Understanding UAE debt laws

Understanding UAE debt laws
31 March 2011

AN ESTIMATED 85% of the UAE's population are in debt and, of those, around 65-70% are suffering from bad debt that they're struggling to repay.

The days of easy borrowing and a booming economy went with the onset of the credit crunch, to be replaced by mass redundancies and companies going under on a daily basis.

Research by Rak Bank showed that an average of 2,500 people left the UAE every month last year, many of them leaving a trail of unpaid debts. Almost 8% of the expat population have already left, and if the situation doesn't improve more are destined to depart.

Unlike in Europe and the US, writing a cheque that bounces is a criminal offense here due to the existence of Shariah laws. To make matters worse, there are no structured bankruptcy laws and banks can be very inflexible in terms of repayment of loans. A lack of clear communication from banks and other financial institutions makes things more complicated.

It always helps to be aware of the laws of the land. Here, cashy takes a look at debt rules and what you can do if you find yourself drowning in a sea of debt: 

Debt laws in the UAE

Despite growing demand to decriminalise bounced cheques or non-payment of dues, the rule still stands. According to article 401 of UAE penal code, a bounced cheque is punishable – either through confinement or by paying fines.

A custodial sentence does not guarantee, reduce or enforce the repayment of the amount to the creditor. However, the court usually proposes a repayment plan and it is better to follow that to avoid further complications.

If convicted, you can appeal. There are two appeal courts for criminal cases: the court of appeal and the court of cassation. The defendant will either remain in custody during the appeal procedure or be released on bail.

There is no prescribed rule for when creditors take action against someone who has written a bounced cheque. Some give the debtor 30 to 90 days to ensure there are sufficient funds in their account, but this is entirely dependent on the terms and conditions of the financial institution.

If you find the means to repay your debt, any custodial sentence imposed by the court isn't necessarily cancelled or waived. This depends entirely on the discretion of the judge and the creditor.

Even leaving the country to escape your debts is not totally risk-free. Once you leave the UAE, the creditor has the discretion to pass on your criminal file to Interpol for action overseas.

If you leave the UAE without clearing debts you will be banned indefinitely from entering the country again, unless you arrange to pay back the entire amount from abroad.

A recent change means that when it comes to property transactions only, bounced cheques are referred to a special committee under the Dubai court.

How to deal with debt

Having the threat of a prison term hanging over you is likely to compound the problem for anyone struggling to meet debt repayments, so is there anything you can do?

Yohannes Mazeingia, managing director of debt consultancy International Swiss Debt Management (ISDM), which set up shop a year ago in Dubai, urges those in debt to face their creditors and tell the truth.

Banks are becoming more receptive to helping customers deal with their debts, even although it's a relatively new concept here, he says.

"Banks are showing interest in restructuring loan repayment, postponing interest, allowing payment holidays and considering lower instalments, if they find the case is genuine and as long as they get their money back eventually," says Mazeingia.

ISDM aims to help people sort out debt issues by negotiating with the banks on their behalf – but it does cost. The consultancy doesn't charge for an initial meeting, but has a sign-up fee of AED 350 ($95.63). If it can successfully mitigate the case, it charges 2% of the entire debt amount.

London-based charity Detained in Dubai, founded by Radha Sterling, is also helping people to sort out legal issues in Dubai.

Prevention is better than cure

Debt can be the result of unforeseen circumstances, such as redundancy or death or incapacity of the main breadwinner in your family.

Often, though, debt is simply the result of living beyond your means. The following spending habits are likely to lead to a spiral of debt:

  • Spending more than you earn by resorting to borrowing from others, using credit cards and frittering away savings;

  • Taking out loans to buy goods and services that aren't necessary;

  • Using debt to repay debt.

So what can you do to break out of the cycle of debt and get your finances back on track? Here are a few tips from ISDM:

  • Start budgeting – it is never too late;

  • Try to negotiate on your rent or move to a cheaper property;

  • Cut back on utility expenses: make less overseas calls and reduce your usage of electricity and water;

  • Eliminate unnecessary expenses, like entertainment and eating out;

  • Cut down on transportation costs;

  • Cut back on club membership and other subscriptions;

  • Save on big purchases: instead of replacing, go for repairing;

  • Don’t impulse buy.

If you follow the above general rules, you're already half way there to avoid falling into the debt trap, but if you are already in it acknowledge your situation objectively and negotiate smartly. Be aggressive, but at the same time realistic about paying off your debt.

The rules of a country might be binding, but you can make your own rules to keep your head above water. 

Pic credit: Pixomar/ FreeDigitalPhotos.net 

Do you know anybody who was burdened with enormous debt? Did they faced a hard bargain from banks or were they detained in Dubai for non-payment of dues? share your stories with cashy.... 


  • indebtdxb

    I read this article with interest as I am one of those people who is burdened with an enormous debt.  Make no mistake, I am not looking for sympathy as I only have myself to blame for my situation. However, instead of being on of those people who simply left my car at the airport and disappeared, I have stayed and am trying to sort my problems out.

    I have to admit that I think it would have been easier to simply get on a plane.

