Financial analysts in West Asia view the growing defaults as part of a large crisis plaguing one of the fastest growing cities in the world.

Thiruvananthapuram: Kerala had witnessed a huge uproar when a firm in Dubai filed a case against the elder son of ruling Communist Party of India (Marxist) secretary Kodiyeri Balakrishnan in February this year for allegedly cheating the company of Rs 13 crore.

Benoy Kodiyeri saved his father from political embarrassment by returning to the emirate and settling the case. Later, it transpired that Benoy was not alone to run away from the city of dreams after failing to return money owed to business clients, banks and individuals.

He is among hundreds of Indians who are cooling their heels in their home country, with cheating cases pending against them in Dubai. There are more than 100 known cases in Ernakulam district in Kerala alone. The defaulters include the younger brother of Benoy and sons of Kundara MLA Vijayan Pillai and former state industry minister EP Jayarajan.

Some banks in Dubai have already taken the cases to the country. A group of banks have engaged a consultancy firm in Kochi to pursue their cases. While 48 cases are pending before the chief judicial magistrate court in Ernakulam, 18 are being investigated by the Crime Branch CID of the state police.

The defaulters have also joined hands to fight the case. They have come together under a common platform called Dubai Business Losers Association. Association leaders Dileep and V Vijayan said they had formed the association after the consulting firm tried to extract money by harassing them.

Financial analysts in West Asia view the growing defaults as part of a large crisis plaguing one of the fastest growing cities in the world. Mir Mohammad Ali Khan, an investment banker of international repute, has described it as a phenomenon called "I OWE YOU and will pay you later".

According to Ali Khan, a Pakistani national, this comes in the form of a payment model based on post-dated cheques. The model worked well when businesses flourished along with the surge in oil prices. However, cracks have started developing in the system with businesses plunging into crisis in the wake of the fall in oil prices.

Ali Khan, who has established and ran a business in Dubai for several years, said that the crisis had led to piling up of bounced cheques. According to him, from January 2018 to the end of May 2018, 1.2 million cheques worth 26 billion dirhams (7 billion dollars) have bounced.

Central Bank of UAE data, published in Khaleej Times, corroborates Ali Khan’s figures.

The report in the Dubai-based English daily said that nearly 4.3 percent of cheques issued by the UAE residents and entities bounced during the first half of 2018 with a total value of Dh26.2 billion.

According to Ali Khan’s research paper, the bounced cheques come to 39.3 percent of the total number of cheques issued in 2017 with payment due in 2018. The default in the first six months will cause the following six months from June 2018 to December 2018 to trigger a disaster in the making to be dealt by the authorities with no recourse, said Ali Khan in a research paper published in a freelancing, technology and motivational blog ‘being GURU’.

Ali Khan, who is the first Muslim to own an investment bank on the Wall Street in New York, has termed the crisis as a clear sign of Dubai’s economy melting like a glacier in the desert. The cracks in the payment system will hit Dubai deep as its financial structure is connected to its economic structure in the strangest manner, a phenomenon not found in many cities of the world.

He has cited several reasons to support his view that the situation cannot be redeemed. First is the fleeing of people who have written the cheque. He has tried to estimate the number of people who have fled the city based on the number of cancelled phone connections and children withdrawn from schools.

According to Ali Khan, 32,000 subscribers of Etisalat, UAE’s leading telecommunication operation, alone have cancelled their connection in just 38 days between March and April 2018. Similarly, more than 28,000 children have been withdrawn from schools without registering themselves for the end of summer sessions.

A Keralite teacher in ‘Our Own School’ which caters to Indian expatriates, told Firstpost that a large of Indians were taking TC and sending back the children to India. She said that the school has been losing five to ten students in every class in the last two academic years.

The teacher, who did not want to be identified, said that many schools were trying to survive by either freezing or reducing fees or offering extra curricular activities and free uniforms.

“This has never happened in Dubai earlier. The schools have been hiking fees every year till the last academic year,” she said.

A report in the National, a daily published from Abu Dhabi, said that a total of 22 Dubai schools chose to freeze their fees in 2017. Three schools have reduced their fees by 10 percent to 33 percent recently. Horizon International School, a leading school in the city, has slashed its fee by 33 percent for the 2018-19 academic year. Repton School and Foremarke School Dubai have announced a reduction of around 10 percent.

“I wish it had ended here. I wish the signs were not as obvious. But they are. Dubai property that used to be sold at 2,300 dirhams per square foot is selling at less than 600 dirhams per square foot. Gold Souk has empty stores for the first time in 35 years. You could not find a single empty store to rent or buy earlier,” Ali Khan said.

He said that stores in Arabian Center, Sunset Mall and Al Ghurair were being shut down every week. Last month alone 18 hotels such as Savoy, Ramada, Richmond, Jarmond and Crest have been shut down. Other hotels have cut their average price to 30 percent of what they used to charge.

“Abraaj Capitals, the nerve centre of Dubai’s financial system, has nearly collapsed. The collapse, the biggest confidence eroding incident ever to have taken place in the history of Dubai’s financial system is a nail in the coffin of Dubai’s financial system,” Ali Khan said.

“This is a bad cycle that Dubai is going through, the bottom of which, in my opinion we have not seen yet. Nowhere even close to it. With media censorship and controlled release of any and all news, you will not even hear these stories in Dubai. Unless you want to be a journalist who loves jail food,” he said.

Several NRIs contacted by Firstpost said that the situation in Dubai, which used to be a favourite destination for Indians, is getting worse. Sajeevan, who heads the customer response division in a private company, said that the company had withdrawn most people from his division.

“I am the next target. I am getting ready to pack off as there is no scope for finding an alternative job in Dubai at present,” he said adding that continuation of many Indians in the city was becoming increasingly untenable.

However, people like KV Shamsudheen, who has been living in Dubai for the last four decades, is optimistic. “Dubai has faced several crises in the past. The rulers have made them opportunities to take the city to the top of the world. I am sure the leadership will continue this strategy and overcome the present crisis,” he told Firstpost.

Shamsudheen said that the rulers cannot sit idle as the city has to host the 2020 World Expo, which will open up a lot of fresh opportunities for the migrants.