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Mon 5 Jul 2010 06:34 AM

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Debt consultancy sees average owed at $136k

EXCLUSIVE: About 5% of clients are ex-UAE residents who skipped the country.

Debt consultancy sees average owed at $136k

A UAE-based financial consultancy has revealed the average debt load of its customers is AED500,000 ($136,121) with its most indebted client carrying AED26m worth of real-estate linked liabilities.

Debt management agency ISDM, which has more than 3,000 clients on its books, said that about 70 percent of its customers are defaulting on consumer rather than business loans.

“The important thing is that our clients have the intention to pay back. These aren’t dishonest people. The majority of them, 95 percent, were caught out by the economic crisis,” said managing director Yohannes Mazeingi.

“It’s a myth that irresponsible spending is always to blame. When the economy was booming, inflation was also high. [The cost of living] eats up your disposable income, so you use a credit card. That’s how it starts. It isn’t always a question of luxury purchases.”

Dubai-based ISDM advises clients in debt distress to consolidate their loans, and will negotiate with banks on their behalf for a freeze in interest rates and a restructured payment plan. It collects a two percent fee commission based on the overall value of the debt.

About five percent of the firm’s client portfolio comprises ex-UAE residents who have skipped the country rather than face jail for their loans.

“The number of ex-residents contacting us is growing. Skipping was not their preferred option. Many didn’t want to leave the country and would have preferred to resolve the debt here. But due to the lack of options – either go to jail or skip – they chose to skip,” said Mazeingi.

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 arrangements, such as credit cards or bank loans, to guarantee future payments.

Research by RAK bank last year indicated up to 2,500 UAE residents were skipping the country each month without settling their debts.

Mazeingi said UAE banks are gradually becoming more amenable to debt negotiation with financially distressed clients.

“You get zilch by not negotiating. The banks can recover 80 cents on the dollar through consolidation. Through a debt collection agency, they’d be lucky to get 40 cents on the dollar, and out of that they would need to pay for the outsourced collection,” he said.

Mazeingi said that ISDM has a “working relationship” with a number of international and local banks, but declined to name them.

“The whole idea is that you have to match the person’s capacity to pay. There’s no point in pushing a person against the wall. Now, everything is stacked against the consumer. The banks have the law, the police, the money on their side. The customer is isolated,” he said, adding that moves to decriminalize debtors are overdue.

“The banks are using the police as an extension of the bank, which is not sustainable. The banks had the opportunity to do due diligence and didn’t. They should carry the risk: it shouldn’t be passed to the state or to the police.”

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Harry K 10 years ago

Much needed service in the UAE. Well done to Mr. Mazeingi for offering a balanced and sensible view. I wish ISDM success in Dubai - there sure is a lot of work to be done (challenge would just be to get the banks to play ball and accept they will not recover 100% in every $- they are run by greedy bureaucrats and will most likely be tough to convince them to start with, but they will eventually see the light or perish!)

Naveen Shetty 10 years ago

The practice of taking cheques as security for non-secure loans (such as Credit Cards, Personal Loans and other such credit facilities) should be made illegal. This will force the banks to rework their lending strategies and be prudent at the time disbursing the loan. This is the standard practice all around the world. This is similar to holding of employee passports by the employers which is illegal.

AT 10 years ago

Dubai has been pioneer in following "international best practices" ....... loan policy and debts collection should be no exception. Bankruptcy Law should be in place the soonest and there should always be risk management (ie from loan approval to collection)

Randa Yacout 10 years ago

I strongly suggest that the Dubai Based ISDM extends its advise to these banks who are reluctant to negociate repayments with its clients. But In vain !! When they is a LAW, banks will be obliged to follow..

AT 10 years ago

Dubai has been pioneer in following "international best practices" ....... loan policy and debts collection should be no exception. Bankruptcy Law should be in place the soonest and there should always be risk management (ie from loan approval to collection)

R. M 10 years ago

The debt collection departments of some banks don't seem as interested in recovering the money as in collecting their pound of flesh, complete with dripping blood! Some of the verbal abuse that the Collections department staff hurl at defaulting customers would have landed the banks in Court for slander in some parts of the world. What is unforgiveable is calling aged parents in the home country and telling them that their son/daughter is on the brink of going to jail, making the old people frantic and leaving them totally helpless and probably in shock. Did the banks take the parents' permission before issuing the card? Also, how do they think it is going to help if they call the HR department and get the employee sacked? When the deal is between the bank and the customer, why do they drag total outsiders into the equation, like children complaining to a higher up because they cannot sort it out themselves. Banks' Collections staff need to be given a crash course on how to differentiate between decent people who are frantic to pay back their liabilities and common cheats. Some Collections staff use the telephone like a weapon of destruction and openly revel in the so-called power they think they have over obviously distressed customers. And when the Collections staff are requested to consider a case as 'special' they quote 'Policy' and refuse to budge. I wonder how they would feel if God declares that it is Heaven's Policy not to let in any sinners, no matter how repentant they are! In the current scenario, what Yohannes Mazeingi's company is doing will be like a lifeline to people who have used the services of his organisation, God bless them.

NAIVE 10 years ago

WHY POLICE HAS TO ACT AS DEBT COLLOECTOR FOR SUCH COMMERCILIZED ORGANIZATION LIKE BANKS WHO HAVE GIVEN OUT LOANS & CREDIT CARDS FOR SHEER INTENTION OF MAKING HUGE PROFIT AND WHOSE BOSSES HAVE ALREADY COLLECTED THOUSANDS OF DHS IN BONUSES DURING BOOM TIME ,THE BANKS PRACTICE OF LENDING WERE TOTALLY UNETHICAL AND LET COURT DECIDE THE MATTERS INSTEAD OF POLICE DIRECT ACTION

David 10 years ago

I have recently been the victim of the rudeness by a very well known bank in the U.A.E and if you can bear with me, I will outline the circumstances. I received a call from my bank stating that although I had filled out a cheque deposit envelope for my credit card payment, I had failed to enclose the cheque in the envelope when depositing in the box at the bank. Although thinking this strange, I immediately visited the bank and deposited a cheque for the same amount. The same credit card company called me on my mobile a few days later and very rudely informed me that a payment on my second credit card was well overdue. I had paid many days earlier and requested the caller if it was possible to check my bank account, to see if the sum of money I believed I had paid had been debited. It had been debited. It had been paid, but to some other customers credit card account, NOT MINE! While this agressively rude man was trawling my account, he informed me I had paid two cheques of the same amount against my other card. So I had put my first payment in the first envelope. The point of all this is. Suppose I did not have funds to pay the second cheque amount, would I have been put in prison for issuing a bounced cheque? To make matters worse, they never informed me they had found the first cheque, they charged me a late payment fee, which took weeks to be sorted where through their fault, they credited another customers account. To make this sorry and long story even worse, I am still waiting for an apology and I was made to to feel like a criminal.

scorp2x 10 years ago

Definitely SHYLOCKS! I've had so many bad experiences with banks that I've come to hate them and that's not a word I use easily. The world would be better off without banks and bankers!

Ananth 10 years ago

I have a credit card loan of AED 55000/- and purchase on cards to another AED 30000/- and in the matter of nearly two yrs ,i have paid more than AED 1,05,000/- and still my outstanding is showing as AED 40000/- despite my regular payment with out any default so far.I will be much obliged if any deby consultancy agencies advice what should I do to get justice and freedom from these monsters who are bleeding me.I havw asked the bank for restructuring or settlement but the bank does not want either and is threatening with frequent phone calls and at odd times .I will be much obliged if agencies like ISDM come to my rescue to sort out this issue and come ot of the bank debt trap.