'We should create an environment where people can restructure their payments'

Dubai: Issam Daoud, Liberia's ambassador to the UAE and chairman of Avanti Holding, a multinational developer and investment organisation, gives his views on the bankruptcy debate:

Whether we like it or not, there is a solution similar to the bankruptcy law. The only obstacle we have on the path to bankruptcy protection is putting people in jail in the first stage. And after that the judge decides your case on how to pay back the debtors.

Bankruptcy has its positives and negatives. The benefits to the economy go hand in hand with the UAE's growing economy. When you have some type of protection for the investor, they take more risk and this gives more velocity for growth of the local economy.

When that protection is not there, there is more fear, people don't take chances, and small to medium business don't flourish and the rate of growth slows down. That is the bright side of having a bankruptcy law.

The disadvantage of this situation in the UAE is that more than 90 per cent of the population is expatriate, so one cannot control this situation where people can simply take off.

But on the other hand, when people are in financial trouble and they don't have bankruptcy laws, they are taking off by default. The parking lot of the airport is filled with cars right now.

So the best solution is:

1. To create a smart bankruptcy law that will serve the different needs of employees, credit card holders, business owners and even government entities.
   
2. You have to make sure that the person who is about to enter bankruptcy will stay in the country. Some safety has to be given to him. In exchange for the safety net, the government must keep the passport of the person who is about to embark into bankruptcy procedure.
   
3. Once a person is in a bankruptcy regulatory environment, the core assets that will sustain the livelihood of the person in debt should be kept with the individual, especially the tools of his trade. So that one is able to pay back. The idea is not to penalise, but to align people who owe money to pay back the money to the debtors.

What should the government do right now? Thousands of people are on the verge of bankruptcy, thousands more have issued cheques that have bounced, thousands of people who have creditors in the market?

1. Yes, implement a bankruptcy law, definitely.
   
2. Have procedures in place to obtain passports of people entering bankruptcy.
   
3. Motivate and enforce creditors to include in the loan or finance package an insurance policy, where if the employee has financial issues, the insurance would cover it. This is already prevalent in the UAE but it should be propagated and all banks should have it.

The economy wants the people to spend, because if they don't, the economy freezes. So the question is, can we work in a growing economy that is not based on spending? The answer is no.

If there is fear of borrowing, because of the punishment, the borrowing will stop, the spending will stop and then economy will too.

The economic growth of the UAE as it is today, where bankruptcy rules and regulations are properly defined and maintained, can increase the velocity of coming out of this recession we are into. We have no other solution. Putting everyone is prison doesn't work.

We do not have to be naïve or cynical.

We have to find the middle ground and that exists. Yes we can make bankruptcy laws, with enough regulatory parameters to protect it from abuse, because a lot of people will try to abuse it.

There needs to be an evaluation committee at the beginning of the bankruptcy application to evaluate the candidate.

Having said that, bankruptcy regulatory bodies in a growing economy also need supporting regulatory bodies.

For example credit control databases that assess credit rating. We don't have such a thing in the UAE, which would create a balance. People will be scared of abusing the bankruptcy law, because it will affect their credit rating.

The implementation of these things will help the local economy navigate out of the stress that we are burdened on right now and which will continue next year. Things will become worse.

We need to create an intermediary body between the creditor and the debtor. This body is the bankruptcy court. We need to restructure the loan system, which is very much in favour of banks right now.

But it is not good for the people or for the economy, because it is slowing down and not letting people invest.

Why don't we create an environment where people are motivated to restructure their payment and continuously be productive entities in the economy of the UAE?