Business | Banking

New personal loan system on radar in UAE

Banks being surveyed for universal application

  • By Samir Salama, Associate Editor
  • Published: 00:00 December 9, 2009
  • Gulf News

  • Image Credit: Gulf News
  • Every person seeking a loan in the UAE would have to be credit checked under a new draft law.

Abu Dhabi: Banks operating in the UAE are currently being surveyed over a new personal loan system including a uniform application for these loans, Obaid Humaid Al Tayer, Minister of State for Financial Affairs, told the Federal national Council (FNC) yesterday.

"Once the survey is completed, results will be presented to the board of the Central Bank for approval," Al Tayer said in a statement submitted to the House.

The minister was responding to a question raised by Khalifa Bin Howaidin, an FNC member from Sharjah.

Bin Howaidin told the House despite the growing problem of personal loans, a uniform personal loan application has not yet been introduced.

"The uniform personal loan application was part of recommendations approved by the House more than 18 months ago and yet it's not ready so far," he said. Bin Howaidin noted that personal loans totalled Dh424 billion last year, compared to Dh146 billion in 2007.

The House approved in April last year several recommendations to solve the growing problem of personal loans.

The FNC personal loan committee's report then noted a massive growth in loans, from Dh155.2 billion in 2000 to Dh695 billion in 2007. About 10,000 people are in court or jail because of loan defaults, according to the report.

Cases of default increased substantially from 3,149 cases in 1998 to 5,710 cases in 2006 from a total of 562,000 loans.

The committee noted that laws are not effective in reducing the problem, and the Ministry of Fin-ance, the Central Bank, and the community are not capable of putting an end to this problem.

Credit bureau

The House debated the idea of establishing an independent federal credit bureau designed to provide a centralised data-base and index on the risk of loans.

Members of the FNC had asked the Central Bank to strengthen its regulatory authority through techniques providing the necessary technological expertise and human resources.

Every person seeking a loan in the UAE would have to be credit checked under a new draft law.

Credit checks would be carried out on every person in the UAE seeking a loan under a new draft law, which has been approved by the FNC.

Court clears customer

In a recent ruling, the Federal Supreme Court has rejected a bank's bid to recover a personal loan of Dh500,000 from a customer. A man earning less than Dh10,000 per month was granted a loan with monthly instalments that consumed 60 per cent of his salary.

The FNC said banks should not grant loans without adequate guarantees and look into each case .

Arup Mukhopadhyay, Executive Vice-President, Head — Consumer Banking of Abu Dhabi Commercial Bank, said: "I cannot specifically comment on this decision as I do not have all the information relating to this case at this point of time.

"However, in general, I can only say that ADCB has always been prudent in extending credit to customers and takes into account several factors while assessing the creditworthiness of a customer, viz. salary, company, length of service, etc. and above all the debt service ratio, i.e. the ability of the customer to repay the loan."

Emirates NBD declined to comment on the issue.

Do you know anyone who is burdened by a loan? How will this help people in debt? Tell us

Comments (11)

  1. Added 16:16 December 9, 2009

    Establishing a credit bureau is beneficial to the banking industry. However, in cases of highly-leveraged borrowers accessing loans way beyond their capacity to pay, is definitely NOT his fault. The burden lies on the bank's sales people who failed to determine the borrower's 4 C's of credit. But then again, the bank's sales people have targets to meet. While trying to reach their targets, the quality of the loan suffered because, maybe, the credit process has been shortened.

    Tisha, Abu Dhabi, United Arab Emirates

  2. Added 13:49 December 9, 2009

    Personal borrowing should be linked with the central bank, at present banks are giving loan without checking from the central bank whether borrower has already taken loan from other banks, and hence one borrower is borrowing from many banks, which is 4 to 5 times of his borrowing capacity. This may result in sub prime crisis, which hit the USA market in 2008-09.

    Divya Jitendra Gianchandani, Dubai, United Arab Emirates

  3. Added 13:07 December 9, 2009

    I would say thats a good move. However, if an employee gets terminated irrespective of the reason, he/she would be unable to repay the installment. Instead they should set-up an individual cell for declaring bankcruptcy. Because most of us who owe the bank does not wish abscond and become defaulter. Instead, they can declare them bankcrupt and recover their lendings through insurance, like they do in the western countries.

    Bharath Kumar, Dubai, United Arab Emirates

  4. Added 09:56 December 9, 2009

    People should be responsible in every action that they do and money should be spent wisely ,they should always remember the saying "'dont spend more than what you earn""..Other people make loans ,abuse use of credit cards and they ran away maybe because it was not a hard earned money- it was easily taken from the bank.

    Mel, Dubai, United Arab Emirates

  5. Added 09:51 December 9, 2009

    Dear Sir, The restriction should be forced on the banks who approve loans and are making calls to individuals inviting them to take loans. Based on the convincing talks done by the Bank Sales team, people plan their cash flow which fails and causes all this disturbances. They should provide a facility and restrict all these loans and credit card lending. All requires is a counselling for all individuals as we all feel Credit Card money is free and we can easily spend and relax, forgetting what we buy in offer / discount today because of the Promotion from a Card or a retailer in actual we will pay much more subsequently. Some serious mental therapy classes should be conducted to come out of these. I know so many of my colleagues who have been trapped by the banking marketing techniques. Hope something will be done to save the innocent.

    Shekhar, Abu Dhabi, United Arab Emirates

  6. Added 09:49 December 9, 2009

    The loan approval must be check that the borrower has the capacity to repay the instalment and the amount of the instalment has to carefuly balanced, as the debitor is may having credit cards also, the central should keep close monitoring on credit cards given to the person after he/she may have already huge loan. credit cards are dangerous.

    Kadiri Mohammad Azhar, Dubai, United Arab Emirates

  7. Added 08:40 December 9, 2009

    a form of guarantee or insurance should have been in place before any loan or credits given. a person should not be jailed in or case of defaults or inability to pay.

    Joe, Manila, Philippines

  8. Added 08:23 December 9, 2009

    My uncle is suffering because of the banks who are liberal in issuing loans and credit cards without assessing the gross debt payable. This exceeds 100 % of the gross income. There is a need to put a red signal to issuing multiple credit cards, and specially the over limit factor has to be dropped, this alone can save consumers a great deal of their monthly savings. Yes there is need of common loan application and independent Federal Credit Bureau.

    AhmAd, Dubai, United Arab Emirates

  9. Added 07:43 December 9, 2009

    I know some people who are in debt due to excessive loan. As far as my thinking is concerned that the people should learn about the finance. They suppose to have a plan about income and expenditure. They should prepare a budget for the expenditure accordingly with income. Some expenditure are unavoidable but some we can manage in our day to day life. Basically you should think about to repay with your allocate budget and expenditure before you apply for the loan.

    Ashish Jha, Dubai, United Arab Emirates

  10. Added 07:19 December 9, 2009

    Instead of Banks asked to be prudent before disbursing loan, the borrower should have moral and ethical responsibility. When they know their repayment capacity is beyond their means, how they are applying for a huge loan. They invest the money for speculative purpose and end up with problems. I welcome the uniform guidelines on this Personal Loan, considering the country has many expatriates and chances of default is on a very high side

    Dorairajan Ravi, Dubai, United Arab Emirates

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