Individuals cannot lend money on interest; stringent fines, imprisonment apply
have saved some money. Is it legal to loan some of this cash to acquaintances on interest? If yes, what should I do if the person fails to repay?
A:pursuant
to your queries, the provisions of Federal Law No. 31 of 2021 on Penal Code of UAE (the ‘UAE Penal Law’) pertaining to an individual lending money to other individuals on interest apply.
In the UAE, it is illegal for an individual to lend money on interest. Only licensed banks and financial institutions in the UAE are allowed to lend money on interest in accordance with the regulations determined by the regulators in the UAE. If an individual engages in lending money on interest, it is considered a crime in the UAE and is punishable with imprisonment and fine as mentioned in Article 458 and Article 459 of the UAE Penal Law, which reads as below:
Article 458:
“Shall be punished by imprisonment for a period of not less than one year and a fine of not less than Dh50,000 every natural person who lends to another natural person with an interest in return for deferring the repayment, in any kind of civil and commercial transactions, whether this interest is explicit or hidden.
“Shall be considered as hidden interest, any commission or benefit
of any kind that the creditor requires, if it is proven that this commission or benefit is not matched by a real legitimate benefit or service that the creditor has performed.
“The truth of the origin of the debt and the hidden interest may be proven by all means.
“If the offender takes advantage of the debtor’s need, weakness, or whims to commit the crime stipulated in this article, this shall be considered an aggravating circumstance.”
Article 459:
“Every natural person who used
to lend with interest shall be punished with temporary imprisonment for a period not exceeding five years and a fine of not less than Dh100,000.”
Based on the aforementioned provisions of the law, if an individual is convicted on charges of lending money on interest, he or she may have to serve one year of imprisonment along with fine which is not less than Dh50,000.
However, an individual may lend cash to his or her friends or acquaintances without interest. But it is prudent on the part of such lender to enter
into a written agreement with the borrower pertaining to repayments to safeguard his or her cash. In such an event, if the borrower does not repay the money, the lender may file a civil case.
*Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www. amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes. com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.