Consumer awareness, credit reporting and more regulation will solve consumer debt
Everyone must take debt seriously
Personal indebtedness has long been a matter of concern, but the conversation about debt has become more serious in recent months. It is, of course, important to bear in mind that the debt problem is not unique to the UAE – it manifests itself in many countries around the world. Falling down the rabbit hole of compound interest with no ability to pay down the principal, however, does have specific challenges in a financial system that doesn’t have bankruptcy protections.
This is why The National initiated the Debt Panel, which met for the first time last week, consisting of a banker, the chief executive of a money comparison website, a wealth planner and a financial adviser. The idea is to start a fresh conversation about practical measures that can be taken to help individuals and banks rectify the problem of debt. Honest conversations about prudent measures are the logical starting point for such a discussion.
The panel correctly praised the Government for launching Al Etihad Credit Bureau in 2014. When fully operational, the bureau will help banks identify poor candidates for personal loans and lines of credit. Used correctly, the bureau will curb bad debt before it begins by weeding out loans that will probably go unpaid.
The bulk of the conversation focused on a more pressing and difficult challenge to solve. What can be done for people who are already in debt and have few avenues for paying back the sums with interest to banks? There are a number of measures that can be considered, many of which have been endorsed in these pages.
Reforming employment laws, for example, to allow people to take part-time jobs is one way to give consumers the ability to help themselves out of debt traps. Better consumer awareness education is also critical for new residents who arrive from less developed banking environments.
One solution put forth by the panel is a greater payment-protection insurance for borrowers who encounter circumstances that prevent them from earning income used to service debt. Additionally, tighter regulation in the form of a bankruptcy law, according to Abu Dhabi Islamic Bank’s chief credit officer Jamal Alvi, could alleviate some of the debt problems faced by many. Ultimately, a combination of consumer awareness, better credit reporting and tighter regulation will solve the problem of extreme personal indebtedness. We all have a role to play in overcoming the problem of debt.