DEVELOPMENT OF SUKUK IN THE STATE OF KUWAIT, ITS CHALLENGES AND PROSPECTS
DOI:
https://doi.org/10.22452/js.vol28no2.4Keywords:
ṣukūk, Kuwait, development, capital markets, history, Islamic FinanceAbstract
Ṣukūk emerged in the last two decades as a noteworthy contender for conventional bonds. Their wider appeal for Muslim populations around the world led to more issuers preferring to issuing ṣukūk over conventional bonds. This is the case for most countries in the Islamic World, but not Kuwait, despite it being a world-renowned pioneer and hub for innovation and creativity in Islamic Finance and Shariah-compliant capital markets. This study examines the legal and regulatory framework for ṣukūk in the State of Kuwait after giving a brief history of its development. Through qualitative analysis of news sources, country reports, and academic papers, this study attempts to identify the major challenges and hurdles facing the development of ṣukūk despite the illustrious track record of the Islamic Finance industry in Kuwait. As per the study, the most notable challenges and hurdles are in relation to the benchmark yield curve, public awareness, and listing of ṣukūk. The study concludes by suggesting possible solutions which all require a higher level of coordination between government entities and relevant stakeholders.
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References
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Alvi, I. A., A. R. Mohammed, G. Z. Khan, U. M. Nasser, B. Naseer & M. S. Khan, ‘Sukuk Report, A Comprehensive Study of The International Sukuk Market,’ The International Islamic Financial Market (2010): 1-75.
Simon Archer & Rifaat Ahmed Abdel Karim, Islamic Capital Markets and Products: Managing Capital and Liquidity Requirements Under Basel III (New Jersey: John Wiley & Sons, 2017).
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Hammad Mustafa Azab, ‘Legal Regulation of Islamic Sukuk and its Importance in Activating their Role in Achieving Economic and Social Development: A Study in Kuwaiti and Egyptian Law,’ Kuwait International Law School Journal, vol. 4/1 (2019): 268-279.
Hatem Ghouma, ‘Sukuk Listing in Global Financial Markets and Compatibility of Listing Requirements with Shari’ah Structures’ (Paper presented, AAOIFI 17th Annual Shari’ah Boards Conference, Kingdom of Bahrain, 8 April 2019).
Klein, Paul-Olivier & Laurent Weill, ‘Why do Companies Issue Sukuk?,’ Review of Financial Economics, vol. 31 (2016): 26-33.
Bank Negara Malaysia, Malaysian Ṣukūk Market Handbook: Your Guide to the Malaysian Islamic Capital Market (Kuala Lumpur: Bank Negara Malaysia, 2008).
Rafisah Mat Radzi & Amir Shaharuddin, ‘The Idealization of Risk-Profit Sharing in Partnership-Based Sukuk (Islamic Bonds): Why Sukuk Are Experiencing Default?’ International Review of Management and Business Research, vol. 7 (2018): 633-645.
Najeeb, Syed Faiq, Obiyathulla Bacha & Mansur Masih, ‘Does a held-to-maturity Strategy Impede Effective Portfolio Diversification for Islamic Bond (Sukuk) Portfolios? A Multi-Scale Continuous Wavelet Correlation Analysis,’ Emerging Markets Finance and Trade, vol. 53, no. 10 (2017): 2377-2393.
Silva, Nash, ‘Sukuk Guide: An Essential Introduction to the Islamic Bond Market,’ HSBC Global Research (2015): 35.
Ulusoy, Ahmet & E. L. A. Mehmet, ‘Secondary Market of Sukuk: An Overview,’ Uluslararası İslam Ekonomisi ve Finansı Araştırmaları Dergisi, vol. 4, no. 2 (2018): 17-32.
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Capital Markets Authority of Kuwait, ‘Resolution No. (72) of 2015 the Issuance of the Executive Bylaws of Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and its Amendments,’ https://www.cma.gov.kw/en/web/cma/cma-board-releases/-/cmaboardreleases/detail/352508, accessed on 18 August 2019.
Capital Markets Authority of Kuwait, ‘Memoranda of Understanding (MoUs),’ https://www.cma.gov.kw/en/web/cma/moui, accessed on 19 October 2019.
