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Finding a better way to deal with defaulters.

It was William Shakespeare who had cautioned "neither lender nor borrower be" -- a wishful thought but one that is impossible to be, given the nature of our present consumer society. The reality, though, is that in the UAE, there needs to be a great sense of maturity brought to the market when it comes to the issuance and uptake of personal loans and credit cards.

The UAE Government has taken steps to prevent borrowers and lenders from getting caught with poor-performing loans and credit cards by setting up a national credit bureau. Clearly, given the reality that borrowers are still running into trouble by taking out too many loans and lenders have portfolios riddled with non-performing personal loans, the credit bureau system is not yet fully functioning nor fully effective. It is all too easy for banks and financial institutions to outsource their credit card and personal loan marketing departments to third-party companies that are only interested in selling a financial product -- not in the borrower's ability to repay.

And when weak-minded individuals are bombarded with calls offering credit cards and loans, it is all too easy and tempting to fill out the forms, accept the credit cards and spend freely on consumer goods, electronics, entertainment and travel. Once a consumer falls behind, there is nothing to stop him from taking out another credit card to pay the first, and another to repay the second. It is a vicious cycle with hardly any way out.

Once in trouble, a customer must be able to step forward and admit that he needs help. Secondly, banks must be willing to work with the customer and find a realistic way out of the mess. In North America, banks have the ability to garnish wages -- taking a slice off the top each month. That is a measure that can be implemented in the UAE with relative ease. But is there really a need to criminalise financial woes? Certainly, the police have more to do than be credit monitors. And how can a borrower pay back money if he is languishing in a jail cell. It is about time banks, police and the UAE Central Bank came up with a realistic method of dealing with defaulters.

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Publication:Gulf News (United Arab Emirates)
Geographic Code:7UNIT
Date:May 28, 2015
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