Dialogue: Sheikh Ahmad Duaij Jaber Al Sabah and George Richani
What more can local banks do to assist in Kuwait’s economic diversification, and which sectors have the most potential for accelerating diversification?
SHEIKH AHMAD DUAIJ JABER AL SABAH: Banks are the backbone of Kuwait’s private sector and the economy. Although there is an economic diversification agenda in motion, the country is still dependent on hydrocarbons. Therefore, one of the things that banks can do to support economic diversification is to facilitate and support the development and growth of downstream industries. This will add value locally, and boost oil and gas revenue.
Another area of the economy in which banks can help support the country’s diversification efforts is capital markets. It is necessary to facilitate and promote additional listings on Boursa Kuwait, as well as attract more local and international investors. Banks naturally will have a crucial role to play in this scenario. More importantly – and as a general rule that applies to every sector of the economy – Kuwait needs to stimulate competition among businesses, whether public or private. A healthy competitive market forces businesses to raise quality standards and invest in improving operations. Competition is what drives progress, and more competition is needed across the economy if Kuwait is to achieve economic diversification.
GEORGE RICHANI: Kuwait’s diversification efforts are moving forward in line with the country’s long-term development blueprint New Kuwait 2035 and the pace of its economic transformation relies largely on oil prices. This means that diversification efforts may be slower than anticipated in the short term, and we expect to see more government measures in this context when international hydrocarbons prices decline.
It is important to have a consensus among all stakeholders in terms of the country’s long-term strategy regardless of international oil prices. This is the challenge Kuwait faces at the moment, and we look forward to seeing much faster developments that promote and facilitate growth in the country’s non-oil sectors.
Banks are an important part of the economic landscape, and this is certain to be the case in the future. Banks act as enablers and catalysts for the local economy. We think that there will be clearer and stronger government directives to further diversify the economy, with a firm strategy, rules and regulations in place.
How can banks leverage innovation and disruptive technologies in order to boost transparency and efficiency in their operations?
RICHANI: Almost half of Kuwait’s population is below the age of 25, which presents an opportunity for the country’s banks regarding their digitalisation efforts since younger individuals gravitate towards digital products and solutions. These efforts are further supported by the fact that internet penetration rates in Kuwait are among the highest in the world, and the country has advanced IT infrastructure.
Banks have made great strides in their use of technology in recent years to better serve clients. Given the pace at which technology changes, we understand that this is a continuous process requiring constant investment and upgrades to meet changes in demand.
SHEIKH AHMAD: Transparency is an important factor for banks in which to improve to establish a closer relationship with clients, and technology is an essential part of this effort. Mobile apps and website communication tools are rapidly becoming the preferred means of interaction for customers, and as a result of this shift transparency is enhanced since customers possess a unique signature to access their accounts.
This creates a possibility for service providers to follow their digital footprint in a much more convenient fashion. It also increases the transparency and convenience of family banking products, as parents or guardians can access and monitor the accounts and transactions of their family members. This is also a great way to expand financial inclusion to younger generations and help them become financially literate.
In terms of operations, all of our offices, boardrooms and meeting rooms are now digitally connected. This not only increases communication and transparency within the institution, but it allows staff to work remotely, adding significant flexibility to ensure business continuity in demanding situations.
In what ways can the government help small businesses secure necessary financing in the post-pandemic economic environment?
SHEIKH AHMAD: Small and medium-sized enterprises (SMEs) around the world require significant support from economic and financial stakeholders, taking into account their size, strengths and weaknesses. The government has prioritised SMEs in Kuwait for funding in various projects and contracts.
Our bank recognises the importance of the SME segment, and we have a dedicated team for SME lending. It is obviously more difficult to lend to small entities than to larger companies, as they often lack the track record needed to thoroughly evaluate their needs. However, this must not impede us from supporting this important segment of the economy and helping SMEs develop into larger corporations.
RICHANI: There are approximately 40,000 SMEs in Kuwait, which are defined as entities that have an annual turnover below KD2m ($6.6m). These businesses are an integral part of the government’s agenda. The government has been involved in improving and facilitating SME financing through different mechanisms, such as the National Fund for SME Development. The responsibility for their growth and development lies with financial services stakeholders like local banks. We understand the significant role we play in this respect.
That being said, there is an inherent risk in lending to SMEs, and we strongly believe that any related risks would be largely mitigated if there were a more flexible environment regarding the ease of doing business and bureaucracy involved. Improving Kuwait’s performance in these aspects would aid in the creation and growth of businesses, which in turn would improve banks’ ability to further finance their activities.
Where do you see possible synergies or competition with financial technology (fintech) firms that will improve customer experience and services?
RICHANI: Digital channels and tools are gaining a foothold in Kuwait’s financial services industry. In recent years we have seen the emergence of a digital ecosystem with online banking products and services, insurance offerings and stock market operations. There is great demand for mobile banking in Kuwait, so collaborating with fintech players is important. Mobile banking has become a lifestyle choice, and smartphones are now one-stop-shops for all financial operations.
Regulations from the Central Bank of Kuwait (CBK) have adapted to technological advancements in areas such as online payments. Similarly, in February 2022 the CBK issued comprehensive guidelines to establish digital banks. Such entities can take one of three structures: a unit within a traditional bank; an establishment of a standalone digital bank; or a partnership between a traditional bank and a digital institution. These regulations added clarity to the means by which further collaboration is able to happen.
SHEIKH AHMAD: The digital evolution of society has changed the banking system. Most banks are now part of the fintech world to at least some degree. A bank cannot survive in a competitive market without undergoing a digital transformation. Fintech firms force banks to stay alert, and they have made us realise the need to act fast to keep up with the competition.
In essence, fintech firms are increasing the size and competitiveness of the market. There are potential opportunities for greater collaboration and partnerships in the future between banks and fintech firms in areas that benefit both parties, and there will be other areas in which competition is likely to increase.