Written by Tasawar Ulhaq, Director · Last reviewed 23 September 2026
The UAE is attracting a growing share of global private credit activity because it offers a stable, common-law-compatible base in DIFC and ADGM, proximity to Gulf capital and family offices, and fund structures — particularly the Qualified Investor Fund — that are fast and flexible enough to support direct lending strategies. For managers, the practical questions are how to structure the fund, how loans are originated and secured, and how cross-border enforcement will actually work if a borrower defaults.
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Why Private Credit Managers Are Choosing the UAE
Global private credit growth has coincided with tighter bank lending in several markets, pushing borrowers toward direct lenders. The UAE benefits from three factors at once: deep pools of regional capital looking for yield, a regulatory environment (DIFC and ADGM) that supports institutional-grade fund structures without the multi-year build-out timelines seen elsewhere, and a geographic position that makes it a natural base for lending into the wider Gulf, South Asia and African markets as well as more established jurisdictions.
Structuring the Fund
Most UAE private credit vehicles are structured as QIFs, given the institutional investor base and the need for flexible drawdown and borrowing provisions. Key structuring decisions include the fund’s borrowing powers (many credit funds use leverage at the fund level to enhance returns), the treatment of interest income and withholding tax across the jurisdictions where borrowers are based, and whether the fund lends directly or through a special purpose lending vehicle to ring-fence individual loan exposures.
Open-Ended v Closed-Ended Structures
Direct lending strategies typically favour closed-ended structures with defined investment periods, matching the illiquidity of the underlying loans. Open-ended structures are workable for more liquid credit strategies but require careful liquidity management provisions — gates, side pockets or redemption notice periods — to avoid a mismatch between investor redemption rights and the fund’s ability to realise loan positions.
Loan Origination and Borrower Due Diligence
Origination due diligence for UAE-based private credit funds needs to go beyond standard financial covenants. Cross-border borrowers bring additional layers: verifying the borrower’s corporate structure and beneficial ownership, understanding local insolvency and enforcement regimes in the borrower’s home jurisdiction, and confirming that any offshore holding structures used by the borrower do not obstruct the lender’s ability to reach the underlying assets on default. AML and source-of-funds checks on both borrowers and, where relevant, guarantors are increasingly scrutinised by both DFSA and FSRA as part of fund supervision.
Security Packages Across Borders
A well-drafted security package for a cross-border loan typically layers multiple forms of security: share pledges over the borrower or holding entities, mortgages or charges over key assets, assignments of receivables, and guarantees from parent entities where available. Each element needs to be valid and enforceable under the law of the jurisdiction where the relevant asset or entity sits — a security interest that is perfectly valid under DIFC law may be unenforceable, or need local re-registration, in the borrower’s home jurisdiction. This is one of the most common gaps in cross-border private credit documentation and one of the most expensive to discover after a default has already occurred.
Enforcement When a Cross-Border Borrower Defaults
Enforcement strategy should be considered at the term sheet stage, not after default. Relevant questions include: which courts have jurisdiction under the loan documents, whether a UAE or foreign judgment will actually be recognised and enforced in the borrower’s home jurisdiction, and whether local insolvency proceedings in that jurisdiction would prioritise other creditors ahead of the fund’s security. Funds lending into jurisdictions without reliable judgment reciprocity often build in additional protections — offshore share pledges that can be enforced without going through local courts, for example — precisely because local enforcement cannot be relied upon.
Frequently Asked Questions / Questions & Answers
What structure is best for a private credit fund in the UAE?
Most managers use a closed-ended Qualified Investor Fund in DIFC or ADGM, which supports the drawdown structures, borrowing powers and illiquid holding periods typical of direct lending strategies.
Do UAE private credit funds need a banking licence to lend money?
Generally not, provided the fund is lending its own capital rather than taking deposits or otherwise carrying out banking activities. Fund-level lending is typically regulated under the fund manager’s licence rather than a separate banking licence, though this should be confirmed for each specific strategy.
How is cross-border loan security enforced from the UAE?
Enforcement depends on the law governing the specific security and the jurisdiction where the underlying asset sits. Security should be structured and, where necessary, locally registered in each relevant jurisdiction at the outset, rather than assumed to be enforceable purely because the loan documents are governed by DIFC or English law.
Can a UAE private credit fund use leverage?
Yes, subject to the fund’s constitutional documents and the borrowing limits set out in its offering memorandum. Leverage terms should be disclosed clearly to investors and structured within the fund manager’s risk and liquidity framework.
What due diligence is needed before lending to a cross-border borrower?
Beyond standard financial and covenant analysis, lenders should verify the borrower’s beneficial ownership and corporate structure, assess local insolvency and enforcement risk in the borrower’s jurisdiction, and confirm that offshore holding structures do not obstruct access to underlying collateral.
Speak to Saracens Dubai
Saracens’ Dubai Banking & Finance team structures private credit and direct lending funds, negotiates cross-border loan and security documentation, and advises on enforcement strategy for defaulting borrowers.
Visit our Banking & Finance page, call our team on +971 (0) 4 319 7928, or email info.uae@saracenssolicitors.ae to arrange a consultation.
