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Loans are the financial products offered by the banking system in the credit market. The banks of the UAE provide different kinds of loans to their clients. The interest rates represent the cost of money, and their level indicates the macroeconomic situation in the country. The Central bank coordinates the monetary policy, which is aimed at adjusting the level of the interest rates and makes the credit resources more affordable for the economic agents.
The United Arab Emirates is a prosperous country in the Gulf Region. The economy of the UAE is largely based on oil extraction. Undoubtedly, the stance of the financial system is closely connected with the economic specialization of the country. Furthermore, the UAE is an Islamic state, and the peculiarities of its culture and people’s mentality influence the work of the financial intermediaries in the country. Loans play a very important role in the effective functioning of the financial system as they facilitate the achievement of one of its main goals. In particular, people use the borrowed money to finance their current needs. The aim of this article is to discuss the main features of the credit market in the UAE.
The savings are the sources for providing the loans, which can be considered as the means of moving money from the future to the present. The economists say that the banking system is the “circulatory system” of the national economy. Therefore, its stance is vital for the economic and social well-being. According to the view of IMF, the banking system of the UAE is “sound, but non-performing loans (NPLs) remain high, and lending to the private sector continues to sluggish” (IMF country report No.13/239, 2013, p.7). This means that the risk of the decrease in the solvency of the financial agents of the country remains high. The high risks make the interest rates rise. Taking into account that the interest rates represent the cost of money, their increase makes the borrowers economically disadvantaged in comparison with the lenders. The Central Bank plays a regulatory role in the financial market of the UAE. It is its function to use the mechanisms of the monetary policy to regulate the banking system and facilitate the achievement of the equilibrium in the credit market (Objectives, 2013). The UAE has a unique credit market due to the availability of certain financial products. In particular, the local banks offer Islamic loans. In contrast to the terms of the conventional loans, the profits on the Islamic loans are calculated by taking into account the provisions of the Islamic Shari’a (Obtaining Islamic loans, 2013). We can say that Islamic loans have been developed to address the specific needs of the economic agents in Islamic countries.
In summary, the credit market is the sphere of credit resources circulation. In the United Arab Emirates, it is characterized by a substantial level of development. The banks are the primary financial intermediaries operating in the market. They provide different kinds of loans, including Islamic loans, which represent the financial products specified in accordance with Islamic law. The International Monetary Fund indicates the high level of stability of the banking system in the UAE, although it pays attention to the significant portion of the non-performing loans in the banks’ portfolios.
IMF country report No.13/239. (2013). Web.
Objectives. (2013). Web.
Obtaining Islamic loans in Dubai. (2013). Web.