In recent years, the United Arab Emirates city of Dubai has emerged as a truly global city. Attracting thousands of migrant workers and international holiday makers every year, Dubai really is a boom town. For many of the visitors, the impact and impression that Dubai leaves them with is powerful enough for them to want to make their home there or buy a second holiday home there. With more and more interest in buying in Dubai there is a very real need to obtain credit when making large purchases such as cars and houses.
Once upon a time, it was almost impossible for any foreign national to obtain credit in Dubai as the old banking and property laws made it difficult for most people to borrow money. However as Dubai has been more and more interested in establishing itself as a serious player in the global markets, these rules have been relaxed.
The process of obtaining credit in Dubai can be a new and often frightening experience for many foreign visitors and expatriates depending on which banking institute they use. While global banking institutes do operate within Dubai, there are also a number of Islamic banks that also offer credit but run slightly differently from non-Islamic banks.
The United Arab Emirates is a Muslim country and as such is governed by Sharia (Islamic law). While Islamic banking has the same principals as many commercial banks which is to make money from banking, as Islam prevents banks from charging interest a set of complicated Islamic banking laws have been set up to allow the banks to make money without breaking Sharia.
If you were to take out finance on a new car in the United Arab Emirates, the dealership would contact the bank to arrange finance and rather than the bank loaning you the money to buy the car creating a situation where you pay off the value plus interest over time, in Islamic banking the bank buys the car on your behalf and then sells you the car at an above market value. You then make monthly payments back on the car which don’t include interest.
In order to prevent buyers from defaulting on any credit loans from an Islamic bank, many require collateral beyond the goods that the loan has been taken out to purchase. If you were purchasing a holiday home in Dubai, the bank might require to also offer your own family home as collateral.