How Emirati debtors are receiving help from the UAE’s Debt Settlement Fund
A few years ago Hassan Al Nuwais was living a financial nightmare.
More than Dh3 million in debt, the then 29-year-old father was paying up to 85 per cent of his salary each month just meeting his minimum payments.
All of his debts – including eight credit cards – were in dispute. And he was too afraid to pick up the phone at his office in case the call was from a collection department at one of the many banks he owed money to.
Yet today he is on the way to being debt-free, helped in part by a fund set up to rescue Emiratis struggling to meet payments on loans and credit cards.
The Debt Settlement Fund was launched with an initial budget of Dh10 billion and created under a decree issued by Sheikh Khalifa, President of the UAE, to mark the 40th National Day on December 2, 2011.
“The minimum thing I could say, which means a lot, is that they are paying half my debts. This is more than enough. No one pays half your debt. Where else will you find this? The Government is supporting you but not encouraging you to take more loans,” says Mr Al Nuwais, now 31,who is waiting to have Dh375,000 of the debt the fund agreed to take on settled.
“It’s done with discretion where you are not allowed to borrow from any banks and they make sure that your name is centralised in all banks. You cannot apply. You are done. I will not be able to borrow again until I am 35.”
And the list of those who are barred from borrowing is growing, with the debts of 2,700 Emiratis settled by the fund as of January this year.
All banks are required to cooperate, Sultan Al Suwaidi, the Governor of the Central Bank, said earlier this year, and uncooperative institutions will face penalties.
Some, however, signed up voluntarily early on.
“We were one of the first banks to sign the agreement and we have been actively working with the Government to help reduce the debt level for Emiratis,” says Jamal Alvi, business head of assets for Abu Dhabi Islamic Bank (ADIB).
Under the auspices of the agreement, the bank writes off half the outstanding amount of the debt, which must be in dispute.
However, in turn, the bank gets closure on a debt that is stuck in litigation, says Mr Alvi.
“We were carrying that non-performing asset on our books so we are getting, if nothing, at least 50 per cent recovery on that amount,” he adds.
The catch is that it does not apply to all heavily indebted Emiratis.
Anyone who has been taken to court by a bank on account of default as of the date of the launch of the initiative in 2011, qualifies. But anyone taken to court subsequently cannot apply.
However, there is also help out there for them.
“All the banks are running some kind of debt relief programme where, for example, we have looked at our internal customers who are overleveraged,” says Mr Alvi.
That included Mr Al Nuwais, who began building up debt when he was 18. At first, he was able to easily make payments on his car loan, but the temptation to borrow more became too much and by the time he joined ADIB as marketing manager two years ago he owed Dh3.2million in credit cards and loans.
“I was the media face of ADIB. I was the shining star, but boom I’m in debt, I can’t focus. I said ‘either you give me another loan or I am going to start looking for another job’,” says Mr Al Nuwais.
While the Debt Settlement Fund is taking on a chunk of the outstanding debt, the executive’s employer was the first institution to step in and help with his financial woes two years ago.
“They said: ‘OK listen we have this new programme. You are lucky. Come sit with us and we will tell you what you have to do’,” he explains. “They helped me approach my other banks. They helped me do scheduling. They helped me see what my expenses are, what my priorities are.”
Mr Al Nuwais was one of the first customers to sign up to ADIB’s Al Khair facility, which helps those with heavy liabilities reschedule their debt by reducing their monthly repayments.
He now pays 50 per cent of his monthly salary towards his debts, compared to about 85 per cent before. And for the first time, he is saving.
“Recently, I was calculating my total debt; from Dh3.2m three years ago I have actually gone down to Dh1.9m and that includes my house. It requires patience. I can’t wait for my 35th birthday because I will be debtless,” he says.
He is now the face of the bank’s Al Khair initiative and carries out financial education presentations.
“Whatever question is offered up I can answer it because I was there in that situation. Yesterday I had my latest presentation and a woman said ‘I have this credit card’, ‘I have this finance’ and ‘I have this ...’ I said ‘did you use your credit card on things that you actually needed or wanted?’” he says.
“She was quiet because there is a big difference between the things you need and the things you want.”
But ADIB is not the only organisation trying to re-educate people in the wisdom of being prudent through financial planning.
The Emirates Foundation for Youth Development has launched Esref Sah, a financial literacy programme aimed at young people aged between 15 and 35 to help prevent the next generation from becoming indebted. It has reached more than 16,000 young people since it launched last September.
Dr Sabah Al Shamsi, director of social inclusion at the Emirates Foundation, said the body launched the programme after noticing many young Emiratis were getting themselves into debt without thinking of the consequences.
“We thought [the Debt Settlement Fund] treats the problem at the end of it where people go to jail. We decided to do something to prevent it before it happens.”
Together, the two initiatives are key to tackling the problem of indebtedness in the UAE, she says.
“We both have the same goal, to help our people be debt-free.”
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Published: May 9, 2014 04:00 AM