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Are Emirati-only policies hurting UAE businesses?

The recent decriminalizing cheque policy and mortgage cap expose an obvious nationality bias—Kipp asks how significantly will this affect local businesses?

January 6, 2013 10:42 by

To say the UAE is home to policies which protect and help promote their local population would hardly constitute as breaking news. Like most countries, the government of the UAE has a vested interest in encouraging local businesses and developing local talent. This tendency is not unique to the UAE—but given the special demographics of a country with a local population constituting for less than 20 percent of the total, it has very specific implications for the local economy and business. We ask, could the special bias towards the local population hurt business?


The top two stories of the last week, would suggest so.


The first one is the rather sudden decision to cap expatriate mortgages. According to Reuters, as per a circular sent by the UAE Central Bank to commercial banks in the UAE, mortgage loans for expatriates are not to exceed 50 percent of the property value of the first purchase and 40 percent of the purchase that follow. For Emiratis, on the other hand, mortgages have been capped at 70 percent on the first purchase and 60 percent on other purchases.


The decision came as a surprise to many observers in the banking and the real estate sector for the suddenness of the announcement and its potentially detrimental effects on a property market which is just beginning to pick up. Of course, the central bank’s decision is part of a move towards curbing the formation of another property bubble—but the flip side of this severe cap is the effect it will have on expatriate investors. Reuters pegs the number of property sales purchased through mortgages in the UAE at a whopping 40 percent (70 percent of these mortgage customers are expatriates)-put two and two together and you get some rather disastrous math.


Next, there was the announcement that bounced cheques were decriminalized—only for Emiratis. It was in reported in The National earlier this week, that the UAE had finally ended its policy of imprisoning holders of bounced cheques—a policy which has been heralded by many as a necessary step to encourage a healthy business environment where failure is accepted and not something to be feared.

Later that week, Reuters reported that the rules had not changed—decriminalizing cheques applied only to locals. According to a government official statement: “The relevant mechanisms set by the fund for this purpose apply only to relevant UAE citizens, and not others, and this includes the directives…to decriminalise security cheques presented by UAE citizens to banks and financial firms.”


Being a business hub has been an integral part of the UAE’s past and present. But with these types of biased policies in place, we wonder if it will be part of the UAE’s future?

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