Capital Markets Authority of Kuwait, ‘Speech of the Capital Markets Authority›s Chairman on the Occasion of the Issuance of the New Executive Bylaws,’ https://www.cma.gov.kw/en/web/cma/cma-board-releases/-/cmaboardreleases/detail/369176#, accessed on 26 October 2019.
Capital Markets Authority of Kuwait, ‘The Regulatory Requirements of “the Unlicensed” Listed Companies’ Financial Statements,’ https://www.cma.gov.kw/en/web/cma/awarenessevents/-/cmageneric/page_4, accessed on 30 November 2019.
Capital Markets Authority of Kuwait, Specifically the ‘Explanatory Memorandum (2010)’, https://www.cma.gov.kw/en/web/cma/law, accessed on 20 December 2019.
Abdullah Alharoun, ‘Kuwait,’ The International Capital Markets Review, https://thelawreviews.co.uk/edition/the-international-capital-markets-review-edition-9/1211063/kuwait, accessed on 20 December 2019.
El Dostor at the official website of Kuwait National Assembly, http://aldustor.kna.kw/Art/5-نواب-يقترحون-إصدار-قانون-164389, published on 2 January 2019, accessed on 3 November 2019.
Euromoney, ‘Kuwait: Investment Dar leans on sukuk,’ https://www.euromoney.com/article/b1321y66phhrcf/kuwait-investment-dar-leans-on-sukuk, published on 28 September 2006, accessed on 6 April 2020.
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International Monetary Fund (IMF), ‘Kuwait: 2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Kuwait’, https://www.imf.org/en/Publications/CR/Issues/2019/04/02/Kuwait-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-46729, published on 2 April 2019, accessed on 18 November 2019.
International Organization of Securities Commissions (IOSCO), ‘Guidelines to Emerging Market Regulators Regarding Requirements for Minimum Entry and Continuous Risk-based Supervision of Market Intermediaries,’ http://www.iosco.org/library/pubdocs/pdf/IOSCOPD314.pdf, accessed on 19 October 2019.
Islamic Interbank Money Market (IIMM) of Bank Negara Malaysia (BNM), ‘Real estate Sukuk oversubscribed,’ http://iimm.bnm.gov.my/index.php?ch=18&pg=69&ac=38&tpl_id=63, accessed on 18 August 2019. Original source (protected by a paywall), https://www.islamicfinancenews.com/real-estate-sukuk-oversubscribed.html
Marc Roussot, ‘Kuwaiti Sukuk law and issuance resurface,’ https://marcroussot.com/2019/03/13/kuwaiti-sukuk-law-and-issuance-resurface/, published on 13 March 2019, accessed on 3 November 2019.
Kamil, W.A.R., ‘Introduction to Sukuk’, Malaysian Sukuk Market Handbook (Kuala Lumpur: RAM Rating Services Berhad, 2008).
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Kuwait News Agency (KUNA), ‘127,000 people subscribe to Shamal Azzour Al-Oula Co.-authority’, https://www.kuna.net.kw/ArticleDetails.aspx?id=2838907&language=en#, published on 30 November 2019, accessed on 20 December 2019.
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Kuwait Times Newspaper, ‘CMA project to set capital adequacy standards,’ https://news.kuwaittimes.net/website/cma-project-to-set-capital-adequacy-standards/, published on 18 February 2019, accessed on 19 October 2019.
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Legislations
Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and its Executive Bylaws and their Amendments.
Alvi, I. A., A. R. Mohammed, G. Z. Khan, U. M. Nasser, B. Naseer & M. S. Khan, ‘Sukuk Report, A Comprehensive Study of The International Sukuk Market,’ The International Islamic Financial Market (2010): 1-75.
Simon Archer & Rifaat Ahmed Abdel Karim, Islamic Capital Markets and Products: Managing Capital and Liquidity Requirements Under Basel III (New Jersey: John Wiley & Sons, 2017).
