7 April 2016, Dubai, United Arab Emirates: The UAE Banks Federation (the Federation), the professional entity that represents forty nine banks across the United Arab Emirates have formally decided to extend support to small and medium sized enterprises (the SMEs) during a press conference held on 28 March 2016 in Dubai. Pursuant to this initiative, banks will freeze all legal action against SMEs to enforce and/or recover payments. This would include freezing criminal prosecutions for bounced cheques, which are commonly held as security in commercial transactions.
The procedures and process are expected to take approximately two weeks from the first meeting of lenders to the conclusion of agreement with the borrower within three months time-limit. During this course, no pre-emptive or criminal action will be initiated by banks. In other words, bank(s) will suspend all legal action against cash-strapped small and medium sized companies that are unable to settle their debts for up to 3 months.
Founded in 1982 as Association of National Banks, the UAE Banks Federation (renamed from Emirates Bank Association pursuant to Ministerial Resolution Number 42 of 2013) complies with the provisions of with the provision of Federal Law number 2 of 2008 concerning the Non-Governmental Organisations and Associations of Public Interest (the Law).
Although this development is not in effect a ‘law’ it is presently unclear whether member banks are bound by the board resolution passed by UBF or whether unanimous approval of each bank will have to be sought. The Federation was formed in public interest in the UAE and it is likely that members banks will co-operate and share Federation’s plans and vision. The Federation's initiative is clearly aimed at restoring market sentiments and helping SME sector at large. The UAE's Cabinet in July had approved a new insolvency law but is yet to be referred to Federal National Council for its approval. Until such time that the Federal National Council makes its decision on the long-awaited insolvency law, the Federation's current initiative indeed has a positive and far-reaching impact.
A similar initiative was taken by the Federation in February 2013 seeking Central Bank’s nod to replace cheques as means of backing loans with an alternate system to protect both - banks as well as business.