Financing Decision

1. 7.1.5.1Licensed Financial Institutions must comply with the DBR and loan to value (LTV) limits prescribed by the Central Bank when advancing loans/financing to the Consumers and must not lend/finance to the Consumer beyond his/her affordable limit. Licensed Financial Institutions must set a prudent level of DBR & LTV in their risk policies for financing decisions that allows sufficient buffers for expenditures and contingencies, having regard to the stress test results and the relevant circumstances of the Consumer. This may include appropriate consideration of the nature and security of employment, number of dependents, location of residence and other relevant factors that have a bearing on the Consumer’s financial obligations and the level of expenditures.
2. 7.1.5.2Licensed Financial Institutions must establish a control framework and systems that include the required financial assessment tools to measure the Consumer’s ability to meet monthly credit obligations and to what extent such Credit Products are suitable based on the Consumer’s profile, needs and circumstances.
3. 7.1.5.3Licensed Financial Institutions must ensure both the efficiency and effectiveness of their financial assessment tools that are used to measure the Consumer’s ability to repay the finance being provided.
4. 7.1.5.4The basis for a financing decision shall be properly documented and backed with information that supports the decision. This should facilitate internal risk management and supervisory reviews of the Licensed Financial Institution’s credit underwriting standards and compliance with these guidelines. The consideration of collateral alone should not lead the Licensed Financial Institution to extend financing to a Consumer who has otherwise been assessed by the Licensed Financial Institution to be unable to afford the financing.

Tenor of Financing

1. 7.1.5.5Licensed Financial Institutions must abide by the lending/financing tenor as prescribed by the Central Bank.
2. 7.1.5.6Licensed Financial Institutions must not increase the tenor of the loan/financing to decrease the DBR, with an intention to lend/finance further to the Consumer. For compliance purposes, the Central Bank will supervise loans/financing that have extended the tenor and increased the amount borrowed.
3. 7.1.5.7Licensed Financial Institutions must not purposely avoid the prescribed DBR by closing off a loan/financing as paid only to open another with an extended tenor and amount greater than the closed loan/financing. Licensed Financial Institutions must document from where the funds for the payment to close out the loan/financing came from.
4. 7.1.5.8Licensed Financial Institutions must provide borrowers / financees the funds approved on a Credit Product, except for mortgages and credit cards, within 10 complete business days of Consumer signing the contract or within such other time frame that is agreed to by the Consumer and specified in the financing contract. Complying with the period of time for making funds available by the Licensed Financial Institution is subject to the Consumer and / or third party providing the required and properly completed documents and meeting agreed to conditions. If it is not possible to release the funds in the agreed time limit, the Licensed Financial Institution must advise the Consumer in Writing immediately as to the reason for the delay and the date by which the funds will be available. As a consequence of any delay caused by the Licensed Financial Institution, the Consumer retains the option to cancel the contract without cost or penalty before the funds are to be made available.

Interest/Profit Rate

1. 7.1.5.9This Section should be read in conjunction with Article 2: Disclosure and Transparency of these Standards.
2. 7.1.5.10The Annual Percentage Rate (APR) which includes the total amount of the interest/profit payable and the cost of other Fees compounded over a year must be disclosed.
3. 7.1.5.11Licensed Financial Institution must not charge excessive margins or interest/profit rates.
4. 7.1.5.12Pursuant to Article (121) in Decretal Federal Law No. (14) of 2018, Regarding the Central Bank & Organization of Financial Institutions and Activities, Licensed Financial Institutions are not permitted to charge interest/profit on accrued interest/profit on any Credit Products granted to Consumers. In addition, Licensed Financial Institutions are not permitted to charge future unearned interest from the date of full early settlement of the credit facility. In the event of a partial early settlement, the interest must be proportionately adjusted based on the principal remaining.
5. 7.1.5.13Licensed Financial Institutions must calculate the APR/profit amount charged for the loans/financing and overdraft facilities as well as unpaid credit card balances using the Reducing Balance Method.
6. 7.1.5.14Licensed Financial Institutions, in case of credit cards, must not levy interest/finance Fees on the outstanding balance (excluding cash advance transactions) when the new balance outstanding shown in the statement is paid in full by the payment due date. In the event of part payment of the balance on or before the maturity date (excluding cash advance transactions), interest/finance fees are to be calculated on the outstanding balance from the period from the contractual due date to the date on which payment of the outstanding amount is made.

Fees on Financing Facilities

1. 7.1.5.15Refer to the Annexure on Maximum Limits for Fees and Commission Charged on Retail Customer Service of the Consumer Protection Regulations for the application of approved Fees.
2. 7.1.5.16Also refer to Article 2: Disclosure and Transparency and Article 5: Business Conduct of these Standards.