UAE bankruptcy law may spur banks to lend to SMEs

The law will crucially put a moratorium on sending people to jail for bounced checks until a restructuring plan for business owners has been agreed with creditors.
A number of small business owners in the UAE have fled the country leaving unpaid loans over the past two years. Delores Johnson / The National
A number of small business owners in the UAE have fled the country leaving unpaid loans over the past two years. Delores Johnson / The National

A bankruptcy law for companies that will soon be passed may increase the appetite of banks to lend to small- and medium-sized enterprises as criminal prosecution for defaulting on debt becomes a thing of the past, observers say.

The lack of insolvency regulations during Dubai’s credit crisis between 2009 and 2010 led to a number of businessmen being arrested for unpaid debts, with many fleeing the country to avoid arrest.

Some small business owners in the UAE have fled, leaving unpaid loans over the past two years.

Among other things, the law will put a moratorium on sending people to jail for bounced cheques until a restructuring plan for business owners has been agreed with creditors.

“The approval of the UAE bankruptcy law could support business confidence, encouraging SME growth, as it will make it easier for companies to restructure or wind up,” said Trevor Cullinan, a sovereign analyst based in Dubai at S&P Global Ratings.

“Business owners are less likely to run away from bad debts, which could alleviate some of the recent asset quality challenges in the banking system.”

Senior bankers said on Tuesday that the law was fine in principle but that they would need to see the legislation in its entirety before they could pass judgment.

Aside from holes in their balance sheets created by defaulters who have skipped town in fear of being jailed, lenders have also been smarting from the general economic slowdown following the crash in the price of oil since the summer of 2014.

Dany Farha, the chief executive of Beco, a Middle East venture capital firm that invests in tech start-ups, said the bankruptcy law would definitely lead to the flourishing of an entrepreneurial spirit but that the benefits would take time to filter through.

“It’s going to take time to feed through and for us to see it. Which is OK, because [not having legislation] hasn’t affected us, we’re still seeing activity without the formalisation of the bankruptcy law,” he said.

mkassem@thenational.ae

Follow The National’s Business section on Twitter

Published: September 6, 2016 04:00 AM

SHARE

Editor's Picks
NEWSLETTERS
Sign up to:

* Please select one

Most Read