months to 70 years are automatically entitled to life Takaful (Sharia-compliant life insurance) coverage up to a maximum value of AED 125,000 (£34,033) at no extra charge.

Can I add bonds automatically?

In September last year, the National Bonds Corporation (NBC) enabled customers to take out a standing instruction order agreement with banks in the UAE. This allows people to instruct their bank to transfer a fixed amount of money at regular intervals to another account.

The National Bonds standing instruction order allows banks to automatically use a set amount each month to buy bonds on behalf of their customers – making regular saving easier.

A standing instruction order can be arranged at all banks in the UAE, with the service being offered free-of-charge at Abu Dhabi Commercial Bank, Dubai Islamic Bank, Sharjah Islamic Bank, Al Hilal Bank, Abu Dhabi Islamic Bank and Emirates Islamic Bank.

Is my money safe?

Under Sharia principles, guaranteeing capital or returns is prohibited.

However, Mohammed Qasim Al-Ali, chief executive of NBC, says: "Needless to remind everyone that customers of Lehman Brothers lost their money despite the AAA credit rating and capital guarantees. Our customers are comforted that their money is safe with National Bonds."

He says this is due to five reasons. Being Sharia compliant, it operates in "ethical and socially responsible manners". NBC is partly-owned and supervised by the government of Dubai. National Bonds is licensed and regulated by the UAE Central Bank. It is regularly audited by “two reputable international auditing firms”. And, lastly, the investment strategy it uses is low-risk.

What does it invest in?

The company has previously focused on investing in the beleaguered property sector, but said last summer that it planned to diversify its investment portfolio.

Its chief executive says: "Real estate is one of the many asset classes that NBC invests in. The investment decisions take into consideration the different market conditions and investment opportunities before allocating the funds between the different asset classes. In all cases, such funds are deployed in low-risk assets."

What do the experts say?

Sandi Saksena, a financial planner at Million Dollar Round Table, says the scheme "seems to be marketed more like AED 10 for a lottery ticket then a serious investment".

She warns: "Potential investors should be aware that the projected distributable profit for the bondholders, which is mentioned in the company’s prospectus, can’t be read as any sort of guarantee."

However, Al-Ali says likening the scheme to a lottery ticket is a "common misunderstanding".

"According to Sharia principles, gambling is prohibited," he tells cashy. "The draw prizes which are distributed by National Bonds are part of our reward program to our loyal customers, and are, by the way, paid from NBC’s own resources and not from the Mudaraba fund." 

Where can I buy bonds?

National Bonds certificates are available to buy in nearly 560 outlets nationwide including Emirates Post offices, exchange houses and banks. For more information, visit nationalbonds.ae or call 600 522 279.

Pic credit: FreeDigitalPhotos.net

Do you own National Bonds? What do you think of the scheme? Tell cashy by commenting below...

Comments

  • dunya
    dunya
    2011-02-23T09:03:01

    isn't this just a ponsi scheme? I hear they've been / are in financial trouble and simply can't afford to keep paying out the interest they have been... your article says they are regulated by the Central Bank - so that gives me some measure of confidence in the scheme, or should i say 'hope' - although it doesn't cancel out the above concerns. All i think when i see the billboard campaign they have at the moment - trying to encourage people to save with them - is that they must be in trouble and need cash... hope i'm wrong!

  • motherindubai
    motherindubai
    2011-02-27T15:10:17

    please anybody could enlighten me regarding the national bond. me and my husband decides to go through NB by next month.i just want to know what is the procedure for getting it? do we just have to buy in any participating outlets or do we have to create an account then that's the only time we can buy? after getting the NB certificates, what are the uses apart from encashing or redeeming the NB cert?

    thank you and hope to receive reply.

  • jen
    jen
    2011-02-27T15:42:39

    Hi motherindubai. This page on the National Bonds website tells you where and how you can buy bonds. Once you've bought them, you either have to hold them - with the prospect of accruing profits and winning prizes - or encash them. As far as I'm aware there are no other uses. Hope this helps!

  • motherindubai
    motherindubai
    2011-02-27T16:02:32

    Thank you so much for the speedy reply.

  • NationalBonds
    NationalBonds
    2011-03-06T15:10:40

     Hi Dunya - thank you for your question & comment. To clarify, National Bonds Corporation PJSC, launched in 2006 is the leading Sharia complaint saving scheme in the UAE and the most rewarding having distributed a 3.78% profit rate for 2010 topping the market average comparison to all other saving products in the UAE, with a cumulative annual profit rate of 26.4% over the five years on Mudarba fund.

    National Bonds has distributed over 200,000 prizes worth more than AED 51 million in 2010. Compared to 2009, the number of rewards increased by 49%, due to the company’s aim to always better reward it’s customers for their commitment to savings and to National Bonds. The customer base grew exponentially and surpassed the impressive 600,000 mark to hit 610,775 by the end of 2010. Repeat purchases have risen to 77% compared to 63% last year, and our 14% year-on-year growth signifies a happy, satisfied, trusting and confident client base that we are very much proud of.

    National Bonds don’t just strive to increase the number of bondholders, but also aims to service its customers in the best way possible, as their loyalty is what makes National Bonds the best place to save and invest. 

    Hope this is a helpful overview. For additional information, please do not hesitate to visit our website : http://www.nationalbonds.ae 

  • jen
    jen
    2011-03-13T15:34:13

    Since cashy published this article, Investment Corporation of Dubai (ICD) has taken over National Bonds Corporation. The Dubai government investment company bought the 50% of National Bonds it did not already own, for an undisclosed sum. Khalifa al Daboos, the director of investments at ICD, says it will "bring more empowerment, progress and growth to National Bonds Corporation, which in turn will translate into even more benefits for our bondholders and the UAE community". ICD's portfolio includes investments in Emirates NBD, Dubai Islamic Bank, the Emirates Group and Emaar Properties, the company that built the Burj Khalifa.

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