Blame it on a lack of personal responsibility. And blame it on a system that encourages people to incur too much debt. Either way, the recent report that more than 5 per cent of cheques written in the UAE last year were returned or rejected is concerning. That those cheques had a face value of over Dh55.3 billion is particularly troubling.
As The National reported yesterday, 1.5 million of 28.4 million cheques written for payments in 2011 failed to clear the bank. The reasons are varied: in some cases it could have been something as insignificant as a torn corner or an illegible signature.
The other cause concerns us more. It is illegal to write a cheque that bounces, and cheque-writers can end up referred to the courts and, in some cases, seeing jail terms. Debtor's prison is supposed to act as a deterrent. But in practice, this is a burden on the state, which is jailing people who are guilty simply of debt. It's also a burden on individuals who may end up behind bars, deprived of the opportunity to earn any income with which to pay off their debts.
In recent years there have been numerous proposals to deal with this problem, including setting up a nationwide credit bureau that would give lenders information about prospective borrowers' creditworthiness. Equally important would be a modern bankruptcy law that allows borrowers - individuals and businesses - to restructure their debts, rather than face criminal sanction. The entire banking system would benefit by erasing red ink in a more timely fashion.
Lenders must have ways to pursue debtors. Established banking standards offer plenty of models to choose from. But debtor's prisons are debilitating to efforts to create a system with efficient lending practices.
Debt repayment strategies must be reconsidered. Requiring blank cheques as guarantees for a rental agreement or a loan, for instance, is a recipe for default. Smarter lending by banks, and securing debts with actual assets - rather than cheques - could mean fewer people running afoul of the law.
Bad debts raise issues of personal responsibility, but many borrowers also run afoul of the law for reasons other than profligate spending.
We must come up with a strategy for facilitating repayments by otherwise responsible borrowers who have fallen on hard times. A structured bankruptcy law would go a long way.
