The UAE Central Bank has revised its Finance Companies Regulation to oversee businesses offering short-term credit and buy-now-pay-later services in the Emirates.
Under the updated framework, entities acting as agents for licensed banks or finance companies can provide short-term credit upon approval by the banking regulator or obtain a license as restricted licence finance companies directly from the Central Bank.
Unlicensed entities involved in short-term credit activities must apply for a restricted licence or partner with a licensed finance company or a bank, according to the Central Bank’s statement.
The new regulation aims to protect customers, enhance financial sector stability, and sets limits on short-term credit, including a maximum of AED 20,000 ($5,446) or three months’ verified net income, whichever is lower, according to The National News.
In the booming Buy Now Pay Later (BNPL) sector, where global transaction values are expected to reach $576B by 2026, the Central Bank restricts licence finance companies from contracting with agents for short-term credit. Agents must collaborate with a finance company or bank.
The regulation prohibits interest on short-term credit and caps total fees, including late payment fees, at 30% of the original credit amount. Assets of borrowers cannot be used as collateral, and affordability assessments are mandated to mitigate over-indebtedness risk.
The Central Bank’s recent initiatives, including improved oversight on banks’ exposure to the property sector and guidelines to combat money laundering, reflect its commitment to strengthen regulatory control. In July, plans for federal prosecution offices dedicated to economic crimes were announced, focusing on money laundering, bankruptcy, competition regulation, financial markets, intellectual property, trademarks, and customs evasion.
Additionally, in 2021, the Central Bank directed all hawala providers to register, enhancing oversight of informal fund transfer agents operating outside the banking system.
