Kuwait’s currency exchanges halt operations over capital rule

• Only 138 exchange offices in Kuwait operate under the Ministry of Industry and Commerce’s oversight with capital capped at 50,000 dinars, while the 31 exchange companies meet the two-million-dinar requirement under Central Bank supervision.

• Unlike exchange companies, exchange offices cannot transfer money abroad, allowing them to focus on currency exchange and offer better rates by leveraging fluctuations, while exchange companies prioritize money transfers and act quickly to reduce volatility risks.

• As closures persist, the question remains: why haven’t exchange offices raised their capital before the deadline, with sources agreeing that license holders lack the financial capacity and that the requirement imposes both fundraising burdens and capital freeze risks.

For the second consecutive day, most exchange offices in Kuwait remained closed to traditional customers to avoid fines from the Ministry of Commerce and Industry for not meeting the Central Bank’s requirement to raise their capital to two million dinars by the March 31 deadline, Al Rai newspaper reported.

While official statements—most recently from Minister of Commerce and Industry Khalifa Al-Ajeel—stress the importance of transferring exchange office supervision to the Central Bank to align with Financial Action Task Force (FATF) requirements, combat money laundering and terrorist financing, and improve Kuwait’s global financial ranking, the widespread closure of exchange offices has underscored the sector’s significance.

This raises a valid question about the fundamental differences between exchange offices, which are solely regulated by the Ministry of Commerce, and exchange companies, which fall under the supervision of both the Central Bank and the ministry.

A quick comparison reveals major differences. Official data shows that only 138 exchange offices operate under the ministry’s oversight, with capital requirements capped at around 50,000 dinars—far below the mandated two million. In contrast, the 31 exchange companies meet this requirement due to their Central Bank supervision.

Business models

Another key difference lies in their business models. Exchange offices are not licensed to transfer money abroad, unlike exchange companies, restricting their activities to currency exchange. This gives them a competitive edge, as they can offer better exchange rates by leveraging currency fluctuations in their favor rather than immediately exchanging collected funds. Meanwhile, exchange companies primarily focus on money transfers, requiring them to act quickly in currency purchases to mitigate volatility risks.

Exchange rate margins

Beyond favorable exchange rate margins, another distinction is how exchange offices handle currencies that banks and exchange companies typically avoid, such as the Iranian riyal, Syrian pound, Sudanese pound, Iraqi dinar, and Yemeni riyal. This specialization in high-risk currencies differentiates them from major exchange companies, which often prohibit such transactions—even for widely traded currencies like the dollar and euro. Additionally, during travel seasons, exchange offices often provide more competitive rates, albeit within limited margins.

Fourth, all exchange companies have international banking correspondents outside Kuwait, whereas exchange offices do not require such affiliations since their business is purely local, relying solely on currency buying and selling. Additionally, exchange companies hold accounts in local banks to facilitate currency purchases, while exchange offices do not.

Finally, exchange offices are concentrated in specific commercial areas, most notably Mubarakiya and the money exchange market in Fahaheel, often located near gold shops. In contrast, major exchange companies operate across Kuwait, particularly in densely populated residential areas.

What if exchange offices remain closed?

Informed sources said the Ministry of Industry and Commerce will not renew expired licenses for entities failing to meet the two-million-dinar capital requirement, and all related transactions within the ministry and other government agencies will be halted.

As for offices with valid licenses that remain closed for an extended period, they cannot be penalized unless they resume operations without complying with Central Bank requirements. In such cases, the ministry may impose sanctions, including closure, for violating business operation regulations.

Why didn’t the cashiers raise their capital?

As the wave of closures continues, a key question arises: Why haven’t exchange offices adjusted their status and increased their capital before the deadline expired?

In response, all sources agree that license holders lack the financial capacity for such a leap and that their activities do not necessitate such high capital. From an accounting perspective, this requirement exposes them to both the burden of raising funds and the risk of freezing capital.

Comparison of exchange offices and exchange companies

Exchange offices (138 entities)

Exchange offices have a maximum capital of 50,000 dinars and are limited to buying and selling currencies without the ability to conduct foreign transfers. They do not operate with international correspondent banks or maintain local accounts for currency purchases. However, they offer better exchange rates and engage in high-risk currency markets.

Exchange companies (31 entities)

Exchange companies have a capital requirement of twomillion dinars and are authorized to buy and sell currencies, as well as conduct foreign transfers. They operate with a network of international correspondent banks and maintain local accounts for currency purchases. While they offer a higher margin exchange rate, they are more conservative in dealing with high-risk currencies.