Global Compliance

How to Obtain a Loan as a Foreigner in Bahrain

Introduction

Bahrain is a small Islamic country in the Middle East with a population of under 1.5 million people. Around half of the population is Bahraini Arab with the remaining population being foreigners. The country's governing bank is the Central Bank of Bahrain. Its job is to manage the country’s banks in regard to the regulations they must follow. Beyond this, it acts as the government bank, overseeing various duties including:

• Develop the financial sector of the country
• Protect the interests of the consumers of the financial industry within the state
• Enhance the credibility of the country's economic sector

These are covered under Article 3 of the Central Bank of Bahrain Financial Institution Law, and article 4 outlines its further powers and duties.
Loans can be taken from any bank within the country whether they are Islamic banks or conventional banks. Additionally, loans are available to both Nationals of the country and foreigners. There will be some differences between the loans for a national and a foreigner, though this practical guide covers the procedure for a foreigner.

Steps to Obtaining a Loan
Documentation:
The following list outlines the documentation which will likely be required

• Valid ID copy
• Passport copy
• Residents permit copy
• Salary certificate
• Set time range of pay slips
• Set time range of bank statements

There are also other requirements such as:

• Age requirement of expat to be between 21 and 55 years of age
• The minimum monthly salary requirement

Once these documents are available, the bank can be approached, and they will analyze the documents. There will be specific standards that will also be expected from an individual such as a minimum salary requirement which is generally around BD 200. However, the bank may specifically have other conditions and may ask specific questions before proceeding. The banks are required by CBB law to look into whether an individual is in a position to receive a loan. As such, the banks are very much in a position to deny a loan to a customer if they feel they do not meet the required standards.

Before approaching a bank, an individual should first know what type of loan they are looking for. These often range from car loans to housing loans all the way to ordinary personal finance. Once all of this is known, the bank will be willing to consider the loan.

Types of loans:
The maximum duration of a loan in Bahrain is 84 months (7 years) for an expatriate. The loans are limited to the value of an individual’s end of service pay and benefits, or up to a maximum of BD 100,000. There are different types of loans including:

• Personal loans
• Automobile loans
• Housing loans

Interest:
The interest rates and profit rates of a bank must be made clear by said bank to the customer before the loan is issued. This is mentioned in the Code of best practice on consumer credit and charging. Section D covers the matter, and part 1 states that the employees of the bank should make clear where the customer can find the interest rate.
Part two covers 2 points:

• Firstly, the interest rates of a loan should be outlined, and any changes that may arise should be mentioned and the time of their change should also be specified.
• Also mentioned is that Islamic banks who do not charge interest should outline their equivalent profit rates to the individuals

Part 4 indicates that the websites should show a bank's interest rates, and this is further covered in Part 6 which states that any changes to the rates should be updated on the website within two days. The old standards should also remain available so that individuals can compare the differences
Further to this, customers should be informed of any upcoming changes to the interest rates if it is necessary even before those new rates take effect. This is according to part 5 of section D.
The contract:
Once all the formalities and details have been finalized, the Bank and customer will then agree to the loan, and an agreement will be drawn up. It will contain the start and end dates of the loan, the monthly installment amounts and other essential details.
The individual can at this stage also take-out insurance on the loan if the bank offers it and this could help secure both the bank and the individual in case of accidents or other unfortunate occurrences.

On top of this, the loan will have to be secured against the individual’s salary or end of service indemnity, which will ensure the loan will be repayable to the bank in the case that the foreigner loses their job.

As a whole, the process of obtaining a loan in Bahrain is quite straightforward and simple. It is possible at any bank with varying and competitive interest rates. The method of applying for a loan can commence through a variety of portals, including online, in person visitation, or via phone call. The paperwork requirements are not lengthy and the other conditions such as age, are nothing unexpected or unusual. The customer must be well-informed of the interest rates and potential changes to them throughout the duration of the loan, which allows for high transparency. Once these steps are completed, and both parties are happy to proceed, the loan can be issued.

Regarding laws, much like the other GCC countries, they are managed by the country's central bank. As such, there are many similar rules for the banks to follow when allocating loans. The central bank keeps all of the legislation relating to the financial institutions in the country on its webpage, and it also regularly sends out circulars to these institutions, which update them on any arising situations 

Glossary

• Private loan: these are loans that are given to private individuals (as opposed to business entities) for purposes that are specified, secured by assigning salary and end of service indemnity, or any regular income from a well-defined source. 
• Loan security: a loan is secured to safeguard the bank that issues it. An asset belonging to the individual would secure the loan. In Bahrain, bank loans to non-nationals are usually made against the individuals' Pay of end of service indemnity
• Islamic Banks: Islamic banks follow Sharia Law.
• Central Bank of Bahrain: the CBB is the governing bank of Bahrain. It acts as the government bank, and also supervises and monitors the activities of all the banks in the country.
• Central Bank of Bahrain Financial Institution Law 2006: this law covers everything to do with financial institutions in the country of Bahrain including the roles and responsibilities of the CBB
• Legislative decree number 34 of 2015: this decree amended certain aspects of the Central Bank of Bahrain Financial Institution Law 2006
• Code of Best Practice on Consumer Credit and Charging: this code sets out specific minimum standards for the banks within the country, including interest rates and profit rates.