Jail time is cost for not paying debts in Dubai

DUBAI, United Arab Emirates — Hussein Ali Mubarak sits in prison, surrounded by murderers and burglars. His crime: defaulting on his bank loans.

More than 1,200 people in Dubai's central jail — about 40 percent of the prison population — have been convicted of not repaying money borrowed from banks so they could get married, buy a car or house or invest in the stock market.

Jailing debtors, a practice more common in 18th-century England, illustrates the downside of this Persian Gulf city-state's frantic economic boom.

Surrounded by so much oil and real-estate wealth, many residents succumb to the temptations of a lifestyle they cannot afford. Banks are willing to give consumer loans with virtually no collateral, and because Dubai lacks a central credit-check authority and a personal-bankruptcy-court system, people can easily get into trouble.

Last year, banks here granted $43 million in personal loans — many with only an undated, blank check as collateral.

The case of Mubarak, a 28-year-old Emirati, is typical. He was working 12-hour shifts as a crane operator in Dubai's port when he took his first bank loan to buy a car and furniture. Though he fell behind in the payments, he managed to get two more loans from two different banks, each bigger than the one before.

He paid off one loan but stopped paying on the other two. After he ignored court summons, the bank deposited the blank check he had presented as his sole collateral. The check bounced and he was sentenced to three months in jail.

He'll stay there longer if no one steps forward to pay his $44,700 debt.

"If they cannot pay, we cannot release them," said Lt. Col. Abdulhalim Mohammed al Hashimi of the Dubai Central Prison.

In the United States, a similar case would head to bankruptcy court, where the debtor would have a chance to sell off assets and restructure debts to slowly pay them back.

But in Dubai, with no laws regulating defaults on personal borrowing, a person jailed for such an infraction is likely to remain there — even when their sentence is over — until a relative, charity group, wealthy businessman or even a member of the ruling family pays the debt.

Police official Mohammed Murad said 60 percent of the police force is busy chasing deadbeats, and he blames banks for promoting rampant consumerism with easy cash. He contends banks would be more careful with loans if they had to share the cost of imprisoning debtors.

"Each one of them costs as much as someone in a five-star hotel," Murad said.

The banks, however, say the problem is partly the absence of a central credit authority, which could alert lenders to high-risk customers. The Central Bank has promised to establish a credit authority by the end of the year.

"The notion that these people in jail are poor lambs being preyed upon is rubbish," said Louis A. Scotto, general manager of Emirates Bank. "We are not the bad guys here."

Scotto said banks do not turn to customers' blank checks except as a last resort. Dubai's police say once that happens, there is little choice but to imprison them.

"They signed a check without balance. That is a crime," said Khalid Ahmed Omer, a legal adviser to the Dubai police. "If there is no check, no one can take you to jail. But if you signed a check, you are responsible, not the bank."

Some fear the problem will only worsen in the oil-rich Arab city-state, with its ever-taller skyscrapers, stretch limos, spacious villas and opulent shopping malls.

"It's a way of life here," said lawyer Abdullah al Nasser. "If money comes easy, no one will pay it back. And if I have a choice between a Toyota or a Mercedes, of course I will choose the Mercedes."