Global Compliance

Key Steps to obtain Private Loan being a Kuwaiti National

Kuwait is one of the six GCC countries and is a highly wealthy and yet small nation. It has a population of around 4.5 million, and is considered to have the third highest GDP per capita in the world. In the Middle East, it is second behind only Qatar. It has a largely oil based economy, though it has diversified to some extents, and is seen globally as a highly favorable business destination.

The population of the country consists largely of expatriates, with around 3 million of them, while the number of Kuwaiti nationals is closer to 1.5 million. While their population is low, they do make up a vital part of the country’s economy.

The Governing bank of the country is the Central Bank of Kuwait. Their responsibilities and duties are as follows:

• Act as the government bank.
• Produce and distribute the national currency throughout the country. The currency is the Kuwaiti Dinar, and is one of the strongest currencies in the world.
• Manage the country’s financial industry, and ensure the positive economic growth of the nation.
• Produce legislation that must be observed by all of the banking and financial service bodies within the country, and also distributing circulars with any updates or additions to the current legislations.

While the Central Bank does not provide personal loans in itself, it does set out the basic rules that banks must make sure they implement into their activities.

Applying and obtaining a loan

Required documentation:

The documentation requirements for a Kuwait national will be different from those required by a foreigner. The reason for this is simply because they are from the country, and will likely not have many of the documents that foreigners will require to live in the country. However, at a basic level, what will be require are as follows:

• Copy of civil ID;
• Salary certificate and;
• 3 months of bank statements.

These are the very basic requirements, and should not be considered to be the only ones. Individual banks will have their own specific requirements, which can be found on their websites or through contacting them. The requirements can be a lot greater than this should the bank choose to make it so. Also, there are further requirements including a minimum salary amounts and salary continuation certificates etc. In general, the minimum salary amount is Kuwaiti Dinar (KD) 400, though there will be banks that offer loans to those with lower salaries with certain additional caveats.

The reason for all of the requirements is due to the fact that it is up to the bank to decide whether they will provide the loan, and so they must be sure that those they are loaning money to will be able to pay them back.

The borrower of the money must also be between the ages of 21-69, as they must be able to pay of any loans they take before the age of 70. This is higher than the age a foreigner may borrow money at, as their limit is 59 years of age.

Along with the documentation being presented, the individual must make clear the details of the loan they wish to obtain. As per the Bank Loan Circular, Part 3 section 1, this involves specifying:

• The loan amount.
• Source of repayment.
• Purpose of the loan.
• Repayment period.

One all of the above has been brought before the bank, they will then take time to consider everything before providing the loan.

Types of Loans:

There are a couple of types of loans that would be available for a Kuwait national to take. These would include an Installment Loan and a Consumer Loan. These loans are both mentioned within the Bank Loan Circular under section 2 parts 1 and 2.

The consumer loan can be up to 15x an individual’s monthly salary to a maximum of KD 15,000. This is only a mid-term loan, and must be repaid within a period of 5 years. In the case of non-performance, a one year extension would be possible for the loan. The purpose of this form of loan is for personal use of the receiver in areas ranging from covering the costs of durable goods to medical treatment to personal purchases, and is to be repaid in monthly installments.

On the other hand, the installment loan is a longer-term loan, with a maximum amount of KD 70,000. Due to the nature of these loans and their higher value, they are more often used to cover non-commercial costs such as property purchase or renovation. The repayment time for this type of loan is around 15 years, with up to a 3 year extension in the case of non-performance.

Procedure for Application

In order to apply for a loan, the individual looking to obtain one would first have to approach a chosen bank. One they have first decided on which bank to approach, they must them contact them. There are three primary routes one can take, which are to fill out an application on the banks website, to contact the bank through email or phone call, or to visit their a branch of the bank to commence the process. After they have been in contact with the bank, the aforementioned processes can commence.

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. Part 3 section 10 of the Bank Loan Circular sets out the base rate, and it is as follows. The 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 instalment loans will be, twice during the loan repayment period.

Once all of this has been completed, the final stage is to write and sign a contract, which would confirm all of the details including the start and end dates, the total value of the loan, the interest rate payable or in the case of an Islamic bank, the method of obtaining the profit would be outlined. The method for a Kuwaiti national to obtain a personal loan is very similar to that of a foreigner, with a few minor differences, including the documentation required to obtain the loan and the age limit to applying for one.

Glossary

• The Central Bank of Kuwait (CBK): This is the governing bank of the nation of Kuwait and is responsible for the producing of legislation that all other banks follow.
• Law Number 32 of 1968: The Central Bank of Kuwait Law, which was introduced so as to set-up and introduce the Central Bank and outline its powers and responsibilities.
• Private/personal 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.
• Islamic Banks: Islamic banks follow Sharia Law. They must ensure all of their activities are compliant with Sharia Law.
• 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.
• Instructions Concerning Rules and Regulations for Banks’ Extension of Consumer Loans and other Instalment Loans (the Bank Loan Circular): This circular was introduced in 1996, and set out certain guidelines instructing banks on the topic of loans.
• Conventional Banks: These are any banks that are not specifically Islamic banks. The basic banking regulations within the country are intended for them, though Islamic banks follow a majority of the same legislations.
• Kuwait national: An individual that holds a Kuwait passport.