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  • CM-5 CM-5 Consumer Finance

    • CM-5.1 CM-5.1 Overview

      • CM-5.1.1

        This Chapter sets out various requirements regarding the provision of consumer finance within the Kingdom of Bahrain by the CBB licensees. The aim of these requirements is to encourage:

        (a) Prudent financing by licensees providing consumer finance; and
        (b) The transparent disclosure of the full costs and terms on which licensees offer consumer finance.
        Added: June 2022

    • CM-5.2 CM-5.2 The CBB’s Approach to Consumer Finance

      • CM-5.2.1

        Islamic bank licensees are reminded of their obligation to implement a sound internal controls framework, including an effective credit culture (as outlined in Section CM-1.2).

        Added: June 2022

      • CM-5.2.2

        Islamic bank licensees which offer consumer finance facilities to residents of Bahrain must follow the Code of Best Practice on Consumer Credit attached as Appendix CM-2 in Part B of the Rulebook. Failure to adhere to the Code may result in enforcement action as outlined in Module EN.

        Added: June 2022

      • CM-5.2.3

        Islamic bank licensees are also reminded of their obligations to display and communicate charges and APRs clearly (as outlined in Section BC-4.3).

        Added: June 2022

      • CM-5.2.4

        The measures presented in this Chapter should be viewed as minimum standards, rather than best practice. They are aimed at encouraging prudent financing and full, frank and fair disclosures. These measures should be read in conjunction with the ‘Code of Best Practice on Consumer Credit and Charging’ which was agreed jointly between the CBB and the Bahrain Association of Banks (see Appendix CM-2).

        Added: June 2022

      • Ongoing Effort by the CBB

        • CM-5.2.5

          The CBB supervisors and examiners will also focus on licensees' implementation of the ‘Code of Best Practice on Consumer Credit and Charging’ in their ongoing supervision of licensees, to monitor and encourage sound financing practices and disclosure standards.

          Added: June 2022

    • CM-5.3 CM-5.3 Definition of Consumer Finance

      • CM-5.3.1

        Consumer finance is the provision of any form of credit facility to an individual excluding:

        (a) Any financing secured by a first charge on residential property to an individual, where the obligor lives in, or intends to live in the property;
        (b) Any credit facility secured by cash or investments, where the security provided more than covers the principal of the credit facility;
        (c) The provision of any form of credit to an individual for business purposes where the facility is to be repaid from the business activities of the obligor; and
        (d) Any credit facility awarded based on eligibility as per the Social Insurance Organisation’s Pension Commutation Scheme.
        Amended: January 2023
        Added: June 2022

      • CM-5.3.2

        For the purposes of the Rulebook, ‘credit facility’ includes personal overdraft facilities, credit cards, consumer financings or other financing facilities. ‘Consumer finance’ is defined as financing for a fixed period to individuals for non-business purposes.

        Added: June 2022

    • CM-5.4 CM-5.4 Maximum Limits

      • Total Repayments Ratio

        • CM-5.4.1

          Licensees may only provide a new consumer facility (or renew, extend or otherwise modify an existing consumer facility) for an amount so that the obligor’s total monthly repayments on all their consumer finance commitments do not exceed 50 percent of their monthly gross income. This limit may only be exceeded in the circumstances described in Paragraphs CM-5.4.6 and CM-5.4.9.

          Added: June 2022

        • CM-5.4.2

          When reviewing an applicant for a consumer facility, licensees may only take into consideration regular income. A spouse’s income may only be taken into consideration when the credit facility would be in joint names, so that the spouse would also be legally liable for the obligation incurred.

          Added: June 2022

        • CM-5.4.3

          Notwithstanding the above limit, licensees must review, in detail, an applicant’s personal financial standing and ability to service their obligations. Where a spouse’s income is being taken into consideration, their individual circumstances must also be similarly assessed. In many cases, these reviews may require consumer finance repayments to be kept significantly below 50 percent of monthly gross income.

          Added: June 2022

        • CM-5.4.4

          Licensees must enquire as to applicants’ sources of income, their credit history, their regular outgoings and other financial commitments, including potential liabilities such as guarantees. Particular attention must be paid to housing costs (such as payments for social housing schemes). A person’s regular income, net of consumer finance repayments and other financial obligations, must remain sufficient for that person to support himself and any dependents. Licensees must also take into account likely future trends in income and outgoings, and the impact this may have on the 50 percent ratio.

          Added: June 2022

        • CM-5.4.5

          When factoring in credit cards into the repayment limit in Paragraph CM-5.4.1 above, licensees must include 5 percent of the credit limits available on these facilities. If the amounts outstanding (including profit) under such facilities exceed their limit, then the full amount outstanding must be included in the repayments ratio calculation. Charge cards are not included under this definition.

          Added: June 2022

        • CM-5.4.6

          In the case of high earners – defined for these purposes as persons earning more than BHD 3,000 per month – the 50 percent limit may be relaxed, provided that the licensee has undertaken the review required in Paragraph CM-5.4.4 and is satisfied that the obligor can comfortably support a higher facility service ratio.

          Added: June 2022

        • CM-5.4.7

          The review undertaken to satisfy requirements, as outlined in Paragraph CM-5.4.4, must be documented and made available to the CBB’s examiners upon request. The documentation must include all relevant information used to support the decision to extend credit facilities. In the case of high earners who are granted a facility in excess of the 50 percent limit, the documentation must also include a written statement, signed by an appropriate member of management, explaining the justification for relaxing the limit.

          Added: June 2022

      • Maximum Tenor Limit

        • CM-5.4.8

          The maximum tenor for instalment consumer finance is 7 years. In the case of any restructuring of a consumer finance facility repayable in instalments, the stated final maturity must be within 7 years from the date of the original facility. The tenor may not be extended more than twice during the period of the agreement and in any case not extended beyond the 7-year duration.

          Added: June 2022

      • Non-compliant Facilities

        • CM-5.4.9

          Where a customer’s monthly gross income falls (e.g. due to redundancy, disability or a similar event outside the control of the customer), the licensee must identify such accounts as ‘technically non-compliant’. If a customer requests an extension to the tenor of the facility due to reduced income, then the licensee may increase the term to assist the customer. The licensee must take account of the 50 percent limit outlined in Paragraph CM-5.4.1. Such facilities must also be identified as ‘technically non-compliant’.

          Added: June 2022

    • CM-5.5 CM-5.5 Refunds and Prepayments

      • Refund/Adjustment of Insurance Premium on Financing Prepayments and Top-Ups

        • CM-5.5.1

          Islamic bank licensees must refund/adjust proportionately the insurance premium charged on individual credit facilities when the customer either requests for a top up or prepayment of the credit facility as per the prescribed formula below:

          Added: June 2022