A few months ago, a cousin of mine was offered a credit card with no maximum limit. In the matter of fact, all he had to do was to tell them when he would be free to meet their representative, with no bank statements or salary certificate required. And do note here that the representative was a lovely “she”. After explaining the benefits, which do not include miles hence flight upgrades; one benefit grabbed my attention. They assign to you an account manager whom you can call 24/7 to request for anything. For example, you can ask for tickets to any exclusive event, or simply flash your black with gold platted edges credit card at the entrance to gain access. For such exclusiveness, you pay 7,000 UAE Dirhams as annual membership fees though you only get offered if an existing holder recommends you!
They are always the benefits that tempt people to fill the application, whether it was a few miles per US Dollar spent or getting access to an exclusive event. In a Statistics class, the professor explained how we tend to spend more when we use credit cards because we don’t see the cash spent in front of us. And for someone having a few credit cards, total expenditure can amount to a huge amount of debt. The case here is that you can get a credit card from one bank, and then take a loan from the bank where your salary is credited. I witnessed a case! So in total, you can easily exceed the 50% that the central bank has set as salary deduction maximum which shouldn’t be exceeded. If this scenario is to happen on a large scale, the problem of accumulated debt will be recreated, only in a more severe manner!
Data related to total debt can be easily acquired from the central bank of the UAE, after which it gets analyzed to propose solutions wherever deemed necessary. The story is totally different with credit cards. They act like constant short-term debts due every 30-45 days, based on the bank’s accounting cycle; though you only have to pay a small percentage of total amount with interests, or fees in Islamic finance. To many, credit cards allow them to buy what they cannot afford, neglecting that credit cards should be used towards better financial planning rather than a route to financial insolvency. In times like these; cash circulation in markets is top priority, and credit cards eliminate current spending which harms the economy in the short-run; and in the long-run when people fail to meet obligations.
To conclude, credit cards are necessary in some cases like online shopping or for big purchases where checks might not be accepted and debit cards cannot be used. However, and because some banks offer benefits against unlimited spending; people have used credit cards to buy cars by depositing total price prior to the purchase! Then people use miles to purchase tickets for friends in exchange with cash. What a business model! There is almost nothing to fear if credit cards were used the right away, and if the central bank regulated them as they did with loans. There should also be a a framework set to limit the benefits that people get as credit cards are used to avoid usage abuse. Otherwise, I won’t be surprised if credit cards penetrated fish markets, and why not? We all like “free” flight upgrades after all!