Emirates NBD, Dubai's largest bank by market value, on Monday said it plans to offer personal loans that will be underwritten by customers’ end-of-contract employment gratuity.
Customers will be able to borrow up to 90 percent of their gratuity, with a minimum loan amount of AED10,000 ($2,722), on the premise that their severance pay is used as collateral, the bank said.
“ [It] allows customers in the medium and lower salary range to avail of personal loans… by considering the end-of-service-benefit amount as collateral against which the customer can take the loan,” said Shekhar Krishnamurthy, the bank’s head of retail assets and liabilities, in a statement.
“Loan amounts cannot exceed the total benefit amount due.”
Under UAE law, employers are required to pay end-of-contract gratuities to staff, the amount of which is dependent on the length of the employment contract.
The gratuity was initially intended to compensate for the lack of a government pension scheme for expatriate workers residing in the country.
Applicants must be salaried customers of the bank and earn a minimum of AED5,000 a month to be eligible, the bank said.
It is thought to be the first UAE lender to offer a loan plan underwritten by gratuities.
Emirates NBD said in October that its third-quarter profit tumbled 60 percent after a spike in bad loans and a provision for its exposure to debt laden conglomerate Dubai World.
The lender booked nearly $816.7m in impairment allowances in the first nine months of 2010.