Residents have joyfully welcomed a new directive by the UAE Central Bank removing the long-standing minimum salary requirement for personal loans. Meanwhile, experts have cautioned against mindless borrowing.

For Pakistani expat Mohammed Haroon, the news came just months before his daughter's wedding.“I need some cash for the expenses of the wedding,” he said.“I was looking at various options. My family had spoken to banks in Pakistan and money lenders as well. But the interest rates were quite high. I was wondering what to do when I heard the news. I am so happy.”

Mohammed, who works as a driver in Dubai and earns Dh4,000 a month, said that he is hopeful he will qualify for a loan.“I have had a bank account for several years and use a credit card,” he said.“I always pay my credit card expenses off every month. I have also taken some microloans from some of the local apps, which I repaid. So I'm hoping that my credit score is good enough for me to qualify for a loan.”

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It was on Tuesday that local media reported about the Central Bank move to instruct banks to cancel the Dh5,000 salary floor that most institutions previously applied when assessing eligibility for personal financing. Instead, lenders will now be allowed to set their own minimum thresholds based on internal risk policies.

Financial advisor and director of Barjeel Geogit Securities, KV Shamsuddeen said that while the move would expand banking services to thousands of people who were previously unbanked, it posed significant challenges as well.

“As someone who has worked with blue collar workers for over five decades, I know the challenges they face,” he said.“I have come across many cases where in emergency situations, these workers have turned to illegal loan sharks. These people charge interest rates of up to 120 per cent. Many of these men then spend their entire lifetimes trying to repay it. If banks are able to be more flexible, such people would be able to borrow from banks instead of illegal lenders, ensuring a safety net."

However, he said it also increased the temptation for many workers to unnecessarily borrow money.“Once this option is available, there will be a tendency for many to take loans for non emergency reasons,” he said.“For example, I have come across many cases where workers take loans when the exchange rates to India fall. However, the fall is only four per cent. The borrower ends up paying an interest of five per cent, so it is a pointless debt they are getting into.”

He added that social workers now have additional responsibilities to educate workers better.“In financial literacy classes, there needs to be a lot of focus on explaining how bank loans work,” he said.

Dubai resident Sarah Ahmed said the move was a welcome move.“When I was starting out here in my first job, I was not able to get a personal loan when I needed it for my mother's treatment,” she recalled.“Eventually, I had to take a loan from my home country. This move will be helpful for a lot of youngsters who are caught in a difficult position.”

Industry analysts expect the change to drive new lending options tailored to low-income and entry-level workers, including micro-financing, emergency credit, WPS-backed overdrafts and compliant“buy now, pay later” services. Entry-level employees could also see savings-linked starter credit products aimed at improving financial literacy and habits.

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