Khaleej Times, Sun, Mar 03, 2024 | Shaban 22, 1445
UAE: Can an employee take personal loan against gratuity amount?
Emirates:
Question: Can I get a personal loan against my gratuity amount? If yes,
how does it work? For instance, how would debt recovery work in this case?
Response: It is understood that your queries on whether you can avail
of a personal loan against your gratuity amount and, if so, you intend to know
the procedures related to availing the personal loan and the rules related to
debt recovery by the bank.
Pursuant to your queries, the provisions of Regulation No. 19 of 2011 of Central
Bank of UAE Regarding Bank Loans & Other Services Offered to Individual
Customers (the ‘Central Bank Regulation No. 19 of 2011’), Notice No. 3692/2012
of Central Bank of the UAE pertaining to General Terms & Conditions and Loan
Agreements texts drafted and approved by Emirates Bank Association (the
‘Personal Loan Agreements Formats Approved by the Central Bank of UAE’) and UAE
Federal Decree Law no. 42 of 2022 on Civil Procedures Law (the ‘Civil Procedures
Law’) are applicable.
In the UAE, a salaried individual may seek a personal loan from a bank or a
financial institution (lender) based on the salary and end-of-service benefits
of an employee, and the same may be treated as a security against a personal
loan. A personal loan is defined in Article 2(a) of the Central Bank Regulation
No. 19 of 2011 as “Is a loan that is given to individual customers, where
repayments are made out of salary and end-of-service indemnity and/or any other
verifiable regular income from a well -defined source."
The lender will obtain an undertaking letter from a borrower of a personal loan
issued by the borrower’s employer stating that salary and end-of-service
benefits will be deposited in the lender's bank account from where the personal
loan is availed. This is in accordance with Article 2 of Personal Loan
Agreements Formats Approved by the Central Bank of UAE, which states,
”Securities and Documentation
As a guarantee and security to pay the loan, interests, commissions, fees and
any other amounts become due under this agreement, the borrower commits and
undertakes as follows:
1. Provide the bank with a letter from the borrower’s employer, pursuant to
which the employer undertakes to transfer his monthly salary and the
end-of-service benefits to the bank throughout the loan period.
2. In the event the loan is granted against the personal guarantee, the borrower
undertakes to provide the bank with the personal guarantee form approved by the
Bank and signed by the guarantor(s).”
If a borrower has availed a personal loan from a lender and failed to pay three
consecutive monthly instalments towards repayments or six non-consecutive
monthly instalments towards the
repayment of the personal loan this may be considered as an event of default by
a borrower. This is in accordance with Article 4(4) of the Personal Loan
Agreement format of Loan Agreements Formats Approved by the Central Bank of UAE
Therefore, in case of a default, a lender may choose to deposit the security
cheque of a borrower for collection (if any). If the said security cheque is
dishonoured due to insufficiency of funds, a lender may file an execution case
against a borrower along with a request to impose a travel ban Based on the case
filed by a lender, the court may approve the request and impose a travel ban on
a borrower.
Alternatively, a lender may approach the relevant court which has jurisdiction
if the outstanding debt is more than Dh10,000 and request the imposition of a
travel ban on a borrower in accordance with provisions of Article 324 and
Article 325 of the Civil Procedures Law. Additionally, a lender has the option
of filing a payment order case or a civil case against a borrower in a court to
recover the outstanding debt. If the final judgement is not in favour of a
borrower, a lender may proceed to file execution proceedings against a borrower
and that may include a request to impose a travel ban and issue an arrest
warrant against a borrower.