Procedures for granting an employee in the UAE a loan in exchange for end-of-service benefits

rawda samy - | UAE

processes for loaning money to a UAE employee in return for perks at the end of their employment.

Can an employee in the UAE take personal loan against gratuity amount?

Is it possible for a UAE employee to take out a personal loan using their gratuity?

What is the process for obtaining a personal loan using my gratuity amount? If so, how does it function? How, for example, would debt recovery operate in this situation?

Answer: We acknowledge that you are interested in knowing if you are eligible for a personal loan against your gratuity amount and, if so, what the application procedures and bank debt recovery policies are.

In response to your inquiries, the following rules apply: Notice No. 3692/2012 from the Central Bank of the UAE regarding the "Personal Loan Agreement Formats Approved by the Central Bank of the UAE" (General Terms & Conditions and Loan Agreements texts written and approved by Emirates Bank Association). The "Civil Procedures Law" and Regulation No. 19 of 2011 from the Central Bank of the UAE regarding bank loans and other services offered to individual customers.

In the United Arab Emirates, a salaried person may apply for a personal loan from a bank or other financial institution (lender) using their pay and benefits upon leaving the company. These items may also be used as collateral against the loan. A personal loan is described as "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" under Article 2(a) of Central Bank Regulation No. 19 of 2011.

When a borrower takes out a personal loan from their employer, the lender will receive an undertaking letter from the borrower guaranteeing that the borrower's pay and benefits will be paid into the lender's bank account. This is in line with the following: Article 2 of the Personal Loan Agreement Formats Approved by the UAE Central Bank.

Documents are required for an employee in the UAE to obtain a personal loan.

An employee in the UAE needs certain paperwork in order to apply for a personal loan.

The borrower commits and takes the following actions as a guarantee and security to pay the loan, interest, commissions, fees, and any other amounts that become due under this agreement:

1. Give the bank a letter from the borrower's employer committing the employer to paying the bank the borrower's monthly salary as well as his end-of-service perks for the duration of the loan.

2. Should the loan be accepted based on the personal guarantee, the borrower agrees to give the bank the personal guarantee form that has been authorized by the bank and endorsed by the guarantor(s).

How the loan will be paid back after he leaves the company?

A borrower may be deemed to have defaulted on a personal loan if they obtained one from a lender and failed to make three consecutive monthly installment payments toward repayment or six non-consecutive monthly installment payments. This is in line with Article 4(4) of the Loan Agreement Formats Approved by the Central Bank of the United Arab Emirates Personal Loan Agreement Format.

As a result, a lender may decide to deposit the borrower's security check for collection (if any) in the event of a default. If the security check is returned for insufficient cash, the lender has the right to initiate an execution case against the borrower and seek that the borrower be prohibited from traveling. The court may grant the motion and place a travel ban on the borrower based on the lender's case.

As an alternative, a lender may seek that a borrower's travel be prohibited under the terms of Articles 324 and 325 of the Civil Procedures Law by contacting the appropriate court, which has authority if the unpaid debt exceeds Dh10,000. In order to recoup the unpaid debt, a lender may also choose to file a payment order case or a civil lawsuit against the borrower in court. A lender may initiate execution procedures against a borrower, which may include a request to impose a travel ban and issue an arrest warrant, if the final judgment is not in the borrower's favor.

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