In December 2023, the Central Bank issued a new system for regulating short-term credit facilities within the framework of finance companies' legislation. The goal is to keep pace with financial developments and provide a transparent regulatory framework that ensures consumer protection and enhances financial stability. The system also defines licensing criteria and the supervision of short-term financing activities.
According to the system, exclusively published by 'Emirates' upon its issuance, the Central Bank has mandated finance companies with limited licenses that provide installment purchase services or short-term financing with specified amounts to establish internal mechanisms for fairly handling customer complaints, in line with the central bank's consumer protection system and standards. The Central Bank emphasized the importance of these companies retaining records to prove they have implemented mechanisms for monitoring and resolving complaints from clients.
The system states that 'finance companies with limited licenses and their agents must establish internal mechanisms for handling complaints and disputes, correcting grievances, to deal with complaints from borrowers or other parties fairly and within appropriate timeframes, and must include these mechanisms in their agreements'.
The Central Bank further added that 'finance companies with limited licenses must submit reports to the Central Bank in the format, frequency, and timeframe specified by it from time to time. These reports must include the following: financial position, a description of the products and services offered, fee structure, customer base, in addition to details of the credit portfolio, including size and demographic distribution, overdue and delinquent portfolio, a description of complaints received and the status of their resolution, and all activities related to fraud, including internal and external, as well as details of vulnerabilities identified in electronic systems and online security'.
The Central Bank stressed that finance companies with limited licenses and their agents must establish appropriate collection policies and procedures, define the actions taken against borrowers who fail to repay on time, and clearly inform borrowers of the details of these policies and procedures. It emphasized that collection policies and related controls must meet the requirements of the central bank's consumer protection system and standards.
The Central Bank required finance companies with limited licenses and their agents to adopt the strictest standards for protecting borrower data, confidentiality, and information security, including implementing the necessary systems and controls to verify compliance with these standards.
The Central Bank warned of its right to conduct on-site inspections of a limited-license finance company at any time it deems appropriate, as well as to enforce supervisory, administrative, and financial penalties in case of violations. These measures may include revoking, replacing, or restricting the powers of senior management or board members, appointing a temporary management for the finance company, imposing financial penalties, or banning individuals from working in the financial sector in the UAE.
The Central Bank confirmed its right to conduct on-site inspections of limited-license finance companies and enforce supervisory, administrative, and financial penalties in case of violations.
'Emirates Credit Information' revealed that starting from 2026, companies providing rapid financing through their smart apps in the UAE will be obligated to provide information about their clients and make inquiries about them before granting financing, through specific mechanisms and products currently being developed, which will appear clearly and simply in the credit report.
The company explained to 'Emirates Today': 'Some of these services are not just financing divided over several months, but rather offer specific amounts until the employee or worker receives their salary, and the amount is repaid at the same time.' It confirmed that a special product will be provided in the future showing the number of times the client has used this service, as it differs from a personal loan or the instant financing provided by these companies through their apps.
'Emirates Credit Information' confirmed that 'instant financing apps represent a third type of financing that has spread in the local market after banks and installment companies', noting that 'installment apps have actually started providing credit information with customer data and inquiring about them before allowing them to installment goods, services, and others, obtaining a (customer rating) and a comprehensive report that enables them to assess the degree of risk clearly'.
It added: 'After licensing a number of companies that provide financing through their smart apps, we began to communicate with them through a group or entity that includes them all as licensed members with a full intention to provide credit information and use the company's products to study risk, which will regulate the market and provide financing in a studied manner that protects from default and ensures the rights of all parties'.
'Borrowing Conditions'
A survey conducted by 'Emirates Today' on the websites of some 'instant cash' companies and digital lending platforms in the UAE showed differences in conditions from one company to another, but there are some basic common points in the requirements for instant borrowing. Typically, a valid UAE ID and a personal phone number are required for registration, verification, and transferring the loan amount to a UAE bank account after approval. Most companies also require the applicant's age to be between 20 and 55 years, in addition to proof of residence in the UAE through a valid visa.
