The number of bounced cheques would rise if the UAE decriminalised the practice because citizens would not be so careful.
That is the view of Abdul Aziz Al Ghurair, the CEO of Mashreq Bank.
In an interview with Arabian Business, Al Ghurair argued that the UAE would be wrong to decriminalise bounced cheques – a move it is considering through the introduction of a new law to mitigate the risk of bankruptcy.
On July 7, state news agency WAM reported that a draft law on financial regulation and bankruptcy had moved a step closer to being enacted after it was approved by the country’s cabinet.
The new rules aim to “regulate accumulated debts, ease restructuring of companies and support troubled businesses”, UAE Prime Minister and Ruler of Dubai, Sheikh Mohammed, was quoted as saying.
But Al Ghurair said bounced cheques at present constitute a negligible proportion of the total number of cheques issued in the UAE – around 4 percent, he claimed.
“The government keeps talking about this, but I think we over-exaggerate the significance of a small number of cheques bouncing on the wider economy.
“Let me give you some statistics. In 2014, 32 million cheques were issued [across the UAE], totalling AED1.608 billion. Bounced cheques constituted around 4 percent of this, which is about AED1.3 million. So it’s not huge.”
Cheques bounce for several reasons: because the signature doesn’t match; the issuer has written the wrong date, or, in around 1 percent of cases, because the issuer has insufficient funds in their account. This is a small proportion but one that would increase if legalised, Al Ghurair argued.
“People wouldn’t take enough care. And it would change people, the way they work, they way they do business.
“[For example], if I was a landlord, when you come to me with your cheque I’d say, ok I’ll give you one month’s lease; I’m not going to give you a year. The tenant would say, but I’ve already bought these curtains, but I say no, I don’t know if you are going to honour your commitment.
“The tenant says, I promise to pay you, but later he says sorry [he cannot, and the cheque bounces]. And then what? It takes me a year to get you out of your apartment; I have to go through this lengthy legal process, and I’m still out of the money at the end.
“If bounced cheques were decriminalised, I think landlords would give just one month’s lease at a time – cheque goes in, cheque goes out. It would change things.”
He added, “I think it’s acceptable to use cheques as a recovery instrument,” and said he believed four percent was a reasonable level of risk for the economy to sustain.
“[At Mashreq], we know customers will borrow from us and there will be four percent that we never recover. That’s the cost of doing business. But more would be problematic.”
Last September, when the UAE government first resumed talks on making bounced cheques a civil rather than a criminal matter, Al Ghurair said that the whole country’s trade system is based on the cheque system and it would be hard to alter that.
He told Arabian Business that he stands by that comment, and until there are alternative methods to guarantee payments, current laws should remain.
Read the full interview with Abdul Aziz Al Ghurair in Arabian Business magazine.
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