The U.A.E. claims that it has contained the problem of small business owners fleeing the country over unpaid debts. The country has murky and ineffective bankruptcy laws, and having a check bounce can land the issuer in prison. On Monday, when asked if the total of deserted debts had risen from the figure given in November — $1.4 billion –, U.A.E. Banks Federation chairman Abdul Aziz al-Ghurair replied that the problem was contained and under control. “It’s a work in progress and we’ll have to continue working this year and next year to tackle this issue,” he stated, adding that the amount is very small compared to the $272 billion of overall bank lending.
As low oil prices have slowed growth and drained government-spurred liquidity in recent months, small and medium enterprises have come under increasing pressure. But a better bankruptcy bill has made no progress since first being proposed last July. Arabian Business cited an anonymous top legal executive saying “The truth is, Gulf states are hostile to banks, in particular the stench of usury, plus they do not accept that banks should be able to foreclose and take assets from respected local families.” These issues are handled under the table, especially when a large firm’s reputation is at stake.
The country’s banking federation agreed in March to a voluntary system that gives indebted businesses 90 days to work out new payment schedules with their lenders. But the U.A.E. needs to end the practice of debtor imprisonment and introduce robust bankruptcy laws. This means culturally accepting that some businesses will fail, which is no easy task. Even in the U.S., many firms have yet to accept failure as the necessary cost of producing innovation, as Venture for America CEO Andrew Yang said at the 2015 BCLS. But once the right laws are enacted and upheld, cultural attitudes can start to shift.