Central Bank introduces rules to regulate short-term credit services

The UAE Central Bank has issued the newly amended Finance Companies Regulation as it seeks to monitor companies that offer short-term credit and buy-now-pay-later products and services in the Emirates.

Under the new framework, companies operating as agents of licensed banks or finance providers can offer short-term credit after securing approval from the banking regulator, it said.

“Entities can also carry out this activity upon being licensed by the Central Bank as restricted licence finance companies,” it said.

Short-term credit refers to any credit that is granted to a borrower for a period of not more than 12 months for the purposes of purchasing goods or services without interest being charged, a lien being placed against collateral or a security deposit being required from the borrower, according to the Central Bank’s website.

Under the new regulation, restricted licence finance companies are not permitted to contract with agents to offer short-term credit.

Agents must tie up with either a finance company or a bank before offering shortterm credit, according to the Central Bank. “The regulation is aimed at protecting the customers of finance companies and restricted licence finance companies and enhancing the overall stability of the financial sector,” the regulator said.

The maximum short-term credit extended to a borrower by a restricted licence finance company or agent must not exceed Dh20,000 ($5,446) or the total of three months’ verified net income of the borrower, whichever is lower, it added. The total fees, including late payment fees charged on any short-term credit by a restricted licence finance company or agent, must not exceed 30 per cent of the credit amount, the regulator said. The borrowers’ assets, including movable and immovable property, must not be used to secure a short-term credit, it added.

They must also request borrowers’ credit information from the credit information agency before extending credit in excess of Dh5,000.

The buy now, pay later business model, which allows consumers to make online purchases instantly and spread their payments out over interest-free instalments, accounted for 2.3 per cent of the global e-commerce market in 2021 or about $2 out of every $100 spent towards a transaction, according to a Global Data report.