KFH raises awareness on loan encashment risks

Alhamli: Transactions are executed outside the official banking system frame against regulatory rules and instructions

Amina Alhamli

Amina Alhamli

Banks provide financial advice to customers on their credit needs and obligations

Kuwait: KFH continues its efforts to provide banking awareness to customers and the public within its banking awareness campaign “Let’s be aware” which was launched under the supervision of the Central Bank of Kuwait in cooperation with Kuwait Banking Union.

The Executive Manager – Branches at KFH, Amina Alhamli said that KFH continuously alerts customers and the public on the risks of “loan encashment” through awareness messages on social media, webpage, and various communication means. The bank highlights the risks of this phenomenon and the need to encounter and report such suspicious transactions. These suspicious transactions contain high risks i.e., submission of forged documents by the customer and customer signing documents in favor of the mediator which may render him liable for imprisonment.

Alhamli added in a press release that “loan encashment” is considered as one of the most dangerous, suspicious, and legally incriminated transactions. The customer resorts to this finance method to escape from his debts without knowing the implications and violations which may result from these transactions. Although this transaction may seem to be a method to settle their outstanding debts and gain more finance, yet this transaction may expose the customer to new debts exceeding his maximum financial limits.

Alhamli said that “loan encashment” transactions are executed through mediators who provide the customer with short term cash amounts against high profit so that the customer would settle his liabilities to the bank and then attempt to get a new loan from the bank. In this case the customer will be required to settle his obligations to the mediators and the instalments of the new loan at the same time, thus exposing himself to multiple interconnected liabilities and obligation beyond his capacity and expose himself to continuous financial pressures. In this case the customer will continue to take new loans to settle his outstanding matured liabilities. This conduct is considered as very injurious to customers and to national economy. These transactions are executed outside the official banking system frame and violate the regulatory rules and instructions. These transactions are executed through individuals and companies aiming to

achieve fast and remarkable profit by taking advantage of the customer’s needs and difficult financial situations based on unfair terms and conditions.

Alhamli indicated that the “Loan Encashment” idea is based on some fraudulent groups attempting to circumvent the law by announcing their wish to help people to obtain new finance from the banks and settle their current liabilities. These groups use twisted methods that would render the debtor bearing more interest by signing promissory notes exceeding the amount settled to the bank and obtaining double interest from the debtor.

Alhamli said that these twisted illegal finance methods place the debtor in a very high risk according to the law. Credit and finance transactions are governed by certain regulatory rules, regulations, and instructions that would enable the customer to benefit from the facilities and advantages provided by these transactions without exposing the customer to the risks of default or shouldering unbearable financial liabilities.

Alhamli emphasized that the Central Bank of Kuwait has taken into consideration, in its instructions to banks, the customers rights and transparency requirements. CBK instructions demand that the financing party shall provide advice to customers, examine the nature of their monthly obligations and liabilities, advise them on their needs and liabilities and

explain the results of increasing such liabilities in case their financial conditions change because of changing their work or retirement.

The activities of the banking awareness campaign “Let’s be aware” have started last January to spread financial knowledge and culture among society members, increase awareness of their rights and duties, highlight banking sector’s role and the method to benefit from the services provided by banks in the best possible manner.

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