FINANCIAL INNOVATION AND CENTRAL

BANK OF UAE

Project Submitted to the

MANIPAL ACADEMY OF HIGHER EDUCATION
– DUBAI CAMPUS

In Partial Fulfillment of the Requirement for the Degree of

Bachelor of Commerce

BCM 310: Money and Banking

VI Semester (February 2023 – June 2023)

Rinsha Firoz
Shahna Jabin
Haroon Ahmed
Mohamed Moulana
Anush Khalife

Faculty Name: Dr. Taramol KG

SCHOOL OF BUSINESS

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 INDEX

SNO CONTENTS PAGE NO

01 Introduction

03

02 Financial Innovation

04 - 08

03 Central Bank Of UAE

09-13

04 Conclusion

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05 References

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 INTRODUCTION
Innovation is one of the newest words used in science and technology in recent years.
Innovation comes from the Latin word "innovation" which means "doing something
new and different". Innovation means “refreshing science and technology to bring
economic and social benefits”. Today, companies are at the center of the innovation
process. The productivity and competitive structure of companies are determined by
their business skills and technological expertise. Companies that are driving the
economic growth of the market are developing new technologies. Technological
innovation lays the foundation for new technological developments in these
companies.
The term "financial innovation" means the introduction of new financial instruments
into financial insights and markets through new technologies. It includes process,
product and institutional innovation.
It is the act of developing new financial technologies, institutions, markets and
instruments. Sukuk). Many financial innovations, such as mortgage-backed securities
and asset-backed bonds, have been made possible through shadow banking.

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 FINANCIAL INNOVATION
Financial instruments, services and markets using new and innovative technologies. It
includes new financial tools and applications with the help of technology in the
market. It is the process of creating new products, processes, software applications or
services related to the financial and investment industries.
It also includes technological innovation,
risk management and mitigation, credit
and equity creation, and many other
financial and business innovations.
It started with the development of
technology and improved operations in
the financial markets. With the
improvement of the status of financial and technological factors, financial innovation
is a necessary process for countries around the world.
Importance of Financial Innovation
1. Financial innovation makes financial products and services accessible. ATMs have
revolutionized the way we use banking services. Likewise, PUs are changing the way
we use different services. Financial Innovation has integrated the entire financial and
investment functions and facilitated customers.
2. Financial innovation has made institutions and market participants more efficient in
providing services to customers. Innovation has made services more personal and
specialized.
3. Financial innovation improves the sustainability of financial institutions.
Innovation is the need of the situation, so integration is the only way.
4. Innovation frees up economic activities. Financial innovation promotes the use of
financial services and products by making them simpler, more accessible, affordable
and timely. For example, paying with UPI is much more profitable than using a debit
or credit card. Moreover, you can buy and pay for anything from your mobile phone.
It gives consumers more freedom.
5. Financial innovations can drive growth and competition in financial markets, and
provide new and better options and opportunities for customers.

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 TYPES OF FINANCIAL INNOVATION
Financial System Innovation
This means the renewal of the entire financial system. This innovation led to the
establishment of new types of financial practices. This may require a change in the
regulatory and supervisory framework and structure. For example:
Cryptocurrency technology and BlockChain are innovations in the financial system.
Process Innovation
This includes developing and adapting to new age processes that lead to efficient and
effective financial operations. This is common in financial innovation. All office
automation and the use of technology to provide efficient and effective services are
part of innovation. For example, token system application, biometric verification and
online authorization and application, etc. is the driving force of process innovation.
Product Innovation
Product innovation includes the introduction of new products into the financial
ecosystem. The development or introduction of a new technology-enabled financial
system depends on constant innovation and the reaction of the market and market
participants to this innovation. Credit and debit cards, UP and mobile banking,
application-based systems are product innovations.

