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Thu 17 Feb 2011 04:07 PM

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Gulf Finance says jail-free loan plan is future of business

Dubai-based lender pledges not to report debt defaulters to police, aims to target small business owners

Gulf Finance says jail-free loan plan is future of business
Under UAE law, bouncing a cheque is a criminal offence that can result in a jail sentence

Dubai-based
lender Gulf Finance has launched a loan programme aimed at small businesses
that promises not to report clients to the police if they default on their debts.

The
scheme breaks sharply with the current system that allows banks to press for
the jailing of debtors that fail to meet loan payments.

“Our
position is that if you’re courageous and want to start your own business, it
shouldn’t be a criminal offense,” chief executive office Steve Williams told
Arabian Business. “Things like this will help revitalize the SME market.”

The
programme, which provides loans typically ranging from 150-250,000 AED,
launched four weeks ago. Its target is would-be small business owners nervous about
seeking loans from larger banks known for notifying authorities when clients
default on loans or bounce cheques.

Should
a small-business owner be unable to make a loan payment, “we want them to work
with us to find a solution, rather than the current situation,” Williams 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 deals, such
as credit cards or bank loans, to guarantee future payments.

At
the height of the financial crisis in 2008, it was estimated 2,500 people a
month were absconding from Dubai alone to escape unpaid credit card bills.

Since
Gulf Finance launched its program, it has seen more than 300 applications per
week for loans. It has a rejection rate of about one-third, Williams said.

“You’d be surprised how many people want to
set up,” he said.

Business
plans likely to be accepted include restaurants in popular residential spots,
and lifestyle businesses such as corner shops.

Businesses
in the oil and gas, energy, water and healthcare sectors are also “slam dunks,”
Williams said.

“We
look to see if it’s a low-value product that’s recession proof,” he said. Though
due to a benign economic environment, nothing “will take off dramatically like
it would have two or three years ago.”

He
cited fashion and specialty foods ventures as those unlikely to pass muster.

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Daphne 9 years ago

Finally, one institution realized the need for flexibility. It has been long requested for microfinance few years ago but no bank would ever look into it but if it was done previously problems may not be that big that damages much situation in the UAE.

In other countries no one is jailed for money - only here in the Emirates as the policy is not laid out properly.
Everyone should learn from what has happened & if the country wants to succeed in the time of recession they should deal with the situation around it

SME Retailer 9 years ago

The amount of loan offered is peanuts considering that the minimum capital requirment in Dubai is Dhs. 300,000/= but the initiative is very commendable.

Mohammed Ali Basha 9 years ago

This is excellent. Good thinking from Steve Williams. I am sure others will learn from this. Instead of putting people behind the bars, banks & financial institutions should come up with a plan to work with the Debtors to recover their money rather than the harassment of Jail. This is excellent

Ahmed 9 years ago

The current system of jailing debtors frequently entraps innocent people who are either unable to make payments or who are not liable for the payments as per their contract. It is an arbitrary system in which the reason behind bounced cheques is not considered, and the system is commonly abused and circumvented by people with bad intent. It's important to rectify this dissatisfactory situation as the system has no grounding in justice.

Red Snappa 9 years ago

This is the first exhibition of "thinking persons" banking and encouragement to foreign investors to emerge out of the region. I

I assume that the UAE Central Bank and the Financial Services Regulator had to approve this product?

Reform and evolving democracy in the financial systen could this be the death knell of blank security and post dated cheques.

It is critical that other banks in Dubai follow suit this year as part of the infrastructure of recovery.

Ray 9 years ago

Was this decision made after to listening to the customers or the organisations the banks owe money to?

If you jail someone for not paying their loan, your not going to get your money back, cause they cannot get another job, so this debt becomes a bad debt which is not good on the banks books. So i guess they need to try and get as much money back as they can now.

When a number of uae and gulf banks defaulted on their debts, did the CEO, or CFO go to jail, no. So it is about time the banks stopped doing this to people.

Abraham 9 years ago

This is really good. We appreciate you Mr. Steve and I hope banks learn a lesson from you. If ever given a chance to the defaulters(who have skipped from UAE) to repay their loans I am sure that the defaulters would like to go back to UAE or any where in GCC and work to setttle their loans. After all UAE is a good place to live and work.