Indebted Kuwaitis yesterday said they favoured the national assembly's support for a bill that would see the interest on their loans cancelled.
Kuwaitis back bill to scrap loan interest
KUWAIT CITY // Indebted Kuwaitis yesterday said they favoured the national assembly's support for a bill that would see the interest on their loans cancelled and the size of their monthly instalments reduced. "I think it's a good decision," said Munir al Baqshi, a government employee who borrowed 60,000 Kuwaiti dinars (Dh767,600) from a commercial bank and 70,000 dinars from a government bank five years ago to buy a house. "I won't benefit a great deal from it because the banks take their interest in the first few years, and then you pay back the original sum."
Mr al Baqshi said he paid 50 per cent of his salary towards the monthly loan payment in the first couple of years, and the payment was then reduced to 40 per cent. If the new bill overcomes opposition and is ratified by the emir, a debtor will pay a maximum of 35 per cent of his monthly salary on loans, saving Mr al Baqshi a further 5 per cent of his wages every month. Mr al Baqshi said the high payments in the early years combined with the moving costs after buying a house caused some hardships, but "my wife and I take sound financial decisions and have good economic planning. I wouldn't say it was comfortable, but I was able to travel on holiday every other year, maybe to Dubai or Lebanon".
"We tried as much as possible not to squander money. I don't change my mobile every six months, I've had it for three years now, and my wife is the same. My car will be 15 years old next month," Mr al Baqshi said. He said most Kuwaitis borrowed for sensible reasons and around 90 per cent of the people he knows who borrowed money from banks used the money to buy houses. But not all Kuwaitis follow Mr al Baqshi's conservative financial approach. Some used the loans for luxury items and holidays, and others put it in the stock market in the hope of making a quick return. For more than a few, especially with the global financial turmoil, the risk did not pay off.
Some Kuwaitis believe that it is their right to share in the benefits of an oil rich state. "We live in a rich country, it has a lot of treasures and we are entitled for generations to come," Fatten al Naqeeb, a managing partner at the Al Naqeeb and partners' law firm, told The National while the bailout package was being discussed last year. "Myself, all my friends, we have personal loans and we all suffer from that."
Ms al Naqeeb had just finished paying off a loan she received to buy a Porsche and might borrow again. She said many of her friends borrow up to one and a half times their annual salary, which puts their debts in the region of 70,000 dinars. After the bill was passed with 35 votes for and 22 against, the government was quick to slam the result, and it is now considering what to do next. Roudhan al Roudhan, the minister of state for cabinet affairs, said: "The most likely option is that we will recommend that his highness, the emir, rejects the bill."
Alternatively, the government could reject the bill as it did not receive the support of two thirds of the house - or 44 votes - Aseel al Awadhi, an MP, said. In this case the bill will go back to parliament for another vote. Ms al Awadhi voted against the bill because she said it will not help those who are in real need quickly enough, it violates the current banking law and it cannot be practically applied.
Critics of the law argue that by giving special treatment to those who have taken loans over those who did not, it treats people unequally and is therefore unconstitutional. The minister of finance, Mustafa al Shimali, said on Wednesday that the law would lead to mistrust of the country's legal and financial systems, and a lack of respect for contracts. Mr al Shimali said the total amount of loans was 6.7bn dinars, and the MPs' plan would cost the government between 2 and 3.72bn dinars. He said it would encourage reckless spending and more borrowing.
MPs who supported the legislation blame the banks for encouraging people to take loans they could scarcely afford. They also point out the government stepped in to help banks after the global financial crisis began to take its toll and argue that it should now do so for its citizens. @Email:email@example.com