Financial literacy in Saudi Arabia needs an upgrade

As the first financial comparison site in Saudi Arabia, Souqalmal.com helps consumers compare financial products offered by banks in the Saudi Arabia

According to the latest survey by Souqalmal.com, the leading financial comparison website in Saudi Arabia, 61 percent of Saudi residents did not know the difference between reducing and flat rate, an important aspect to consider when selecting a loan.

Factoring in the type of rate you are being offered by the bank can determine the real cost of your loan. While a flat rate appears to be lower as it calculates the profit on the entire loan amount, the reducing rate calculates your repayments on the outstanding balance of your loan and not the entire amount.

Ambareen Musa, CEO of Souqalmal.com, said: “Education plays a vital role in helping consumers know their financial rights and obligations. As the first financial comparison site in Saudi Arabia, Souqalmal.com helps consumers compare financial products offered by banks in the Saudi Arabia. Financial education has been an integral part of our existence and allows us to raise the level of transparency and awareness to allow users to better understand their choices and commitments.”

When it comes to understanding their credit history, the survey revealed that 52 percent of Saudi nationals admitted that they did not know about the credit report provided by SIMAH (Saudi Credit Bureau). When it comes to expatriates, this number rose to 72%. Understanding one’s credit history is a key component of financial education as it allows Saudi residents to keep a close eye on their level of debt and their ability to take on anymore. SIMAH is one of the longest established credit bureau in the region and is used by banks for their credit decision. The regulations in Saudi Arabia sets the Debt Burden Ratio (DBR) for the consumer at 33%.

The Souqalmal.com survey revealed that only 22% of Saudi nationals would turn to their bank for financial advice as a first point of call. This percentage declined to 14 percent for expatriates – a clear sign that there is an opportunity for banks to become more of a trusted advisor and build stronger relationship with their customers. Family and friends took the first position in giving financial advice to Saudi residents (36 percent) followed by Internet search (24%).

Also contrary to the common perception that cash is the most popular choice of payment in Saudi Arabia, of our survey sample approximately 60 percent of Saudi nationals have credit cards in their wallet – an encouraging number for SAMA who has been doing a lot of effort to promote plastic and electronic payment and reduce cash. Credit cards were mostly used to shop online (31 percent) followed by paying for daily expenses (25 percent) and when travelling outside Saudi Arabia (23 percent).

This is an indication that cashless payment is gaining traction compared to previous years and is being increasingly accepted by consumers. For those who did not have credit cards, the main barrier was concerns around security hence the importance of setting financial literacy guidelines to help Saudi residents understand their finance options.

Musa, added: “Saudi Arabia has been one of the strongest economies not only in the MENA region but also globally with a young, highly connected and growing population. The opportunity for us to bring more transparency in the banking sector through our financial education portal is very exciting.”

This article first appeared in the Saudi Gazette on Oct. 21, 2015.

SHOW MORE
Last Update: Wednesday, 20 May 2020 KSA 09:47 - GMT 06:47
Top