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Monday, September 29, 2014

How the UAE is dealing with its debt problem

The problem of debt in the UAE has been an ongoing battle, and a big one for some time now. The region comes down very hard on debtors dodging repayments, with jail terms and even in some cases contacting the debtor’s employers.

Loans in the United Arab Emirates
The National Bank of Abu Dhabi is one of several UAE lenders
At first, it was thought that these severe penalties were reserved for when the person in question had circumstances like losing their job, which meant they couldn’t pay back their debt. However, many people found they came into question for smaller debts, while still in employment. This can mean though that it can affect their job – especially if their employer finds out.

And there has also been the matter of people choosing to flee the country and leave their debts behind in desperation. However, this can catch up with them as overseas debt agencies can in these times we live in sometimes track down the debtor, carrying out proceedings in order to recover the money.

Think carefully before lending

The best advice from experts is that borrowing sensibly means you give yourself time to digest the amount of loan or credit card that you’re signing up for, and you ensure that you can manage the repayments on it.

The mistake a lot of consumers make is not appreciating that taking up a personal loan in UAE involves acompletely different set of rules. Therefore, as an expat, you should respect the process, and not treat it the same as your home country if the rules there are more relaxed about debt.

Changes suggested by the government

The UAE Civil Procedure code saw a relaxation in the rules for debt defaulters in May this year, however. It now means that pregnant women, minors, the terminally ill and the elderly cannot be jailed.

The UAE’s low ranking in World Bank Doing Business 2014 for resolving insolvency and enforcing contracts, was thought to be the catalyst behind the move.

It also prevents a debtor presenting a collateral agreement answering for the debt from going to jail, as well as those with debts of less than Dh10,000. The only exception to this latter rule being if the debt is a fine or maintenance paid by a court order.

The move has been praised by consumers and experts alike in the UAE, with statements highlighting its reflection of Sharia laws and a focus on helping families.

Try to resolve debts sooner rather than later

Banks are also trying to reassure consumers that if they get in touch with them to discuss settlement liabilities to try and repay the debt, that in cases where there is no police file made against them yet, it can often be resolved.

The UAE wants to be seen as progressive in finance management - as the industry certainly is that –plus ranking well for the way in which it manages debt and financial services. So these new rules are sure to be the first step towards trying to solve the debt problem, and helping consumers manage their lending so that they only lend what they can repay.

Image license: US-PD