UAE Central Bank Implements New Regulations for Short-Term Lending Products
The United Arab Emirates’ (UAE) Central Bank has introduced new regulations for short-term lending products, including Buy Now, Pay Later (BNPL), with the aim of enhancing consumer protection and promoting responsible lending practices.
Key Changes to the Regulation
The updated regulations introduce several key changes, including:
Minimum Capital Requirement
- A minimum capital requirement of AED 20 million for Restricted Licence Finance Companies
Loan Amount Limits
- A limit on loan amounts to AED 20,000 or three months’ verifiable net income for the borrower
- Restrictions on total fees, including late payment fees, to 30% of the initial loan amount
Due Diligence Requirements
- Due diligence requirements for borrowers’ creditworthiness
Loan Payback Periods
- Limits on loan payback periods to 12 months from the initial agreement date
Impact on Industry
The new regulations will impact companies seeking to offer short-term loan products in mainland UAE, including BNPL providers. Existing providers must comply with the regulations by obtaining a license or partnering with a licensed financial institution within 90 days of the effective date.
Entities interested in entering this industry should carefully review the Regulation to determine their best options and assess their business plans, credit extension policies, pricing structures, and product offers for compliance.
Consumer Protection
The updates to the Regulation demonstrate the Central Bank’s commitment to safeguarding consumer protections and ensuring industry growth under its prudent oversight. The new regulations provide clearer rules, enhanced transparency, and improved consumer protection, striking a balance between permitting new technologies demanded by consumers and responsible lending practices.