When is the last time you wrote a cheque? In many parts of the world, the answer is likely to be sometime last century. But here in Dubai, it could have been just last month. To pay your rent.
Most banking processes in the UAE were formulated before 2000, and despite the introduction and widespread usage of internet banking and banking apps, the paperwork, policies and procedures that underpin them remain there.
The popularity of cheques in the UAE is not a failure of the banking system (which does offer alternative payment methods) but a safety measure in a country with a lengthy legal process and a highly transient populace.
Cheques hold more weight than legal contracts. They are contracts for the people, if you prefer. Is it the best system? No. But right now it’s the best we’ve got.
In line with this, anyone who’s been through the mortgage process here in the UAE knows that prior to disbursement you are presented with and forced to sign an undated cheque for the entire borrowed amount, plus interest. No doubt the biggest cheque you’ll ever sign; a sword of Damocles-esque security measure for the bank. Should you stop making payments and become non-responsive, they’ll bank the cheque knowing full well it will bounce. With a bounced cheque in hand, they can start legal action.
The UAE banking system needs to be overhauled and the Dubai government agrees. Earlier this year the Dubai Land Department (DLD) announced plans to launch Real Estate Self Transaction (REST), an online platform to conduct real estate trading and transactions including end-to-end online mortgage applications and disbursement.
According to DLD, REST will simplify existing legacy-laden processes and aims to facilitate the digitisation of real estate transactions and mortgages by Q1 2020. Any initiative that promotes transparency and eases the process for consumers should be applauded, but a Q1 2020 timeline is perhaps ambitious.
Having personally gone through a mortgage refinance recently, I can attest to the many patience draining legacies that exist in the UAE mortgage process that will need to be completely rethought and re-engineered.
Property Finder Group owns the UAE’s leading mortgage brokerage, mortgagefinder.ae, so thankfully most of the headache was handled by them. But even with the very best in the business at my full disposal, a number of tasks required my direct, physical presence.
Some processes are pure legacy, unnecessary and could easily be digitised. Others were stalling tactics by my former lender to extract a few extra dirhams in interest. But the rest are there for a reason; specifically to protect the bank against fraud which could be perpetrated by the borrower, the broker, or even a bank employee.
The US subprime mortgage crisis highlighted the dangers of such practices ten years ago. But the risks still exist, even in highly regulated markets like Australia, where a government investigation just this year uncovered widespread forgery of documents, ID fraud, and best interest negligence in their mortgage and financial services sector. Many of these offences were committed by commission-hungry bank employees from top to bottom.
If UAE banks are to fully digitise their mortgage application process in line with the DLD REST initiative, they’ll need to vastly overhaul their policies, technology and mindset without jeopardising safe lending practices.
By Lukman Hajje
Chief Commercial Officer, Property Finder Group
This article was originally published in Property Finder Trends, Vol 4. Click here to read the full report online or download the PDF.