DUBAI: Thousands of expats languish in UAE jails for financial crimes brought on as a result of indiscriminate lending by banks and laws treating bounced cheques as criminal offences.
Debtors claim they have little recourse to repayment, while creditors say they are finding it tough to recover their money, with some even roping in professional debt recovery agents.
So is there a way out of this debt logjam?
M.I. Khan, CEO of MIK Legal Consulting, a Dubai-based debt recovery company, told XPRESS the UAE’s debt recovery system is proving ineffective and called for urgent reform in the sector. Excerpts from an interview:
Why do you believe the debt recovery system needs reform?
It needs reform because it is proving to be ineffective. If European debt recovery processes are implemented in the UAE, they could bring the UAE increased investment from companies. Currently, debtors hold creditors to ransom as they are aware of the prolonged and expensive court action route which does not always provide dividends for the creditor. Due to the limitations in the UAE law, the creditor is at a loss through court action. We disagree with the bounced cheque regulations which result in police action. This is a completely unproductive method and should be replaced.
What reform do you recommend?
We would recommend the establishment of a county court system like in the UK. This court operates in a simple and cost-effective way with only a judge at the helm of all decisions. Actions can be brought very quickly, typically for as little as Dh600. The judgment passed by the court is enforceable by law.
The system is fair as it allows creditors and debtors to enter into a formal agreement for repayment if the debt cannot be repaid in full at the time. The court can negotiate a time-frame. Enforcing penalties for breach of agreements is important as debtors need consequences. In the UK, a simple parking fine of £30 (Dh179), if not paid, could potentially become a £1,000 fine which is enforced in full. Debt recovery companies need to be granted powers to seize assets once a court judgment has been passed. These assets can be sold through auction to recover creditor funds.
What about bounced cheques?
The current criminal status of a bounced cheque should be totally overhauled. We live in a society where we have access to resources like never before that can be used to assess the worthiness of a candidate.
For example, let’s say a UK citizen is applying for credit and he looks like a good candidate based on job role, salary and disposable income. Banks should still liaise with credit reference agencies in the UK or request the candidate to provide his past credit history.
But there’s always a first time to default …
Banks should introduce skip insurance for expats. This would be an insurance policy which the debtor will pay for on a monthly basis with loan repayments. In the event the debtor is unable to repay the loan or skips the country, the insurance would repay the debt. We are currently in discussions with major insurance companies to bring this service to UAE financial institutions.
I would also recommend that banks redraft loan agreements and make them applicable outside their jurisdiction. With expat clients, the banks could take extra measures such as including clauses which allow them to recover debts in the client’s home country.
I would also advise UAE financial institutions to review their credit limits. They should use resources available to see what limits the client held in their home country. Currently, the credit limits on offer in the UAE are overwhelming. On average, the credit limit in the UK is around Dh6,500 and in the UAE, clients are offered 10 or 15 times this limit. We are in discussions with banks and financial institutions to offer an expat-screening service. With an agreement with the client, we would delve into his financial history from his home country and provide reporting for the banks.
How many debt recovery cases do you handle?
We handle tens of cases on a daily basis. Most have a similar scenario where the creditor is an international company and the local debtor refuses to pay because he believes nothing can be done against him.
What is your standard operating procedure in recovering debts?
We operate a ‘no court action’ policy which means every case we recover is through our own processes and mediation. Our processes are based on the UK OFT (Office of Fair Trading) regulations as we hold a UK and European debt recovery licence. We approach a debtor in an impartial way to hear his side of the case. Based upon this, we structure a solution which will be accepted by both parties.