In the latest debate over how to handle high debt levels, Kuwait is considering a $6 billion consumer debt bailout of Gulf citizens who have violated the region’s strict debt laws, which occasionally results in jail time.
Kuwaiti ministers and the country’s central bank have balked at proposals from a parliamentary committee to eliminate interest payments that average $6,000 per Kuwaiti on all bank loans obtained by nationals between January 2002 and April 2008. Kuwaiti leaders have struggled to reconcile their stringent debt laws, which include jail terms for bouncing checks, with the citizenry’s expectations for not challenging their rule, Financial Times reports.
Though the nation’s economic and finance committee approved the interest elimination proposal, the measure has created the same opposition that killed a similar proposal in 2010. Mohammad Al-Hashel, the governor of Kuwait’s central bank, said that the write-off would cost $5.7 billion, and Mustafa Al Shimali, the deputy prime minister and finance minister, said that the measure could set a dangerous precedent.
“Many people don’t know how to use the credit card,” a United Arab Emirates official said, according to Financial Times. “They treat it as free money.”
Despite the global credit crisis, consumer credit in the UAE rose to $170.8 billion last year from $152.4 billion in 2008. Credit card debt, however, has seen a slight decrease from $9.3 billion in 2008 to $7.4 billion last year. Debit cards have outpaced credit cards in popularity as regional authorities shore up lending rules in an effort to discourage borrowers who take on too much credit and do not expect to repay the money.
While an increase in debit card use can be attributed in part to a rise in market sophistication, some bankers and consumers maintain that the growth of debit card use has arisen out of previous credit troubles.
“People are using the credit card less,” an Emirati bank worker said, Financial Timesreports. “They say: ‘I have a bad history with [it]—and that’s a problem.”