Buy Now Pay Later (BNPL) Licensing Requirements by Central Bank of the UAE

Buy Now Pay Later (BNPL) Licensing Requirements by Central Bank of the UAE

The Central Bank of the UAE (CBUAE) has updated Finance Companies Regulation which set out clear requirement for Buy Now Pay Later (BNPL) aka Restricted License Finance Companies.

Following are the salient features of these regulations for Restricted License Finance Companies:

Salient Features: Restricted Licence Finance Company

1-They may only carry on the provisions of Short-Term Credit (defined below)

2- They must be funded exclusively through shareholder’s equity, retained earnings and/or debt instruments

3-They are prohibited from accessing funds through Crowdfunding to finance their activities

4-They are prohibited from accepting deposits of any type

Maximum Credit

The maximum total Short-Term Credit extended to a Borrower by a Restricted Licence Finance Company or Agent, at any given time must not exceed Twenty Thousand Dirham (AED 20,000) or the total of three (3) months’ verified net income of the Borrower, whichever is lower.

Licensing Restrictions

1- Only Short Term Credit can be offered by such companies.

2- Credit period should not exceed 12 months.

3- Borrowers’ assets, including movable and immovable property, must not be used to secure (whether fully or partially), any Short-Term Credit extended to a Borrower.

4- Total Fees, including late payment Fees charged on any Short-Term Credit by a Restricted Licence Finance Company or Agent, must not exceed 30% of the original credit amount.

5- Restricted Licence Finance Companies or Agents must not charge interest on Short-Term Credit.

Capital Requirements

A Restricted Licence Finance Company must hold and maintain the higher of:

1- Aggregate Capital Funds of Twenty million Dirham (AED 20,000,000); or

2-  Aggregate Capital Funds equivalent to 5% of the outstanding lending volume.

Licensing Process

The applicant entities have to disclose, at the time of the application, the sources of funding for their activities/ business and immediately inform the CBUAE of any material changes in its funding arrangements

As part of the licensing process, applicant entities are required to submit a three (3) year business plan to the CBUAE with clear detail on the business model, lines of activity and governance arrangements

The CBUAE may require the applicant entities to appoint a skilled person(s) to carry out a third party assessment of any aspect of the company’s proposed business model/systems.

Note: Reach out to Limitless Consulting for licensing and compliance assistance.

Disclaimer: The purpose of this publication is to create awareness and has been written in general terms. This publication is not for any specific situation and therefore no opinion should be drawn from it for any particular circumstances.