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Clearing Emirati personal debts doesn't add up

Forcing banks to waive what they’re owed could mean they try to recoup costs elsewhere

Last week, the UAE government warned the Gulf state’s commercial lenders that they were obliged to write off 50 percent of debts owed by citizens or face punitive treatment.

The Debts Settlement Fund, as it is known, was setup in 2012 to assist those Emiratis who found themselves steeped in personal debt when Dubai’s property market collapsed in 2009. It requires banks to waive half of what they are owed by UAE citizens, with the other half settled though an AED10bn ($2.7bn) fund. Those banks that politely decline to take part will be named and shamed by the UAE Central Bank, and potentially be placed on a government blacklist.

So far, close to $500m in personal debt has been settled for 2,700 applicants, or about $185,000 each. There are a further 3,300 applications to go.

From one perspective, the measure makes sense. At about 15 percent, the local population in the UAE is small and it is encouraging that the government wants entrepreneurial Emiratis investing in the domestic economy rather than saddled by crushing debt repayments or sitting in local jails. Furthermore, bankruptcy in the UAE is a complicated beast and present legislation is inadequate. For example, can a foreign bank repossess real estate owned by an Emirati, despite the law stating that land ownership is technically restricted to citizens?

Finally, given the clean break that has been awarded to state-linked entities and developers since the financial crisis, which were by-and-large bailed out and restructured, Emiratis may feel that they too deserve to have the slate wiped clean.

However, the policy is clearly unfair on lenders and expatriates alike. In the latter case, numerous cases saw individuals (many of them property investors or developers) languished in the country’s prisons after defaulting on payments, often through security cheques, following the economic crisis. They will probably feel hard done by. Of course, that is not including those expatriates that just hightailed it out of the UAE altogether to avoid their creditors.

It also worth mentioning that the policy of clearing debt will do little to educate about fiscal responsibility in one of the world’s most promising markets.

The country’s banks will also be displeased, understandably, at being forced to pay through the nose to settle customers’ personal debts in what they will see as no fault of their own. All of this in what was recently ranked as one of the world’s most competitive economies.

Inevitably though, these banks will seek to recoup these costs elsewhere, whether that is through less competitive interest rates or higher fees, meaning in the end, everyone loses.

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Posted by: Philip

If banks are forced to write off 50% of the loans made to Emiratis, why would banks be inclined to lend to Emiratis in the future?

Posted by: Chris

How will this effect company's willingness to set up shop in the UAE? Will banks and other companies want to deal with people who they know will never pay back the debts they have accrued? Will the government fully compensate said companies/banks when they continue to rack up such debts. What happens when Emirates try to function outside of this cocoon? All things to consider when applying such policies.

Posted by: Critical

This law is another blow the basic citizen rights of the natives. How will they become a responsible citizen if they will be bailed out by the government everytime.

This kind of law was also passed in Kuwait where locals were allowed to take funds from Zakaat council. It was really shocking for me to see that a well educated kuwait comes out of his mercedez and asks the bank teller to give him zakaat so he can pay his installment.

Twisting religion there.

But here its a different culture, Emiraties are far better than the other regional natives. For GOD sake don't destroy them by helping them out in there personal matters which government doesnt have control on.

Posted by: SAM

Different cultures? Read some history please. Culture is not defined by the past 20 years or by how much freedom expats are given at a certain moment in time. I suggest going back few hundred years in history to help you obtain a truer picture of the culture of the region.

Posted by: Chris

i agree, they sure aren't doing their citizens and favours by paying off their debts. it's ridiculous, and why should they just be bailed out for the simple reason they're Emirati? They're just going to keep expecting the gov't to bail them out. In the meantime, so many expats are suffering in their prisons for small debts to the banks or credit cards they couldn't afford to pay back.

Posted by: Banker

Well Ali,

This is their country. As harsh as it seems, the government will always help their nationals over the expat? Your living here in the UAE because your government probably does not offer you what the UAE can offer you. If you government can offer what the UAE offers its national, im pretty sure you wouldnt be working here.

Posted by: Andy

There is a good Facebook page and website on this if you do a search for Dubai Check Fraud.

Posted by: Ali

"why should they just be bailed out for the simple reason they're Emirati"????
-Why should they be oblifeg to pay their dewa bill at half the cost?
-Why should they have benefits by jumping the queues??
-Why should they be given preferential treatment?

Do we expats live here for FREE!!!!!
Or do we not pay for every breath we take?

Posted by: Martin Whitaker

forced to pay through the "nose" to settle customers? personal debts ? - noose has better meaning.

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