Kenya

Special Report: A matter of life & debt Dhanusha Gokulan / 26 September 2013 Financial insecurity is a major concern in the UAE, where 50 per cent residents reportedly do not have a savings plan and many face a barrage of texts, e-mails, and calls from their debtors. Khaleej Times delves into the scenario where a few payment lapses make banks turn into a person’s biggest nightmare and comes up with experts’ advice on how to escape the debt trap.  When A Ferns (real name withheld to protect his identity) arrived in Dubai from India seven years ago, he had a frugal family background. “My parents taught me to live within my means,” says the 27-year-old. “There was never any talk of loan, credit cards, or mortgage at home. So when I came to Dubai, I was like a kid in a toy store.” In 2006, his salary was Dh12, 000. In less than two years, he had amassed a debt of Dh175, 000. “There was a car loan, three credit cards, and a personal loan. At the worst possible time my ex-wife filed for divorce, so I had a monthly alimony to send home as well. By the end of 2008, I had lost my job and had a total debt of Dh200,00.” When he began contemplating selling his ancestral land in South India, his father intervened. “My dad paid off a huge chunk of my loan. It was one of the most humbling moments of my life when he had to issue a cheque  (handing over) his retirement savings.” However,  by mid-2009 he had got another job and swore to pay every penny back to his father and most importantly, to live within his means. “My mistake was that I got carried away and I wanted everything. A big car, a villa in Jumeirah, the latest in gadgets, just everything … “But the worst mistake was that I did not bother with the terms and conditions of my loan repayments. In most cases, I did not even know what the interest amount was.” Ferns is among thousands of UAE residents plagued by the “debt problem”. Almost 50 per cent of UAE residents do not have a savings plan and financial insecurity is one of their biggest concerns, says a survey by research company YouGov. This is not surprising, given the Central Bank and banking institutions reporting a record surge in consumer debt in the UAE this year. Personal borrowing hit more than Dh270 billion in the first five months of this year, and experts say the root cause of the problem is poor financial literacy and easily available credit.  Rana Zeeshan Saleem, head of retail asset and KSA retail, Emirates NBD, told Khaleej Times that demand for credit has increased across all categories. “From January to June 2013, there has been a 50 per cent increase in the demand for loans. Car loans have gone up, home loans have gone up, personal loans have gone up. “People take loans for medical reasons, home renovation. There is an increase in demand across the industry in all categories,” says Saleem.  Credit card rates range from 34 to 36 per cent and personal loan rates fluctuate from 6 to 8 per cent. “Currently, banks have little or no record of the payment history of an individual; (so) regulating loans becomes a task,” he adds. However, the Central Bank is now planning to introduce a bureau that will keep track of residents’ financial history.  Bhairav Trivedi, chief executive officer at Network International, a payment solution provider in the Middle East, says the card market in the UAE has grown 15 per cent in the last six to seven months.  “Though there is not much transaction in the real estate market, there is a lot of usage of cards for traditional payments, such as (for) hospitality (hotels and restaurants) and duty free shopping. And now there is an upsurge in the purchase of fuels as well.”   How the addiction grows Those who have recovered from debt or are still stuck indicate lack of financial literacy and consumerism are the prime reasons for heavy borrowing. Car loans, personal loans, and credit card dues are the most common loans for which expatriates approach banks. Beating debt UAE Saves Week, organized by www.cashy.me, is a week-long community initiative launched on Sunday to enable people to improve their financial health.   The YouGov survey of 1,011 residents to assess attitudes and responsibilities towards money management confirms that financial concerns and debt are the biggest causes of stress among residents. More than a third (34 per cent) said this. Of them, 57 per cent stated they have a long way to go before becoming debt-free. However 55 per cent of this population is ready to make lifestyle changes to get out of their current situation.  Perhaps the most worrying find is that more than 60 per cent of the respondents would not be able to survive for six months if cut off from their current source of income. Another 15 per cent said they had no savings whatsoever. According to Nima Abu-Wardeh, founder and CEO of www.cashy.me,  financial literacy is what people need.  “We launched UAE Saves Week with the objective of helping people take the first steps towards saving money and hopefully, to continue to practise these lessons for the rest of their lives,” she says. “People must learn to live within their means. Financial stress affects every single aspect of our lives. We need to make this a part of public discourse and encourage people to take baby steps.” 
