Central Bank launches debt consolidation programme for Emiratis

New loan scheme will ease the burden for those with chronic liabilities

Sumera Hasan (front) sent her letter to The National's Debt Panel and managed to clear her Dh90,000 debt. Reem Mohammed / The National

The Central Bank of the UAE rolled out the National Loans Scheme to help Emiratis burdened by chronic debt repay their liabilities.

The initiative, launched in conjunction with the UAE Banks Federation and national banks, will help applicants with multiple loans and credit card balances consolidate the debts into a single instalment.

“This initiative is aimed at easing the burden of debt accumulation for UAE nationals,” a statement on the state-run news agency Wam said.

There are 6.5 million credit facilities such as loans, credit cards, mortgages and overdrafts in the UAE, according to data from the Al Etihad Credit Bureau. While 4.5 million residents and 200,000 companies are listed in the bureau's database, the organisation told The National in November that there are roughly 3 million active borrowers in the Emirates.

The new scheme, which aims to ease over-indebtedness among Emiratis, applies to loans granted before May 2011. Eligible loans include car loans, overdraft facilities and credit card balances. However, the programme will not apply to mortgages or loans taken out for shares or deposits.

"To avoid further accumulation of debt, scheme applicants will not be eligible to any additional credit facilities during the settlement period," the statement on Wam said.

The monthly instalment will be capped at 50 per cent of an applicant's income, or 30 per cent of their pension income, over a maximum duration of four years. The scheme will also include a cap on the maximum interest rate which will be equivalent to the Emirates Interbank Offered Rate (Eibor), a benchmark base rate used by most UAE banks when setting interest rates on loans.

Ambareen Musa, the founder and chief executive of price comparison website Souqalmal.com, said the restriction on additional loans for the debt consolidation tenure "goes the extra mile in ensuring borrowers don't fall back into old patterns".

"Considering the scheme applies to loans issued prior to May 2011 and excludes traditionally long-term debts like mortgages, it will be especially useful for Emirati borrowers who've accumulated significant credit card debt over the years owing to hefty interest rates and late payment penalties, or those struggling to keep up with repayments against an unsecured loan issued at a very high interest rate," Ms Musa said.

"The scheme genuinely helps struggling borrowers lower the overall cost of debt and get a handle on their finances."

Participating banks will begin accepting applications for the new programme at the beginning of next month. According to Wam, financial institutions will be closely monitored by the Central Bank to ensure they comply with the regulations.

For any loans granted to Emiratis before the introduction of the scheme, banks have also been urged to reduce interest rates, avoid extending settlement periods and reject additional credit requests.

Ms Musa said making the new debt consolidation scheme standard across the entire banking sector would be a positive step.

"A huge number of expat borrowers grappling with debt have no clear understanding of how debt consolidation can help them, which banks offer it and whether they meet the eligibility criteria or not. Setting some clear guidelines around debt consolidation especially in terms of eligibility requirements, interest rates and tenures, will help shed the ambiguity around this facility," she said.