Dubai: A jail-free loan window has seen hundreds of applicants queuing up in less than a month, said an official of a financial firm.
Steve Williams, chief executive officer of finance company Gulf Finance, which specialises in small and medium enterprises (SMEs), said: "Since it was soft-launched in January, we've had over 400 applications."
The jail-free loan, called SME Advance, is seen as game-changer in a scenario where businessmen can go to jail if their business fails. Many of the failed SME owners, however, simply run away.
"This is the start of something that needs to come," said Williams, whose firm has a Dh2 billion loan portfolio for SMEs. "If you're in business, particularly in a small business, then you need to be courageous. If that does not work, it shouldn't be a criminal offence."
The concept is not new in global finance where lenders are expected to do their due diligence on a client and his capacity to pay.
"But this is a fairly recent concept in the Middle East," said Williams. "In finance, you build a relationship. If the client is unable to pay, then you agree on terms to extend the finance or reduce the amount of monthly payments."
Last year, HSBC's UAE country head had said that jailing debtors was an effective way to retrieve bad loans. In December, top Emirati lawyer Habib Al Mulla joined a chorus of calls to decriminalise bad cheques, stating that outdated laws must be "outlawed". Bad cheques cases involving property transactions were brought under civil jurisdiction after Dubai issued a new law last year.
"This is not about penalising people who can't pay but building an environment where if your business doesn't succeed, then you should be given a chance to repay or get back into the job market … we structure a loan in a way that allows you to repay the loan over time — rather than having to run away from the debt," said Smith.