 UAE Saves Week UAE Saves Week brings a series of themed challenges designed to motivate and empower people to manage their finances more responsibly. The themes are Savings Sunday, Pack Your Lunch Monday, Green Tuesday, Wise Up Wednesday, Get out of Debt (GOOD) Thursday, Frugal Friday and Stick With it Saturday.  Green Tuesday, for example, aims to improve awareness of the economic benefits of going green. Get out of Debt Thursday teaches people to live within their means and urgently tackle debt, a pressing and growing concern in this region. Stick with it Saturday brings the event to a close by encouraging people to take one simple pledge and sticking with it, even if it is as small as setting aside Dh1,000 every pay day. For details go to www.cashy.me/uaesw/ Experts say taking loans to pay off another loan is no solution.  “It might be a temporary fix but you will end up borrowing more,” says Kenyan Evans A Oduya. “My brother was stuck in debt for the entire time he lived in Dubai. He had six credit cards and two personal loans from the bank. He lived way beyond his means for two years, till the credit card debt finally caught up with him. He spent four years repaying loans and eventually left Dubai saying he had no savings.” Augustine C (name withheld to protect his identity), a Filipino national, needs to repay a Dh100, 000 loan he took to purchase a car and now “kind of” regrets. “My monthly salary is Dh11, 000 and my wife’s income is Dh4, 000,” he says. “I spend Dh5,000 every month repaying loans, Dh1,000 goes into my kid’s education and I also pay a Dh28, 000 rent. Electricity, telephone bills, grocery bills, and an occasional outing with the family are the other expenses. It is difficult to save with all of these expenses.  “Now I think I should’ve bought a second-hand car instead. I would have been able to save some money.” Several residents, overburdened with debt and unable to cope with the stress, took severe steps like suicide.  Jamal (name changed on request), the head of a family of four, has loans of over Dh150, 000. His monthly salary is Dh7,500. “A major chunk of my salary goes in repayment of loans, credit card bills and school fees for the kids,” he admits. “I sent my son back to India because education there is much cheaper. My wife babysits to earn some money. Sometimes, I get very depressed wondering if I will ever get out of this rut. But I need to keep fighting for my family.” Jamal calls credit cards an addiction: “Because they are so convenient, people like me use them on a day-to-day basis to make ends meet.”  Rupert Connor, a partner at Abacus Financial Consultants who has been living in the UAE since 2002, says there is very little incentive for people to save here though the government doesn’t provide any kind of pension. “This is a tax-free environment,” Connor says. –  dhanusha@khaleejtimes.com Make your money last Financial gurus give  Khaleej Times  tips on how to slash debt.  Rama Chakaki, founder of BarakaBits, a website that focuses on business, the environment and other themes in the Middle East, says people need to be made more aware of the ramifications of debt.  They also need to be provided with alternatives.  “People now have an insatiable appetite for stuff which tends to tie us down,” she says. “They must learn to enjoy the simpler things in life like health and natural environment.” Rama’s insights on beating debt > Sit down  with your family or whoever you are responsible for and draw up a financial plan that matches your income > Save for  a rainy day while living comfortably > Prioritise > Rule out  impulsive buying > Resist  advertised temptations > Watch movies  that show you how we are manipulated by the marketing industry > Surround yourself  with people from the same culture > Stick around  sensible people and educate yourself > Read all  the conditions before getting into a financial contract > Do not  write post-dated cheques > Communicate with  your debtors and draw up a clear plan of action with them > Use the  metro and bicycle > Lead a  simpler life   Rupert Connor, partner at Abacus Financial Consultants Be careful before jumping into any commitment with financial consultants. 
“A male, single and with no dependants, must save minimum 5 to 20 per cent imum of his income for five to 10 years. “Before you sign up with a consultant, you need to get a referral. I personally would never do business with someone who phones me up and suggests I need a financial advisor. “Do your research before meeting someone and take about six to nine months before signing up for anything,” Connor adds. Connor’s six steps to financial stability > Set goals:  For example, you may want to retire at 55 or keep aside funds for your children’s private education > Find out  about your finance prospects, investments, family commitments, ambitions and plans > Analyse your  current financial situation and squaring it off with your aspiration > Construct a  financial plan. And once you decide what you want in the future, draw up a programme to make your goals possible > Implement strategies:  You could put a will in place and start saving for your retirement from the age of 25. It will come out to be much cheaper as compared to when you are older > Monitor and review:  Conduct a regulatory review, assess your situation and adjust your plan accordingly. Check with your advisor on how your funds are doing and meet with the advisor every six months at least. Continue reading →