Awaludin, Fadhlee & Mansur Masih, ‘Sukuk Pricing Dynamics - Factors Influencing Yield Curve of the Malaysian Sukuk,’ (2015): 4,8. MPRA Paper 66355, University Library of Munich, Germany. https://ideas.repec.org/p/pra/mprapa/66355.html, accessed on 4 July 2020.
Ghouma H., ‘The Listing of Sukuk: Goals and Consequences,’ Global Islamic Economics Magazine, vol. 93 (2020): 67-78.
Hammad Mustafa Azab, ‘Legal Regulation of Islamic Sukuk and its Importance in Activating their Role in Achieving Economic and Social Development: A Study in Kuwaiti and Egyptian Law,’ Kuwait International Law School Journal, vol. 4/1 (2019): 268-279.
Hatem Ghouma, ‘Sukuk Listing in Global Financial Markets and Compatibility of Listing Requirements with Shari’ah Structures’ (Paper presented, AAOIFI 17th Annual Shari’ah Boards Conference, Kingdom of Bahrain, 8 April 2019).
Klein, Paul-Olivier & Laurent Weill, ‘Why do Companies Issue Sukuk?,’ Review of Financial Economics, vol. 31 (2016): 26-33.
Bank Negara Malaysia, Malaysian Ṣukūk Market Handbook: Your Guide to the Malaysian Islamic Capital Market (Kuala Lumpur: Bank Negara Malaysia, 2008).
Rafisah Mat Radzi & Amir Shaharuddin, ‘The Idealization of Risk-Profit Sharing in Partnership-Based Sukuk (Islamic Bonds): Why Sukuk Are Experiencing Default?’ International Review of Management and Business Research, vol. 7 (2018): 633-645.
Najeeb, Syed Faiq, Obiyathulla Bacha & Mansur Masih, ‘Does a held-to-maturity Strategy Impede Effective Portfolio Diversification for Islamic Bond (Sukuk) Portfolios? A Multi-Scale Continuous Wavelet Correlation Analysis,’ Emerging Markets Finance and Trade, vol. 53, no. 10 (2017): 2377-2393.
Silva, Nash, ‘Sukuk Guide: An Essential Introduction to the Islamic Bond Market,’ HSBC Global Research (2015): 35.
Ulusoy, Ahmet & E. L. A. Mehmet, ‘Secondary Market of Sukuk: An Overview,’ Uluslararası İslam Ekonomisi ve Finansı Araştırmaları Dergisi, vol. 4, no. 2 (2018): 17-32.
Van Wijnbergen, Sweder & Sajjad Zaheer, ‘Sukuk defaults: On Distress Resolution in Islamic Finance,’ Tinbergen Institute Discussion Paper 13-087/VI/DSF57 (2013): 12-13.
Wedderburn-Day & A. Roger, ‘Sovereign Sukuk: Adaptation and Innovation,’ Law and Contemporary Problems, vol. 73, no. 4 (2010): 325-333.
Deloitte’s Islamic Finance Knowledge Center (IFKC) in collaboration with the International Shari’ah Research Academy for Islamic Finance (ISRA), ‘Sukuk in Focus: The Necessity for Global Common Practices,’ Deloitte’s Islamic Finance Insights Series, https://www2.deloitte.com/kw/en/pages/financial-services/articles/sukuk-focus.html, accessed on 30 November 2019.
Oxford Business Group, ‘Kuwait’s recent tax changes and regulations,’ https://oxfordbusinessgroup.com/overview/what-comes-next-series-new-laws-pave-way-investment, accessed on 7 July 2020.
Alanba Newspaper, ‘ديوان المحاسبة يطالب بتعديل الاحتياطي العام,’ https://www.alanba.com.kw/ar/economy-news/822789/01-04-2018-ديوان-المحاسبة-يطالب-بتعديل-الاحتياطي-العام, published on 1 April 2019, accessed on 27 November 2019.
Aljarida Newspaper, ‘الحكومة تحيل إلى المجلس مشروع قانون الصكوك الحكومية,’ https://www.aljarida.com/articles/1569859312182939100/, published on 1 October 2019, accessed on 2 November 2019.
Aljarida Newspaper, ‘اتفاق حكومي نيابي على استمرار رسوم التأمينات,’ https://www.aljarida.com/articles/1570988685498302000/, published on 14 October 2019, accessed on 20 December 2019.
