Summit News

Legislation hindering Kuwait sukuk issues

MANAMA (Reuters) - A lack of legislation is seriously hampering domestic issues of Islamic bonds in Gulf Arab oil producer Kuwait, forcing companies to go abroad, an Islamic finance consultant said on Wednesday.

Abdulkader Thomas, president of consultancy Shape Financial Corp, told the Reuters Islamic Banking and Finance Summit in Bahrain that Kuwait had yet to make the necessary changes to allow the issuance of Islamic bonds, or sukuk, on a broad scale.

A ministerial decree allowing sukuk issued in 2007 was not adequate for the market to flourish, Thomas said, and a set of proposed amendments is being held up by the political deadlock in the country.

“I do think there was a lot of disappointment after the 2007 decree in that it didn’t cover all the key points that needed to be covered,” Thomas said.

“It’s quite difficult (to issue sukuk domestically). You have to go off-shore. Practically you really can’t issue a domestic one,” the Kuwait-based consultant added.

Kuwait has been trying to attract more investors and diversify its oil-driven economy but most goverment plans have been delayed, sometimes for years or decades, due to a series of political rows with parliament.

The country’s ruler dissolved parliament in March to end a crisis but most analysts expects Islamists and tribal politicians opposing economic reforms to dominate the next assembly again, raising the prospect of a new standoff.

The OPEC member is the only country in the region without a financial or telecommunications regulator and has a bourse hit by a string of irregularities and with minimal disclosure rules.


Thomas said the central bank and government were now busy solving a crisis surrounding listed investment firms, a dominant sector in Kuwait hit hard by the global financial crisis. This made the new sukuk rules not a priority, he said.

Local firms can sell sukuk, which are typically backed up by physical assets in compliance with Islam’s ban on interest, but these are very rare in dinars. Most firms end up going to Bahrain or the Cayman Islands to issue their sukuks.

“In dinar it can be done (in Kuwait) but benefits are debatable given the cost and structural impediment,” he added.

Saudi Arabia would also have to overhaul its legislation for its sukuk market to function more effectively.

“It’s essentially the same issues in Saudi Arabia as in Kuwait. It’s cascading set of problems, related to the definition of a company, the quantity of leverage a company is allowed to have ... there’s a whole family of challenges that need to be resovled,” he said.

Secondary sukuk markets were also not an option since primary issuances were necessary, if only to facilitate pricing, he said.

“Once Kuwait and Saudi Arabia have made these important changes then we should really see a blossoming of sukuk in the region.”