Kuwait is considering plans for a $6bn consumer debt write-off that would be the latest mass official bailout of Gulf citizens who have broken the region’s harsh debt laws and sometimes ended up in jail.
Weeks after the United Arab Emirates released hundreds of debtors from prison, Kuwaiti ministers and the central bank are pushing back at proposals from a parliamentary committee to scrap interest payments equivalent to an average of $6,000 per Kuwaiti on all bank loans taken out by nationals between January 2002 and April 2008.
The battle has reignited debate over how to control ever-climbing personal debt levels in the oil-rich Arabian peninsula. The indebtedness has left Gulf leaders in a bind, as they have to balance enforcement of their strict financial laws – including jail terms for bouncing cheques – against the need for the kind of benevolent gestures the citizenry expects from them in exchange for not challenging their right to rule.
While Kuwait’s economic and finance committee has approved the interest cancellation initiative, it has triggered the same opposition from the government that derailed a similar plan in 2010. Mohammad Al-Hashel, the central bank chief, has estimated the write-off would cost 1.6bn dinars, while Mustafa Al Shimali, deputy prime minister and finance minister, has warned it would set a bad example to future borrowers.
“Many people don’t know how to use the credit card,” said one long-time bank official in the UAE. “They treat it as free money.”
The dispute underscores how Gulf customers’ traditionally strong appetite for loans has endured even the western financial crisis, with total consumer credit rising in the six countries of the Gulf Co-operation Council from $152.4bn in 2008 to an estimated $170.8bn last year, according to Lafferty Group, a financial research specialist.
One bright spot for the region’s rulers – and consumers – is that credit card debt has bucked the wider trend, falling from $9.3bn to an estimated $7.4bn over the same period that total consumer credit rose, according to Lafferty Group. Debit card issuance is far outpacing credit card growth in the region, as authorities tighten lending rules in an effort to tame borrowers who over-reach themselves in part because they think they will never have to repay the money.
Raghu Malhotra, Middle East and north Africa divisional president for MasterCard, said mass debit card issuance was now a “Gulf phenomenon”, with growth rates in double digits while the credit card’s once strong expansion flatlined.
While some of the rise in debit card use is a natural evolution as the market becomes more sophisticated, enthusiasm also stems from the past bad experiences of some consumers, say bankers and customers.
“People are using the credit card less,” said one Emirati bank worker, who added that she decided to pay off her own card after racking up hefty charges during a trip to Europe. “They say: ‘I have a bad history with [it] – and that’s a problem.’”
Back in the UAE, another young Emirati professional flourished a debit card on which the personal data were all but faded away because she has owned it for so long. But she suggested her cautious approach to spending was still unusual in a society where, for all the nascent official efforts to curb indebtedness, the thirst for credit is still some way from being quenched.
As she put it: “I don’t like Visa – I am different.”
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