* Law applies to personal loans before end-March 2008
* Lawmakers say banks overcharged for credit
* Kuwait has given out financial aid in past
(Adds quotes from MPs, economists, details)
By Sylvia Westall
KUWAIT, April 3 Kuwait's parliament approved a
law on Wednesday to buy some citizens' personal loans and write
off the interest after lawmakers argued that banks had
overcharged Kuwaitis for credit.
Kuwait is one of the world's richest countries per capita
and many lawmakers elected in a new parliament in December had
made debt relief a priority of their campaigns and put pressure
on the new cabinet to approve a plan.
Economists and government officials have voiced concerns
about the long-term sustainability of such measures and say
Kuwait should concentrate its funds on infrastructure
development, not financial aid.
Such largesse has a long history in Kuwait.
The government wrote off almost all consumer debt after the
1991 Gulf War that ended Iraqi occupation, one of a series of
handouts helping Kuwaitis return from exile and restart life in
It then wrote off millions more in a plan to settle $20
billion in bad loans stemming mostly from a 1982 stock market
crash caused by investors speculating on stocks with borrowed
Finance Minister Mustapha al-Shamali said on Tuesday that
the government was expecting to pay up to 744 million dinars
($2.6 billion) for the latest plan, which covers personal loans
taken out from commercial banks before the end of March 2008.
Loans from Islamic banks are not included.
"The banks were accumulating their interest in an unfair and
unjust way," MP Maasouma al-Mubarak said ahead of the vote. She
said the central bank had not done enough to check the rates
banks were charging Kuwaitis for loans.
Under the law, banks would have to pay back any overcharged
interest to citizens. This would apply to interest charged at
more than 4 percent over the discount rate and it was not
immediately clear how much this would cost.
"It's obvious for the banks, for Kuwait as a banking centre,
that this does not look very good," a banking source said,
criticising the measure as a political move.
The government and parliament have had a fractious
relationship in recent years and an agreement on the loans'
issue may make it easier for the government to get lawmakers'
support to pass other legislation.
"I think the legislation first of all is a clear reminder
that although the make-up of parliament has changed its populist
nature has not," Liz Martins, senior regional economist at HSBC
in Dubai, said.
"It is telling that in a time that the government is looking
to push ahead with its national development plan, and sees this
parliament as an ally in that, the bank loan write-off is the
most concrete action parliament has taken," she said, adding
that the plan was nevertheless affordable for wealthy Kuwait.
GIFTS TO KUWAITIS
Around 74,000 Kuwaitis are eligible for the plan, known as
the "family support fund." There are about 3.7 people living in
Kuwait, 1.2 million of them Kuwaiti nationals.
It is not the first time Kuwait has given out financial aid
to its citizens.
In 2011, to mark three major anniversaries, ruler Sheikh
Sabah al-Ahmad al-Sabah granted 1,000 dinars to each Kuwaiti and
free food rations for 13 months.
Kuwait's oil wealth and generous welfare state have helped
to shield the Gulf country from severe Arab Spring-style unrest,
although there have been demonstrations over political
participation and other local issues.
Wednesday's bill passed with 50 votes for, four against and
"It is unfair and unhelpful to the country," Fouad
Abdulrahman Alhadlaq, deputy general manager at Al Dar Asset
Management in Kuwait, said, commenting on the law.
"Four percent of the Kuwaiti population benefits from it and
it also punishes those dealing with Islamic banks."
Lawmakers had originally sought a complete bailout of
billions of dollars of household debt but met strong resistance
from policymakers who said the plans were not feasible.
"There were a lot of people who were enthusiastic in taking
out loans and now they are stuck," MP Nabeel al-Fadhl said. The
plan means that borrowers will pay back their loans to the
government at a suitable rate and in proportion to their income,
The International Monetary Fund said last year that Kuwait
will have exhausted all of its oil savings by 2017 if it kept
spending money at the current rate.
($1 = 0.2855 Kuwaiti dinars)
(Additional reporting by Mahmoud Harby, Ahmed Hagagy and
William Maclean; Editing by Yara Bayoumy and Susan Fenton)