No interest on installment purchases through “financing companies”

The Central Bank has obligated companies that provide limited financing and agents, such as purchase installment companies, to obtain a prior license from the bank, according to specific conditions, and not to impose interest on the financing, and all fees imposed, including the late payment fee, should not exceed 30% of the total amount paid in installments or financed.

The Central Bank has set a ceiling for the amount of financing for these companies at 20 thousand dirhams, or three times the audited income, whichever is less, provided that the repayment period does not exceed 12 months.

This came in a system issued by the Central Bank, a copy of which was obtained by “Emirates Today”, which confirmed that anyone wishing to work as a limited-license financing company that provides short-term credit facilities must obtain a license from the “Central Bank” to do so, and must provide all the information and documents required to assess the suitability of the applicant to obtain the license. He must also disclose, at the time of submitting the application, the sources of financing for his activities or business.

The Central Bank stated that any limited-license financing company must not exceed the total short-term credit granted by it at any time, 20 thousand dirhams, or the total equivalent of three months of the net income generated by the borrower, whichever is less.

He added that the maximum credit granted to a borrower should be based on the results of the cost-affordability assessments conducted, and sufficient consideration should be given to the ability to repay, reduce the risk of debt accumulation, and ensure fair treatment of borrowers.

The Central Bank stressed that limited-license finance companies and agents should not charge interest on short-term credit, and that the total fees, including late payment fees, imposed on any short-term credit should not exceed 30% of the original credit amount. Accordingly, the maximum amount recoverable from the borrower on any short-term credit – including cases where credit is restructured, rescheduled or renewed or where there is any other deviation from the original agreement – should not exceed in total 130% of the value of the original credit granted to the borrower.

The Central Bank confirmed that it will review this requirement at regular intervals to verify the appropriateness of the maximum percentage and adjustment, as needed within the framework of the prevailing market conditions, and among other considerations.

He stated that the repayment period of short-term credit granted by a limited-license finance company or agent should not exceed 12 months from the original lending agreement, including any form of restructuring, rescheduling or renewal of credit. These companies must also adhere to the original term of short-term credit and not demand repayment before the end of the term agreed upon in the contract concluded with the borrower.

The Central Bank stated in its system that limited-license financing companies and agents must not use borrowers’ assets, including movable and immovable property, as collateral, whether in whole or in part, for any short-term credit granted to a borrower.

• The financing ceiling is set at 20 thousand dirhams or 3 times the income, whichever is less, provided that the repayment period does not exceed 12 months.