Embassies, consulates and exchange houses warn of the pitfalls
Workers can easily lose their way in the glittering, neon-lit world they find themselves in when they move to the UAE.
Many rack up debt, while others send almost all their wages home to pay for home loans and education.
Almost without exception, workers do not save for their retirement, so they have little to fall back on.
Officials say credit card liabilities are the big problem for workers, although the number of cases has fallen since the 2008 global downturn.
“We tell them the more credit cards they have, the more difficult it is to manage. We see fewer problems now because it’s not that easy to get credit cards,,” says Ophelia Almenario, attache at the Philippines overseas labour office in Abu Dhabi.
“So, while the number of problems regarding credit cards has decreased, this is still the No 1 problem among our overseas workers. Some pay on time, but the problem arises if they lose their job.”
Exchange house officials visit labour camps to talk to workers about the debt trap, try to change mindsets and foster a culture of saving.
“It’s a problem for many workers from India, Pakistan, Bangladesh and the Philippines that they get into a situation because they don’t reveal their actual position here to their family, so the expectation at home is very high,” says Sudhir Shetty, president of the UAE Exchange group.
“Children want all sorts of gadgets. When they [workers] go back on vacation, they project themselves as comfortable and earning well here, so the demand from their family goes up time and again. Their salary is not enough and they end up borrowing from colleagues or using credit cards.”
Despite the tightening of rules and awareness campaigns, workers pay only the minimum amount due instead of settling the full balance and are charged up to 3 per cent interest.
“The unpaid balance attracts a very heavy interest and when this happens they can’t cope,” Mr Shetty says.
Some workers believe they are being rewarded when their credit limit is raised, says Barney Almazar, a director at Gulf Law and head of the legal aid section at the Philippine embassy.
Of the 45,000 individuals the centre has assisted in the past four years, at least half the cases related to debt.
“Credit card indebtedness is a primary concern,” Mr Almazar says. “Some religiously pay the minimum and, when the bank increases the credit limit that is when they think, ‘I’m being rewarded because I’m a good payer and I can now borrow more’.”
The screws on lending have been tightened since the Al Etihad Credit Bureau began issuing reports in 2014 in an attempt to improve borrowing and lending activity.
“With the credit bureau there is a centralised information system and this information is stored, so you cannot lie,” Mr Almazar says.
“When a bank tells a customer they are on a black list, agents tell them to look for institutions that are not yet a member of the bureau, whose systems have not yet been updated.
“The interest is very high with these institutions because their clients have been rejected by other banks.”
Consulates and non-government organisations are working to change this scenario. They guide workers in seminars, workshops and one-toone meetings, convincing them to rein in spending and instead put them on a path to saving for the future.
“The embassy runs financial literacy programmes to help our overseas workers. There are reintegration programmes by the government to help with ventures they may want to start when they go back or if their contract here ends or is terminated,” Ms Almenario says.
Persuading workers to invest in savings, pension schemes or systematic investment plans is another goal.
“We are trying our best to make them understand the need to save, but the loss of a job is not at the top of their mind so the tendency is not to save,” Mr Shetty says.