Proposal for a new law regarding guaranteed mortgage transactions

Establishment of electronic guarantees record; creating awareness; providing training sessions

In line with its commitment to promote small and medium enterprises (SMEs) in the UAE, and to alleviate obstacles for their establishment, the Ministry of Finance (MoF) signed an agreement with the International Finance Cooperation (IFC) to establish an institution for registering mortgage capital assets. The institution will work on developing a system to organize mortgage interactions electronically, and on addressing challenges facing SMEs in applying for bank credit.

The agreement was signed at MoF’s Dubai’s headquarters by HE Younis Haji Al Khouri, Undersecretary of MoF and by HE Mouayed Makhlouf, IFC Director for the Middle East and North Africa. The event was attended by experts and representatives from both parties, in addition to attendees from the Arab Monetary Fund (AMF).

The institution will be established in two phases, where the first phase will involve a study of the guaranteed lending schemes currently implemented in the UAE, in addition to developing a proposal for a new law regarding guaranteed transactions in line with global best practices. The second phase will involve the creation of an electronic guarantees record, in addition to creating awareness about this new programme and providing training sessions on the e-system.

The agreement also highlighted the importance of determining legal processes necessary for implementing the project as per international standards and to UAE specifications. It also emphasizes the need to develop a proposal identifying laws and amendments to existing laws that need to be implemented to establish a modern guaranteed transaction system, which also includes regulations pertaining to the establishment of an electronic guarantees system.

MoF had previously prepared studies and reports which highlighted obstacles present for SMEs that hinder their financial performance. It particularly focused on funding challenges where banks decline loan applications due to insufficient guarantees presented by these organizations.

MoF and the IFC will be hosting a workshop in April 2012 as a platform to promote communication among banks and SME owners. SMEs are a vital part of the UAE’s economy, where they contribute to no less than 60% of the country’s GDP, and they make up 95% of working institutions in Dubai.