UAE economy ‘crippled’ if cheques are scrapped, says banks chief

Abdul Aziz Al Ghurair says current system of reliance on post-dated cheques, which are used for larger payments such as rents, cars and school fees, was the best available.

Abdul Aziz Al Ghurair, the head of the UAE Banks Federation, said that the current system of reliance on post-dated cheques was the best available to the country, and if it were suddenly scrapped "it would cripple the economy".
Mr Al Ghurair, who is also the chief executive of Mashreq, said that the cheques system should only be reconsidered if a "holistic solution" to the present practice was found. "We don't want to unplug a system that's working. The whole country is dependent on the cheque system."
Post-dated cheques are used in the UAE for many larger payments, such as rents and vehicle purchases and school fees, but the practice has come under criticism because tenants or customers who find that their cheques have bounced are subject to criminal penalties, including imprisonment.
But Mr Al Ghurair, speaking on the sidelines of a conference of financial regulators in Dubai, put up a strong defence of the cheque system.
"Some things can be done on direct debit, like utility bills for example. But for the payment of big sums, like rent, where a whole year is paid in advance with postdated cheques, direct debit is not possible.
"Post-dated cheques are the accepted form of payment. If you take that away, the whole cycle would stop. It would cripple the economy of the UAE," he added.
However, he said that there was room for streamlining the legal process surrounding bounced cheques. "We have got to simplify the legal system. You do not want to have to go through three court processes to resolve a Dh15,000 cheque. A new federal law should be considered, based on a commercial court system."
He said that the number of bounced cheques had been dramatically reduced after the financial crisis, when many businessmen found themselves unable to meet liabilities via post-dated cheques.
"It isn't possible to eliminate bounced cheques completely, but they will be further reduced. In the absence of anything else, this system works, so why go and invest time and money on another solution when the system is working," he said.
The Dubai conference, organised by the information group Thomson Reuters and the Dubai International Financial Centre, heard calls for a flexible and balanced system of regulation to see the UAE and other GCC countries through recovery.
Jeff Singer, the chief executive of the DIFC Authority, said regulations should be kept "short and simple", and that equity markets should be strengthened to encourage new entrepreneurial ventures. "Good regulation is good business," he said.
Mr Al Ghurair said: "Financial services is the backbone of the economy, impacting all kinds of people, so it is challenging for regulators. A highly restrictive system of regulation would protect the financial system but would shackle the economy.
"The absence of any regulatory system would lead to the collapse of the banking system, hurting the economy and the consumer."
The first phase of a national direct debit system was introduced last year, to covers banks loans and advances, and will be extended this year to cover different types of bill payments, like utilities payments.Mr Al Ghurair also said that the Etihad Credit Bureau, the federal agency designed to assure individuals' credit worthiness, now had 12 banks signed up and would be up and running in the second quarter of this year. "Our goal is to ensure sustainable growth for the economy," he said.
[e-mail]