Central Bank of the UAE regulates the following:
– commercial banks
– investment banks
– Islamic banks
– Moneychangers
– financial and monetary intermediaries
– financial investment companies
– finance companies
Commercial banks
There are numerous local banks and foreign banks branches offering commercial banking services in the UAE. Local banks are public shareholding companies licensed according to the provisions of Federal Law No. 10 of 1980 and branches of foreign banks are licensed by Central Bank to operate in the UAE as per the same law.
Investment banks
As per Federal Law No. 10 of 1980, investment banks are not allowed to accept deposits whose maturities are less than two years, but may borrow from its head office, from local or foreign banks, or from financial markets. Investment banks are licensed under the Regulation No. 21/2/88 dated 14/6/1988.
Islamic banks
In October 2013, H. H. Sheikh Mohammed bin Rashid Al Maktoum launched a strategic plan for developing the Islamic economy sector. The plan includes 7 key pillars and 46 strategic initiatives. One of the initiatives is the establishment of Islamic banking center in Dubai.
It is governed by Sharia law and Federal Law No. 6 of 1985 regarding Islamic banks, financial institutions and investment companies. According to Article 3 of the law, Islamic banks have the right to carry on all or part of banking, commercial, financial and investment services and operations. They have the right to participate and engage in all types of services and operations practiced by banks and referred to in Federal Law No. 10 of 1980.
Opening a bank account
Citizens and residents are permitted and allowed to open bank accounts in the UAE.
To open a bank account, citizens need to provide a copy of their family book, a salary letter or a letter of NOC (No Objection) from the employer.
Expatriate residents need to provide:
– a copy of their passport
– a copy of work or residence visa
– a copy of their Emirates ID
– a salary letter or a letter of NOC (No Objection) from the employer or sponsor.
Citizens and expatriate residents can open a joint account with another legitimate resident of the UAE. Procedure and requirement to open a bank account may differ depending on which bank you use to open the account
IBAN
From April 14, 2012, the use of International Bank Account Number (IBAN) is mandatory for all electronic payments and receipts within and outside the UAE (except for making payments through a credit card). IBAN is a unique to the account. So, you will have a distinct IBAN for each of the accounts you hold in the same or different banks. Banks are required to inform their account holders of their unique IBAN.
Moneychangers
Exchanging foreign currency is common in the UAE, therefore explaining the large business nature of moneychangers in the UAE. Moneychangers are regulated by regulations in Resolution No. 123/7/1992, dated 29 November 1992 issued by the UAE Central Bank.
According to the resolution mentioned, only those institutions and companies that are established as per provisions of the Commercial Companies’ Law are licensed to change money as business. The company should have a national shareholding of a minimum of 60 per cent of the total paid-up capital. The minimum capital was set at AED one or two million depending on the scope of activities the company wishes to undertake.
In case a natural person wants to conduct money-changing business, he must be an Emirati citizen of not less than 21 years of age.
Expat residents can send money to their home countries through one of these moneychangers in the UAE or through their banks. When remitting money through moneychangers, they need to provide a copy of their Emirates ID and proof of income in some cases.
Investment companies
The Central Bank’s Board of Directors’ Resolution No. 164/8/94 dated 18 April 1995. The resolution defines financial investment companies as those conducting one or more than one of the following business:
– Opening investment accounts and managing portfolios on behalf of others, whether individuals or companies
– Preparing feasibility studies for projects and marketing allotments and stocks of shareholding companies
– Establishing and/or managing investment trust funds
– Establishing and/or managing other investment funds and acting as trustee of funds entrusted to it by a trust to manage on behalf of a beneficiary
– Subscribing to companies capital and participating in syndicated loans
A financial investment company should be a juridical person with a minimum capital of AED 25 million liable to be increased according to the business the company intends to undertake. The resolution also requires that the national shareholding should not be less than 51% of the paid-up capital, in addition to other terms and conditions set forth in the regulation.
Finance companies
The Central Bank’s Board of Directors Resolution No. 58/3/96 dated 14 April 1996 and Resolution No. 165/06/2004 dated 6 December 2004 regulate the business of conventional and Islamic finance companies. Finance companies undertake one or more of the following major financing activities:
– Extend advances and/or personal loans for personal various consumption purposes
– Finance trade and business, opening credit and issuing guarantees in favour of customers
– Subscribe to the capital of projects and/or issues of stocks, bonds and/or certificates of deposit
Personal Loans
Personal loans should not exceed 20 times the salary value or the total income of the borrower. Banks and finance companies must make sure that this limit is not exceeded.
According to Central Bank of the UAE, individuals may apply for a personal loan secured by the borrower’s salary and end of service gratuity, or any regular income they have from a well-defined source.
Personal loans should not exceed 20 times’ the salary value or the total income of the borrower. Banks and finance companies must make sure that this limit is not exceeded. The repayment period for personal loans must not exceed 48 months.
If a loan or a banking facility’s repayment period extends to the retirement age, banks and finance companies must re-schedule reduction of these loans or finance facilities in a way to allow a deduction of only 30 per cent of the income or pension salary.
Banks and finance companies may only take from the customer the number of post-dated cheques covering the installments and of value not exceeding 120 per cent of value of the loan or the debit balance. Each bank or finance company must calculate and declare the interest rate charged for the loans. The rate must be determined on basis of the reducing balance of the loan on annual basis. You can apply for a personal loan through the registered banks and finance companies in the UAE.
What happens if personal loan is not paid in UAE?
The bank may pursue a legal case against you for default, use the security cheque which you provided at the time of availing the loans, and place a travel ban which will result in you getting stopped at the airport – you cannot leave the UAE.
