Lebanon: Rise in fraud prompts crackdown on unauthorized money lenders

Published August 22nd, 2016 - 08:00 GMT
Banks and financial institutions have until the end of November 2016 to be in compliance with the terms of the circular. (File photo)
Banks and financial institutions have until the end of November 2016 to be in compliance with the terms of the circular. (File photo)

Lebanon's Central Bank has prohibited all commercial banks and financial institutions from dealing with unlicensed money dealers and money lenders.

According to Circular 432 on August 16, banks and financial institutions are prohibited from conducting off- and on-balance sheet financial and nonfinancial operations with individuals or companies that are not on the Central Bank’s lists of authorized money dealers or money lenders and that are active in either business.

One banker said this decision was taken following numerous complaints that citizens are falling victim to fraudulent money lenders. “There are probably dozens of unlicensed small money lenders that offer quick personal loans to citizens who may not be qualified to obtain loans from banks or financial institutions. These firms sometimes request gold, jewelry as collateral,” the banker added.

Such dealers not only charge higher interest rates on loans than banks, but also offer higher interest rates on “deposits.” The problems arise when they are unable to return those monies either due to a lack of liquidity or nonpayment by their debtors.

The banker said any money lender or money dealer who wants to obtain a license from the Central Bank must comply with strict conditions in line with the Money and Credit law.

Some of these unlicensed companies have even launched wide campaigns on TVs and billboards to lure customers to their tempting offers.

The Interior Ministry and security forces have raided and closed some of these money-lending companies following complaints from their previous customers.

There are no official statistics on the actual number of money lenders and money dealers that operate without a license or a permit from the Central Bank, but sources estimate the number to be quite large.

It is also not clear how many people were duped by these dealers.

Circular 432 amends Basic Circular 81 dated Feb. 21, 2001, about financial institutions’ operations that are related to credit, investment, shareholding and participation. The amendments consisted of adding a new article to the original circular.

The circular also prohibited banks and financial institutions from doing business with the shareholders of money dealing and money lending institutions that are not on the Central Bank’s lists.

Banks and financial institutions have until the end of November 2016 to be in compliance with the terms of the circular.

The Central Bank said money lenders usually extend loans to physical or moral entities that do not have easy access to the official financial system, in exchange of collateral.

In January 2016, the Central Bank issued Basic Circular 2 that regulates the operations of money lenders in Lebanon.

It also issued Intermediate Circular 410, which prohibits banks and financial institutions from extending loans, directly or indirectly, to money lenders.

Bankers believe the new circular will make it very difficult for the unlicensed money dealers and money lenders to operate normally. They say citizens should avoid dealing with such suspicious firms in the future even if the loan offers are too tempting to resist.


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