In June 2007, the Federal National Council formed a committee to study what it called the "personal-loans trend", with the Finance Ministry and the Central Bank. The committee asked for an update from the Government: what had been done about recommendations the FNC had made regarding personal credit as far back as 2003?
The lack of regulations - details about how a new law on credit ratings would work - had dragged on for years, and yet authorities had not managed to get the regulations into force, FNC members said. But now, after pressure from FNC member Ali Al Nuaimi, the Ministry of State for Financial Affairs has promised that a credit-check system will be in place within six months. Mr Al Nuaimi has performed a valuable service and we congratulate him.
In fairness, the new system has not been simple to design. When someone wants to borrow money, a new company set up for the purpose will now check the would-be borrower's credit record with the different banks. The system will detect people borrowing too much, and also make it possible to see if anyone is refused credit without good reason.
Personal loans have long been granted to Emiratis and expatriates in an ad hoc manner, making it difficult for banks to determine if the borrower will be able to pay back the money. Because of this, banks have either banned loans to people of some nationalities simply because their compatriots have defaulted, or limited most lending to Emiratis because they are very unlikely to leave the country, or capped loans based on salaries. That last approach may seem reasonable at first glance, but a high salary does not automatically make a person more likely to pay; that depends on spending and probity.
Now, credit histories will make it easier to gauge creditworthiness, which should also reduce the rate of jailed borrowers.
The change, when it is finally in place, will be an important step towards solving the cluster of debt issues that plagues the country. Recent debt-remission measures will also help, and so will a new bankruptcy law, whenever it is ready.
This will not, we suspect, be the last time FNC members press ministers and officials to get regulations finished and put into place so that long-needed laws can finally really be put into effect. In this case, at least, the clock is now ticking and a real improvement will soon be here.
