The UAE law strictly prohibits individuals from charging interest on money lent without proper licensing, carrying severe penalties.
Under Federal Decree Law No. 31 of 2021, Articles 458 and 459 of the UAE Criminal Law explicitly state that only licensed banks and financial institutions are authorized to extend interest-based loans.
This law applies to both civil and commercial transactions, including implicit and explicit interest agreements.
Violations of this law result in hefty penalties, including a minimum one-year jail sentence and fines starting from Dh50,000. Habitual offenders face up to five years of temporary imprisonment and a minimum fine of Dh100,000. The legislation aims to protect consumers from predatory lending practices and maintain financial stability.
Legal expert Ashish Mehta, founder and Managing Partner of Ashish Mehta & Associates, advises individuals in a Khaleej Times report against entering into interest-based loan agreements with unlicensed lenders.
Instead, he suggests an interest-free loan agreement duly signed by all parties involved. This clarification comes amidst increasing queries about the legality of private lending practices in the UAE.
