UAE sets out legislation to regulate buy-now-pay-later credit

Image courtesy: WAM

The Central Bank of the UAE (CBUAE) on Wednesday set out legislation to regulate ‘buy-now, pay-later’ (BNPL), acknowledging the global shifts in consumer financial trends and the increasing demand for the financial services and products.

The UAE central bank said the provision of BNPL, or short-term credit can be carried out by entities operating as agents of licenced banks or financial institutions, following approval by the apex lender.

BNPL fintech firms can also provide short-term credit services upon being licenced by the central bank as restricted licence finance companies.

CBUAE said unlicenced entities that provide short-term credit in the country and intend to continue offering these services should either apply to be licenced by the central bank as restricted licence finance companies, or partner with licenced banks.

The central bank defines short-term credit as any credit that is granted to a borrower for not more than 12 months to purchase goods or services without interest being charged, a lien being placed against collateral or a security deposit being required from the borrower.

UAE fosters the growth of the BNPL ecosystem

Meanwhile, the UAE’s BNPL legislation comes at a time when the industry has experienced rapid growth worldwide, driven by increased consumer demand for flexible payment options and the continuous expansion of e-commerce.

Earlier in December, the Saudi Central Bank (SAMA) issued legislation to regulate the licencing of the BNPL platform as part of the central bank’s broader strategies to develop the financial services sector while empowering the country’s growing fintech ecosystem.

The legislation sets out minimum standards and procedures required to offer BNPL services.

Deloitte said the Middle East represents a substantial opportunity in the BNPL market due to historically under-utilised cards and a growing adoption of e-commerce. As a result, the total addressable market is projected to experience significant growth across the Middle East in the coming years.

Established BNPL players in the Middle East include Tabby (founded in 2019), Cashew (founded in 2020), and Saudi Arabia’s leading BNPL provider Tamara (founded in 2020).

Tamara raised $340m in a Series C equity funding round, which valued the BNPL at $1bn while UAE-founded Tabby, which is now based in Saudi Arabia, secured up to a whopping $700m in receivables securitisation from JP Morgan in December.

Read: BNPL startup Tamara now valued at $1bn after raising $340m