Illegal Borrowing and Lending of Money in UAE

In the UAE, with the growing practise of unauthorised lending of money to individuals and institutions on an interest basis, the Government has introduced stringent measures aimed at curbing such activities. 

The recent Federal Decree-Law No. 31 of 2021, On the Issuance of the Crimes and Penalties Law under Article 458 and Article 459, underline the consequences of non-compliance.

The law mandates that only licensed banks and financial institutions regulated by the Central Bank of UAE are authorised to lend money to individuals or entities on an interest-based repayment option. A person, independently or on behalf of an institution, is prohibited from providing financial assistance to others, any such unauthorised lending or borrowing, particularly involving interest, is now deemed illegal and subject to severe penalty if not adhered to the financial protocols and regulations.

This is following the Issuance of the Crimes and Penalties Law under Article 458 and Article 459 which states as follows:

According to Article 458 of the UAE Criminal Law, “Any person who lends another physical person a loan for an interest rate in return for late payments, and that is in any type of civil and commercial transactions, and whether said interest is explicit or implicit, shall be liable to a jail sentence for a period not less than one year and a fine not less than Dh50,000.”

Article 459 of the UAE Criminal Law states that: “Any physical person who is habitually engaged in practising interest lending shall be sentenced to temporary imprisonment for a period not exceeding five 5 years and a fine not less than Dh100,000.”

The Government, on enforcement of these regulations, have a zero-tolerance approach towards lending practices on an interest basis, and the law emphasises not only those providing loans but also the borrowers, stating joint accountability and the shared responsibility of both parties involved in such transactions.

However, the law states an exception where the parties engaging in such activities can lend money within legal boundaries with a written contract that explicitly states the collection of interest. This clause allows for a degree of flexibility while maintaining compliance with the law.

Therefore, the prevalence of unauthorised lending in the UAE has prompted strict measures, underlining the Government's commitment to ensuring financial stability and legality within the nation and aims to deter unlawful lending practices but also to foster a culture of financial transparency and responsibility among both lenders and borrowers.

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