There is growing scrutiny of the banking sector and how it does business. The supervisory role of the Central Bank has also recently been placed under the spotlight. These are positive steps: such public and constructive examination can only be for the long-term benefit of society.
Sheikh Mansour bin Zayed Al Nahyan, Minister of Presidential Affairs and Deputy Prime Minister, discussed at the latest Government Summit the idea of establishing new government agencies to supervise the financial services industry in the UAE. The establishment of such agencies should be seen as a natural transition that any developing economy has to undertake.
The essence of the problem these discussions have sought to address seems to be the increasing number of Emiratis defaulting on their personal loans, something the Sheikh Khalifa Fund for Emirati Defaulters is designed to address.
The fund provides support to Emiratis who default on their loans by settling the entire amount, including 50 per cent of the accumulated interest triggered by a loan restructure. The existence of the fund clearly demonstrates that the Government is intent on taking on this issue. Awareness is also key to tackling the problem.
The fact that the banking sector is currently being examined under a social microscope is a progressive sign for the community. It means that the public is aware that a problem exists. It also means they might eventually make decisions regarding loans with a greater sense of responsibility.
In today’s world, banks are one of the crucial pillars of any economy. As such, perhaps citizens should be more educated about banking.
For example, the Ministry of Education could re-evaluate the delivery of classes in schools to include theory-based study around a bank’s role in our society.
On a related note, the UAE is on its way to introducing an insolvency law, which hopefully will stop the practice of jailing defaulters.
The long-awaited law has been going through the procedural stages and is being discussed by the Ministry of Justice, Ministry of Finance and Federal National Council before being presented to the President for sign-off.
One could consider that the current laws are in line with the UAE’s vision, especially in the area of Foreign Direct Investment (FDI). The UAE has seen constant growth in FDI. To maintain such a business model, one should be keen to safeguard these investments through risk mitigation, as indeed the UAE continues to do. Naturally, as a society grows, certain decisions may need to be revisited.
One could perceive the current state of affairs to be the following: a growing number of Emiratis defaulting on their obligations and landing in jail as a result of rules that were put in place to safeguard economic objectives.
The upcoming Military Service Law (MSL) has been fast-tracked through the legal procedures. Why not fast-track the insolvency law as well?
The MSL is introducing a new strategy to further secure the national security of the UAE. The significance and impact of the MSL places it as a top-priority for the Government.
Imprisoning for defaulting on loans may lead to other national security issues, including the effect it would later have on employment. Furthermore, this issue has the potential to pose a threat to the overall economy, which itself is a national security concern.
Mohammad Sultan Janahi is a social affairs commentator from Dubai
On Twitter: @jna7i
