Police chief: keep debtors out of jails

Criminal penalties are putting system under strain, says Gen Tamim as he urges banks to start adopting Islamic lending principles.

DUBAI // Locking up bad debtors is putting a huge strain on the police and prison system, Dubai's top officer said yesterday. Lt Gen Dahi Khalfan Tamim said people who defaulted on debts or bounced cheques should be dealt with by the civil courts.

Both are currently criminal offences. According to figures from Dubai's Central Jail, around 450 people are in prison on bad debt charges. Speaking on the sidelines of the Legal and Security Aspects of the Financial Crisis conference, Gen Tamim said he expected the number of cases to increase until next year, but after that "it should get better". "Sadly now, as a police force, we have been involved in a matter that shouldn't have been under our mandate and we are concerned more than we should because this could escalate."

In January, the Ministry of Labour said it was reviewing a government proposal aimed at addressing people who had left their jobs and failed to meet their financial obligations with banks. It also urged banks to consider amicable solutions with debtors before referring the case to the police or public prosecutions. There have been reports of expatriates fleeing the country rather than spending time in jail for their debts.

More than 3,000 abandoned cars were claimed by the banks last year, and police said they impounded 11 cars at Dubai International Airport in January alone. Cheques can only be cancelled if they are lost or stolen - or if the writer of the cheque is declared bankrupt. Gen Tamim added, however, that traders who issued dud cheques should still be dealt with by the criminal courts. He blamed "greedy" and "irresponsible" banks for the financial crisis, and said the solution was to adopt Islamic banking principles.

"In the UAE we had the same problem as in the US. Banks started the problem when they gave out loans to high-risk people, encouraged people to take out more loans and credit cards. "They aggressively approached people and encouraged them to take the loans. Gen Tamim said the police had warned banks about their approach before the economic crisis hit the economy. "We told them their methods in simplifying the criteria for loans and mortgages would only lead to people defaulting.

"The fault is with the banks and not the consumers. When they encourage, facilitate and say 'being in debt is not dangerous' then they are the guilty partner. "I think the only way to get out of this is to follow an Islamic banking system that uses Sharia-compliant finance." Mortgages, leasing agreements and loans in Islamic finance are matched much more to true asset value and are generally more conservatively rated than their western counterparts.

The three-day Legal and Security Aspects of the Financial Crisis conference will conclude tomorrow. Speakers from around the globe will give keynote speeches on the financial crisis and its effects on security and policing. Earlier this month, Gen Tamim told a meeting of representatives from property, hotel and hospitality companies that people needed to address their greed. "What is a reasonable percentage of profit which should be gained by a trader? There has been a big case of exploitation from people and the phenomenon has become totally unnatural.

"The leap in rent prices involves not just new developments, but also old ones. "This situation existed before the crisis but I have noticed that it continued even after the crisis." [e-mail]