Interest charge

UAE: Loan money to a friend? Pay attention to this rule

Dubai: Want to borrow money from a friend when you’re in trouble? Or are you planning to lend money that you may have saved? Whatever situation you find yourself in, it is important to note that charging interest on money lent between two people is illegal under the UAE Penal Code.

Federal Law No. 31 of 2021 on the Promulgation of the Crimes and Punishments Act – or the Criminal Law of the United Arab Emirates – provides for both financial penalties and imprisonment when a “natural person” lends money with interest.

What is a natural person?

Person having the legal personality of a natural person, as opposed to a legal person, representative, etc.
Source: Lexico.com, an online dictionary produced by Dictionary.com and Oxford University Press

Who can charge interest?

In the UAE, only licensed institutions are allowed to offer interest-bearing loans, according to Navandeep Matta, a Dubai-based legal consultant.

“In the United Arab Emirates, the Central Bank is the competent authority for licensed banks and other financial institutions to lend money with interest. This is governed by Federal Decree Law No. 14 of 2018 concerning the Central Bank and organization of financial institutions and activities,” he said.

In the United Arab Emirates, the Central Bank is the governing authority for licensed banks and other financial institutions to lend money with interest … Any lending of money with interest between two natural persons is considered a crime in United Arab Emirates and is an offense punishable by imprisonment and fine under Sections 458 and 459 of the Criminal Law of the United Arab Emirates

– Navandeep Matta, legal consultant based in Dubai

What is the law prohibiting individuals from lending money at interest?

Articles 458 and 459 of the UAE Penal Code determine the penalties for the loan of money between two persons for interest.

Article 458 of Federal Law No. 31 of 2021

Is liable to imprisonment for a period of at least one year and a fine of at least 50,000 Dh.
By implicit interest, we mean any commission or advantage of any kind whatsoever, demanded by the creditor, if it is proven that the said commission or advantage is not in return for a real and lawful advantage or service. provided by the creditor.
The original debt and the implicit interest can be proven.
If the criminal uses the need, weakness or inclination of the debtor to commit the offense referred to in this article, this fact will be considered an aggravating circumstance.

Article 459 of Federal Law No. 31 of 2021

Any natural person who habitually engages in the practice of lending at interest is liable to a temporary prison sentence for a period not exceeding five years and a fine of at least 100,000 DH.

“Any loan of money with interest between two natural persons is considered a crime in the UAE and is an offense punishable by imprisonment and a fine under Articles 458 and 459 of the UAE Criminal Law” , Matta said.

“For example, if individual A lends Dh100 to individual B at the rate of five cents per annum and individual A accepts Dh105 from B, then the individual has committed an offence,” a he added.

Matta also explained that the interest can also take different forms, including any lucrative consideration, commission or advantage of any kind, according to the law.

Interest-free loans allowed

“Yes, the money can be borrowed from an acquaintance, but the borrowing must comply with the Sharia of ‘Qard-el-Hassan’, which means an interest-free loan. The borrower is legally bound to repay only the principal amount without any other interest payments. Parties are advised to enter into a written agreement before entering into such a transaction in order to benefit from legal remedies at a later stage if necessary,” Matta said.

For a list of do’s and don’ts to keep in mind when lending or borrowing money from an acquaintance, read our guide here.

What happens if I have to pay interest?

If you find yourself in a situation where an acquaintance demands interest on top of the money you borrowed, you can report the problem to the police.

“Knowledge cannot legally demand any interest from you. By taking an interest, the acquaintance will commit an offense punishable by fines of up to 100,000 Dh and imprisonment for a term not exceeding five years. Knowledge shall have no legal remedy or legal basis of action against you for non-payment of interest. If the acquaintance pushes you to pay the interest by force or harasses you for it, you can file a complaint with the police,” Ayush Hans, a legal analyst and Connect Legal, a legal assistance service, told Gulf News. line.

Regardless of a verbal or written agreement with the acquaintances, you are not legally obligated to pay interest. You will only be required to pay the principal amount to knowledge through the agreement.

– Ayush Hans, legal analyst and Connect Legal, an online legal assistance service

The law would apply even if you agreed to pay interest at the time of the loan, according to Hans.

“Regardless of a verbal or written agreement with the acquaintances, you are not legally obligated to pay interest. You will only be required to pay the principal amount to knowledge only through the agreement,” he added.

Hans reiterated that in the UAE, in order to lend money and charge interest, you need to be licensed by the UAE Central Bank.