Financial Services Focus
Muhammad MithaSenior Counsel,Banking & Finance
Samiya MithaSenior Associate,Corporate Structuring
At the end of an exciting period of hosting the FIFA World Cup 2022TM, Qatar is looking forward to the fruition of its 2030 Vision of being one of the top countries for foreign investment.
While the financial services industry in Qatar has been extremely involved in the run up to the FIFA World Cup 2022TM to finance most of the preparatory work, the heavy lifting for funding major construction projects was undertaken by banks, as one would expect.
Primarily, banks not only service large corporate entities for major projects, but they also form the primary source of funding to a large segment of retail and SME customers who seek financing for their individual and relatively smaller financing needs. However, in addition to commercial banks, finance companies are also authorised to provide financing facilities to its customers. The main difference between a bank and a finance company is that the latter is not permitted to take customer deposits. Finance companies typically cater to a certain limited customer base comprising of retail and SME customers.
In Qatar, finance companies are regulated by the Qatar Central Bank (“QCB”). Whilst the QCB Law No. 13 of 2012 (“QCB Law”) allows for licensing of a finance company to undertake finance business, there is a dearth of finance companies in Qatar, and the ones currently licensed are owned full or substantially by banks licensed in Qatar.
There is potential for servicing the consumer finance sector, including SMEs in Qatar and for this purpose, foreign entities may consider setting up a finance company in Qatar. This article will focus on the certain key considerations for setting up a finance company in Qatar.
Qatar’s Foreign Investment Law No. 1 of 2019 and its Executive Regulations No. 44 of 2020 (together the “Foreign Capital Investment Law”) allows foreigners to establish companies in Qatar with ownership over 49% up to 100% without the need for a local Qatari Partner. However, an investment above 49% requires an approval from the Ministry of Commerce and Industry (“MoCI”).
Restrictions: Article 4 of the Foreign Capital Investment Law restricts foreign investors from holdings in banks, insurance companies and commercial agencies, but recently that Cabinet has allowed the percentage of non-Qatari ownership in the capital of major banks to reach 100 percent. While this restriction is not applicable in respect of a finance company, however, prior approval of the QCB must be sought in order to permit a 100% foreign owned finance company.
Corporate licenses: Generally in respect of undertaking business in Qatar, certain licences and consents are required to commence business in Qatar and this includes the commercial registration issued by the MoCI, trade license, registration at the Immigration Department of the Ministry of Interior, registration at the Labour Department of the Ministry of Labour and registration with the Tax authorities.
In respect of a finance company undertaking finance business, a license from the QCB would be required as mentioned above.
Finance company business: Under the QCB Law, a finance company may provide credit and various consumer loans or any other financial service that QCB may permit. However, a finance company cannot undertake following activities:
receiving deposits;
exchange products or activities;
investment activities (except for proprietary investments and securities);
representation of banks or any other foreign financial institutions; and
other banking activities such as trade finance, issuance of guarantees (except for what is related to permitted financing activities).
Company form: Article 79 of the QCB Law read with the QCB Instructions to Finance Companies, requires that a finance company be incorporated as a joint stock company. Additionally, pursuant to Article 87 of the QCB Law, the QCB may authorise a foreign financial institution to open a branch in Qatar in accordance with the conditions determined by the QCB.
Joint stock companies: Joint stock companies are either public or private entities. In Qatar, existing finance companies are private joint stock companies. The minimum required capital of a public joint stock company is QAR 10,000,000 as per the provisions of the Commercial Companies Law No. (11) of 2015. The minimum required capital of a private joint stock company is QAR 2,000,000. However, under the QCB Law, finance companies must hold a minimum capital of QAR 500,000,000.
As an entity under the supervision of the QCB, a finance company must follow stringent requirements to maintain a certain level of capital adequacy ratios and liquidity ratios. Additionally, a finance company must maintain certain mandatory policies relating to for example business procedures, accounting, risk identification and management, financial and investment controls, internal audit and control. Furthermore, a finance company must follow certain mandatory reporting requirements that QCB has set out in the QCB Law and the QCB instructions to finance companies. There is also a requirement for a finance company to retain an insurance policy with an insurance company in Qatar.
Branch: If approved by the QCB, a foreign financial institution may set up a branch in Qatar provided that the parent entity of the branch is appropriately licensed in the home jurisdiction. The branch would still fall under the supervisory jurisdiction of the QCB and it would have to follow certain mandatory reporting requirements as stated above. The QCB may direct the branch to provide guarantees and warranties of the nature and conditions determined by the QCB to ensure capital adequacy and liquidity is maintained at a parent entity level and to cover losses that may be incurred by the branch.
Application: In order to establish a finance company (whether a joint stock company or a branch), the applicant must submit to the QCB a formal application on prescribed form. The Governor of QCB may issue a decision to approve or reject the application within 60 days from submitting the application and accompanying supporting documents.
The financial services sector in Qatar has contributed and continues to contribute substantially to Qatar’s economy. Foreign financial institutions have shown a keen interest in Qatar to cater to the needs of large corporates and construction projects in Qatar. Perhaps a shift in focus to bring the consumer and SME financing in the forefront is required to march towards achieving the 2030 Vision.
Al Tamimi & Company’s Corporate Structuring and Banking & Finance teams are well versed with the legal and regulatory landscape in Qatar and are equipped to offer tailor-made service to our financial services clients keen to explore Qatar as an investment hub.
For further information,please contact Muhammmad Mitha or Samiya F. Mitha
Published in February 2023
