JEDDAH: There is an abundance of posters advertising the services of loan sharks posted around ATM machines across Jeddah.
The majority of loan sharks advertising their services offer to pay off people's existing bank loans, something that would allow them to qualify for new loans. However, the services they offer are considered illegal and it is only those who are desperate who usually turn to them.
Arab News contacted the telephone number on one of the posters and spoke to Abu Saleh, a private lender who, aside from working as a car dealer, offers illegal loans to people.
"The person asking for the loan should have an account at the same bank we deal with or he should receive his salary through that bank," said Abu Saleh, suggesting indirectly that he has a connection inside the bank. "If a person has a debt of around SR100,000 and wants to pay it, then he should approach us and we will give him a bigger loan with less interest. We would pay his debt in return for a SR20,000 commission," he added.
Abu Saleh said that a person who has a bank loan of SR20,000 for example and is in need of SR40,000 cannot obtain a new loan unless he pays off the old one. He added that he legalizes the loan by selling cars. The person looking for the loan will buy a car from him for SR40,000 and will then sell the car to the dealer for SR20,000. The dealer will then give the person SR20,000 to pay the bank and obtain a new loan.
The person will then obtain a new loan of SR80,000 of which he will keep SR40,000 and give the remainder, SR40,000, to the loan shark; this will cover the SR20,000 loan and SR20,000 commission.
"It's a risky process since it's not a financial institution or a bank that you're dealing with," said Abdul Wahhab Abed, an investment analyst. "When it comes to refinancing your loans, there are a lot of details such as the size and term of the new loan that needs to be negotiated otherwise refinancing could be a disadvantage," he adds.
"Refinancing can be very useful for people if the situation is right. The interest rate can change and it's best when it is low because the idea is to save money in the first place," said Abed. "Even in the presence of a business contract, it is prohibited to deal with those who offer to pay other people's debts, because they are not licensed to operate financial businesses," said lawyer Mohamad Nayta.
"The Interior Ministry and the Saudi Monetary Agency have prohibited it because selling loans is illegal and can lead to fraud," he added.
According to the human resources manager of a local bank, it is illegal for an employee to deal or help people who sell loans. "If we caught one of our employees doing this then we will launch an investigation and if he was involved then he will definitely get fired, especially if bribes were exchanged."
By RIMA AL-MUKHTAR
© Arab News 2010
