UAE banks are pushing for a reform of the law governing bounced cheques, which is increasingly seen as ineffective. The present system was designed to protect lenders, so recent statements by chief executives at some of the nation's largest banks emphasise how the status quo is changing.
Writing a bad cheque is a criminal offence under UAE law, punishable by imprisonment. And yet many people still write cheques that their bank accounts cannot cover - sometimes because of personal irresponsibility, but at other times people have few options, such as in cases that involve yearly rent paid by a single cheque. Many cases have ended up in court. Instead of having a chance to pay back the funds, many borrowers end up in jail or flee the country.
Over the past month, The National has reported that cheques written for a total of Dh55.3 billion bounced last year. This staggering amount of money has stirred criticism of the present law, which is clearly not preventing bad cheques from being written. Even the chief of Dubai Police, Lt Gen Dahi Khalfan Tamim, has called for a change in the law, arguing that chasing debtors was a poor use of police resources.
Last month, the Government issued a decree protecting Emiratis from potential criminal liability in the case of bounced cheques. This is a partial solution, but in addition to immunity for Emiratis, there needs to be a systematic solution that covers all debtors.
It is not simply a matter of scrapping an outdated law regarding debt. There need to be financial agencies, including a nationwide credit bureau, that encourage more prudent lending, and an updated bankruptcy law that allows orderly repayment of debt.
The present system fails in numerous ways: it fails to deter people from writing bad cheques; it imprisons people who would be better occupied by working off their debt; and it often leaves banks holding bad debt because the borrower is in jail or has absconded. Taken all together, all of these factors are a powerful argument for change.
There is tremendous momentum towards a more fair, more effective system of debt collection. It may take some time, but the consensus on the need for reform is overwhelming.