Four years ago around 42 percent of the 3,000 inmates in Dubai’s central jail were there because they hadn’t paid their bank loans. If almost half of inmates were jailed when the country’s economy was good the figure is likely to be significantly higher in light of the economic downturn.
The thousands that left Dubai with outstanding debts for fear of being arrested and put in overcrowded jails were well documented during the emirate’s crisis. But legal experts say they have seen a slowdown in the number of cases concerning debtors as the emirate’s economic outlook has improved.
“The skips increased tremendously during the crisis because people were scared at the time. If they couldn’t pay [they were worried] about what could happen with the criminal implications but I believe – from what we see – this is going down because a lot of people are interested to work here and come back to the UAE,” says Walid Azzam from Dubai-based law firm Hadef & Partners. “We are seeing an improvement with regard to that aspect.”
The International Monetary Fund in March increased its outlook for the UAE’s GDP growth from 3.3 percent to 3.5 percent, reflecting a stronger outlook for tourism, logistics and trade in Dubai and a large public investment spending in Abu Dhabi. As a result, concerns about repaying outstanding loans appear to be declining. The majority — 82 percent — of respondents to Arabian Business debt survey say they plan to clear all of their debts before they leave the UAE compared to eighteen percent who say they wouldn’t. Despite the improved sentiment, 20 percent of respondents admit they had received a threatening telephone call from the police regarding their debt. So at what point does an outstanding debt become a legal issue? Legal experts say it is not until a bounced cheque or failure of payment is passed from your bank to the police or an external lawyer does it become a legal issue. Banks, they say, will do all they can to chase the payment before passing it onto the police.
“They [the bank] would chase the person, maybe send him letters. It is only when it becomes apparent that the consumer is not paying or has no intention of paying or that he is leaving the country or has already left that they refer the matter to the police,” says Azzam.
“According to the current banking regulations, banks have 90 days before they will act. As long as it’s within the bank, it is a banking issue [and not a legal issue],” adds Mazen Boustany from law firm Habib Al Mulla.
The fact remains, though, that threatening debtors with jail remains an effective way for local banks to retrieve bad loans. “It has worked for us. People immediately get people to come and bail them out, and get the money in… [Historically] it did work. In most cases it did work,” Abdulfattah Sharaf, HSBC’s head in the UAE, said in an interview with Arabian Business last July. Debtors, you have been warned.
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