When you sign up for a loan, mortgage or credit card, the process should be relatively straightforward.
To assess your creditworthiness, a bank will want to see several months’ of bank statements, copies of your residency visa, passport and national ID and a salary certificate from your company. They will also want to know any other liabilities you have in your name both here and, if you are an expat, in your home nation.
Once the bank has determined you have a good payment history, it will issue the credit card or transfer the loan amount. Effectively, your financial history determines your creditworthiness. Right? Well, not entirely.
While your previous financial affairs must demonstrate you are a reliable borrower, one of the most important criteria for determining your creditworthiness is the company you work for.
“In the absence of a central credit bureau, it is challenging for banks to underwrite customers,” says Mohamed Jamil Berro, the chief executive of Al Hilal Bank. “Hence, they follow an approved employer list (AEL) which will give them a reasonable comfort level while offering facilities to customers.”
To put it simply: work for a company on a bank’s AEL, and as long as your payment history is intact, you will receive a loan. Work for a company the bank has not listed and, in theory, you are effectively barred from receiving credit.
“It’s a situation that is almost unique to the UAE where financial institutions rely on a company’s reputation in the UAE marketplace rather than an individual’s credit history,” says Ambareen Musa, the founder and chief executive of Souqalmal.com, a regional price comparison website.
According to Souqalmal, the average number of companies that banks have on their AELs ranges between 1,000 and 7,000. However, with about 200,000 companies registered in Abu Dhabi and Dubai according to the Department of Economic Development, it appears some potential customers are missing out.
“This causes a lot of stress on many who cannot obtain finance for the simple reason that their company has not been identified by the banks. Not only that, you have to consider what percentage of the market share the 50 or so banks in the UAE are missing out on?” says Ms Musa.
While each bank has its own criteria for approving companies, Mr Berro says Al Hilal considers a “multiple list of criteria”.
“This includes company owners, staff strength, line of business, annual turnover etc,” he adds. “It’s not entirely decided by company performance. If the customer is working for a Fortune 500 or top 100 companies in the UAE, it gives extra comfort in providing facilities. We keep updating our approved list and make additions and deletions quarterly.”
At Abu Dhabi Islamic Bank (ADIB), the criteria are similar.
“Banks want to ensure that customers are not at a high risk of losing their jobs. This is done by evaluating employers in the market, as stable companies are less likely to run into losses/cash flow problems that may lead to layoffs,” says Jamal Alvi, the head of assets in the retail banking division of ADIB.
“We have a large database of approved employers that covers a lot of customers.”
In theory this situation should resolve itself as the Al Etihad Credit Bureau announced it would roll out the first phase of its service imminently. The bureau will make individual credit reports available to both consumers and financial institutions, meaning banks will instantly be able to assess a new customer’s credit history.
In other parts of the world, a credit reference agency can automatically tell a bank how many other loans or credit cards a potential customer has, whether that customer has defaulted on any repayments, even on their utility bills.
“In the absence of a credit bureau, the AEL acts as a surrogate for banks looking to gauge the risks of providing loans. Since banks in the UAE cannot formally determine an individual’s level of indebtedness or their reliability in paying back loans, the AEL provides another way to assess these risks,” says Andy Ripley, the head of retail banking and wealth management at HSBC UAE.
“The Al Etihad Credit Bureau will play a major role in changing the lending and borrowing practices in the country by aligning the sector with international best standards. Could this open the market to more customers? The simple answer is yes. Banks will have more confidence to lend money.”
Mr Ripley adds that the bureau’s introduction will bring relief to segments that previously had difficulties accessing credit, such as self-employed individuals.
But Ms Musa says it will take time for its influence to take effect, meaning in the near future at least, some UAE residents may still struggle to access the local banking industry’s 1500 financial products.
“The UAE is a transient population,” says Ms Musa. “It is easy to run away and leave all your debts behind and banks end up accumulating debts.
“After the global financial crisis of 2008, the method a bank’s credit department used to approve companies suddenly became a lot stricter.”
Winnie Sharma is one person affected by this issue. She contacted The National for help because she had run up debts on three credit cards and could not secure personal finance to consolidate the outstanding balances.
“I have tried to get a personal loan from other banks to settle the cards but the banks can’t offer a loan to me because either my company is not listed, my salary does not meet the minimum requirement or my length of service in the present company is not long enough,” says Ms Sharma.
However, there are solutions. Several banks have confirmed they do offer credit to customers not working for approved companies. These include Al Hilal, Citibank and ADIB. However, the products offered often come with added demands such as a higher interest rate, higher minimum salary or shorter loan tenure.
“Banks and finance companies do offer facilities to employees from non-listed companies; however the financing terms might be different in this case,” says Mr Berro. “ Generally, our rates are very competitive. Based on customer segments the offers will vary. We offer additional discounts to employees working with multinational companies.”
At HSBC, it is customer loyalty that helps the bank lend to those working for firms not on their AEL.
“Our customers can apply for insurance products, investment products and mortgages among other products even if they do not work for companies on our approved list,” says Mr Ripley.
“HSBC has invested in developing a relationship-based banking model through which we are able to accurately assess the creditworthiness of our long-standing customers and lend to them, even if they do not fall under the AEL.
“The terms and the conditions for these loans differ from each individual to the other, and are determined after a thorough assessment of our customers’ risk appetites, aspirations and financial capabilities.”
To help customers struggling to access credit, Souqalmal.com now lists products on its price comparison website that are available to those working for non-listed firms.
ADIB, for example, offers car loans to those with a higher minimum salary of Dh10,000, while Emirates NBD offers personal cash loans to customers not working for listed companies as long as they meet a minimum salary requirement of Dh10,000 and their salary is transferred to Emirates NBD for at least six months. They must also pay a higher reducing rate starting from 8.99 per cent.
For those whose companies do appear on the banks’ approved lists, the experts say they must not assume that securing personal finance is straightforward.
“Your own credit history, your salary and the number of years you have lived in the UAE will all come into play,” says Ms Musa.
arayer@thenational.ae
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