Kuwait lev­els of fi­nan­cial in­clu­sion on par with GCC peers

Arab Times - - LOCAL -

The fol­low­ing is the first part of the re­port on Fi­nan­cial In­clu­sion and Fi­nan­cial Lit­er­acy in Kuwait by the In­sti­tute of Bank­ing Stud­ies.

— Ed­i­tor

LEx­ec­u­tive Sum­mary

evels of fi­nan­cial in­clu­sion in Kuwait are on par with GCC peers, ahead of the global av­er­age, but lag be­hind high in­come OECD coun­tries. For in­stance, ac­cord­ing to 2014 World Bank data, 72.9 per­cent of Kuwait res­i­dents own a bank ac­count, ver­sus an av­er­age of 74.5 per­cent in the GCC (ex­clud­ing Kuwait), 94.0 per­cent in high in­come OECD coun­tries, and 62.0 per­cent glob­ally.

To raise the level of fi­nan­cial in­clu­sion in Kuwait will re­quire reach­ing more women and reach­ing less-well ed­u­cated sec­tions of Kuwait’s pop­u­la­tion:

Rel­a­tive to the GCC, ac­cord­ing to 2014 data, Kuwait per­forms strongly with re­gards the fi­nan­cial in­clu­sion of women. Even so, in Kuwait 79.3 per­cent of men have a bank ac­count and 64.0 per­cent of women, a gap of 15.3 per­cent­age points, while the gen­der gap in high in­come OECD coun­tries is only 0.5 per­cent­age points.

Ed­u­ca­tional at­tain­ment ap­pears to be a stronger de­ter­min­ing fac­tor of fi­nan­cial in­clu­sion in Kuwait rel­a­tive to other GCC na­tions. For in­stance, in 2014, 47.7 per­cent of Kuwait res­i­dents with only pri­mary ed­u­ca­tion own a bank ac­count, ver­sus 75.6 per­cent who grad­u­ated from high school, a gap of 27.9 per­cent­age points. Sur­vey data col­lected by the In­sti­tute of Bank­ing Stud­ies sug­gests that rel­a­tive un­der­ser­vic­ing of less ed­u­cated res­i­dents may be cor­re­lated to a rel­a­tive un­der­ser­vic­ing of non-cit­i­zen res­i­dents.

The Cen­tral Bank of Kuwait’s Cus­tomers Pro­tec­tion Man­ual sets out spe­cific guide­lines to banks with re­gards both fi­nan­cial in­clu­sion and lit­er­acy; and while we be­lieve more ed­u­ca­tional in­for­ma­tion could be pre­sented on in­di­vid­ual bank’s web­sites, re­sponses to our sur­vey ques­tion­naire show the banks are fol­low­ing guide­lines.

Stan­dard & Poor’s global sur­vey of fi­nan­cial lit­er­acy shows that while the level of fi­nan­cial lit­er­acy at­tained in Kuwait is higher than in Bahrain, Saudi Ara­bia and the UAE, the gen­eral level of un­der­stand­ing of ba­sic fi­nan­cial con­cepts re­mains low. Many of the banks have ex­pressed an in­ter­est in work­ing to­gether to en­hance ef­forts to raise lev­els of fi­nan­cial lit­er­acy. We be­lieve such ef­forts could be co­or­di­nated by the Cen­tral Bank of Kuwait and/or the In­sti­tute of Bank­ing Stud­ies.

World Bank data shows that 31.5 per­cent of Kuwaiti res­i­dents would be un­able to ac­cess funds in an emer­gency, com­pared to 24.8 per­cent in the rest of the GCC and 15.6 per­cent in high in­come OECD coun­tries. Like­wise, only 25.5 per­cent of Kuwaiti res­i­dents save at a fi­nan­cial in­sti­tu­tion ver­sus 51.6 per­cent in high in­come OECD coun­tries. Po­ten­tial fu­ture de­mo­graphic chal­lenges may re­quire Kuwaitis to take on greater fi­nan­cial re­spon­si­bil­ity: bor­row­ing less and sav­ing more for re­tire­ment. Rais­ing stan­dards of fi­nan­cial lit­er­acy is a key part of prepar­ing for such a change.

In­tro­duc­tion

The term ‘fi­nan­cial in­clu­sion’ ref­er­ences the ex­tent to which res­i­dents of a coun­try have ac­cess to, and use, at an af­ford­able price, bank­ing ser­vices, such as de­posit­ing, bor­row­ing, and mak­ing and re­ceiv­ing fi­nan­cial trans­fers, such as pay­ments and salaries. In de­ter­min­ing the level of fi­nan­cial in­clu­sion, there is of­ten a fo­cus on the rel­a­tive un­der­ser­vic­ing of seg­ments of the pop­u­la­tion, in­clud­ing, although not lim­ited to, fe­males, the poorer, non­na­tional res­i­dents, dif­fer­ent eth­nic mi­nori­ties, young adults, and adults with lower ed­u­ca­tional qual­i­fi­ca­tions.

