Dubai-based lender Gulf Finance has launched a loan programme aimed at small businesses that promises not to report clients to the police if they default on their debts.
The scheme breaks sharply with the current system that allows banks to press for the jailing of debtors that fail to meet loan payments.
“Our position is that if you’re courageous and want to start your own business, it shouldn’t be a criminal offense,” chief executive office Steve Williams told Arabian Business. “Things like this will help revitalize the SME market.”
The programme, which provides loans typically ranging from 150-250,000 AED, launched four weeks ago. Its target is would-be small business owners nervous about seeking loans from larger banks known for notifying authorities when clients default on loans or bounce cheques.
Should a small-business owner be unable to make a loan payment, “we want them to work with us to find a solution, rather than the current situation,” Williams said.
Under UAE law, bouncing a cheque is a criminal offence that can result in a jail sentence. Blank cheques are commonly used to underwrite financial deals, such as credit cards or bank loans, to guarantee future payments.
At the height of the financial crisis in 2008, it was estimated 2,500 people a month were absconding from Dubai alone to escape unpaid credit card bills.
Since Gulf Finance launched its program, it has seen more than 300 applications per week for loans. It has a rejection rate of about one-third, Williams said.
“You’d be surprised how many people want to set up,” he said.
Business plans likely to be accepted include restaurants in popular residential spots, and lifestyle businesses such as corner shops.
Businesses in the oil and gas, energy, water and healthcare sectors are also “slam dunks,” Williams said.
“We look to see if it’s a low-value product that’s recession proof,” he said. Though due to a benign economic environment, nothing “will take off dramatically like it would have two or three years ago.”
He cited fashion and specialty foods ventures as those unlikely to pass muster.