2 September 2009
JEDDAH: A new kind of credit is available to people burdened with loans or strapped for cash.
These lending mechanisms include features such as allowing cash-strapped people to borrow against up to 18 months worth of paychecks and introductory four-month waivers on payments, according to ad stickers that are affixed to many ATMs in Riyadh streets, Al-Eqtisadiah daily reported on Sunday. They also claim that the operations are in compliance with Shariah. These services are more prominent during Ramadan, when people need extra cash to make it through the month of hosting suhur gatherings and buying Eid goodies to celebrate the end of the fasting month.
The sources and middlemen operators of this credit facility are shrouded in mystery though apparently some banks are involved in providing the capital for extending such loans. These lenders tend to operate within certain areas without impeding on other lenders’ marketing zones.
Critics of this credit facility decry it as a form of predatory lending that puts people at risk of becoming mired in debts they are unable to pay back. Borrowing money that one cannot pay back is forbidden in Islam, and Saudi Arabian law considers defaulting on debt a crime that can lead borrowers to debtor’s prison.
Nabeel Mubarak, an economic analyst, said the loan brokers work in collusion with some bank employees and receive huge commissions for their services.
“They receive commissions running in to thousands of riyals for bringing in cash-strapped clients who will agree to any condition to get some money,” Mubarak said. “This could (also) be an attempt to launder ill-gotten money, particularly when the promoters of these loans and their sources are unknown.”
Some brokers even advertise services to remove people from credit-risk lists that make them ineligible for loans. Mubarak said people’s ignorance of how easy it is to fall into the debt trap has made these payday loans popular. He added that a man who is pressed for money takes such loans after willingly handing in his social status card and proof of current income for up to 18 months. Such loan providers violate several regulations laid down by the Saudi Arabian Monetary Agency and exploit their victims, according to Mubarak, who called for SAMA to reel in these lenders.
Ahmad Al-Amri, another economic analyst, said these lending practices could end up driving up consumer debt to dangerous levels.
“The creditors, most of whom are not licensed, are tempting employed people to take loans after signing agreements to transfer their salaries to them,” Al-Amri said, adding that SAMA should eliminate middlemen lenders.
Source: arabnews.com