En­hanc­ing fi­nan­cial in­clu­sion glob­ally, for in­stance by re­duc­ing the num­ber of peo­ple world­wide without a bank ac­count (cur­rently around 2.5 bil­lion peo­ple — or half the world’s work­ing age pop­u­la­tion), has been a goal of the G20 since the launch of the Global Part­ner­ship for Fi­nan­cial In­clu­sion at the G20 sum­mit in Seoul in 2010. The GPFI is an in­clu­sive plat­form for all G20 coun­tries, in­ter­ested non-G20 coun­tries and rel­e­vant stake­hold­ers.

In 2014, the GPFI launched the Fi­nan­cial In­clu­sion Ac­tion Plan, by clearly stat­ing the link be­tween deeper fi­nan­cial in­clu­sion and greater re­silience in the global fi­nan­cial sys­tem: “fi­nan­cial in­clu­sion helps build do­mes­tic sav­ings, bol­ster house­hold, do­mes­tic and fi­nan­cial sec­tor re­silience and stim­u­late busi­ness and en­tre­pre­neur­ial ac­tiv­ity. The cu­mu­la­tive ef­fect of wide­spread ex­clu­sion is in­creas­ing in­equal­ity, and slower growth and devel­op­ment.”

The Ac­tion Plan out­lined four spe­cific ar­eas that should be ad­dressed:

1. En­hanc­ing the ac­cess of SMEs to for­mal bank­ing sec­tors

2. In­creas­ing the ex­tent to which reg­u­la­tors in­cor­po­rate fi­nan­cial in­clu­sion into rule set­ting for banks within their ju­ris­dic­tion

3. En­hanc­ing fi­nan­cial lit­er­acy by im­prov­ing cus­tomers’ knowl­edge of bank­ing and finance, with the re­sult that cus­tomers make more ra­tio­nal fi­nan­cial de­ci­sions.

4. Ex­pand­ing op­por­tu­ni­ties for tech­nol­ogy to help re­duce the cost of send­ing remittances.

While not a mem­ber of the G20, Kuwait has shown sig­nif­i­cant in­ter­est in ad­dress­ing these is­sues and in im­prov­ing fi­nan­cial in­clu­sion. In the area of SME fi­nanc­ing, for in­stance, the gov­ern­ment has es­tab­lished the Na­tional Fund for SME Devel­op­ment; which has been dis­cussed in a pre­vi­ous In­sti­tute of Bank­ing Stud­ies re­search pa­per, “Tak­ing Stock of SME Bank­ing in Kuwait.”

More­over, the Cen­tral Bank of Kuwait has made fi­nan­cial in­clu­sion and fi­nan­cial lit­er­acy a key ele­ment of its Bank Cus­tomers Pro­tec­tion Man­ual, pub­lished in July 2015. While the Man­ual is writ­ten to com­ple­ment other rules and reg­u­la­tions gov­ern­ing a bank’s grant­ing of con­sumer and other in­stal­ment loans, as we show in Sec­tion 3, it also in­cludes a num­ber of state­ments re­gard­ing fi­nan­cial in­clu­sion and lit­er­acy.

The aim of this study is to take stock of Kuwait’s progress in en­hanc­ing fi­nan­cial in­clu­sion and fi­nan­cial lit­er­acy, and sug­gest paths which the banks could take, in­di­vid­u­ally and in con­cert, to raise stan­dards fur­ther.

In Sec­tion 1, we use 2014 data (the most re­cent data avail­able) in the World Bank Fi­nan­cial In­clu­sion Data­base to as­sess Kuwait’s per­for­mance with re­gards fi­nan­cial in­clu­sion. How, for in­stance, does Kuwait per­form with re­gards to gen­der and the richer/poorer di­vide in the pro­vi­sion of ba­sic bank­ing ser­vices? We com­pare Kuwait’s per­for­mance with fel­low GCC na­tions, high-in­come OECD coun­tries, the world as a whole, and Sin­ga­pore. Sin­ga­pore is in­cluded, first be­cause it rep­re­sents global best prac­tice, and sec­ond be­cause as a city-state with high lev­els of non-cit­i­zen res­i­dents, it ex­hibits sim­i­lar­i­ties to Kuwait.

In Sec­tion 2, we ex­am­ine the is­sue of fi­nan­cial lit­er­acy, us­ing sur­vey data from Stan­dard and Poor and the World Bank. In this sec­tion, we make the spe­cific link be­tween lit­er­acy and the lev­els of bor­row­ing and sav­ing in Kuwait.

In Sec­tion 3 of the study, we use sur­vey re­sponses from the banks and our own anal­y­sis of web­sites to ex­am­ine how Kuwaiti banks are re­spond­ing to the Cen­tral Bank of Kuwait’s con­sumer pro­tec­tion man­ual.

In Sec­tions 1 and 3 we make use of re­sponses to a sur­vey ques­tion­naire sent out to each of the banks. We would like to thank the re­spon­dents for tak­ing to the time to pro­vide us with such valu­able in­for­ma­tion.

