The UAE Central Bank’s move to scrap the Dh5,000 minimum salary requirement for personal loans has been hailed as a significant step towards financial inclusion, potentially opening access to credit for millions of lower-income residents. However, senior banking officials warn that this does not automatically guarantee loan eligibility for the entire working population.
AbdulAziz Abdullah Al-Ghurair, the Chairman of the UAE Banks Federation (UBF), confirmed the industry’s stance on Thursday.
“It is a very positive development. It’s to support financial inclusion. Let financial institutions decide what kind of lending they want to do,” Al-Ghurair told the press.
Due Diligence and Risk Factors
Despite the regulatory change, Al-Ghurair, who is also the Chairman of Mashreq bank, clarified that banks will maintain strict lending criteria, especially for the lower-income brackets.
When asked if the entire workforce is now eligible for personal loans, the UBF chief stated firmly, “Of course, no.”
He highlighted that lending to blue-collar workers, particularly those earning in the Dh3,000 to Dh4,000 range, significantly increases the risk factor for financial institutions.
- Job Volatility: Al-Ghurair explained the core concern: “The lower you go, (the higher the risk). These (low-paid) jobs are volatile and risky, and people lose their jobs. If we are giving a loan to a farmer who gets Dh2,000, if he loses his job, what do I do?”
- Increased Scrutiny: As a result, banks will now be required to conduct much more due diligence on low-income applicants due to the associated higher risk.
Tapping the “Unbanked” Market
The decision is still viewed positively for expanding the customer base. Mohammad Kamran Wajid, Deputy CEO of Emirates Islamic, noted that the removal of the salary floor allows banks to responsibly engage with a wider, previously “unbanked” market.
“More people will become bankable. From the banks’ perspective, the risk gets diversified even more because banks will have a wider population to bank with,” Wajid said.
In essence, while the barrier to application has been removed by the Central Bank, individual lenders will now use their own stringent internal risk assessment models to determine affordability and stability, ensuring credit is extended only where the applicant can reasonably manage the debt.
