Over the years, a minor issue has turned into an absurd crisis. Some observers have said that the reason behind this crisis is the excessive desire for luxury, whereas others believe that it lies in the absence of any government control over banks, which compete in offering attractive services. The crisis of personal loans in Kuwait emerged as a daily issue, and has turned into the most severe crisis in the Gulf, overthrowing a national assembly and raising storms in every new one. Some have wanted to take a popular position by calling for a complete cancelation of citizens’ debts — by allowing the government to purchase the loans — or to cancel the interest. Others have rejected this solution, however, considering it lacking in justice and equality.
In the rich country of Kuwait, citizens borrow money to go on a trip, renew their furniture or buy a car, and probably to undergo plastic surgery or gastric bypass surgery, but others borrow to build a house or to pay for medical treatment.
Ahmed Al-Shamari said: “Yes, I borrowed a large sum of money from a bank to pay for a trip to France. My children wanted to travel just like the others, and the material resources that I had were not enough. I am still paying off the loan and its interest at present.”
Mariam Sanad also admits that she borrowed money to have a life that conforms to community requirements, and that she is paying the loans with her husband. Lulwa Abdullah is under pressure, as banks have pressured her and her husband to repay their outstanding loans. “Because my salary is not enough [to repay them],” according to her.
The situation of Amal Mohammed is similar to that of others. She borrowed a large sum of money to buy new furniture for her home and enroll her children in a prestigious foreign school, but today she is unable to repay. She hopes, like others who have defaulted, that the debts will be written off. “The hope exists with the new national assembly,” she said.
Kuwaiti youth are stuck in the cycle of debts and loans and are unable to resist offers from banks, which include so-called “facilitating loans.” These loans attract the client by offering the largest possible amount of money for the longest repayment period, secured by everything the client owns. This is not limited to the client’s salary, but includes any property, land and real-estate that they possess.
In addition, other offers exist under different names and end with a dark cloud. This situation is reflected in the Kuwait Ministry of Justice’s declaration that the latest statistics showed that 52,708 travel bans were issued, the majority of which were against debtors. In addition, more than 26,000 warrants were also issued, so that the judiciary could examine their files, according to the latest statistics of the Department for the Execution of Sentences for the year 2012. Statistics show that — according to the geographical distribution of debtors — among those who need to be brought in front of the judiciary, the number of Kuwaitis exceeds the number of non-Kuwaitis. This means that personal borrowing and non-payment of loans are growing, causing knock-on effects, such as a travel ban or detention of Kuwaitis.
Mohammad al-Hashel, governor of the Central Bank of Kuwait, the official body charged with monitoring banks, said that 341,206 citizens have loans versus 412,359 who don’t. He added that some borrowers are under 21 and are students at universities and institutes.
The government and parliament have made great efforts to find a solution to this crisis. In 2008, a law was passed to establish a fund aimed at addressing the situation of citizens who were struggling to repay consumer loans and installments to banks and investment firms.
According to the law, a struggling debtor is someone who has been sued in court by creditors, or whose financial situation has been burdened by payments or monthly commitments leading to an increase in their monthly obligations by 50% of their monthly income.
A fund affiliated with the Ministry of Finance is being established to deal with such cases. It will be supplied for by the state’s general reserve with an amount not exceeding 500 million Kuwait dinars [$1.7 billion].
Not all citizens are content with the fund. Some have seen it as a partial solution rather than a cure for debt.
According to Abdullah al-Ali, who is struggling to repay his loans, the root of the problem is that borrowers are no longer able to pay back their debts.
Mohammed al-Khalil, an indebted citizen, says that the fund minimizes the problem but does not end it. He called for solutions to be found that would address or deal with all assumptions and situations, as well as repayment stages, which help the borrower find a source of income to repay their debts.
Observers believe that the continuing crisis of the Kuwaitis’ struggle to repay their debts, especially among the youth, lies in the spread of an unhealthy consumer and financial culture in the absence of regulation. In some cases, an indebted person might benefit from a settlement to end their debts, but stumble again due to re-borrowing. This should prompt society to review its culture on regulation of financial matters. In addition, people must carefully calculate their budgets and avoid overspending, and more supervision should be imposed on banks.
The new National Assembly is still playing on popular issues just like previous parliaments. At times, it calls on some of its members to drop the loans of defaulters, or at least cancel their interest. Governor Hashel sees it as a waste of public money, whereas observers say it fosters a culture of consumption and dependency among the youth.
Today, the Kuwaiti people are awaiting the fate of their “popular” cause, which started out as an individual incident and turned into an economic crisis related to the squandering of public money. It has led to a lack of justice between borrowers and non-borrowers, especially should the state adopt one of the options available, such as dropping or buying debt, or cancelling interest.
Will this issue be dealt with conclusively by the new National Assembly? What would deter new borrowers eager to travel and change their cars and home furniture from doing it again?