UAE residents crushed by a mountain of debt
Ravikanta Olivera was working as an executive housekeeper at a hotel in Dubai the day she suffered her first stroke.
“Suddenly down the right hand side of her she started feeling weak,” says Mrs Olivera’s husband, Lenson, 49, who works at the same hotel.
“They called me from the office to say your wife needs help,” he adds. “We went to the hospital. I thought it would just be a case of food poisoning.”
Tests revealed Mrs Olivera, now 47, had suffered a stroke, which was followed by a second, larger episode while she was in hospital that left her in a coma for 10 days.
But aside from concerns for her health, Mrs Olivera, who earned Dh13,300 a month, was about Dh250,000 in debt on two bank loans and five credit cards.
These include outstanding payments on a Dh145,000 loan and credit card of Dh12,000 from Emirates Islamic Bank and outstanding payments on a Dh260,000 loan from Dubai Islamic. She also has debts with Abu Dhabi Islamic Bank, to which she owes Dh16,000 on a credit card; Citibank, from where she has a credit card of Dh22,000; RAKBank, to which she owes Dh15,000 on a credit card; and HSBC, to which she owes Dh14,000, also on a credit card.
Despite initially keeping up repayments after returning to work, Mrs Olivera suffered another stroke last month and has since quit her job – leaving her finances in crisis.
While the banks declined to comment on the specific case, an HSBC spokeswomen says it seeks to find a “mutually agreeable solution with any customer facing difficulty with their financial obligations” and Tara Sirinyan, a spokeswoman for Citibank, says it works with customers “on a case-by-case basis, especially those with difficult circumstances, including illness”.
Mr Olivera says his wife ran up the credit because her brothers had lost their jobs.
“Some of it she spent here locally. And one of the loans she took because I lost my job,” says Mr Olivera, who has lived in the UAE with his wife for 15 years. They are both from India.
The exact number of people in the Oliveras’ position in the UAE is not known, but the couple are by no means alone in getting into excessive debt. The National has received dozens of emails in recent weeks from readers on low incomes who have managed to build up oversized liabilities.
The UAE Central Bank issued guidelines five years ago to help protect residents from excessive debt by capping the overall total of instalments for loans – including personal, car, housing and credit cards – at 50 per cent of a borrower’s gross salary and income.
But it appears it was easy for many to evade the rule. Until the launch of the Al Etihad Credit Bureau last year, brought in to help regulate lending in the UAE, all they had to do was hide how much credit they already had. What makes the Oliveras’ situation even worse is that Mr Olivera himself is also about Dh250,000 in debt.
“Now that the credit bureau is here, these situations are becoming a lot less common just because the banks can approach the credit bureau and find that they have two to three loans, or that in the last three years you have had three loans that you have bought out,” says Ambareen Musa, the founder and chief executive of the money comparison website Souqalmal.com.
However, the potential impact of the credit bureau is too late for some.
Among the letters sent to The National is one from an engineer earning Dh16,500 a month who owes Dh102,000 on three personal loans, and his car has Dh24,000 in fines. The vehicle was seized by police two years ago and he has worked for a year without a visa – he cannot renew it because of the police case.
In another letter, a man earning Dh15,540 has debts totalling Dh420,00 on two loans and numerous credit cards. Most of his salary goes toward minimum payments, but while he would like to take out a consolidation loan to gather his liabilities into one place, the Central Bank ruling means he does not qualify.
Experts say there are several reasons why UAE residents fall into such dire circumstances, but lifestyle is chief among them.
“A lot of people in the UAE live way beyond their means. There is a bit of a social pressure here with spending on nice clothes, nice houses,” says Ms Musa. “The problem is a lack of understanding of how to budget or what kind of lifestyle they can afford.”
And they tend to plug any shortfall using credit cards and loans, which is expensive.
Those products often have a higher interest rate because the lender has nothing to hold as collateral, says Andrew Prince, a financial planner at deVere Acuma financial consultancy in Dubai.
But not enough people considerhow high the rates are.
“Using a credit card as an example, you can spend each month and pay a portion off, but the interest will be charged on the whole amount. Interest rates on credit cards can be up to 40 per cent per year, but is likely to be shown as 2 per cent per month. You may not realise the true cost of the borrowing, and then over time the debt builds up to a point that it is difficult to repay,” says Mr Prince.
Once people start struggling to service their debts, they take on more credit to solve the problem.
“It’s human behaviour in which we try to find solutions for our problems,” says Ms Musa. “If someone has a loan or a few credit cards and it’s getting hard to pay them off, they take a loan to pay off the guys after them so that loan becomes new again. Then they start to struggle with this loan, so they take another loan to pay it off. That’s how you get into a spiral of debt.”
This is how Mrs Olivera’s liabilities spun out of control. After returning to work following the first stroke, she struggled with depression and an ongoing weakness on her right side. Then last month she suffered another stroke.
“That’s when I realised things were not working,” says Mr Olivera. “So I decided I should not make her work.”
Mr Olivera resigned on his wife’s behalf. Within days Mrs Olivera had recovered enough to want to rescind it, but her employer refused on medical grounds. Her first stroke had altered her personality, it said, leaving her mentally unstable at times and often volatile, shouting at her colleagues.
Because of this, Mrs Olivera is unlikely to return to full-time employment, leaving her husband to support her and their two children and settle their debts.
So what can be done to stop more people falling into a similar trap?
“We have already started to take out bureau reports for some customers,” says Tooran Asif, head of personal banking at Mashreq.
“What we see is that the majority of the customers who do get into financial straits are people who have lost their jobs or are in transition from one job to another job.”
This is how Ankit Thapa, a 25-year-old Nepalese sales merchandiser living in Dubai who asked for his name to be changed, got into difficulty.
He took out a Dh42,000 loan from a bank in March on a salary of Dh3,700 to shore up his family’s home in Nepal, which was made of wood and mud.
But the house was destroyed by the earthquake that struck in April before his family could finish the work.
“There is nothing there. I can prove that. I have papers,” says Mr Thapa, who has lived in Dubai for 18 months and used to send the majority of his income home.
“My brother is dead. My family couldn’t even find his body. My mum, dad and my sister are living in tents right now.”
He asked his employer for a month’s leave to support his family, but the company refused.
“My performance suffered. They gave me two warning letters and then asked me to resign or be sacked. They told me I if I got sacked I would only get the salary of that month, but if I resigned I would get one month’s salary plus one year’s leave salary and one month’s grace period to look for a new job, so I took up that offer and I resigned.” However, he has been unable to find a new job and his grace period is almost up. He has been too scared to inform his bank about his situation, although he fully expects it to be in touch when his visa is cancelled within the next week.
Mr Olivera, on the other hand, has contacted the banks that loaned his wife money.
He is waiting to hear the outcome of an official petition to Emirates Islamic Bank to waive the amount she owes on a loan and credit card because of her health. Some of the banks have already refused this option and insisted she has to pay the money back.
But Mr Olivera does not have the money to cover the repayments, her medical bills and the cost of caring for his family.
“I have two kids, a 12-and-a-half year-old daughter and a 11-and-a-half-year-old son. My salary is going toward day-to-day expenses,” he says.
“And I too have debt. I have two loans and one credit card, because as you can imagine I have been shouldering all of the medical bills without anyone’s help.”
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Updated: July 23, 2015 04:00 AM