Good samaritans stepping up to help UAE debtors

A number of new initiatives are cropping up in the UAE to help residents resolve their financial woes following The National's extensive coverage of spiralling liabilities in the country.

For a mechanical engineer, Michael Routledge knows an awful lot about the price of avocados. And fish. Even pushchairs, for that matter.

In fact, he makes it his business to research everything he buys to see if he can save his family some money. But he has not always been so frugal.

The 35-year-old learnt to be careful with money the hard way after amassing a large debt that took 10 years to pay off. And now he wants to help others get themselves out of trouble through his recently launched website, savememoney.ae.

The site is one of a number of initiatives springing up to help UAE residents resolve their financial woes following The National's extensive coverage of spiralling liabilities in the country through a series of articles on the issue and the launch of The Debt Panel, a weekly column tackling debt issues.

For Mr Routledge, his problems began on his 18th birthday, when he became eligible for a credit card in his home country, the UK.

“I got a credit card from HSBC for 500 quid and one week later it was gone,” he says.

Fast forward five short years and Mr Routledge had amassed £50,000 (Dh239,473) of debt after consolidating his cards into a loan and then spending on them again and again. His annual salary was less than a third of that at the time.

"At the worst point on a Friday, I would finish work and go home. I would pull over at the ATM and put multiple cards in just to see if I could get 20 quid off this one, 10 quid off this one," he says.

“Over the weekend I would just ignore it. I would see friends and go out, bury my head in the sand. Sunday night was hell. I would lie in bed with work tomorrow and everything would be going through my head. That was before I really started to recover from it,” adds Mr Routledge, who still works full-time in his job as a mechanical engineer in Dubai.

The tipping point came when his debts became so high and his credit record so bad that no UK bank would lend to him any more. He agreed on payment plans with his creditors and settled one debt at a time, slowly. It took him a decade, but around two-and-a-half years ago, he paid the last of it off.

Mr Routledge, who moved to the UAE in 2010 while still paying off the debt, is now using his website to help others. The advice site provides a platform for those with liabilities to support each other as they try to get themselves back on the right track.

But the site is not the only new initiative looking to help personal debtors solve their woes.

Lotus Loans and Rescheduling Services, a consulting company which advises clients who cannot afford to service their debts, launched four months ago with the aim to help debtors agree to better repayment terms on their liabilities by negotiating on their behalf. While such organisations are commonplace in more developed financial markets, the company is among a handful of organisations of its kind in the UAE.

The brainchild of Gaurav Bhalla, who worked as head of collections at a UAE bank for 11 years, he says he can help to make three-quarters of his company’s clients debt-free in five years.

“We basically approach banks and convince them that someone is trying to come out of a debt trap and they need help,” he explains. “We build a proposal for the bank and show them all the evidence, convince them with facts and figures, ie this is the status of a client and here is the documentary evidence. This then convinces the bank to agree on a settlement plan which is beneficial both for the bank and for the client.”

The agreements either extend the tenure of the loans or consolidate the existing loan and credit card debt into one personal loan, reducing the interest rate and therefore the monthly payments.

“By restructuring their liabilities at a lower rate of interest, we are able to give them savings they couldn’t even think of. So typically a credit card debt would keep mounting because the rate of interest is about 40 per cent on an annualised basis. So we are able to give them solutions by moving all the high interest debts to about 5 or 6 per cent. That is a clear-cut 30 per cent or 35 per cent saved on a monthly basis, which totals to a massive amount.”

But Mr Bhalla, from India, who has been in the UAE since 2005, charges his clients to cover his costs. He says he has to because he receives no government funding and has a family to support – but he keeps the costs as low as he can, basing the charge on the number of hours he takes to resolve a case. The money is typically paid after the case has been settled.

For cases with three debts totalling about Dh100,000, he spends around five hours dealing with the banks, charging his client between Dh2,000 and Dh2,500. If the debts are on the higher side it might rise to Dh5,000, he says.

But the maximum it would reach, no matter how much the debt is or how long he spends on it, is between Dh7,500 and Dh10,000 for individuals.

For small to medium enterprises (SMEs), who he also assists, it can go up to about Dh20,000.

In the past four months he has been able to settle 57 cases successfully, 17 of which were SMEs. But he has not been able to help everyone.

Sometimes the credit score is just too bad or the record too poor for the bank to budge. He does not charge a client if he cannot help them.

“There are instances and that is typically with the SME sector because most of the SMEs do not have any audited financials, so it becomes very difficult for us to convince a bank that now the business volumes are going down, they require a restructuring of an SME loan,” he says.

However, SMEs now have some wiggle room thanks to the new bankruptcy law, a draft of which was approved this month by the Cabinet, that will help struggling business owners restructure debt. This, however, does not apply to individuals in debt.

Experts in the industry have welcomed Mr Bhalla's company, particularly the comparison websites which struggle to help many of the people who get in touch with them.

“There is a need for more and more of these guys out there because there are a lot of people who need help,” says Ambareen Musa of the financial comparison site Souqalmal.com.

However, while she expects more companies of this nature to pop up in the future, she says their success will depend on how the first few sustain themselves financially.

Preeti Bhambri, the founder and managing director of comparison site MoneyCamel.com, also welcomes debt management consultants but says there is still a gap in the market for companies specifically designed to take over people's loans and restructure their debt.

"As the credit bureau has now fully kicked in, this kind of funding could be available from existing financial institutions, or new ones, hopefully soon," she adds.

Mr Routledge knows all too well what it feels like to be drowning in debt.

When no UK bank would offer him a consolidation loan, he did it the hard way by learning to live within his means and paying down the debt.

Which is why he set up his website savememoney.ae to share with others how he achieved it.

He says sites similar to his, but based in the UK, were a great help to him while he was going through the process.

While the site acts more as a shoulder for debtors to lean on for now, he hopes to one day be able to negotiate with the banks on his members’ behalf.

For the time being he is happy doing something to help in any way he can.

“I don’t need it to be massive tomorrow. It’s a pastime,” says Mr Routledge.

“I have spent a lot of time on the project but it doesn’t make me any money. I would like it to tick over. If the population on the site slowly increases over time, then that’s fine.”

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