Sec­tion 1: As­sess­ing Kuwait’s Level Of Fi­nan­cial In­clu­sion

1.1 Over­all fi­nan­cial in­clu­sion Re­tail bank­ing cus­tomers use banks for three main rea­sons: to make de­posits, to take loans and to make pay­ments. The charts below show that on these ba­sic mea­sures fi­nan­cial in­clu­sion in Kuwait is in line with other GCC coun­tries and high by global stan­dards; although still below lev­els achieved in high in­come OECD coun­tries and Sin­ga­pore. For in­stance, ac­cord­ing to World Bank data, 72.9 per­cent of Kuwait res­i­dents own a bank ac­count, ver­sus an av­er­age of 74.5 per­cent in the GCC (ex­clud­ing Kuwait), 94.0 per­cent in high in­come OECD coun­tries, and 62.0 per­cent glob­ally.

The left hand panel of Chart 1 mea­sures the pro­por­tion of the pop­u­la­tion that has a bank ac­count; the right hand panel the pro­por­tion of the pop­u­la­tion that has bor­rowed from a fi­nan­cial in­sti­tu­tion in the past 12 months. Chart 2 as­sesses the rel­a­tive devel­op­ment of pay­ment sys­tems by look­ing at the per­cent­age of the pop­u­la­tion that has a debit card in their own name. Un­less oth­er­wise stated, all data in this Sec­tion is taken from the 2014 World Bank fi­nan­cial in­clu­sion data­base. Each of the charts re­flects the per­cent­age of in­di­vid­u­als over the age of 15 years us­ing each bank­ing ser­vice.

In terms of over­all lev­els of fi­nan­cial in­clu­sion, Charts 1 and 2 tell the same story: Kuwait is per­form­ing broadly in line with the GCC, sig­nif­i­cantly bet­ter than the world av­er­age but be­hind Sin­ga­pore and high in­come OECD coun­tries. In should be noted how­ever that while bor­row­ing from a fi­nan­cial in­sti­tu­tion is in line with Sin­ga­pore, res­i­dents of Kuwait tend to bor­row ma­te­rial amounts from non-bank sources. We dis­cuss these is­sues in greater depth in Sec­tion 2 in the con­text of fi­nan­cial lit­er­acy.

1.2 Fi­nan­cial in­clu­sion by gen­der, in­come and age

While over­all fi­nan­cial in­clu­sion in Kuwait is good, a more de­tailed ex­am­i­na­tion of World Bank data by dif­fer­ent sub-sets of the pop­u­la­tion, e.g. male/ fe­male, richer/poorer, young adult, and ed­u­ca­tional at­tain­ment, shows that there are dis­par­i­ties wor­thy of at­ten­tion.

1.2.1 Fi­nan­cial in­clu­sion by gen­der

For all three bank­ing ser­vices, Kuwait per­forms bet­ter on gen­der equality than the GCC av­er­age. In par­tic­u­lar, Kuwait per­forms strongly in the con­text of bor­row­ing from a fi­nan­cial in­sti­tu­tion, with sig­nif­i­cantly more gen­der equality in this cat­e­gory than in high in­come OECD coun­tries. In the other cat­e­gories: hold­ing a bank ac­count and hav­ing a debit card in one’s own name, while per­form­ing well, Kuwait still lags be­hind the level of gen­der equality recorded in high in­come OECD coun­tries and Sin­ga­pore. Note, for in­stance, that in Kuwait 79.3 per­cent of men have a bank ac­count and 64.0 per­cent of women, a gap of 15.3 per­cent­age points, while the gen­der gap in high in­come OECD coun­tries is only 0.5 per­cent­age points.

1.2.2 Fi­nan­cial in­clu­sion by richer and poorer

While Kuwait is ahead of the global av­er­age, it does lag other GCC coun­tries, al­beit not in a sig­nif­i­cant way, in the rel­a­tive bal­ance be­tween the rich­est and poor­est in each coun­try. This is most pro­nounced with re­gard to own­ing an ac­count at a fi­nan­cial in­sti­tu­tion.

Per­haps wor­thy of spe­cific note is the per­for­mance of Sin­ga­pore. Not only is the dis­par­ity be­tween the rich­est and poor­est less than in GCC and high in­come OECD coun­tries, but in one case, bor­row­ing from a fi­nan­cial in­sti­tu­tion, the poor­est 40 per­cent are more ac­tive than the rich­est 60 per­cent. In some re­spects, this is ex­actly how it should be; af­ter all, in the­ory poorer sec­tions of so­ci­ety are more likely to need credit to make pur­chases, es­pe­cially of ex­pen­sive durable items, such as cars or ‘white’ goods (fridge, freezer, etc.). All the same, such an out­come is only pos­si­ble given that poorer sec­tors of so­ci­ety still earn a suf­fi­cient in­come to make them re­li­able cus­tomers for the banks. This in turn re­quires a suf­fi­ciently ad­vanced credit scor­ing/ risk man­age­ment sys­tem to en­sure that re­pay­ment is highly prob­a­ble.

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