CAUSES OF FINANCIAL INNOVATION

There are various causes of financial innovations, such as:
 Innovation in payment system and technological advancement.
 Competition
 Financial globalization
 Market failures, financial insecurity, domino effects, potentially high
systemic risks, etc., drive demand for innovative initiatives.
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 BARRIERS TO FINANCIAL INNOVATION
To facilitate innovation, many companies have integrated processes, such as Cooper
and Edgett's stage gate model. These authors divide the innovation process into a set
of stages, broken down by checkpoints or portals that require predefined products.
These processes help companies achieve innovative results by bringing new products
and services from idea to market faster and with fewer errors. However, big companies
like Kodak and Nokia did not react in time to the drastic changes in the market. Many
challenges, obstacles and barriers have impeded the innovation process of these
enterprises, and an increasing number of studies point to the nature of these barriers
to innovation in different contexts, such as such as barriers related to manufacturing
enterprises, barriers to product innovation, barriers to government and small business
barriers. Furthermore, barriers to innovation are dynamic, as their presence and
relevance tend to change throughout innovation and firm size.
The successful development and launch of innovations depends on a multitude of
aspects inside and outside the company. Internal and external obstacles to a company
affect its ability to succeed in innovation. Distinguishing between internal and external
barriers helps to identify which barriers a company can influence and which are
partially or completely outside its influence. The most common internal barriers are
corporate strategy, organizational structure, leadership, organizational culture,
research and development organization, and performance incentives. The external
barriers that are often mentioned are market dynamics, competitor behavior, and
market and technology chaos.
Traditional internal barriers are limited thinking, lack of discovery skills, and
unsupportive organizational structure. Traditional external barriers are customer
resistance, underdeveloped networks, ecosystem dynamics, and tech chaos. This
generalization provides insight into barriers specific to large firms and barriers specific
to small firms. Furthermore, they point out that the obstacles depend on the size of the
company. Unfortunately, this leaves us with insufficient understanding of why large
financial services firms, in particular, cannot organize for disruptive and radical
innovation.
FINANCIAL INNOVATION EXAMPLES
1) PayPal
PayPal is one of the best examples of financial innovation in the world, with 361
million active users today. In 1998, PayPal, then known as Cofinity Inc., was founded
by Ken Howery, Luke Nosek, Max Levchin, Peter Thiel, and Elon Musk. Almost
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immediately, the business was very successful, growing about 10%
per day. By mid-2000, the organization had reached five million
users, and just two years later, PayPal was acquired by eBay for $1.5
billion. PayPal finally broke up with eBay in 2014 - a move that
most people had been waiting for as investors had been pressing
them for a while.
2) Funding Circle
Funding Circle is a platform that connects institutions with available funds to lend
with trusted businesses looking for funding. Its founders, Alex Tonelli and Sam
Hodges, started the platform after noticing how difficult it was to raise capital for their
small business. After opening several fitness centers together, the two were unable to
grow the business further because they couldn't get a loan. This experience gave rise
to the idea of founding Funding Circle.
3) M-Pesa
What started out as a convenient way to send money home, M-Pesa has grown into
the largest payment platform in Africa. Today, the platform allows many unbanked
Kenyans, who mostly live in rural areas, to deposit, transfer and withdraw money and
pay for items with their mobile phones. . M-Pesa is one example of how financial
innovation has led to financial inclusion by creating a service for the unbanked and
unbanked. This branchless banking service works by allowing users to store funds in
accounts accessible via their mobile phones using a secure SMS PIN.
4) WeChat
WeChat has become one of the most popular
standalone mobile apps in the world thanks to its
monthly active users. It has over 1 billion active
users, making it one of only five apps in the world
to pass this user milestone. First launched by
Tencent in 2011, WeChat was just a simple
messaging app that eventually evolved into a full-
fledged ecosystem.
Today, users can access a multitude of functions on the app, including:
o Banking
o Travel

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o Booking a doctor
o Networking
o Filing for divorce
o Job searches
o Making reservations
o Online shopping
o Entertainment
o Applying for a visa
o Research

ADVANTAGES AND DISADVANTAGES OF FINANCIAL

INNOVATION
Advantages
o Financial intermediaries benefit from economies of scale by combining related
financial services that can be provided to
Customers enjoy the wide range of products offered in a practical way.
o The Internet and mobile technology have greatly increased the ability to
communicate and interact remotely between businesses and directly with customers.
In addition, technology has improved the accessibility and efficiency of direct
distribution channels, providing tailored financial services at lower costs, and
improving access to finance.
o Digital innovation reduces transaction costs and enables various innovative financial
services and business models. The adoption of new technological advances affects
both traditional and emerging technologies provider. Digital technology can help
reduce the cost of collecting, storing, processing and exchanging information.

