Wednesday, March 31, 2010

Draconian debt laws in the UAE. A Tale of Warning - Part One.

The UAE, and Dubai in particular, still peddle a life style vision of hedonistic pleasure to foreign expats (when not busy arresting and imprisoning them for saucy things like kissing and texting).

Middle talented service sector Brits, for example, seemed to be able to come over and live the lifestyle: posh new flat, new car, no taxes, and loads of relatively cheap restaurants, bars and nightclubs.

Bright Lights. Bright Opportunities!! From

They work in publishing, marketing, sales, account management, promotions, advertising, real estate.... Yeah, all those areas of employment heavily hit by Dubai's meltdown.

The problem is a lot of them believed the hype. They found themselves spending all that money on rents, loans to pay the rent in advance as demanded, car loans, going out. You know.

Then they got into the credit cards and personal loans too. Maybe even bought a place off plan. Ooops.

The UAE response to debt: Stop, Go to Jail. Go directly to jail. Do not pass go. Do not collect $200.

When such people get laid off, a whole new lifestyle kicks in. The UAE don't have a personal bankruptcy law, you see. And if you can't get another job to service your debts, the banks you owe money to can (and do) block your right to leave the country. If you can't pay your debts you get thrown in jail, for quite some time.

See the story of the guy who escaped by boat to India, and the facts about debt in Dubai

"Welcome to Debt City". By Tom Huntley
Ford also left behind an anguished “open letter” to friends and creditors that neatly encapsulates the predicament of many expats in Dubai who took out loans during the flush times and now find themselves out of work and unable to keep up with the payments on their seaside villas and luxury cars.

“I am not running away from debt, I am purely protecting those dearest to me and getting out of a country which, due to the lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments, drives people to make horrible decisions,” he wrote in an open letter to local media.

He promised to repay all of his creditors.

Dubai authorities won’t say precisely how many people have been jailed for their debts, but local news accounts put the number at about 1,200 — more than 40 percent of the total prison population.

Even trickier to gauge is how many others took Ford’s route and simply fled. Judging by the number of apparently abandoned BMW’s and Mercedes gathering dust on city streets and the ensuing chatter on expats’ discussion boards, the number is not insignificant.

This situation has created a whole subclass of expats in the UAE who are in the hole (only a little bit, say $15k), unemployed, and therefore desperate. Hey, OK, so the banks lent them money. But 2 years in prison? How does that help pay their debt anyhow?

UAE Ministry of Tourism Photo: Everyone agreed the Ministry's new expat marketing campaign - though true - wasn't going to work.

So here's the sort of thing that's going on, and worryingly, Oman and our expat Governments' Representatives seems to be assisting the UAE to continue to imprison minor debtors.

Here's a cautionary tale folks. It's a true story. Some names have been changed.

PART ONE: The Fall From Grace

Roughly 5 months ago, NBD (National Bank of Dubai) put a case against me for missing 2 payments on a loan, this was due to loosing my job, as so many other people when the credit crisis hit. I was working in a construction related job.

I never once broke contact with the bank and as far as I am aware I would only be in serious default for missing 3 payments. I found another position and continued to pay, even paying a little more so I would eat away at the arrears and showing a determination to resolve my problem.

When NBD joined with Emirates Bank that they applied the case [law], this meaning a travel ban. They informed me of this situation by text message, not by letter or call..the arrears totalled 9000 dirhams which I paid immediately, therefore having a normal running loan account.

They insisted I have my salary paid into NBD but this was a problem due to commitments to Citi Bank ...

As time went on the [new] company I was with had difficulties, and a number of us where let go. But they also requested the residence visa back. This would have meant I could not go to the border to get a tourist visa due to the [travel ban], therefore I would eventually over stay, making it impossible to get another job with residency as all over stayers must be cleared and therefore I would be arrested.

Also as I must be a residency holder to have the loan in the first place, another reason I would not be able to clear the [travel ban]

So no matter what, he's screwed and will be arrested and put in jail for a debt - in this case - he was up to date with repaying!! What can our poor UAE expat do? What would you do?

These UAE laws are monstrous and barbaric. People guilty of nothing more than doing what was expected and encouraged by the Dubai authorities are being sent to prison in droves. With NO intervention by their embassies.

Why? In the west this would NOT be a cause for prison, but a negotiated settlement with creditors. Just like other bankrupt people or corporations (like Dubai World & Nakheel perhaps?) it's just a negotiation. It's not like the banks thought an expat Nakheel marketing guy was 'sovereign backed' when they loaned him money either, eh, Sh. Maktoum?

Coming in Part 2: The Escape... to Oman


  1. Nice article Dragon...atleast after reading this people will be more cautious abt borrowing from banks....and we can hope that the govt(Govt of UAE and also the Govt of the country to which the expat belong) will realise their mistake and do something to help the people....

  2. Nice article and very accurate. By the way forgot to mention that Banking Ethics here are also unique and totally different from rest of the world. What you also forgot to mention that 39 years ago they were nothing with nothing and the so called locals or national of Dubai today use to own small businesses in the souqs and most of them are of non-arab origins. Of course many of them Arabcised their names by adding Al before their family surnames but at homethey speak their mother tongues - Farsi, Hindi or Urdu. So what did people expect from a nation that went from rags to riches overnight literally with little or limited education, a pot pourri mixture of non-arabic Cultures trying hard to invent themselves at any cost and trying to be what they are not.

  3. What sort of moronic country or business wants to jail debtors so they can't get a job and repay their debt? Even the mobster mentality understands 'the mark' must be free to earn in order to service the debt.

    Such a typicaly 'muddle' eastern response to a crisis - shaft the individual (excluding those with sufficient waaster to keep themselves safe). Don't try to find a solution that keeps the money coming in, oh no, that wouldn't send a message at all.

    Definitely decided (in favour of the west....)

  4. u r right friend

  5. Can you leave UAE and get residency in another GCC County without canceling the uae residecy?

  6. I need help for my friend please... she was brought to Dubai by her company in February eventually due to the recession she was terminated. but before that she applied for an emirates credit card but wasn't able to get it since she was bound to leave the country... which she did... after a year she heard from a friend that she owed the bank 10000 DHS.. how could it be when she left before she has gotten the card... she thinks that this is fraud is be banned from entering Dubai or any GCC company or even Oman what is Omans policy about this??? please help

  7. How will Dubai be able to resolve their debt if they keep jailing people for minor debt. At least if you paying it should mean that you committed to pay off your debt. How on earth can you settle your debt over night if you have a family and having to pay rent, school fees and food. One has to be realistic and I do believe that the Bank should relook at their banking policy. Most people had a credit card shield but most companies asked their staff to sign a "Voluntary Seperation" letter. By signing this letter it proves that the company is not making you redundant but you volunteered to resign. If the staff did'nt sign the letter they would not get their money. This letter however, was not recognised by the bank so what was the use of paying credit card insurance. So bottom lineis they knew good and well what they did. The expate either has to pay or face jail and most chose to flee back to their home land.

  8. Do the banks not throw people in jail so they can collect the money from the Insurance company? So is it correct to conclude that the Insurance companies are encouraging the banks to throw innocent people in jail?


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