Global Compliance

Obtaining a Loan – Bahrain Nationals

Introduction

Bahrain is the smallest of the GCC and Middle Eastern countries. It has a tiny population of around 1.5 million people with around 40-50% being nationals. The country has one of the highest GDP per capita in the world and is wealthy for its size. While it does have reserves of natural resources that one might expect from a country in the Middle East, they are to no extent comparable to that of its neighboring nations such as the UAE and Saudi Arabia. As such, the country has had to adapt to this and find other means of growing their economy. Bahrain is recognized as the first post-oil economy in the Persian Gulf.

Bahrain has become a global leader in the areas of financial services and banking, and it is also a favorite destination for tourists and businessmen alike. The country is highly developed and has arguably the fastest growing economy in the region. It is also widely seen as the freest of the Middle Eastern nations, and this may be what draws people towards it.

In terms of its banking and financial sector, the Central Bank of Bahrain (CBB) governs such matters, and is also responsible for monitoring and ensuring the steady growth of the country’s economy. Further, the CBB is also responsible for producing the legislation and regulations that are to be followed by the rest of the Kingdom’s banks. This also includes the production of regular circulars which are made available to all banks and must be heeded and implemented. 

How to Obtain a Loan

Obtaining a loan as a national in Bahrain is largely similar to obtaining a loan as a foreigner. There are some definite differences, though the general process is much the same.

Required Documentation:
In terms of the required documents, the minimum potential requirements shall be:

• Passport copy
• Proof of address
• Salary statements for the previous 3 months

While the aforementioned documents will certainly be required, there will likely be more requirements that specific banks will request. This is due to the fact that it is the responsibility of the bank to ensure they only provide loans to those they are certain will be able to repay them. This is confirmed in the Code of Best Practice on Consumer Credit and Charging, Section E. As such, the previously mentioned documents should be considered the basics, and one should prepare the other required documents beforehand by finding out what their bank’s specific requirements are.

Beyond the required documents there will also be other specifications that the bank will be looking for. For example, there will be a minimum salary requirement, which is often around BD (Bahraini Dinar) 200, and a minimum and maximum age requirement. Once all of the requirements and documents have been presented, the bank will then require time to consider the loan eligibility.

Personal Loans:

A personal loan in Bahrain is generally allowed to the maximum of BD 200,000, and a maximum repayment period of 84 months. In order for a bank to issue a loan, it must ensure that the loan is secured as under Article 31 of the CBB Banking Law. Under the Law, the provision of unsecured banking loans is prohibited.

Interest:

The interest rates and profit rates of a bank must be made clear by the 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; 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, 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 Requirement of a Contract:
Upon agreeing to the specifics of a loan, a contract will be written-up for both parties to sign. This will include the start and end dates of the loan and the total value that is to be provided. On top of this, the agreed interest rate, or in the case of Islamic banks, the agreed fees, should be specified. Further to this, the fines for failure to make payments should be mentioned.
Initiating Contact:
In order to obtain a loan, one would need to first identify the bank they wish to obtain it from. From here, they would then need to initiate contact with the said bank, and there are generally 3 ways of going about this:

• Email or phone call. Banks will usually provide the appropriate email address and number on their website
• Online application form. The individual will fill out the form and include all the requested documentation
• Visit the bank branch

Once the initial contact has been made, the aforementioned stages take place
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
• 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. While this document in itself has no legal implications, it mentions in section J that it is subject to the CBB rulebook laws. However, it acts as a guiding document
• Loan security: a loan is secured to safeguard the bank that issues it. An asset belonging to the individual would secure the loan.
• Decree Number 64 of 2006