We should all be financially literate
Debt is a near inescapable part of life. Almost all of us have borrowed money to fund major purchases, such as a car, furniture or a house, or to tide us over in the case of a temporary financial shortfall. And we should all be aware that money borrowed is money that must be repaid – almost always with interest.
As is the case elsewhere in the world, it is an offence to default on a loan in the UAE. Here, however, a defaulter is more likely to go to prison. This newspaper has regularly called for changes to the regulations governing bankruptcy and the postdating of cheques, which can lead to default and imprisonment. As investor Sabah Al Binali argued earlier this month, banks have used the threat of imprisonment as a “weapon” against borrowers, while abrogating their own obligation to perform due diligence on borrowers and to secure loans through collateral.
For this reason, The National has welcomed the establishment of a UAE credit bureau, which should be fully operational by the end of the year, allowing banks to share information about their customers’ credit status, enabling them to lend more responsibly.
However, responsibility is a two-way street. As Michael Almazar, director of the commercial department at Gulf Law, pointed out yesterday, some Filipinos resident in the UAE wrongly believe that serving a prison term or paying a court-imposed fine for indebtedness absolves them from their debt. He also gave the example of a woman who applied for credit protection to insure her credit card. She then intentionally maxed-out her card and resigned from her job, thinking the insurance would pay off the debt. She learnt the hard way that this was not the case.
Whether through ignorance or deliberate act, trying to trick the system is not going to work – and nor should it. As much as banks should not lend money recklessly, customers have a responsibility to be financially literate. The onus is on us as borrowers to understand what we are getting into when we sign a loan document – and that starts with not borrowing more than we are able to repay.
Published: August 21, 2014 04:00 AM