This week, The National told the story of an unemployed former real estate salesman, K M, who is living with his wife and two young children in a car after getting into a huge debt that he cannot pay. The family's story is heartbreaking and, sadly, it is not unusual. Personal debt is a major problem across the country, especially for expatriates who have no safety net if they get into trouble.
The details vary, but cases usually involve a person overextending themselves then losing their job, and therefore the means to make repayments. They are often required to surrender their passport to a court, and sometimes they end up in prison for defaulting on a loan or bouncing a cheque. In both scenarios, it is impossible for the debtor to get work and pay off loans that are accruing interest day by day.
While it is true that people have to take responsibility for their own debt, the system has to allow for that to happen. That is why The National has long called for a bankruptcy law that provides a structured way out for debtors. Moves have been made towards this, but nothing is yet in place. The burden of dealing with such cases has fallen on the criminal justice system. Locking defaulters up does nothing to recover their debts, it only creates further misery for them and their families, is a financial burden on the state and has dubious value as a deterrent.
The UAE’s credit bureau is relatively young, meaning that information about customers’ level of debt and credit history may only tell a partial story. And there is no secondary loan market, where banks could offload bad debt and at least recover some of what they are owed. Banks continue to aggressively market credit cards, car loans and personal loans without knowing the true extent of the risk they are taking. It remains relatively easy to obtain multiple cards with high credit limits from several different borrowers, sometimes without even having to present supporting financial documents.
Clearly it is wrong for individuals to borrow money they can’t repay, but most people don’t do it deliberately. The legislative framework could be stronger – and there are moves in this direction – but the bottom line is that banks should not be allowed to walk away from the problem. They have an ethical duty to do everything possible to allow their customers to work their way out debt, not just rely on the legal system and the state to do their dirty work for them.
