Making firm friends with flow of loans

23 February 1996

FOR many developing countries the only contact they have with Kuwait is through the Kuwait Fund for Arab Economic Development. The fund was initially set up in 1962 to assist Arab development, but in 1973 it broadened its scope and since its foundation has dispensed 489 loans worth KD 2,400 million to 76 countries.

The fund has two clear objectives: to assist development and to raise Kuwait's international profile. Since the Iraqi invasion, the importance of the latter has increased. 'We are a small country and we need support,' says Abdul Rabman al-Sayed Hashem, head of the fund's West Africa division. 'We can use our oil revenues to assist development as well as making our presence known in the world.' In the past five years the fund has expanded into Latin America and the Caribbean. It is now moving into the former Soviet Union, sending its first delegation to Azerbaijan in January this year. Since the liberation, all loans have been signed in the recipient country rather than in Kuwait. 'We want to make an impact on that country by making the signing a public event. We want the people to see what Kuwait is doing for them,' says Hashem.

Despite the political element of its work, the fund is officially an autonomous organisation. It has not received funds from the government since the late 1980s and is wholly dependent on the returns from the investment of its general reserve and on loan repayments. However, the fund does represent the Kuwaiti government at meetings of the African Development Bank, the OPEC Fund and the African Development Fund.

When it comes to dispensing loans, the fund adheres to strict guidelines. After a country submits a loan request, the fund assesses the direct economic benefits that will be derived from the scheme before deciding whether to grant funds and at what interest rate. The fund does not support social projects such as schools and hospitals.

Selective rates

Interest rates and repayment periods are dependent on the nature of the project being funded. The highest rates of interest, which never exceed 5 per cent a year, are charged on loans in the industrial and power sectors where the recipient has an opportunity to generate funds once the project is up and running. The lowest rates are charged on pastoral water supply schemes. 'We have directed a large proportion of funds towards pastoral projects where the positive impact on communities is huge,' says Hashem.

In the financial year 1994/95, the fund disbursed a total of KD 155.14 million. The fund's average loan was for KD 5 million, to be repaid over 22-and-a-half years with a four-and-a-half year grace period. The average interest rate was 3.39 per cent a year.

The penalties are harsh for defaulters. 'If they default on one loan we immediately suspend all the loans to that country,' says Hashem.

'The aim is to give them a jolt.'

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