Controlling credit in the UAE
The country’s Federal National Council has passed a draft law that announced the creation of a federal body aimed at monitoring people’s credit records.
March 11, 2009 2:49 by Aarti Nagraj
A new draft law approved by the UAE Federal National Council stipulates that every person in the country who wants to take a loan will have to undergo a credit check from a federal credit information company, reports The National. The new credit company will be owned mainly by the federal government, with the rest divided between local governments and the private sector.
According to officials, the proposed company will provide banks and financing firms licensed by the Central Bank with information about people applying for loans or credit cards. The idea is to decrease the number of unpaid loans, and help banks decide whether or not to grant them.
“The credit information law will strengthen the UAE’s economic and regulatory framework and lead to greater transparency in the financial sector,” says Ali Ibrahim, the managing director of Emcredit, a credit information services company formed in 2006 by Dubai’s Department of Economic Development.
“The law is especially significant in a society such as the UAE, which has a large transient population, a strong credit market and is witnessing rapid economic growth.”
He also says that due to the current financial situation, the law will benefit lenders. “It will help them in accurately assessing the creditworthiness of potential borrowers and allow them to implement better risk management policies.”
Authorities behind the law say that the company would operate in complete confidentiality. The law states that potential borrowers must give their written consent before their credit history is revealed, and those who break the law can face a jail term of two years, a fine of AED50,000 or both.
The law seems like a good idea in the current condition, but there seems to be one small hitch: officials have said that the new company will not be able to provide details on a person’s credit history outside the UAE until the proposed company enters into agreements with international credit-rating firms.
Considering that most of the people in the country come from abroad, wouldn’t a financial record from their home country further help banks and financial houses decide potential borrowers’ credit worthiness?