View the publication here.

The Dubai Financial Services Authority (the “DFSA”) announced several legislative changes made to the DFSA Rules with entry into force on 1 June 2022 and aiming to bring regulatory clarity for a new specialist fund in the Dubai International Financial Centre (the “DIFC”), namely credit funds (the “Credit Fund Regime”). Credit funds are a type of collective investment scheme through which investors’ monies are pooled in order to either originate or acquire loans, or both. The DFSA had noted that, after the financial turmoil of 2008 and the resulting banking credit crunch across markets, credit funds emerged as an attractive asset class for many investors, even more in consideration of the low interest rates environment that persisted since. The introduction of the Credit Fund Regime followed the prior issuance of the Consultation Paper No. 142 on 20 December 2021, following which the DFSA garnered comments from the industry up until the closing of the consultation process on 19 January 2022.

Pursuant to the Credit Fund Regime, a DIFC fund will be regarded as a credit fund if its investment objective is to use at least 90% of its assets (i.e. investors’ monies) to “Provide Credit”, including by acquiring loans (meaning by purchasing, taking transfer of, taking credit risk or part of credit risk attaching to, or taking other exposures to, the loan) (the “DIFC Credit Fund”). Pursuant to the DFSA Rulebook, “Providing Credit” is defined as the provision of a credit facility to a person (whether individual or body corporate) in its capacity as a borrower or potential borrower.

The Credit Fund Regime with respect to DIFC Credits Funds

Structure: the DIFC Credit Fund must be structured as a closed-ended company or partnership (excluding open-ended or trust structures).

Fund manager: the DIFC Credit Fund must be managed by a DFSA-regulated fund manager (excluding a foreign fund manager).

Investors: the DIFC Credit Fund may only be an Exempt Fund or a Qualified Investor Fund, and therefore target investors categorised as professional clients (excluding retail clients) in accordance with the DFSA Rules.

Term: the term of the DIFC Credit Fund cannot exceed 10 years.

Restricted instruments: the DIFC Credit Fund may not provide credit facilities that are:

  1. letter of credits;
  2. financial guarantees; or
  3. trade finance unless the finance is for the trade of goods or services that takes place wholly within the United Arab Emirates or another country.

Restricted borrowers: the DIFC Credit Fund may not provide credit facilities to:

  1. individuals;
  2. the fund manager, a related party of the fund manager or any other person acting for or on behalf of the fund manager;
  3. another fund or fund manager;
  4. a financial institution or person related to a financial institution;
  5. a person who intends to use the credit for the purpose of trading in investments, commodities or crypto assets; or
  6. a person who intends to use the credit for the purpose of “Providing Credit”.

Risk diversification strategy: the fund manager of the DIFC Credit Fund must have a clear strategy which aims, within a specified period not exceeding three years from the date the DIFC Credit Fund is established, to achieve a diversified portfolio of loans that limits exposure to any one person or group to a maximum of 25% of net assets.

Borrowing limit: The borrowing of the DIFC Credit Fund may not exceed 10% of its net asset value at any time.

Reporting to investors: The reports the DIFC Credit Fund must (whether annual or interim) must include the following information about credit provided and loans acquired:

  1. a breakdown between senior secured debt, junior debt and mezzanine debt;
  2. a breakdown between loans with an amortising repayment schedule and loans with bullet repayments;
  3. a breakdown of the loan-to-value ratio for each loan;
  4. information about non-performing exposures and aggregated information about exposures subject to forbearance activities; and
  5. any material changes to the credit assessment and monitoring process.

Offering memorandum: The offering memorandum of the DIFC Credit Fund must include (in addition to the standard requirements pursuant to the DFSA Rules):

  1. a prominent risk warning setting out risks that are specific to the DIFC Credit Fund (also applicable for marketing material);
  2. information about the specific lending strategy;
  3. information about any intended concentration with respect to individual entities, geographic locations and sectors and risks arising therefrom;
  4. its risk diversification strategy; and
  5. whether borrowing by the Fund is permitted and the related limitations.

Policies: the DIFC Credit Fund must have in place appropriate written policies and procedures relating to:

  1. the assessment, pricing, granting, managing and acquiring of credit, in accordance with a defined risk appetite statement;
  2. credit monitoring, renewal and financing;
  3. the criteria, governance and decision making structures for (i) and (ii)above;
  4. collateral management;
  5. concentration risk management;
  6. valuation, including collateral valuation and impairment;
  7. identification and management of problem debt;
  8. forbearance;
  9. delegated authority; and
  10. documentation and security.

Stress-testing programme: the DIFC Credit Fund must implement a comprehensive stress-testing programme that shall be carried out and the results of which shall be reported at least annually to the governing body of the DIFC Credit Fund, or at more frequent intervals as the DFSA may require.

License application fee and annual fee for the fund manager of the DIFC Credit Fund: USD 10,000 for the license application fee and USD 10,000 for the annual fee.

Capital requirement for the fund manager of the DIFC Credit Fund: The capital requirement for the fund manager should amount to the higher of:

  1. USD 140,000 (being the applicable base capital requirement); or
  2. 18/52 of the annual audited expenditure, calculate in accordance with the DFSA Rules.

The Credit Fund Regime also addresses foreign funds for the purpose of the DFSA Rules and treats them as credit funds if their investment objective is, or includes, “Providing Credit”, including by acquiring loans (noticeably under a broader definition as there is no mention of the 90% threshold established for DIFC Credit Funds) (the “Foreign Credit Fund”).

It is worth noting that a DFSA-regulated fund manager will not be permitted to be appointed as the fund manager of a Foreign Credit Fund. The Credit Fund Regime also established a number of criteria applicable under certain circumstances in the event of marketing Foreign Credit Funds in the DIFC (specifically when such marketing of foreign funds seeks to rely on f Article 54(1)(a) of the DIFC Collective Investment Law):

  1. the Foreign Credit Fund is closed-ended;
  2. it satisfies the conditions that would be necessary for it to be an Exempt Fund or Qualified Investor Fund if it was a Credit DIFC Fund;
  3. it has in place appropriate policies and procedures for assessing, pricing, granting, managing and acquiring credit;
  4. it has in place an appropriate stress testing programme; and
  5. it is subject to regulatory requirements that provide an equivalent level of protection to that provided under the DFSA Rules (including the regulatory requirements as highlighted above in relation to DIFC Credit Funds).

Our Experience

lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.

This article is for information purposes only. It does not constitute professional advice or an opinion. Please contact us at for any questions.

Romain Rolland
Romain Rolland
Head Of Office
Hooriya Qazal Rajput
Hooriya Qazal Rajput
Managing Partner