Alqabas Newspaper, ‘ديوان المحاسبة: 2.15 مليار دينار انخفاض الاحتياطي العام في 9 أشهر,’ https://alqabas.com/article/657073-ديوان-المحاسبة-2-15-مليار-دينار-انخفاض, published on 14 April 2019, accessed on 27 November 2019.
Alqabas Newspaper, ‘الاحتياطي العام ينزف 27 مليار دينار,’ https://alqabas.com/article/5719172-267-مليار-دينار-سحبت-من-الاحتياطي-العام-في-4-سنوات, published on 22 October 2019, accessed on 27 November 2019.
Alqabas Newspaper, ‘انخفاض عجز الموازنة من 9.7 إلى 7.3 مليارات دينار,’ https://alqabas.com/article/312240-انخفاض-عجز-الموازنة-من-9-7-إلى-7-3-مليارات-دي, published on 29 October 2016, accessed on 27 November 2019.
Alrai Media Newspaper, ‘الحجرف يطلق اللائحة الجديدة لـ «هيئة الأسواق»: أكبر عمل تشريعي وتنظيمي في تاريخ الكويت,’ https://www.alraimedia.com/Home/Details?id=6694c66d-e2f4-4b0e-8369-abf9b3743177, published on 22 September 2015, accessed on 7 October 2019.
Al-Watan Newspaper, ‘أسواق المال: القواعد المفصلة للأسهم الممتازة والصكوك.. قريباً,’ http://alwatan.kuwait.tt/articledetails.aspx?id=396876&yearquarter=20144, published on 4 November 2014, accessed on 5 October 2019.
Bloomberg, ‘Kuwait Bourse IPO More Than 8.5 Times Oversubscribed,’ https://www.bloomberg.com/news/articles/2019-12-02/kuwait-bourse-ipo-more-than-8-5-times-oversubscribed, published on 2 December 2019, accessed on 20 December 2019.
Boursa Kuwait, ‘Boursa Kuwait Rulebook,’ https://www.boursakuwait.com.kw/regulations/rules-and-bulletins/rulebook, accessed on 30 November 2019.
Capital Markets Authority of Kuwait, awareness brochure ‘Capital Markets Development in the State of Kuwait,’ https://www.cma.gov.kw/en/web/cma/awarenesspublications/-/cmageneric/page_5, published on 26 March 2017, accessed on 30 November 2019.
Capital Markets Authority of Kuwait, ‘Resolution No. (72) of 2015 the Issuance of the Executive Bylaws of Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and its Amendments,’ https://www.cma.gov.kw/en/web/cma/cma-board-releases/-/cmaboardreleases/detail/352508, accessed on 18 August 2019.
Capital Markets Authority of Kuwait, ‘Memoranda of Understanding (MoUs),’ https://www.cma.gov.kw/en/web/cma/moui, accessed on 19 October 2019.
Capital Markets Authority of Kuwait, ‘Speech of the Capital Markets Authority›s Chairman on the Occasion of the Issuance of the New Executive Bylaws,’ https://www.cma.gov.kw/en/web/cma/cma-board-releases/-/cmaboardreleases/detail/369176#, accessed on 26 October 2019.
Capital Markets Authority of Kuwait, ‘The Regulatory Requirements of “the Unlicensed” Listed Companies’ Financial Statements,’ https://www.cma.gov.kw/en/web/cma/awarenessevents/-/cmageneric/page_4, accessed on 30 November 2019.
Capital Markets Authority of Kuwait, Specifically the ‘Explanatory Memorandum (2010)’, https://www.cma.gov.kw/en/web/cma/law, accessed on 20 December 2019.
Abdullah Alharoun, ‘Kuwait,’ The International Capital Markets Review, https://thelawreviews.co.uk/edition/the-international-capital-markets-review-edition-9/1211063/kuwait, accessed on 20 December 2019.
El Dostor at the official website of Kuwait National Assembly, http://aldustor.kna.kw/Art/5-نواب-يقترحون-إصدار-قانون-164389, published on 2 January 2019, accessed on 3 November 2019.