    I approached a company that offers "debt counselling services" in February.  I had a lengthy meeting with them and they assured me that they would be able to assist with rescheduling and consolidating my debt.  Two months later, they are no longer responding to phone calls or returning emails and I am another two months in arrears.

    Yesterday, I received a phone call from the collections department of a well know Islamic Bank - I owe them two payments - the second one is three days late.  I spent twenty minutes on the phone being harangued and harrassed.  My colleagues in the next office could hear the gentleman screaming at me down the phone.  I asked him if he could give me until the start of next week to raise the money to make the payment but, unfortunately, he wouldn't listen to reason and just continued to shout.  I believe that my security cheque will be deposited today and I guess, after that, I will be detained.

    Today, I received an email my children's school telling me that unless their second semester school fees are paid by the end of this week, they will no longer be able to attend school.

    I am desperate for help and to try and dig myself out of the hole I am in but I no longer know where to turn for help.  I feel like I am living a nightmare and live in constant fear.  I don't know where to turn for help!

    I started a blog a couple of weeks ago about my experiences - my hope is that it will pick up some followers and hopefully I will be able to help others who find themselves in the same situation as I am.  I am also thinking about starting a support group for people who are as desperate as I am and also an emergency fund that can help those in dire need of assistance.  At this point, I am not even sure where to start though and would welcome any thoughts.

    For now, the link to my blog is www.indebtindubai.wordpress.com.

  • jen

    Thanks for the post. It sounds like you're in a terrible situation. We'd love to speak to you about your issues, and perhaps for you to be a case study for cashy. Please get in touch with us at editor@cashy.me.

  • rsavard

    Would love to read your blog, but the link you posted does not work...

  • jen

    Here's the correct link... http://debtindubai.wordpress.com/

  • yas_ahmad77

    can u tell me what is time barred limitaion of credit card repayment in UAE

  • jen

    Thanks for your question, Yas. I've posted it for you in our Q&A channel... http://www.cashy.me/en/qanda/82/?cct=107&ccid=82. I hope we're able to help!

  • anas

    helpful thanks.

  • pj

    I am extremely worried about the way the UAE Cheque law is misinterpreted! I have been following the case of Safi Qurashi very closely and it's shocking what I have learnt.

    I was about to take a mortgage but I am now in total fear of the power the banks will have when I give them a security cheque which is MANDATORY for any type of loan in Dubai and UAE. Not only must I issue a security cheque for the FULL amount but the cheque is undated which means it can be banked at anytime!

    What this means is that in order to avoid going to Jail I must have the cheque amount in my account at all times which defeats the purpose of taking out a Loan! Even if I have made all the payments, if the cheque is presented for any reason I am guaranteed jail time as the Head of Dubai Courts has clearly stated that his Judges are not required to investigate the reason behind a cheque bouncing. How crazy is that.

    This is an open invitation for criminals to committ bribery and extortion. This is so archaic that I cannot comprehend why no one has picked up on this.

    Incidentally, the moment you issue a security cheque for a loan you have committed a crime as the legal system requires you to have the funds available at the time the cheque is issued. We are all criminals in Dubai waiting to be convicted!

    Effectively banks are accesories to the crime we are committing. So I hope you can understand why a mortgage is nothing but a potential jail sentence.

    ALL Residents and investors must be warned!

  • pj

    FACT: To fully mitigate the risk of a Jail sentence requires you to have the equal amount written on the cheque in your bank account for the entire period of the finance!

    FACT: There is no such thing as a Security Cheque as a cheque is a cheque

    FACT: A Cheque is percieved as a bankers draft and therefore equivalent to cash negating the false concept of 'Security Cheque'

    FACT: The moment you issue a cheque without the funds being available in your account you have committed a crime. I.e when you issue a security cheque to a bank to obtain a Credit Card, Loan, etc.. the bank has facilitated you in committing the crime unless you have the funds available

    FACT: According to the law the court is required to prove 'criminal intent' before passing a judgement. This does not happen for expats and foriegners who are assumed guilty the moment a cheque bounces for whatever reason

    FACT: It is very dificult to do business and live without issuing cheques (school fees, rent, mortgage, car loan, credit cards, cash loans, etc.. all require a so-called security cheque.

    FACT: A Cheque book of 25 pages carries a potential jail sentence of 75 Years in Jail!

  • pj


    According to UAE Law 'Criminal intent' must be proven in a bounce cheque case.

    In the case of Safi Qurashi, where was the 'criminal intent' ESPECIALLY since his court audit report states that he does not even owe the complainant any money!

    WHY is he in jail?

  • Beware_in_uae

    People who are in desperate shape contact ISDM. They charge Aed 350/- in the first visit itself, promising to send a proposal for debt consolidation. (THERE ARE NO FREE VISITS!!!) But that’s it!!! No e-mails, no phone calls, no proposals nothing…! They will not respond to e-mails or even answer their phones after that. A person could have made a payment towards a credit card with this Aed 350, but thinks he / she is putting it to good use, because they believe ISDM is going to come up with a solution. Can you imagine how much ISDM is making just collecting Aed 350 per person? One thing for sure, they have been getting plenty of publicity on various sites but there has never been a single person coming back and saying ISDM got them out of their financial crisis. So their policy is just grab Aed 350 and VAMOOSE!!!

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