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Disadvantages
o Fintech and big technology are facing cybersecurity challenges. In addition,
attacks spread as connectivity increases and service splits add more links.
o Technology's fixed-cost infrastructure does not decline at the same rate as
technology becomes obsolete. In addition, several regulatory frameworks hinder the
entry of new players into the market.
o Fintechs practically control sensitive information. Users must have more autonomy
and control over their data.

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 CENTRAL BANK OF UAE
The Central Bank of the United Arab Emirates, commonly known as CBUAE, is the
government agency responsible for overseeing monetary policy, banking regulation,
and monetary management in the United Arab Emirates. United Arab. It was
established on December 11, 1980, 43 years ago in Abu Dhabi, United Arab Emirates.
The Monetary Commission was established on May 19, 1973, and was the forerunner
of the central bank. This happened after the UAE became an independent country in
1971. The Qatari riyal and the Bahraini dinar were the two official currencies used
when the Monetary Council of the UAE was established. Thus, its original goal was
to provide an independent currency for the new state. replace them. On the same day
the Monetary Council was established, the new UAE dirham came into force. At the
time, the UAE's Monetary Commission did not have the full authority of the central
bank. The United Arab Emirates' monetary policy is not under its control, but it is
responsible for managing gold and the country's foreign exchange and currency
reserves.
The Central Bank of the United Arab Emirates has the power to act as the country's
banker, issue and manage currency, maintain monetary stability, manage credit policy,
develop and oversees the banking system of the United Arab Emirates, provides the
government with currency and financial support, manages the country's gold and
foreign exchange reserves, acts as a lender of last together with banks based in the
UAE and representing the UAE in international organisations.
CBUAE regulates the following:
 Conventional banks
 Islamic banks
 Financing companies Exchange businesses
 Representative offices
 Retail payment services
 Crowd funding
 Retail payment system
 National insurance company
 and more

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Mission
Enhancing monetary management, financial stability, and protecting consumers
through effective supervision of Licensed Financial Institutions, prudent management
of reserves, robust financial infrastructure, and the adoption of digital technologies.
Strategic Objectives
• Encourage the development of the UAE's financial industry in accordance with
upcoming economic trends.
· Provide a stable and cutting-edge financial market infrastructure and aid in guiding
the UAE's financial technology and digitalization journey into the future.
Core Objectives
• Boost financial and monetary stability.
• Improve the framework for regulation and oversight of financial institutions with
licenses.
• Increase confidence and trust in the financial services industry in the UAE.
· Enhance the insurance industry's contribution to society's and the economy's need
for protection.
Common Goals
• Attract, retain and empower elite employees and provide efficient and effective
corporate services as well as digital infrastructure.
• Use cutting-edge techniques to enhance the CBUAE's workplace's adaptability,
proactiveness, and responsiveness.
HISTORY OF CENTRAL BANK OF UAE

The Central Bank of the United Arab Emirates was established in 1980, Dubai and
Abu Dhabi both contribute half of their respective annual income to the institution.
The emirates' national currency, the United Arab Emirates dirham, is also printed by
the bank. Besides the banking association, there are commercial, investment,
development, foreign and domestic banks. After corrupt practices at Abu Dhabi's Bank
of Credit and Commerce International (BCCI), which is partly owned by the ruling
family, came to light in 1991.
Trade:There is a tradition in Dubai and Sharjah that values commerce. Dubai's
prosperity was assured even before the discovery of oil thanks to its position as the
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main warehouse of the Persian Gulf. (It is famously a way of smuggling gold into
India.) In an effort to boost trade, the UAE joined the World Trade Organization in
1995 and has since created numerous free trade zones, tech park and cup. - Peripheral
ports.
Service:Since the late 1990s, the service sector - including public administration,
defense, tourism and construction - has become increasingly important to the
economy, especially as the country strives to attract tourists. calendar and foreign
investors. The government has encouraged major infrastructure projects, particularly
the construction of accommodation and public transport systems – hotels, resorts,
restaurants and airport expansion – to strengthen the tourism industry. and
commercial.
Jobs and taxes: Nine out of 10 workers are foreign, with some private sector sites
having higher rates. These workers often work under unfavorable conditions, and the
state banned unions at the beginning of the 21st century.
Transportation and telecommunications: The country has a first-class road network
that was built in the late 1960s and early 1970s and connects it with neighboring
countries. The small saltwater estuary separating the city of Dubai from the
neighboring economic hub Dayrah is easier to pass through thanks to the construction
of a tunnel leading to bridges connecting the two sides.
International airports serve Abu Dhabi, Dubai, Sharjah, Ras al-Khaimah, Fujairah and
Al-Ain. 2010 saw the opening of a second airport to serve Dubai. One of the busiest
airports in the Middle East is the oldest in Dubai. The Federation is home to a number
of modern and important seaports, such as the Port of Rashid in Dubai, which is served
by a large shipyard, and the Port of Jebel Ali, located in one of the busiest ports in the
Gulf and is one of the largest ports. artificial ports in the world.
INNOVATION IN CENTRAL BANK OF UAE
The Central Bank of the United Arab Emirates has launched a Financial Infrastructure
Transformation Program (FIT Program) to accelerate digital transformation in the
country's financial services sector. Under the FIT programme, the UAE Central Bank
will apply advanced custodian technology and data management solutions to
implement rigorous supervisory processes and ensure financial stability. Nine
initiatives of the FIT program according to a central bank statement, the initiatives of
the FIT program are:
1, Card Domestic Scheme: UAE's first unified, secure and efficient card payment
platform to facilitate the growth of e-commerce and digital transactions domestic.

