Of all the trials that Raghu Kapoor have faced since he moved to Dubai more than a decade ago, none has delivered a more painful blow than when the Lehman Brothers collapsed and the recession subsequently took hold in 2009.
Before the global economy’s decline, Kapoor (name changed) was riding high in success and living the good expat life, being the head of a public relations company in Dubai. Although he was the sole breadwinner of a family of four, money was never an issue. That was until personal loans, along with credit card dues ballooned to more than half a million dirhams, and his company struggled with the pressure of thinning bottom lines.
His was an all-too familiar story a lot of people could relate to. When debts went out of control, the police and the banks were constantly on his tail, and he felt like a fugitive running away from his crime. Debt collectors would ring him about a hundred times a day. Eventually, he got arrested at the Sharjah airport and was placed briefly in a holding cell.
Although he narrowly escaped a long jail term, the carefree life that this Indian expatriate once knew took a sharp downward turn. A travel ban was slapped on him. One of the banks sequestered his Ford Explorer. His shrinking wealth took a toll on the people around him, especially his family, and he was confined to a painful reality that he was on a slippery slope to financial ruin.
“Before the bust, I was sort of carefree. I used to enjoy shopping without much thinking why I was buying whatever I bought. High credit limit cards and loans were open to all,” he recalls.
“In came the bust and income became irregular. We never anticipated that the economy would hit us with that abrupt fall. We had to close the company and I resorted to freelancing, trying to find my feet in such a depressing time,” he adds.
He tried to open a new business but luck was just not on his side, and he was jobless for a while. To tide over the crisis, he borrowed from wherever he could and used up all his credit cards. Consequently, his debts climbed further.
As Kapoor wallowed in debt and lost his dream, thousands of workers were also caught in a spell of unemployment, lost their income or had their salaries cut. Credit became difficult to access and interest on loans put a toll on borrowers’ wallets.
The financial crisis impacted Dubai’s households and workers strongly, especially since it coincided with the contractions in the real estate sector that led to significant job losses and drove many expatriates to pack up and leave. By January 2009, months after Lehman Brothers filed for bankruptcy, approximately 3,200 people had already lost jobs in Dubai, and counting.
“Due largely to the cancellation of several construction projects in Dubai and the resulting job loss, it was reported that in 2009 March several hundreds of migrant workers left the emirate daily,” Auguste Kouame, World Bank economist for the Middle East and North Africa, has once said.
The economic difficulties brought by the recession on individuals came from all fronts. Massive job cuts and company downsizing caused per capita wealth to either shrink or disappear. There was intense pressure from banks to settle individual borrowings. Financial relief was hard to come by, as lending requirements got tighter. As a result, many people missed rent payments, defaulted on loans and landed in jail.
Still, some of the hardships people went through were partly due to a lack of financial planning and wanton disregard for spending money when the economy was doing well.
“During the boom times, high credit limit cards and loans were open to all. I had eight credit cards, one personal loan and a car loan, so I think I, too, fell for it like many others,” says Kapoor.
Being a financial consultant, John Bailey dealt with a number of clients who found themselves in deep financial trouble when the recession hit. Many of them had lived beyond their means and lived on credit they could not afford.
“The crisis did more than just affect institutions — the knock on effects for many were devastating, leading to loss of jobs, income and wealth and in truth, very few saw it coming or were able to do anything about it,” says Bailey, who works for Acuma Independent Financial Advice.
“Companies would disappear overnight meaning many people in the region had to take drastic measures such as fleeing the country to avoid debts with their families never to return. Many of our clients would be desperate to access money they had set aside for retirement simply to tide them over whilst those less fortunate, or without the foresight to provision for the future found greater problems,” he recalls.
“I saw dozens of people who lost their jobs and their incomes. Not all were manageable situations and some landed in the cells,” adds Steve Gregory, another financial adviser who works as managing partner at Holborn Assets.
For Helena Houia, principal consultant at Talent2, a human resources business process outsourcing company, the memories of the downturn are still fresh. She says at that time many companies had to take drastic action and were instructed to literally cut cost and excess expense overnight.
“At that time, the UAE market was in a severely volatile condition and various companies and industries dealt with it in very different ways,” she says.
But all of these are water under the bridge now, so to speak. As the economy has picked up, many have moved on, recovered and rebuilt their finances. So too, has Kapoor, who, unlike many others, has stayed in Dubai and faced his problems head on.
With a smile on his face, Kapoor says the worst of the storm has passed and he is beginning to see some light at the end of the tunnel.
Although he no longer drives a Ford Explorer and is still conscious about where every hard-earned dirham goes, Kapoor is nonetheless thankful that he has found a new a job and, most importantly, his borrowings have significantly shrunk from more than Dh500,000 to Dh150,000.
“I crawled through the recession,” he proudly declares.
“Until last October or November, I paid the banks some Dh400,000, closing my personal loans and a veritable collection of credit cards. This, after paying the banks massive interests for years. The painful period was between 2008 and 2012,” says Kapoor.
But how did he overcome it?
Managing his debt wisely instead of running away from it, coupled with his parents’ financial help, was a great factor. Luckily, his parents have their own pensions and assets. “It was a combination of borrowing again from financial institutions and also bringing money from India by breaking open parents’ deposits,” he says.
If the recession has taught Kapoor and his family only one thing, it is that they can never be too careful when it comes to money. “I hate to think of the days when I had to say no to my children whenever they wanted to buy something that fancied them. On hindsight, it taught them all to think before they want to buy something now,” he adds.
“I learned the value of money. Perhaps I am less profligate. My wife learned to count dirhams and my children learned to say no to their fancy temptations. So, I hope yet another bout of economic growth may not tempt all of us to be so profligate.”
