Many mid-income Pakistanis drowning in debt due to excessive borrowing

High-interest, easy to claim loans are leading many middle income Pakistanis in the UAE into financial crisis, and in some cases jail, community workers and money lenders have said.

ABU DHABI // Fresh concerns have been raised over the number of middle-income Pakistanis in the UAE falling into financial crisis – and in some cases jail – due to taking high-interest, easy-to-obtain loans.

As more and more banks and finance companies are providing loans, often well in excess of the borrower’s capactity to repay, many still fall prey to the temptation of a temporary fix.

Experts have asked residents to consider any loan with great caution, and ensure they can meet the repayments in case they fall prey to extremely high interest rates.

Sami Akhtar, a 55-year-old Pakistani in Dubai, said his total debt of personal loans and credit cards reached more than Dh300,000 at one stage.

“I lost my job in 2004 in a private company in Dubai,” he said.

“Then I decided to start my business from personal loans and from credit card money. As result, in just two years, I was deeply soaked into the interest, forget the principal amount,” said Sami who is now also struggling with serious health issues.

“I took more loans from friends and family to pay my debt. It took me years to come out of this mess. And as a result, I not only lost my respect among peers but also got seriously ill,” he said.

“Unfortunately personal loans and credit cards offers are too good to be true and an average middle-class person is caught into this. He only thinks about the short-term benefits and never reads the fine print of the payment plan. We are just happy to have lots of money in the account without realising that it has to be paid back with interest,” said Mr Akhtar, now financially dependent on his son.

“I am totally ruined because of personal loans. I ignored the fact that interest is Haram in Islam and this evil has swallowed everything in my life, including my health.”

Mr Akhtar said that the Pakistani community, especially those with limited income, should learn from him. “Please live within your means. I did not, hence I suffered. I forgot to manage my expenses within the means and took refuge in loans and credit cars. And today I have nothing in my hand.”

Lenders also warned of the risks of taking on more than you could afford. “Personal and car loans are now available at very easy conditions,” said M Sheraz, who works for a financial institution in Dubai.

“Anyone who is earning even as low as Dh3,000 can get a car loan, and if he is earning Dh4,000 then he can get personal loan in millions. “Since these are high-risk loans, the interest rates are also higher.”

Mr Sheraz said most of his clients were from mid-income groups who worked in a small or medium-size private company.

“They are already struggling with their day to day expenses and in between if any major expense crops up then they approach us for loan.”

However, he says most of the time they demand for loan beyond their capacity to repay.

“Almost every day I get phone calls asking for loans that cannot be repaid even in the next 50 years. Either we approve the amount payable to them as per their income or try to convince them that it is not right to have such heavy debt.”

However, he said that only a few clients understood this while the rest insisted on securing high amount of despite the potential consequences. He said his company evaluated each applicant financial status before granting the loan.

“We have very low rate of personal loan defaulters. Nonetheless, many of our borrowers give late payments which leads to more fines,” said Mr Sheraz, who added that more than 50 per cent of his clientele was from Pakistan. “The other popular lender communities in the UAE are Indians and Filipinos.”

Tahir Zaidi, general secretary of Pakistan Association Dubai, said in many cases, it was family back home which forced the Pakistani worker to find himself in debt.

“It is very common thinking back in Pakistan that their relatives who are living abroad, especially in Gulf countries, are getting money very easily and catching money from trees. Due to the regular demand of the relatives, people start getting loans and use credit cards, which results in painful situations.”