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Thu 9 Jan 2014 05:54 PM

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Are we finally close to borrowing reforms in the UAE?

Ed Attwood asks whether the UAE's legislation on bounced cheques are numbered

Are we finally close to borrowing reforms in the UAE?

It seems you can ask anyone their opinion about the UAE’s bounced-cheque legislation and they’ll come up with the same answer. It’s archaic and it doesn’t work.

According to local legislation, bounced cheques are a criminal offence, not a civil matter, as in most other jurisdictions, leading to the threat of jail for those who – for a variety of reasons – may be unable to honour their cheques. Banks have historically used post-dated cheques as a means of providing consumer credit to their customers.

This has led to hugely embarrassing situations, including one instance where a resident was banned from leaving the country after the bank deemed his signature “irregular”.

 A couple of years ago, we asked the then head of the Dubai police force, Lt General Dahi Khalfan Tamim - whose agency is tasked with imprisoning those who have issued bank cheques - what his thoughts on the topic were. ““We are not happy and we certainly do not think that is the proper way of doing things,” he told us.

One of the UAE’s top lawyers, Dr Habib Al Mulla, has also given his thoughts on the subject.

““The banks are using the government and the police as debt collectors,” he told us.

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

“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.”

Wading in on the argument in Sunday’s issue of Arabian Business is Michael Tomalin, the former chief executive of National Bank of Abu Dhabi. Now sitting on the board of the UAE’s biggest lender, Tomalin made no secret of his distaste for the practice.

“The cheque has been used as a way to ensure payment and I think increasingly we need to move away from that and think of a better way of lending in the personal sector,” he said.

So if everyone is unhappy about the system, what’s being done to stamp out this practice? There may be a small chink of light coming up in the form of the new national credit bureau, which will be up and running by the end of the quarter. Efficient credit scoring will allow banks to determine the likelihood of a borrower’s default, thereby negating the need for security cheques.

That’s the plan anyway. But is it going to be easy to wean the banks off their addiction to providing easy, irresponsible credit? I suspect that there’s still some time to go before the use of this legislation is removed completely.