Borrowing too much landing many in debt in Oman

Business Tuesday 23/August/2016 21:20 PM
By: Times News Service
Borrowing too much landing many in debt in Oman

Muscat: Some borrowers in Oman have got themselves in so much debt they are asking banks to take them to court so that they can go to prison to eat.
The worrying state of affairs for some was revealed to Times of Oman by a recovery department official at a local Omani bank, who also said his bank had seen an increase in debt defaulters this year as economic conditions in the Sultanate tighten.
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Bank officials, charities, religious leaders and financial advisers have called on the public to borrow responsibly and consider whether they can afford repayments before getting into money trouble.
It comes after a recent IMF (International Monetary Fund) report which warned that low oil prices could lead to a rise in non-performing loans across the Gulf.
The bank official, who preferred not to be named, said, “Some are in such desperate conditions, they literally ask us when we are taking them to court, so that they can go to prison and at least get food to eat there.
“We have lots of debt defaulters from last year because along with companies cutting jobs, people have also spent the borrowed money on essentials, some have also been extravagant using them for travel and other such things, and there is hardly any income.”
The official spoke of a debtor in his late twenties who took a loan of OMR20,000 and has not paid anything back for two years.
“His monthly instalment to us was OMR200 and he is now offering to pay us OMR50 per month, which is not acceptable. At the time of taking the loan, his salary was OMR400 and the reason he is not able to pay any of his instalments now is because he is jobless and has to support his wife and children.”
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Struggling to pay back
Rashid, an Omani spoke about his cousin who took a bank loan to get married, “My cousin took a big loan to prepare for the wedding and the honeymoon. He and his wife decided to divorce once they got back. He is struggling to pay his loans back with the help of his family now because his income is not great and the current economic crisis has had an impact of his salary too.”
It’s not just debtors struggling to pay banks who are getting into trouble, one charity revealed how some hard-up families were borrowing from friends and family to make ends meet. Dar Al Atta’ a local charity which helps underprivileged families, has a file which only records cases of people who seek help to pay back their loans.
“We usually we don’t accept cases of people taking loans from banks because that involves interest. So we deal with those who have borrowed money from someone to pay their rents or bills or to buy something for their children and the amount varies from OMR600 to OMR2,000, and we don’t accept applications for higher amounts.
“This year we have received 50 applications so far and we might get more through the course of the year, only 16 applications have been approved until now.” said May Al Bayat, marketing manager at Dar Al Atta’a.
Sheikh Hilal Al Rashdi, advisor at the Ministry of Endowments and Religious Affairs, advised people to consider carefully if they can afford to repay before taking loans from anyone.
“I don’t advice people to take loans if they don’t have enough money to repay later and this leads to the legal issue of ‘harming yourself’, so it’s advisable to not take loans,” he said. The bank official said that financial institutions in Oman try to be understanding of people’s circumstances, and prefer to work with those in debt to find a solution.
He said, “It is true that some people have nothing to give us, and according to our policy after the third instalment is not paid and when it’s time for the fourth, we can take legal action. However we give some people with genuine reasons extra time and hunt for the ones who are dodging us.”
Consequences
“People change their jobs because the companies are registered with the bank and so we take half the person’s salary when it is deposited. So some people think it is better for them to move to another company and give a different bank account there and open a new number, sometimes they even change their houses to escape.”
The official said that people need to be made aware about the consequences of taking loans, they need to be educated to borrow responsibly.
“Institutions and Ministries need to take up the responsibility of advising people to make them understand that if they have a financial problem, they manage it and not take loans,” he said.
Roma Fernandes, clinical psychologist at the Whispers of Serenity Clinic, said: “We do see clients on a regular basis who are stressed due to non-payment of debt.
“Many times debt is like a cycle, and when a person can’t get rid of loans, they develop depression and frustration. This creates a pattern of negative thinking, which causes depression, anxiety disorder and stress.”
Borrow responsibly: Experts
Financial experts in Oman also warned that this year people could find themselves in serious debt if they don’t borrow responsibly, in line with the IMF warnings.
“There is a likelihood of increase in the number of debtors especially when there is a fall in economy. Banks should be cautious and frequently review trends in defaults of these borrowers.” said a financial expert based in Oman.
“It is also very much possible that people are borrowing more than once to pay back their previous debts, I don’t want to rule that out.”
He has also observed that expat remittances have dwindled. “The other day I was standing at a remittance centre, and seeing fewer people I asked them why no crowd, so they replied that this has been the phenomenon for many days. This indicates that expat remittances have dwindled which means companies are cutting jobs and reducing salaries and all this cumulatively will have an impact on the paying capacity of the borrowers. He further went on to speak about high inclination of the tendency to borrow in Oman.
“About fifty per cent of bank loans go to retail consumers in the form of personal loans, housing and car loans, and people are given long term repayment periods, so there is a tendency to over borrow due to the sort of consumerism, that’s prevailing in Oman because of the very lenient pricing structure and long term repayment structures.”
Another financial expert, Jose Chacko says that the rise in non-payment of individual debts is a recent phenomenon. “I believe this is something which I believe has started very recently, in maybe the last two months, where people are not able to pay back their borrowings from banks. Reasons concern the economy, there are job cuts due to smaller budgets, benefit cuts, sub contractors are not being paid by the main contractors, people are also not getting more projects to work on because of the budget cuts.”