Understanding the Support Fund's loan process

Dubai: Gulf News looks behind the announcement to explain the what, why and how of the new Dubai Financial Support Fund.

What is the DFSF?

The Dubai Financial Support Fund (DFSF) is a body which has been set up to decide which companies will benefit from the Dubai government's recent $20 billion bond programme. It will provide funding in the form of commercial loans to "Government and Government-related entities".

What is the bond programme?

The Dubai government issued a $20 billion bond in February. The first tranche, worth $10 billion, was subscribed to fully by the UAE Central Bank. It is an unsecured bond which will mature in five years.

Why are the bonds needed?

According to a statement at the time of issuance, the bond will help "Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months and accordingly meet all upcoming financial obligations."

In other words, the money will be used to ensure important projects in the emirate are completed, even in times when regular banks are not lending.

When is the second tranche expected?

No date has been fixed for the second tranche of funding to be released. Earlier reports indicated the second $10 billion bond would be issued before the end of the year while some media reported that the second round of funding is already under way.

Why a new body to distribute the funds?

The DFSF is an independent legal entity which will be accountable to Dubai's Supreme Fiscal Committee. This will ensure transparency in the process of how the loans are handed out as well as dispel fears about potential corruption.

The DFSF will vet potential applicants and ensure loans can only be given to organisations carrying out projects which are of "strategic and developmental importance" to Dubai.

How will they work?

The DFSF will be offering loans on a commercial basis. So if you want a loan from the fund, you will need to submit an application much like you would apply for a loan from a bank. If you meet the criteria for a loan then your application will be reviewed by the Supreme Financial Committee before being approved.

What are the criteria?

The financial criteria for qualifying for a loan have yet to be set out and will be decided by the DFSF. Other criteria have already been mentioned (Government and Government related entities, and carrying out projects strategically important to Dubai).

Who are the beneficiaries?

As the bank is issuing loans on a commercial basis, it will not disclose who has been given funding.

It will be up to individual organisations to decide if they want to publicise the fact.

Will the loans need to be repaid?

Yes, those taking out loans will be required to pay them back and one of the DFSF's roles will be to set up a framework to allow it to collect loan repayments.

What about people who already have loans?

Around half of the $10 billion raised in the first tranche has already been distributed. These loans will be transferred and overseen by the DFSF.

Does the DFSF have other powers?

According to the statement: "The Support Fund can issue financial instruments, including bonds, inside and outside the emirate on behalf of the Government of Dubai, invest in commercial projects, establish investment funds and manage institutions and corporations in order to provide liquidity for strategic projects of entities applying for funds."