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04 October 2023

Dh10bn citizens' debt fund signs up banks


A Dh10 billion fund, set up by President His Highness Sheikh Khalifa bin Zayed Al Nahyan on the UAE's 40th National Day to help pay debts of low-income citizens, signed on Wednesday a raft of agreements with lenders on the mechanism to settle personal loans of defaulters who received sentences pending enforcement or those under prosecution.

The agreements, signed at the Ministry of Presidential Affairs by Mohammed Abdullah Al Rumaithi, Ministry's Undersecretary for Financial and Purchasing Sector and member of the Fund's Committee, with lenders: the National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Abu Dhabi Commercial Bank, Union National Bank, National Bank of Ras Al Khaimah, Standard Chartered Bank and Mashreq Bank, followed an inclusive survey conducted by the fund in collaboration with the UAE Central Bank on defaults.

The fund finalised the study and compiled a list of first tranche of 6,830 defaulters whose debts were less than Dh1 million. The study was conducted in line with well-planned technical standards and rules so as to achieve objectives of the President's initiative which the Fund were set up for.

The first tranche, who incurred gross debts of Dh2 billion to banks, encompasses those apprehended in debt-default related cases, those sentenced in similar cases and those have cases - filed against them by creditors - before courts.

The fund forms a qualitative leap that serves multiple purposes at once.

The most important of these goals is to ease living burdens on citizens who can not afford to repay their loans. Technical regulations laid down by the Fund to deal with these loans will help heighten awareness about risks of unchecked burrowing for unnecessary cosmetic appearance. The Fund also seeks to promote the culture of saving among citizens and spur them to do that through mechanisms it has created to repay defaults which spare citizens from falling on the same trap of bragging debts again or overburdening themselves with heavy debts they have no financial clout to repay.

Under these agreements, the banks will act on behalf of the Fund in receiving applications from defaulters according to requirements worked out by the Fund to handle these debts. Applicants will need to fill a special form for settling debts which defines sources of income through which installments will be deducted and paid back to the Fund after debt settlement which should not be over 25 per cent of monthly salary or income. The debt settlement process also demands the debtor to sign a pledge obliging him not to take loans from banks and financing houses while he is repaying installments.

The lender banks are mandated to administer loans offered by the Fund to debtors including transfer of monthly installments. The banks will bear the administrative fees of the said loans.

As a reward to banks, the Fund may allow these banks to invest part of its funds while the banks undertake not to extend new loans to recipients of the Fund's loans during the period of debt settlement.

Agreements between the Fund and banks will remain valid until all loans are fully cleared.