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Lending money on interest in the UAE

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00

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UAE, Dubai, interest, article, penal code, criminal courses, money, licensed

The United Arab Emirates follows the Sharia Law, a religious legal system which lays down fundamental principles for human behavior which must be followed by Muslims. Accordingly, the Islamic finance strictly complies with the Sharia Law.
Islam considers lending of money on an interest to be an exploitative practice and is therefore strictly prohibited. Any interest taken on money lent is ‘Haram’ and considered to be ‘Riba’ or Usury.

Article 458 and 459 of the UAE Penal Code makes it illegal and a punishable offence for ‘natural person’ to lend money on interest. 
A natural person being a person that is an individual human being, as opposed to a legal person, which may be a private or public organization.
Article 458 of the UAE Penal Code:
“Any natural person who lends another natural person a loan for an interest rate in return for late payment shall be liable to a jail sentence for a period not less than one year and a fine not less than Dh50,000.”
“If the criminal makes use of the need, weakness, or inclination of the debtor to commit the crime set out in this Article, such matter shall be considered an aggravating circumstance.”
Article 459 of the UAE Penal Code:
“Any natural person who is habitually engaged in practising interest lending, shall be sentenced to temporary imprisonment for a period not exceeding five years and a fine not less than Dh100,000.”

The UAE Penal Code makes it clear that, irrespective of any agreement, no legal obligation to pay interest can be created while lending money to an individual. Legal recourse can be taken if the money lender still pressurizes to take any interest. Furthermore, if the money lender still accepts interest, they can be held liable under section 458 and 459.
The punishment shall be a jail sentence for a minimum time of one year, with a fine which is not less than 50,000 Dirham. However, if repeated crime is proven the fine shall not be less than 100,000 Dirham and a jail sentence which shall not exceed five years.
Additionally, section 458 also makes it clear that interest taken in a hidden manner will also lead to criminal prosecution. A hidden interest is any commission or benefit of any kind that the creditor requires, without providing any real legitimate benefit or service.
It should be noted that banks and other financial institutions which are licensed by Central Bank of UAE are allowed to lend money on interest. 
Also, there is no restriction on interest-free money lending, where the borrower will be only bound to pay the principal amount and nothing more.

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