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2.eKYC: A secure and user-friendly platform to facilitate remote client referrals and
ongoing customer due diligence.
3. Central Bank Digital Currency (CBDC): CBDCs for cross-border payments and
domestic use to address cross-border payments problems and inefficiencies and help
drive innovation for domestic payments.
4. Open finance: Drive innovation and competitiveness and collaboration in the
financial services industry through connectivity and interoperability between all
entities and organizations.
5. Supervisory Technology (SupTech): Advanced Suptech supports management and
monitoring processes.
6. Innovation hub: A collaborative research and development engagement,
engagement, and development platform for fintech
7. Instant Payment Platform: A secure, efficient and powerful payment platform that
will support financial inclusion and create a cashless society through digital pay.
8. Financial Cloud: A secure, resilient, scalable and reliable sovereign financial
infrastructure.
9. Excellence and customer experience: Supporting exceptional customer experiences
and fostering a culture of excellence in the financial industry
RESPONSIBILITIES OF CENTRAL BANK OF UAE
• Develop and implement monetary policy in line with
the National Agenda. And exercising the privilege of
issuing currency.
• Organize authorized Financial Activities, establish the
foundation for their operation and define the standards
necessary for the development and promotion of prudent
practices.
• Establish and monitor appropriate regulations and
standards to protect clients of licensed financial institutions
• Control the credit situation in the country and contribute to achieving the goal of
balanced growth of the national economy.

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 • Manage foreign exchange reserves to always maintain enough foreign currency
assets to cover the monetary base.
• Regulate, develop, monitor and maintain the soundness of the state financial
infrastructure system, including electronic payment systems, digital currencies and
stores of value.

CONCLUSION
CBUAE is the supervisory and regulatory body for the banking and insurance sectors.
CBUAE promotes financial and monetary stability, efficiency and resilience of the
financial system as well as consumer protection through effective supervision to
support economic growth for the benefit of the UAE and people.
Financial innovation can affect economic or financial systems. For example,
financial innovation can affect the effectiveness of monetary policy and the ability of
central banks to stabilize the economy. The relationship between money and interest
rates, which can determine the effectiveness of monetary policy, is affected by
financial innovation. Financial innovation also affects business profits, transactions
and social welfare.
The wave of technology is bringing fruitful prospects to the financial services
industry, making it safe and affordable. However, many other innovations have yet to
be adopted or used by the financial sector. Furthermore, despite all the advancements
in financial services, much of the industry still struggles to implement these advances
into its core business.

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 REFERENCES

https://www.centralbank.ae/en/about/about-cbuae/#!#CBUAE%20Innovation

https://gulfbusiness.com/central-bank-of_uae-launches-fit-programme/

https://www.google.com/search?q=innovations+in+central+bank+of+uae&oq=innovations+in+central+ba
nk+of+uae+&aqs=chrome..69i57j33i160l3j33i22i29i30l6.10890j0j7&sourceid=chrome&ie=UTF-8

https://www.wallstreetmojo.com/financial-innovation/

https://link.springer.com/chapter/10.1007/978-1-349-21908-7_5

https://indiafreenotes.com/causes-for-financial-innovation/

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