By Shane McGinley
UK charity that deals with Dubai skips says threat of jail should be removed.
Decriminalising bad debt will force lenders to carry out proper credit checks when giving out loans, the head of a UK-based charity that advised people who have gotten into legal trouble in Dubai has told Arabian Business.
Radha Stirling, founder of the London-based charity Detained in Dubai, which advises those who have run into legal problems in the UAE, said she believed that the threat of jail should be removed and that it would force lenders to be more responsible when giving out credit.
“It would be nice to see some new regulations coming in for the financial institutions and to put some responsibility back onto them aswell,” said Stirling.
“If they couldn’t jail people for bad debts they might be a little more careful about doing credit checks and making sure that people taking out loans are able to repay them even in the event of a loss of employment.”
“The banks were marketing towards [customers] to take out this credit and then turning that into a jail sentence, which we think is quite unreasonable and frowned upon internationally and is doing a disservice to the country,” she added.
Earlier this week, HSBC's UAE head Abdulfattah Sharaf told Arabian Business that jailing debtors still 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,” Sharaf said in an interview.
Detailed in Dubai is currently hearing from up to seven people a day who have gotten into difficulties repaying loans in the emirates.
Stirling said that the charity has approached banks in the UAE on behalf of defaulters who have fled the UAE back to the UK and she said that in most cases the banks were willing to restructure the repayment.
Banks are “more likely to want to negotiate when you are out of the country and they cannot hold the jail card over you,” she 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 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.
“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,” Yohannes Mazeingi, managing director of debt management agency ISDM, told Arabian BUSiness this week.
However, Rajeev Kakar, CEO of Dunia, one of the UAE’s newest finance companies, argued that the banks were not responsible for the crisis and their lending policies still remain strong.
“This has not been a crisis where credit decisions were bad – unfortunately some people are forgetting that,” Dunia CEO Rajeev Kakar told Arabian Business.
“Much of the crisis today is not about people not wanting to pay [back debt], it’s about people losing their jobs and not having the ability to pay. And why did that happen? Because people took on much more than they were ready for,” Kakar said.
It is a stnadard practice to classify personal loans and credit card outstandings as unsecured loans. The bank will add the default premium when it charges the rates based on the risks of this lending. The banks in UAE are charging the hefty rates on these loans and they assume that these are secured. This is not completely illegal and against the standard banking principles.
Decriminalise debtors and the UAE will immediately become a haven for irresponsible debtors, this is a no brainer.
Most borrowers facing problems making payments are sincere human beings who have lost their jobs. Big Corporations like Dubai World Nakheel etc have also defaulted & restructuring payments causing severe hardships to creditors. A similar human approach must be taken with people who have lost their jobs or unable to keep up their payments by restructuring payments. The threat of jail must be removed with priority given to rescheduling & settlements - It will be a WIN WIN. The current situation only makes matters worse to human beings facing personal crisis. Banks must make every effort to be helpful without impact on a persons health, life & social status for genuine cases. Banks must also take respsonsibility & share the risk. Banks did aggresive marketing, risk evaluation , charging of high interest , making big profits. This is a global economic crisis. The UAE Goverment must impose on banks to take a practical, human approach to recover debts. Banks must be more supportive of rescheduling to enable debtors to settle their dues with dignity
It would have been far more commendable if Radha Stirling sets up an institution that educates debtors about their responsibilities towards their creditors. Another alternative is for Radha Stirling to come up with ways and means to settle the huge liabilities of such irresponsible clients otherwise Radha Stirling must keep her irresponsible ideas and comments to herself. Hmmmm, may be just may be Radha Stirling is planning to relocate to the UAE and take huge loans and ...............
