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.
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