Global Compliance

How to Obtain a Private Loan as an Expatriate - Kuwait

Kuwait is a small Middle Eastern country that has rich oil resources. Its population of only 4.2 million consists of around 70% expats. It has one of the highest GDP per capita in the world and its currency, the Kuwaiti Dinar, is the most highly valued unit of currency in the world. Its economy is one that is quite strong, and the process of getting a loan is quite simple. The country’s banks are governed by the Central Bank of Kuwait who provides the legislation that all other banks in the country must follow. The CBK is bound in its responsibilities and powers by Law Number 32 of 1968. There are both Islamic banks and conventional banks from which loans can be obtained, though there is a slight variation between the two types of banks regarding their legislation and regulation. There are differences between the loans a national of the country can obtain and those a foreigner can. Loans also come in a variety of types depending on what the money is intended to be used for. The types of loans could include many things ranging from car loans to housing loans to education loans.

Obtaining a Private Loan
Documentation/requirements:
To begin with, there are certain documents that a Kuwaiti bank will be looking for before they will agree to provide a loan. Some of the generally desired documents include:

• Copy of civil ID.
• Passport copy.
• Original salary certificate.
• Copy of work permit.
• Bank statements for a select number of months.

Additional specifications and requirements include:

• Age requirement for Expatriates – 21-59 years old. The loan should expire before the individual reaches the age of 60.
• The amount must be at a minimum of KD 2,500 and up to a maximum of KD 70,000. The expatriate must also be on a minimum salary of KD 400.
• If the salary is lower than KD 400, but still at least KD 250, a smaller loan of the value of the individual's end of service indemnity can be taken out.

When applying for the loan, an individual will be required at a minimum to specify and provide on their application:

• Amount of the loan.
• Purpose of the loan.
• Loan repayment source.
• Repayment period.
• Present all the required documentation.
• Statement of the customer concerning any other similar obligations (loans) and whether they are from the same bank or a different bank.

These requirements are mentioned under section 3 which contain the revised instructions concerning the rules and regulations for granting consumer and installment loans by banks.

From this stage, the bank must then check the details (including the reason for the loan and verify repayment source). The bank must ascertain that the loan that they will provide is appropriate to the individual and their circumstances.
Types of loans:
There are a couple of kinds of loans that one can take out as personal loans. These include:

• Installment loans
• Consumer loans

Installment loans: These loans can be up to KD 70,000 (Kuwaiti Dinar). This type of loan is used primarily to cover the non-commercial costs, most often being houses or house renovations. This loan must be paid back within 15 years. This type of loan is renewable for up to 3 years in the case of non-performance.
Consumer loans: These loans can be up to fifteen times an individual's monthly net salary to a maximum of KD 15,000. This is a type of medium-term loan that must be paid back within five years of its commencement. This type of loan is meant to be used for the financing of personal purchases, such as durable goods or medical treatment costs, and is repaid in monthly installments. This loan is renewable for up to 1 year in the case of non-performance.
Applying:
Once the type of loan is decided, the application process can begin. To apply, you would first have to find which bank you would wish to obtain the loan from.
Different banks would offer varying incentives for choosing them including:

• Insurance;
• Different monetary benefits for transferring over to the bank;
• Different competitive interest rates.

In general, though you have to have money in a bank to apply for a loan from them. Once you have the appropriate bank selected, you can apply by going to their websites and follow their online application process. Alternatively, you can also visit your local branch or give them a call to get proceedings started. The bank would then check an individual's eligibility for the loan, which would include ensuring that they meet the minimum salary requirement and have the necessary documentation.
Interest:
Islamic banks follow Sharia law, and as such, they do not charge interest according to Chapter 3 Article 86, which states they must act like an average bank so long as it is accordance with their Sharia principles. Rather than interest, they will have other fees and methods of making their profits from loans.
Conventional Banks on the other hand charge interest based on the Rate which the CBK allows. The rate has a ceiling which cannot be passed. This rate is 3% above the central banks discount rate. This rate is subject to change by no more than 2% upon every five years maturity of the loan, as per the original contracts rate. As such, consumer loans will not be subject to changes in interest rates, though installment loans will be, twice during the loan repayment period.
The contract:
Once the particulars have been figured out, the next and final stage before the issuing of the loan would be to make an agreement. This contract would issue the start and end dates and also outline the monthly installment payments. Further, it would include the purpose of the loan. It would also consist of clauses relating to failures of pay in the case of a missed payment and also be concerning any issues that may arise due to job loss. As an expat, ones' position in the country is far less reliable, and due to this fact, certain insurances would be highly beneficial to both the banks and the individual taking out the loan.
The agreement must also include the customer's approval that the installments shall be claimed from their monthly salary directly from the employers account to the individual's account within that bank.
The following document shall also have to be obtained by the bank:

• The passport copy or ID card copy of the individual.
• The residence evidence (water or electricity bills etc.).
• Sufficient collateral to secure the loan.

In general, the process of obtaining a loan is quite simple in Kuwait. The application process is fast, and the documents required are those that one would expect. There are two different types of loans that one can get depending on what they are looking for. The Central bank of Kuwait governs the banks in Kuwait, and they send out regular circulars to all banks relating to any updates of the law. The general regulations on banking in Kuwait are produced by and can be found on the CBK website

Glossary

• Private loan: these are loans that are given to private individuals (as opposed to business entities) for purposes that are specified, secured by assigning salary and end of service indemnity or any regular income from a well-defined source.
• Loan security: a loan is secured to safeguard the bank that issues it. An asset belonging to the individual would secure the loan.
• Islamic Banks: Banks follow Sharia Law.
• Central Bank of Kuwait (CBK): the central bank of Kuwait is the governing bank of Kuwait. It produces legislation and monitors all the nation's banks. It also acts as the government's bank and ensures the steady growth of the country's economy.
• CBK Law: this is the law which sets out the powers of the Central Bank of Kuwait and how it can and shall interact with the other banks.
• Sharia Law: Islamic law that forms part of Islamic countries traditions. The rulings are derived from religious sources, and Islamic banks follow sharia law in that they do not charge interest on their loans.
• A circular regarding the rules and regulations for granting consumer and other installment loans: this is an official CBK document which was sent to all Kuwait banks which outlined particular guidelines for the procurement of loans for private individuals.
• Law Number 32 of 1968: the piece of legislation that sets out the powers and responsibilities of the CBK.