The bank guarantee scheme
introduced by the Ministry of Labor and Social Affairs will not only act as
a strong safeguard for the employees against non-payment of salaries and
other dues, but the huge sum of money the banks are likely to amass on this
count will strengthen the bottom lines of local banks.
While large companies with more than 1,000 employees are expected to get a
bank guarantee to the tune of Dh500,000 initially and thereafter for Dh3,000
against each employee joining the company, the medium-sized companies
employing 101 to 1,000 employees must obtain a bank guarantee for Dh300,000,
and thereafter for Dh3,000 against each employee joining the company.
In the case of small companies with 100 or fewer employees, the companies
have to arrange Dh3,000 in bank guarantees against each employee.
These deposits will easily add a few hundred million dirhams to the UAE
banking system which predominantly sits on short-term deposits.
"In a country where 80 per cent of deposits are with maturities of less than
three months, the deposits flowing into the banks for issuing bank
guarantees will certainly address the issue of lack of long-term deposits of
UAE banks to a great extent," said another bank. On the one hand these funds
can be utilized to acquire long-term assets and on the other, the banks will
make fee income in the range of 0.5 per cent to 1 per cent from issuing bank
The one genuine fear expressed against this new scheme is, whether
cash-strapped small companies will try to collect this deposit from the
employees themselves. The concern is mainly being raised in the case of
small companies employing only a handful of employees.
There are expatriate job seekers who are willing to pay hefty sums in order
to get a job in the Gulf. And for them, this additional Dh3,000 is being
explained away as an extra cost of getting a job. Some small establishments
have begun to alert their employees in advance of visa renewal that the
latter will have to pay.
"Some employers will "agree" with their employees to cut this Dh3,000 on a
monthly basis from their salary," an employee placed with a small tailoring
shop said. Though there is assurance on booking employers who do not honor
government orders in their true spirit, employees are scared that their job
will be at risk if they inform this to the authorities. "Moreover, employers
do not leave any proof regarding this with the employees, " a worker with a
small firm said.
In many countries, recruiting agencies take an undertaking from the
employees stating that the agencies or employers had not taken any extra
money other than services charges. "This practice is gaining momentum with
the introduction of the deposit scheme, " an agency source said.
UAE banks will call the shots
According to sources in the banking industry, the sum to be deposited by the
companies will depend on the relationship they maintain with the banks, as
well as the goodwill these companies enjoy in the market.
"The sums these companies have to place with banks can be conveniently
called margin deposits and the portion of the deposits they will have to
keep with the banks will be decided by the banks," said the head of
corporate banking with a local bank.