Sydney Dorairaj took out his first loan in March, the same month he arrived in Dubai.
Now just eight months, another loan and five credit cards later, the accountant, who earns Dh7,000 a month, is using Dh6,500 of his income to cover the repayments for his debt.
In total he now owes more than Dh130,000 – including Dh70,000 on a personal loan with ADCB, another Dh25,000 personal loan from Dunia Finance, Dh12,000 on an HSBC credit card, Dh6,000 on a credit card from Dunia Finance, Dh7,000 on a credit card from RAKBank, Dh6,000 on a credit card from HSBC and Dh8,000 on a credit card to FGB.
“I took the first loan because I needed to clear off debts back in India,” says the 29-year-old. “The credit cards were because a few costs came up in India that I had to cover and I didn’t have anything over here, so when I got a room I had to buy utensils to cook food.”
While HSBC says it does not discuss individual cases, RAKBank says when Mr Dorairaj missed a credit card payment, it agreed to push back the payment due date for a few days but the payment was still not made. “The bank remains in contact with the customer,” a RAKBank spokesman adds.
Mr Dorairaj is just one of the many people who contact The National every day looking for help to address their debts.
Other cases include a gentleman paying more than 60 per cent of his monthly salary in repayments that cannot reschedule the loan because his new company, which he moved to after losing his job, is not listed with any banks, and a woman who earns Dh9,000 a month but has run up Dh200,000 in debts on two personal loans and five credit cards.
The National first raised the issue of mounting personal debt in July with special coverage highlighting the issue. But little has changed since then, with more tales of woe pouring in daily.
So who is to blame when it comes to indebtedness? Should the customer shoulder the responsibility for taking on too much credit, or are the banks that issue the loans and credit cards at fault?
Experts are virtually unanimous in their view.
“Debt is easy to come by and there are plenty of options. It is still quite easy for someone to get into a lot of financial difficulties, but it really does rest with the consumer to manage that,” says Jon Richards, founder of compareit4me.
Ambareen Musa, the founder and chief executive of Souqalmal.com, says it is the consumer who signs the piece of paper saying they want the credit card, loan or insurance product.
“We are in the business of seeing whether people get approved and I can tell you there are a whole lot of customers banks do not approve because they already have too much debt,” adds Ms Musa.
While many assume it was just those on low incomes who experience debt issues, among the letters The National received are several from professionals with liabilities they are struggling to repay. They include a man earning Dh33,000 with Dh1 million in debt on loans and credit cards.
“I get contacted every other day about debt. People are in way too deep,” says Preeti Bhambri, founder of moneycamel.com.
“The profile of people writing in now has changed. Earlier they were on lower incomes of between Dh5,000 and Dh10,000 and they were stuck with debt. Now they tend to have good salaries and a lot more debt, mostly above Dh600,000 or Dh700,000.”
• Do you have a debt problem? Write to us at pf@thenational.ae
A survey released last month by Citibank and YouGov, found that 88 per cent of “affluent people”, defined as those who earn more than $8,000 a month, have credit obligations.
And more than 71 per cent of those polled own more than one credit card. Almost a third use them daily, with half reporting that they use them weekly.
Ms Bhambri says in the past she would have advised those in distress to carry out a balance transfer or apply to ADIB to take out a consolidation loan through its debt settlement programme.
“We publicised ADIB’s product a lot because I thought it helped, but even ADIB has reached a point where they are very picky about cases, so a lot of people come back and say they didn’t give us the loan, either because their payments are too big, the debt is too big, or they are now not working for a listed company,” says Ms Bhambri, who adds that she no longer knows how to help those with insurmountable debts. “It’s quite a grim situation.”
The National contacted ADIB but it has not commented on the article.
And it appears the issue is only escalating.
Compareit4me.com has recorded an increase in the number of applications on its website since the first quarter, when people typically applied for two or three products. Now they make five applications at a time.
“That is not to say they are going to get all of those products but they are certainly keen to speak to that number of people,” says Mr Richards.
Andrew Prince, a financial planner at deVere Acuma, says it is hard to place the blame solely on the banks when there are two parties involved.
“If the lender’s computer says yes, nine times out of 10 you will get the money, but equally do you really need three 50-inch LCD TVs adorning your wall?” he argues.
Yet the computer is not the only factor. Banks also employ salespeople to persuade customers to take on their products. And their techniques are not always ethical.
“A few years ago, I said ‘no’ to a salesperson trying to sell me a credit card and they said ‘if you don’t take this credit card, I will lose my job and I have two kids because I haven’t met my sales targets’,” says Ms Musa. “This used to happen a lot prior to the financial crisis. The salespeople used all kinds of methodologies to get you to take the credit card and you know what, I took it.”
A number of regulations have been brought in since the financial crisis to help prevent UAE residents from becoming overindebted, including a ban on the practice of cold calling.
The Central Bank has also stated that the debt burden ratio should not exceed 50 per cent – meaning a person’s repayments must not exceed 50 per cent of their monthly income.
However, as Mr Dorairaj’s case proves, that did not always happen, primarily because applicants were not honest about their existing obligations.
Previously, when banks asked customers to provide three months’ bank statements for their salary transfer account when assessing applications, experts say some customers had multiple accounts to hide the true extent of their existing debt.
Duplicity is harder to achieve since the credit bureau launch a year ago.
According to AECB – the UAE’s only credit reporting system, which generates reports about the creditworthiness of banking customers to help lenders make more informed decisions – there are currently 56 data providers sharing information about their customers and 52 subscribers using that information to assess credit applications.
“Almost all leading financial institutions in the UAE rely on the credit reports provided by the bureau and use the services on a regular basis as a reference point when analysing credit applications from consumers and corporates,” says a spokesman for the bureau, adding that long-term the organisations will help reduce bank losses from bad debts and give those with a good credit rating access to more competitive rates.
As for those already in excessive debt, solutions are hard to come by.
While debt consolidation companies are popular in the West – separate to the banks, they buy out consumer debt, adding a little interest on top – no such companies operate in the UAE, according to Ms Bhambri, who says consolidation loans are out of the reach of those with excessive liabilities.
“I have no solution for the kind of people that write to us these days because the banks we send them to just say no,” says Ms Bhambri.
For some, contacting the lender to negotiate better payment terms can help.
“RAKBank encourages openness and transparency throughout the relationship between the bank and its customers,” says the bank’s spokesman, adding that the financial institution endeavours to provide those who cannot meet their debt obligations with debt rescheduling solutions.
Mr Dorairaj might be one of the lucky ones.
A spokeswoman for FGB said the bank has contacted Mr Dorairaj, who visited the collections department last weekend to discuss a payment plan for his credit card.
He is also waiting to hear whether a buyout loan he has applied for will be successful. He has submitted one liability letter and is waiting for a second.
“I have spoken to one of the banks,” he says. “They said that they will help me to clear off all of my credit cards and loans. They are saying they will consolidate all the loans and the credit cards so the amount you are paying off right now will be reduced drastically, which will try to accommodate with the 50 per cent of the salary. If that is done I don’t have to worry about anything,” he says.
However, it will probably not be the last loan he takes.
“Once this is sorted out and the salary gets increased I need to sort one more debt in India for my house. Not here, not now, say after a year or two,” he adds.
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