Interview: Hamad Al Hasawi
What is the current state of Kuwait’s banking sector in terms of implementing emerging technologies and fostering collaboration between traditional banks and tech companies?
HAMAD AL HASAWI: The goal for the Kuwaiti banking sector is to be in line with global standards, particularly in terms of digitalisation. The Central Bank of Kuwait (CBK) has taken significant steps towards creating a more digitalised economy, such as by launching a regulatory sandbox in November 2018 to encourage sector players to develop new applications in partnership with banks. In this regard, the CBK is carefully examining the relationship between the banking and telecommunications sectors, as well as between banking and financial technology (fintech) innovators, to strike a balance between innovation and stability, and promote fair competition within the sector.
By the end of 2023 we expect to see collaboration between telecommunications companies and banks to develop system products and services, establishing new companies and applications that can contribute to the digital economy. Joint ventures between mobile companies and banks could function as catalysts for innovation.
As for the future of the Kuwaiti fintech landscape, progress depends on the concerted efforts of multiple stakeholders, including banks, investment companies, the CBK and entrepreneurs. Collaboration and integration are key to fostering market-relevant innovation that addresses actual needs. This type of collaboration requires an ecosystem-wide effort to bring about the necessary transformation, which should avoid concentrating investment in segments that are yet to provide clear applications to clients and banks. The government, in cooperation with banks, plays a key role as an information provider and source of seed money.
How would you evaluate Kuwait’s current regulatory framework in terms of facilitating healthy competition between traditional and digital banking?
AL HASAWI: Around 2020 Kuwait’s leading banks created digital banks to streamline their operations and cut through red tape. In this context, some banks have chosen to first deploy their digital banking solutions in larger markets overseas – such as the UK, Turkey and Egypt – to capitalise on opportunities there. Banks have already taken appropriate action to adapt to the rapidly evolving banking landscape by operating in more profitable markets. When these banks implement their plans in Kuwait, it should be a smooth process because they already have the necessary experience. Despite the smaller size of the Kuwaiti market, there are set to be opportunities for innovation.
In what ways can banks provide support to Kuwaiti small and medium-sized enterprises in a financially sustainable manner?
AL HASAWI: Unfortunately, the economic diversification of Kuwait is being discussed amid an unclear government strategy. SMEs need more than just money – they require comprehensive support. The government has created the National Fund for SME Development, which has KD2bn ($6.6bn) to spend on Kuwaiti businesses, but there is no specific plan or strategy for how to distribute these funds. To make tangible progress, the first consideration should be to determine how SMEs can complement larger businesses in the country and contribute to large-scale projects to ensure their commercial viability, as well as to help SMEs prosper in sectors with higher value added. In the past two years we have observed that most SMEs are focusing on industries like food or clothing, which add less value to the broader economy. However, a well-designed local content policy could address this by helping SMEs benefit from the expansion of large corporations and strategic projects.
Banks are not enthusiastic about the existing law governing SMEs. For instance, if an entrepreneur wants to establish a small factory, the government can provide up to $2m. However, banks are required to finance roughly 20% of that amount without any right to compensation if the business fails. This structure effectively leaves banks with the impression that they are donating money, and executives of these financial institutions could have a hard time justifying any such investment. SMEs have the potential to be a significant economic driver for Kuwait if a clearer strategy is enacted.
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