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Unlocking Compliance: The Roadmap for Short-Term Lending Providers in the UAE


As of December 27, 2023, the financial landscape in the UAE has witnessed a significant regulatory shift with the introduction of updated measures governing short-term lending. The ruling particularly focuses on Buy Now, Pay Later (hereinafter BNPL) schemes. Circular No. 3/2023 issued by the Central Bank of the UAE (hereinafter CBUAE) has brought forth a comprehensive framework aimed at regulating and overseeing short-term lending activities across the UAE mainland. The regulation underlines CBUAE’s commitment to consumer protection and responsible lending practices while adapting to evolving industry trends. Similar regulatory adjustments within the Dubai International Financial Centre are anticipated, reflecting a broader regulatory trend in the region.

In the following we will elaborate on the key points of the updated measures governing short-term lending.

Key points of the framework

1. Licensing Requirement: Providers of short-term lending services within mainland UAE are now mandated to obtain a license from the CBUAE or establish collaborations with licensed financial institutions operating in the UAE.

2. Regulation Scope: The regulatory framework encompasses a wide range of short-term lending products, with a particular emphasis on BNPL schemes. These schemes offer consumers access to small amounts of financing for immediate purchases, reshaping consumer finance dynamics.

3. Restricted License Category: A new “Restricted License” category has been introduced, facilitating the operation of short-term lending companies. Entities operating under this category must possess a minimum capital of AED 20 million or 5% of the outstanding lending volume.

4. Borrower Protection: In line with ensuring consumer protection, the regulation limits loans extended by Restricted License Finance Companies to AED 20,000 or three months’ verifiable net income for the borrower. Additionally, thorough due diligence on a borrower’s creditworthiness is made mandatory.

5. Transparent Terms: Borrowers are entitled to fair treatment under the regulation, with total fees, including late payment charges, capped at 30% of the initial loan amount. This measure aims to promote transparency and prevent predatory lending practices.

6. Collaboration with Licensed Banks: Licensed banks in the UAE are permitted to offer short-term financing directly or through strategic collaborations with agents, ensuring compliance within a regulated framework.

7. Complaint Resolution Mechanism: To uphold consumer rights, finance companies and agents are required to implement robust internal complaint and dispute resolution systems, fostering trust and accountability within the industry.

8. Compliance Options: Entities operating in the short-term lending sector have two primary compliance options: either seek a license directly from the CBUAE as a Restricted License Finance Company or establish partnerships with licensed financial institutions.

9. Compliance Deadline: Existing providers not licensed by the CBUAE are mandated to ensure compliance within ninety (90) days of the regulation’s effective date or face cessation of operations in the UAE market.

How Lawbridge can support you

Due to these above changes, businesses operating in the short-term lending sector are advised to conduct a comprehensive assessment of their compliance status with the new regulations. Moreover, entities planning to enter the industry should meticulously review the regulatory framework to ensure adherence to compliance requirements.

Are you operating in the short-term lending sector in the UAE or considering venturing into this dynamic industry? It’s crucial to stay abreast of the latest regulatory updates and ensure compliance with the new framework introduced by the Central Bank of the UAE. Our team of legal experts specializes in navigating complex regulatory landscapes and can provide tailored guidance to ensure your business operations align with the regulatory requirements.

Whether you need assistance in obtaining a license from the CBUAE, establishing collaborations with licensed financial institutions, or conducting a compliance assessment, we’re here to help. Don’t wait until the compliance deadline approaches—take proactive steps now to safeguard your business interests and uphold consumer protection standards.

Reach out to us today to schedule a consultation and gain valuable insights into how you can navigate the evolving regulatory landscape with confidence and clarity.

Book your free consultation here!

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