Dubai: Want to borrow money from a friend when you are in a pinch? Or planning to lend out money that you may have saved? Regardless of the situation you are in, it is important to note that charging any interest on money that is loaned between two individuals is illegal, as per the UAE’s Penal Code.
Federal Law No. 31 of 2021 on the issuance of the crimes and penalties law – or the UAE Penal Law – stipulates both financial penalties and jail time when a ‘natural person’ lends money on interest.
Source: Lexico.com, an online dictionary produced by dictionary.com and Oxford University Press
Who can charge interest?
In the UAE, only licensed institutions are allowed to offer loans on interest, according to Navandeep Matta, a Dubai-based legal consultant.
“In the UAE, the Central Bank is the governing authority for licensed banks and other financial institutions to lend money on interest. This is regulated by Federal Decree Law No. 14 of 2018 regarding the Central Bank and Organisation of Financial Institutions and Activities,” he said.
In the UAE, the Central Bank is the governing authority for licensed banks and other financial institutions to lend money on interest ... Any money lending with interest which is between two natural persons is considered a crime in the UAE and is a punishable offense with imprisonment and fine under Article 458 and Article 459 of the UAE Penal Law
What is the law against individuals lending money on interest?
Article 458 and 459 of the UAE Penal Code determine the penalties in cases where money is lent between two individuals on interest.
An implicit interest means any commission or benefit of any kind, required by the creditor, if it is proved that the said commission or benefit is not in return for a real and lawful benefit or service provided by the creditor.
The original debt and implicit interest may be proven.
If the criminal makes use of the need, weakness, or inclination of the debtor to commit the crime set out in this Article, such matter shall be considered an aggravating circumstance.
“Any money lending with interest which is between two natural persons is considered a crime in the UAE and is a punishable offense with imprisonment and fine under Article 458 and Article 459 of the UAE Penal Law,” Matta said.
“For instance, if Individual A lends Dh100 to Individual B at the rate of five cent per annum and Individual A accepts Dh105 from B, in this case, the individual has committed an offence,” he added.
Matta also explained that the interest can also be in different forms including any gainful consideration, commission or benefit or any kind, as per the law.
Interest-free loans allowed
“Yes, money can be borrowed from an acquaintance, but borrowing should be as per the Shariah law of ‘Qard-el-Hassan’, which means interest-free loan. The borrower is legally bound to only repay the principal amount without any other interest payment. It is advisable that parties should enter into a written agreement before conducting such a transaction to avail legal remedies at a later stage if required,” Matta said.
For a list of dos and don’ts that you need to keep in mind when lending or borrowing money from an acquaintance, read our guide here.
What if I am being forced to pay interest?
If you find yourself in a situation where an acquaintance is demanding an interest amount on top of the money you borrowed, you can raise the issue with the police.
“The acquaintance cannot legally demand any interest from you. By taking an interest the acquaintance will be committing a punishable offence with fines up to Dh100,000 and imprisonment not exceeding five years. The acquaintance will not have any legal remedies or legal basis of action against you for the non-payment of the interest. If the acquaintance pressurises you to pay the interest by force or harasses you for the same, you can file a report with the police,” Ayush Hans, Legal Analyst and Connect Legal, an online legal support service, told Gulf News.
Irrespective of a verbal or written agreement with the acquaintances, you are not legally obligated to pay any interest. You will only be liable to pay the principal amount to the acquaintance through the agreement.
The law would apply even if you agreed to pay interest at the time of borrowing money, according to Hans.
“Irrespective of a verbal or written agreement with the acquaintances, you are not legally obligated to pay any interest. You will only be liable to pay the principal amount to the acquaintance through the agreement,” he added.
Hans reiterated the fact that in the UAE, to be able to lend money and charge interest, you would need to be licensed by the UAE Central Bank.