x Abu Dhabi, UAETuesday 25 July 2017

A reminder of need for bankruptcy law

The generosity of an Indian businessman, who has spent millions of dirhams to get foreigners out of debtors' prison, exposes a flaw in the financial and legal systems.

The extraordinary generosity of Indian businessman Firoz Merchant - who has spent millions of dirhams to get indebted foreigners out of prison and pay for their flights home - deserves applause. But it also underlines the challenge in the UAE's financial and legal system.

Mr Merchant has evoked the spirit of Ramadan with his latest gift, which will see the release of another 500 inmates who have served their sentences but have remained in prison because they could not pay their debts. He has spent Dh3.7 million over the past few years to help thousands of people. And he has plans to help many more before the year is out.

"One prisoner is equal to one family back home," he told The National. "They are the bread earners, so the longer they stay in jail, the more the family suffers."

There is no doubt that Mr Merchant, the chairman of jewellery company Pure Gold, has done a great deal of good for the expatriate community; his philanthropy has helped people not just from his native India, but from Pakistan, Morocco, the Philippines, Indonesia and elsewhere.

While his efforts are laudable, the fact remains that so many people stay in prison after they complete their sentences. The issue boils down to the need for better legislation on bankruptcy.

Under the current system, a single bounced cheque can lead to jail. And, of course, once someone is in jail, he or she has no income and no capacity to repay debt. It is not just these individuals and their families who are suffering; their creditors have no chance of being paid what they are owed; and holding people in jail for an indefinite period is a significant drain on national resources.

Two weeks ago, Michael Tomalin, who is retiring after 14 years as head of the National Bank of Abu Dhabi, cited the lack of a bankruptcy law as a serious obstacle in the UAE financial system, leading to higher costs of lending than in other regional markets.

Steps are being taken to remedy the situation. Discussions have been taking place since 2009. The Ministry of Finance is reviewing a draft law, drawing in part on legislation from the US and France, that may be in place by the end of the year. Of course, it's important to get this right, but improvement can't come soon enough.