'Lack of Official Figures'
There are currently no official statistics on the volume of financing provided by instant lending companies at the state level, such as 'Cash Now' or 'Cash You', or the exact number of apps operating in the market. However, available figures came within the 'fintech' sector as a whole, including digital payments, digital banks, digital lending, and others, which grew by 92% in 2023 compared to 2022.
Despite a global decline in investments in this sector in 2023, the UAE raised approximately $1.3 billion. And as an independent report published by Emirates NBD in cooperation with 'PwC' expects, the market value of the fintech market in the UAE could jump from about $3.16 billion in 2024 to about $5.71 billion by 2029, driven by the expansion of digital services.
'Central Bank' cancelled the minimum salary required for borrowing, leaving the estimation of the required salary to each bank according to its internal policy. 'Digital loans' are an option for emergency cases for those with salaries less than 5,000 dirhams. Banks are entering the competition with products for the 'blue collar' category.
The UAE market is currently witnessing an increase in the number of licensed financial companies, known as 'fintech' companies, which offer quick loans or 'instant cash advances', or what is known as 'digital loans', within a period not exceeding an hour, as long as the applicant provides the required documents.
These companies are competing with their various smart apps to capture the largest share of customers, especially the youth, university students, and people with limited incomes whose salaries are less than 5,000 dirhams, by offering loans and advances with easy procedures and without requiring a credit history, salary transfer, or even regular monthly income. It is sufficient for the applicant to be over 20 years old and have a valid ID, a bank account, and a personal phone number for registration and verification.
According to the terms and conditions published by these companies on their smart apps, as well as their intensive advertisements on social media, 'instant cash' or 'money on demand', or 'cash now', is a system through which any person aged 20 or above can get a cash advance on demand for various purposes or emergencies without additional documents or the need for a bank account, monthly salary, or job for students, as long as they meet the age requirement.
A senior official in a prominent 'digital lending' app in the UAE refused to comment or answer 'Emirates Today' inquiries on this issue, despite being contacted for three consecutive days with repeated promises to cooperate and respond.
And the Central Bank had issued a comprehensive regulatory framework for short-term loans in November 2023, including 'buy now, pay later'.
'Family Experiences'
In detail, a number of families and parents of university students complained about their children borrowing money from apps registered both inside and outside the country that offer their services online. These apps charge excessive fees and push students into 'financial distress'.
According to a number of parents of university students, the companies owning these apps convert their own phone numbers along with their children's numbers into 'collection companies' that chase the father or mother with calls throughout the day, on the pretext that the son or daughter put their mother's or father's number as a reference in case of default and inability to repay.
They demanded the necessity of imposing strict controls on these apps, requiring explicit consent from the guardian if the borrower is a university student without a regular job or financial income.
One mother told 'Emirates Today': 'I was surprised that both my son and daughter, who are university students, borrowed 1,000 dirhams each from these apps, but what they actually received was 750 dirhams, which means the fees are 25%'. She noted that after a period of non-repayment, the amount reached 1,370 dirhams, with repeated calls from collection companies working for these digital apps, often from outside the country. She said she was forced to pay these amounts due to the frequency of calls and the 'verbal threats' her children were exposed to.
In turn, another parent said: 'Young people in university age tend to imitate, and these companies advertise heavily on all social media platforms'. He pointed out that the idea of getting a young person used to 'easy money' at an early age might push him in the future to drown himself in consumer debt and spend on unnecessary things.
He asked: 'What guarantees do these apps take from students? And why are we parents being chased with calls because of our children's mistakes, which these apps facilitate?'
'A Quick Solution'
On their part, borrowers with limited incomes (2,000 dirhams and less than 5,000 dirhams) saw these apps as the only quick solution available to get financing for emergencies. These apps only require a copy of the work contract and a valid UAE ID, unlike banks that require guarantees such as a salary transfer or checks, in addition to the most difficult condition, which is that the employer must be listed in the bank's lists and its employees are allowed to get financing, which does not apply to a very large percentage of private companies.
