UAE banks using police as 'debt collectors' – Al Mulla

EXCLUSIVE: Top UAE lawyer says banks using debt laws to dodge due diligence checks.

DEBT VIEW: Dr Habib Al Mulla, founder and executive chairman of the Dubai-based Habib Al Mulla Company. (ITP Images)

DEBT VIEW: Dr Habib Al Mulla, founder and executive chairman of the Dubai-based Habib Al Mulla Company. (ITP Images)

Banks in the UAE are taking advantage of the country’s strict debt laws to avoid conducting due diligence on loan applicants, according to one of the UAE’s most prominent lawyers.

“The banks are using the government and the police as debt collectors,” Dr Habib Al Mulla, founder and executive chairman of the Dubai-based Habib Al Mulla Company, told Arabian Business in an interview.

“Rather than doing due diligence on the borrower, rather than taking tangible guarantees, they are simply relying on the issue of bounced cheques,” he continued.

“You apply for a credit card, and instead of taking appropriate measures and checking whether you’re paying your bills properly, or whether you have a good credit history, they give you a credit limit.”

He also said that the government is unlikely to decriminalise the offence of bouncing a cheque, as banks in the UAE have become used to the “artificial guarantee” the cheque fraud law brings, and would suffer significant losses if it was repealed.

According to Al Mulla, the jailing of individuals who bounce cheques is costing the government a “huge” sum; however, the law is unlikely to change soon due to the fragility of UAE banks’ balance sheets.

“It won’t change – there are forces behind this issue,” he said. “I think the value of post-dated cheques in the market is so huge that if a decision comes that says bounced cheques are not a criminal action any more, there will be huge losses for the banks.

“They would sustain losses because they built their whole credit and risk system on the issue of bounced cheques, not on the credibility and worth of the customer. It is a decision to spare the banking industry from a very heavy shock.”

Al Mulla added that while the law was “a good way of getting money back from the banks”, it is harming the UAE’s competitiveness on the international stage.

“It is not best practice, and when you talk about the UAE’s competitiveness, you cannot talk about best practice in one area and not decide to stick to our own rules in other areas,” he said.

Last week the head of HSBC UAE sparked outrage when he told Arabian Business that jailing debtors remains an effective way for banks to retrieve bad loans.

“It has worked for us. People immediately get people to come and bail them out, and get the money in... [Historically] it did work. In most cases it did work,” said Abdulfattah Sharaf.

His comments were criticised by academics including Roy Batchelor, Professor of Banking and Finance at London’s Cass Business school, who said the imprisonment of debtors who default on payments in the Gulf “sounds morally wrong”.

“I can see it is very convenient for a bank to say ‘I will lend to anyone and it is their problem if they default.’ But in the rest of the world it is the banks’ responsibility to try to assess the credit worthiness of individuals,” he said.

"But this [jail for defaulters] gives the banks even less incentive to do due diligence on their borrowers, whereas in the rest of the world banks are being beaten up so they are ultra-prudent when it comes to lending on a personal level.”

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Please post responsibly. Commenter Rules

Posted by: Danny Bonnito

"UAE has to offer Expats incitive to invest into the country more."

One way would be to DELIVER what the expats who did invest have already paid for.

I saw the Dubai marketing TV ad today in UK, all about a woman who leaves her purse in a taxi and then a hotel employee returns it to her (ie: Everyones great and you can trust people in Dubai)

Ironic as there are so many expat property investors who have been ignored, abused and often forgotton by those who have been paid but have not delivered on their promise.

A cheap two minute TV ad won't fix that perception.

- dream on

Posted by: Faisal

UAE has to offer Expats incitive to invest into the country more. One way is to offer them long term or permanent Residance if they own a property here or if they have certain skill sets or own business. This encourages patriotisim among people as they would want to make UAE home. As a result they will invest in the country and help flourish the economy. This would then be the bases of sustainable and robust economy rather than the economy that is mainly based on speculation and borrowing. There should be Credit File of every expat that works here based on their past history in their home country and in UAE. A Credit Rating agency should be setup in UAE that works with Banks in the most popular expat countries such as India, Pakistan, Srilanka, Bangladaish and All Middle Eastern and Western Countries to obtain, validate and verify personal and financial information of the applicant. That info then can be sold to Banks in the UAE.

Posted by: Bu Sagr

to red snappa, permanent residency??? you cant be serious, we will never advocate something that will further exacerbate the deteriorating demographic imbalance, instead of squandering your precious time on facebook why dont you browse the web for countries that dole out permanent residencies and citizenship rather than barking up the wrong tree...the UAE is for Emiraties as much as India is for Indians and Pakistan for Pakistanis and Bangladesh for Bangladeshis.

Posted by: Gabriel Dunbar

" permanent residency??? you cant be serious, we will never advocate something that will further exacerbate the deteriorating demographic imbalance"

@ Bu Sugr

Too late for that Dodo, you already did. The UAE cannot function in the way IT HAS DECIDED TOO without being dependent of are very wide range of foreign workers, both skilled and manual.

You should think about treating your foreign workers with a bit more respect and appreciation, its not as if there is an unlimited supply of skilled workers and the UAE is not the only country that has chosen to base more of its economy around tourism.

Posted by: Muhammad

Bu Sagr, that is the perogative of the country if they do not want foreigners here nobody can challenge that. But the policy needs to be clear. On one hand foreigners are encouraged to invest and on the other hand they are not wanted here. The two cannot go together. Also any sort of residency/long term visa can still be cancelled by the authorities and is not any sort of citizenship. If the policy is clear, people can make an informed decision thats all.

Posted by: jake

that's not what he said...


he is talking about a "long" term investors visa, which implicates that said person contributed significantly to this economy.

No need to fear the asian tsunami because of that.

Posted by: indian

Hard to seek NOC every time you exit. An alternative is to get the person delisted in visa and master worldwide. A defaulter can be apprehended in GCC and deported back to country where he owes cards dues.
But banks themselves encourgae people to change Ids, residence etc and re-apply. For deliqunency , absconders aren't credt cards charging 36 % plus interest on card outstandings ? So why sulk...you are getting the premium and of ocurse Bonuses (this is for brit bankers) for taking risk.

Posted by: Red Snappa

Answer me this Omar which serious expatriate executive, you now need them as an insulation against popular unrest I heard, is going to work in a country that demands an NOC from a bank or credit card company every time they need to travel back and forth on business? Most of Dubai's business either comes from visitors or involves cross border sources of revenue these days not in country.

What you need to do is issue long term investor visas and 5 year residence visas to get more investors to come here

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