There was a time when you could merrily rack up debts in the UAE, with banks oblivious to what you owe other lenders, writes Ben Flanagan. A resident could have an huge overdraft, wage-sapping loan, and a half-dozen maxed-out credit cards with banks A, B and C – but bank D would have no way of knowing. This situation allowed some to borrow more than they could ever hope to repay.
In step the Al Etihad Credit Bureau, which launched last year amid hopes of defusing this ticking time-bomb of debt. The agency gives banks information about the financial obligations, debt levels and creditworthiness of both individuals and companies, allowing lenders to make more informed decisions on whether to grant that loan, credit card or mortgage.
Some banks report a rise in loan rejections since using the system – although it is still early days for the bureau, with not all lenders fully on board.
So how does it work – and does it work? Benchmark has the answers:
Q: What does my Al Etihad Credit Bureau report contain?
It covers most UAE residents’ credit and loan histories over the last 24 months, including any overdue payments or defaults, as well as credit repayments. There is also basic identity information, including an individual’s current address and employment. The bureau collects similar data about companies in the UAE.
Q: I understand why banks stand to benefit from this. But are there any advantages for me as a consumer?
In the long run, the bureau says it will help reduce bad debts – something of obvious appeal to banks – and help stop those in debt from overstretching themselves. But a bureau spokesperson told Benchmark that individuals who maintain a good credit rating also stand to “benefit from greater access to capital and better interest rates”.
Q: How many banks are using it?
More than 45 financial institutions are participating, with some using credit reports daily to make decisions on lending to consumers and corporations, according to the bureau spokesperson. But while all banks are required to provide data, not all are actually using the bureau reports to make decisions on lending. The initial rollout of the service was slowed by questions over the quality of the data and the legal liabilities involved, issues that have now been resolved, according to media reports. “The Al Etihad Credit Bureau is picking up ground,” Preeti Bhambri, founder of personal finance website MoneyCamel.com, told Benchmark. “Though not all banks subscribe to it, it will significantly improve credit quality once it is fully functionally.”
Q: So what impact is it having among the lenders that do use it?
A significant one. Abu Dhabi Islamic Bank said in July that it is rejecting 10 per cent more loans since it started using data from the credit bureau. At the time, the bank’s chief executive called on other big lenders to start using the bureau as well, so as to better tackle the UAE’s debt problem.
Q: So presumably overall lending in the UAE has fallen?
Strangely, no. Marwan Lutfi, the head of the credit bureau, told local media in June that the overall number of loans held by residents had actually risen by 10 percent since December.
Q: What can I do if a bank declines a loan based on data from the credit bureau?
The bureau does not itself make decisions on lending – it simply provides data to banks for them to make up their own minds. So consumers should do all they can to make sure their credit profile is healthy. “If a bank or a financial institution declined a consumer’s application, the consumer can always improve their profile, by paying bills on time, meeting financial commitments and/or reducing the number of credit facilities that they have,” a spokesperson for the bureau says.
Q: What if my loan is declined due to inaccurate information in the report?
In that case, you can visit one of the bureau’s customer-service centres and request an amendment, bringing relevant documents like bank statements or payment receipts. “If the decline was based on inaccurate or outdated information in the credit report – which means that the bank did not provide the bureau with the customer’s updated information – the report can be disputed by the customer at any of Al Etihad Credit Bureau’s customer service locations in Abu Dhabi or Dubai, by presenting the relevant documentation as proof,” the spokesperson explains.
Q: What if I don’t want a bank looking at my credit records?
Institutions only have access to your report if you give them permission. So if you don’t want them to access your report, refuse to sign the consent form.
Q: Does the bureau only work with financial institutions?
For the moment, yes. But in its next phase it plans to collect data from telecom companies Etisalat and du, utility providers such as DEWA, as well as insurance companies and other organisations to help build more comprehensive credit reports.
Q: So how do I get a copy of my report?
Individuals and corporations can request a copy of their detailed credit report, with charges starting at Dh70. At the moment you have to visit the bureau in person to obtain a copy, but eventually this service will be provided online. The actual credit-scoring system will not be introduced until next year, the bureau spokesperson said.