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TME Services

UAE: Supreme Court Bans Compound Interest in Financial Transactions5 min read

Author: Uwe Hohmann
Managing Partner, MBA Tax Law / Commercial- & Tax Consultant

The UAE Federal Supreme Court has made a landmark ruling that will transform financial transactions in the country. The court has banned compound interest in a decisive judgment.

Implications of the Ruling

The Supreme Court’s ruling carries significant implications for both financial institutions and borrowers. Financial institutions must change how they calculate and apply interest to loans and credit facilities. They must align their practices with the legal framework, transitioning from compound interest calculations to a simpler interest model.

On the other hand, Borrowers stand to benefit significantly from this decision. The prohibition of compound interest offers protection against accruing interest on interest. Moving towards a simple interest model makes loan repayments more manageable and predictable, reducing the risk of spiraling debt burdens.

Broader Legal and Economic Context

The Supreme Court’s decision reflects a broader commitment to strengthening the legal and regulatory framework governing the financial sector. It underscores a dedication to ethical lending practices, safeguarding consumer interests, and upholding the financial system’s integrity.

In the broader economic context, this ruling may influence lending and credit practices, potentially leading to more conservative risk assessments by financial institutions. However, it also promotes a more sustainable and equitable economic environment, encouraging responsible lending and borrowing practices.

How TME Services Can Support Your Business

The UAE Federal Supreme Court’s decision to ban compound interest is a groundbreaking precedent in the country’s financial sector. By aligning with global standards of fairness and transparency, this decision enhances consumer protection and promotes a more stable economic environment. As the implications of this ruling unfold, it is poised to have a lasting impact, fostering a culture of responsible finance and ensuring equitable outcomes for both financial institutions and consumers.

At TME Services, our team of 45 experts is ready to help your business make the most of these opportunities. With over 18 years of experience in the UAE and the Middle East, we specialize in legal, tax, accounting, and compliance matters. Visit our services page to learn more about everything we do.


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