Squeezing money out of poor and desperate people by charging high interest rates is a shameful, predatory practice, not to mention an illegal one. But as The National reports today, loan sharking is all too common in the UAE.
This problem, which exists worldwide, is difficult to root out because it reflects some basic realities of society. But in the UAE context, some steps can be taken to reduce the damage.
At most income levels, anyone can run short of cash towards the end of the month. Add in a sudden emergency, or a business reverse, and the need for a short-term loan can become overwhelming. Where middle-income people may have savings, good credit or prosperous friends, the poor can feel forced to visit the shadowy world of illicit lending.
But at 10 or 20 per cent interest a month, a modest loan can quickly become a millstone of debt. And moneylenders can turn menacing, as the name of one Dubai operation shows: the "blade mafia" told an overdue borrower, mentioned in our story, that his family in India was at risk if he didn't pay up promptly. In some cases in recent years, debtors have felt so helpless that they have committed suicide.
Interest, whatever the rate, is forbidden under Sharia law, but the UAE's mixed legal system does allow some interest-bearing loans, although charging unreasonably high rates of interest is an offence. Still, policing the loan-sharking racket is always and everywhere a challenge, in part because not everyone who borrows this way has clean hands.
What to do? Legitimate sources of small short-term loans would be a useful alternative. But the microfinance movement has met criticism in recent years and is now seen as no panacea; in any case it focuses more on very small-scale entrepreneurs than on people needing emergency cash.
There is a role here for national associations of expatriates, which exist in the UAE for several major groups. Perhaps in cooperation with embassies, these groups could establish credit unions to make loans available, on a non-profit basis. This would be of no use to those who need money for shady reasons, but it would help those who most deserve to be helped and might also encourage saving.
And in many countries pawn shops serve the same purpose. As licensed businesses with their own premises these enterprises are more easily regulated than elusive loan sharks.
These or other alternatives could reduce the damage loan sharks do to the most vulnerable of the country's residents.