Euromoney, ‘Kuwait: Investment Dar leans on sukuk,’ https://www.euromoney.com/article/b1321y66phhrcf/kuwait-investment-dar-leans-on-sukuk, published on 28 September 2006, accessed on 6 April 2020.
Global Finance Magazine, ‘Kuwait: Strong and Stable, Seeking New Pizzazz’, https://www.gfmag.com/magazine/february-2018/kuwait-strong-and-stable-seeking-new-pizzazz, published on 15 February 2018, accessed on 20 December 2019.
International Monetary Fund Country Report No. 19/96 ‘Kuwait: Financial System Stability Assessment’, issued in April 2019.
International Monetary Fund (IMF), ‘Kuwait: 2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Kuwait’, https://www.imf.org/en/Publications/CR/Issues/2019/04/02/Kuwait-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-46729, published on 2 April 2019, accessed on 18 November 2019.
International Organization of Securities Commissions (IOSCO), ‘Guidelines to Emerging Market Regulators Regarding Requirements for Minimum Entry and Continuous Risk-based Supervision of Market Intermediaries,’ http://www.iosco.org/library/pubdocs/pdf/IOSCOPD314.pdf, accessed on 19 October 2019.
Islamic Interbank Money Market (IIMM) of Bank Negara Malaysia (BNM), ‘Real estate Sukuk oversubscribed,’ http://iimm.bnm.gov.my/index.php?ch=18&pg=69&ac=38&tpl_id=63, accessed on 18 August 2019. Original source (protected by a paywall), https://www.islamicfinancenews.com/real-estate-sukuk-oversubscribed.html
Marc Roussot, ‘Kuwaiti Sukuk law and issuance resurface,’ https://marcroussot.com/2019/03/13/kuwaiti-sukuk-law-and-issuance-resurface/, published on 13 March 2019, accessed on 3 November 2019.
Kamil, W.A.R., ‘Introduction to Sukuk’, Malaysian Sukuk Market Handbook (Kuala Lumpur: RAM Rating Services Berhad, 2008).
Kuwait News Agency (KUNA), ‘Capital Markets Authority: We approved the issuance of bonds worth 4 billion dollars since 2015,’ https://www.kuna.net.kw/ArticleDetails.asp x?id=2581451&language=ar#, published on 14 December 2016, accessed on 20 August 2019.
Kuwait News Agency (KUNA), ‘127,000 people subscribe to Shamal Azzour Al-Oula Co.-authority’, https://www.kuna.net.kw/ArticleDetails.aspx?id=2838907&language=en#, published on 30 November 2019, accessed on 20 December 2019.
Kuwait News Agency (KUNA), ‘Kuwait Cabinet holds weekly meeting’, https://www.kuna.net.kw/ArticleDetails.aspx?id=2820141, published on 23 September 2019, accessed on 2 November 2019.
Kuwait Times Newspaper, ‘Boubyan Bank’s sukuk issuance oversubscribed, reaches $1.3bn,’ https://news.kuwaittimes.net/website/boubyan-banks-sukuk-issuance-oversubscribed-reaches-1-3bn/, published on 10 May 2016, accessed on 7 October 2019.
Kuwait Times Newspaper, ‘CMA project to set capital adequacy standards,’ https://news.kuwaittimes.net/website/cma-project-to-set-capital-adequacy-standards/, published on 18 February 2019, accessed on 19 October 2019.
Kuwait Times Newspaper, ‘Fitch: Kuwait political disputes to delay debt issuance, reform,’ https://news.kuwaittimes.net/website/fitch-kuwait-political-disputes-to-delay-debt-issuance-reform/, published on 9 December 2019, accessed on 20 December 2019.
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Legislations
Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and its Executive Bylaws and their Amendments.
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2020-08-26
How to Cite
Alowaiyesh, W. S. A. S., Mohamad, M. T., & Mohd Noh, M. S. (2020). DEVELOPMENT OF SUKUK IN THE STATE OF KUWAIT, ITS CHALLENGES AND PROSPECTS. Jurnal Syariah, 28(2), 263–292. https://doi.org/10.22452/js.vol28no2.4
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