I would like to mention to attn to 'Rajeev Kakar, CEO of Dunia, are you aware your interest charges are highest in the market also do you know how many working people had been removed from you bank. please do the homework than you will understand the basics
UAE Bankers from 2005-2008 acted as irresponsible as their customers. They lent their customers way above their means, throwing away all prudent lending practices. In fact, bankers will aggressively calling their clients luring them to borrow irresponsibly at the personal and corporate level. Banks should be held accountable for their bad lending practices and for choosing to ignore all prudent lending criteria. Why is that foreign banks who cannot send borrowers in their home countries to jail on default have to rely on jail terms for UAE residents. Wouldn't that encourage moral hazards among banks operating in the UAE? I am totally for lifting the jail terms on defaulters, and imposing other punishments such as ban on future loans. For those who think UAE will turn into defaulters heaven, please look at other countries where defaulters don't go jail and look at how their economies are doing over the last 40 years compared to the UAE for a meaningful and insightful analysis. If jail terms must be imposed on defaulters in the UAE, it should be imposed also on the bankers who made the loans to them if it was proved that they did not follow sound banking practices (e.g. size of loan relative to defaulters income or LTV related to their properties.) Please note writer of this note does not owe 1 fils to any bank. God bless the UAE
Making borrowers solely responsible for a loan default makes as much sense as making lenders solely responsible. Is UAE going to put loan officers in jail every time a loan goes bad? Of course not. Holding one party to a transaction solely accountable for bad judgement on the part of all parties to the transaction will always result in a highly inefficient market characterized by a high level of "transaction abuse" on the part of any party bearing no accountability. Transaction-related criminality should be reserved for any party to a transaction that lies, misrepresents, etc. in order to get the transaction done. If a borrower misrepresents in order to get a loan, the borrower should go to jail. If a loan officer misrepresents in order to get a loan done, the loan officer should go to jail. The stipulation of lies and misrepresentation as criminal in any type of transaction will separate transactions involving fraud from transactions involving bad judgement and/or poor due diligence disciplines. Borrowers with bad judgement should have bad credit ratings that are available for all future lenders to see. Loan officers with bad judgement should lose their jobs. If poor judgement were to be made a crime in all walks of life, who among us, including myself, would be a free man?
What is needed is more professional banks. The UAE banks are the most expensive for everything, the least customer focused and professionals. They need the law that protects their incompetence. They do also face the Emiratis loans issues. They would have to refuse loans to many people based on their income and can not charge and make profits. UAE banks business model is based on bad principles. These principles are even against Islam as it is putting people difficult situation for them to make profits. Taking people to jail for a bounced check given in bad faith, yes but taking poeple to jail for a credit card given by banks without a professional check. It is none sense
No one wishes anyone else to languish in prison but this kind of weird logic is typical of a country like the UK, which has some of the highest credit card debt rates in the world, some GBP30,000 per capita excluding mortgages. Decriminalising debt would only remove the last disincentive for borrowers to borrow yet higher amounts without fear of criminal liability. I will never forget the type of person who came out here in the last few years with a bus pass but just had to have a brand new Range Rover or Porsche, all on car loans ofcourse. Having lived in the UAE for over 20 years and not ended up in jail (or a billionaire/bankrupt) it is hard to see why we need someone from another country (my own) with a specific agenda telling us how we should live our lives here in the interests of her hard done by clients while the biggest percentage of people in Dubai toil away for under a 1,000 a month and yet, like our own family, do not keep falling foul of car loans and credit cards.
Apologies if I have misread his quote but Mr. Rajeev Kakar seems to be living on another planet. The current crisis is wholely down to banking and its poor lending practices, or did Lehman Brothers, Freddie Mac and Fannie Mae, HBOS, RBS and the whole subprime issue just pass him by. Credit decisions made by banks were appalling - including banks here in the UAE, which started to feel the impact of these decisions further down the line. Admittedly people did take on more than they were ready for, but that's because UAE banks lack a system of credit checks. The people who have left probably had no choice - it's the ones who have stayed behind that are willing to make reparation. Think about that before you insult the people that are still making their monthly payments, which is being done under the cloud of uncertainty. That said, I got a call from a bank the other day offering me a credit card - when will they learn?