x Abu Dhabi, UAEFriday 28 July 2017

Another step towards reform of bad-debt law

The announcement that expatriates will no longer be jailed for bouncing security-deposit cheques is welcome. But ultimately, individuals must be responsible for the debts they accrue

There is an acknowledged problem. Reports have shown that cheques representing payments worth Dh55.3 billion were marked invalid and returned in 2011. That puts a monetary value on a more ambiguous question: how does a country such as the UAE, with a large transient expatriate population, deal with bad debt and defaults? There is a growing recognition in government and the private sector alike that the current system needs to be improved.

There is the data about invalid cheques released by the Central Bank, showing that the existing law has not stopped people from writing bad cheques, nor has the threat of imprisonment. Instead, people end up in jail and unable to work to pay off their debts. It's a lose-lose scenario.

And there have been the reports illustrating the point: two jailed cheque-bouncers went on hunger strikes last year; Lt Gen Dahi Khalfan Tamim, the chief of Dubai Police, has advocated a change in the law; and major banks followed suit late last year.

Last October, Emiratis in jail for bounced security cheques were given a blanket amnesty. That was an important first step that saw more than 400 people freed from debtors' prison.

And as The National has reported yesterday, there has been progress towards decriminalisation for expatriate residents as well. "In the spirit of fairness and equality," said Ali Khalfan Al Dhaheri, the head of the legal affairs department at the Ministry of Presidential Affairs, "the courts have stopped as of last month accepting collateral cheques presented as a criminal tool against expatriate debt defaulters." It is, undoubtedly, a powerful statement about the future of business in the UAE.

The change covers security-deposit cheques only, not bouncing cheques in any commercial transaction. Reforming the system is a long-term process, and there is a national interest in assuring that debts are honoured. The best way to achieve that is by implementing a modern bankruptcy law that would bring the UAE in line with international practices. Another needed step, which is in the works, is to create a nationwide credit bureau that informs lenders about the backgrounds of borrowers.

Of course, ultimately individuals must be responsible for the debts they accrue. That does not mean going to jail, but simply being held to account for the money owed. A credit bureau and bankruptcy law will help to encourage a more responsible perspective on borrowing.