A borrower (A.A.) said: 'I needed 5,000 dirhams for an emergency operation for my parent in my home country, and my salary does not exceed 3,000 dirhams per month. Therefore, one of my friends advised me to borrow from a popular app in the country that provides this type of financing without the complications of procedures or salary transfer. Indeed, I got the amount, although the fees were large, as 700 dirhams were deducted as a transaction fee, but the crisis I went through was solved'.
According to another borrower (S.M.), borrowing from internet apps is common among workers and employees with limited incomes. He confirmed that a large percentage of them do not repay what they owe, relying on the fact that there are no mandatory legal procedures, but just calls from money collection companies. He also noted that the borrowed amounts do not exceed 5,000 dirhams or 10,000 dirhams in rare cases, and there is no need to worry about non-compliance from the point of view of many borrowers. He said: 'Borrowing from these apps is the only quick option at the moment, and there are no alternatives, so there is a great demand for them'.
'A Real Challenge'
In this context, banking and financial expert Amjad Nasr told 'Emirates Today': 'I believe that the spread of quick financing apps, especially if they target or reach the category of university students, poses a real challenge in terms of awareness and financial culture. A university student generally does not have a stable income and depends on his family for his expenses. Therefore, resorting to financing with small amounts may turn into an uncalculated financial commitment at an early stage of life, especially given the high cost of this type of financing compared to traditional bank loans'.
He added: 'The main problem is not the existence of these apps per se, but the lack of sufficient awareness among students, and sometimes among parents as well, about the nature of these products, their real conditions, and their future impact. Debt at this stage may not be for a productive or educational purpose, but in many cases to cover consumer expenses, which creates an unhealthy financial behavior and may put the student early in a cycle of commitments that is difficult to get out of'.
He continued: 'From my point of view, priority should be given to spreading financial culture and enhancing the concept of expense management, instead of encouraging quick borrowing. Also, involving parents in the knowledge of these financial tools is essential, considering that they are the main source of the student's expenses, and any financial commitment will affect them in one way or another'.
He stressed 'the importance of having regulatory frameworks and clearer legislation that provides protection for this category, especially for those under 21 years old by tightening lending conditions, imposing greater transparency in disclosing the real cost of financing, and restricting the marketing of these products to the student category without clear controls'.
He said: 'In the end, financing should be a means of empowerment when there is a real need, not an early burden that accompanies the student at the beginning of his life', confirming that investing in financial awareness today is the guarantee for better financial stability for the next generation.
'Benefits and Drawbacks'
In the same context, financial expert Ahmed Yusef said: 'Loans from digital apps have contributed to financing individuals who cannot deal with banks, either because of the salary amount, or because their employers are not listed in the banks' lists, or even if the client has actually received the allowed financing limit from the bank'.
He added: 'But in return, these apps impose high fees and interest compared to banks due to the high degree of risk, which raises an important question: Can the borrower repay on time, or is he exposed to future default due to the accumulation of fees and interest?'
He continued: 'We still need more awareness in the correct financial management of individuals, so that borrowing is studied and for necessity only. There is also the importance that the fees and interest collected from individuals be reasonable and not excessive'.
He added: 'It is true that they have contributed to spreading financial inclusion to some extent and covered the need for a large number of customers for instant cash, but the experience still needs more controls and spreading awareness among customers, especially the youth category'.
'Central Bank and Banks'
In an important step to balance the market in favor of consumers with limited incomes by providing this type of financing with studied conditions and simple fees and interest, a senior official at the Central Bank told 'Emirates Today' that the Central Bank directed banks to cancel the minimum required for borrowing, which most banks had worked with for decades, estimated at 5,000 dirhams. This allows employees and workers with limited incomes to get financing according to specific terms and controls under what is known as the 'blue collar' category, leaving the estimation of the required salary to each bank according to its internal policy. This allows people with low salaries to access various banking services, the most important of which is 'cash on demand' or 'instant cash'.
The senior official added that the near future will witness the availability of opening bank accounts for all residents in the country, especially the youth, people with low salaries, and workers, and linking these accounts to the Central Bank's wage protection system. He confirmed that this link allows banks to deduct any amounts lent to the 'blue collar' category of people with low salaries and workers immediately upon the transfer of their monthly salaries.
