Kuwait's new Islamic finance rules may boost its sukuk market

Fitch Ratings said recently that Kuwait has issued new rules for the Gulf nation’s Shariah-compliant sukuk market that could inject life into its Islamic finance sector.

Financial experts at the American credit rating agency suggest the new framework put forward by the Capital Market Authority of Kuwait (CMA) could revitalize the country’s private-sector Islamic bond market.

Islamic finance has had a presence in Kuwait since the 1970s, but high liquidity and a lack of legal structures for sukuk bonds have made interest-based banking the norm in the nation. Sukuk bonds are structured to give investors a return without collecting interest, which is forbidden by Islamic law.

Fitch experts said the CMA’s new rules could be a large step forward in addressing the lack of a legal framework for sukuk bonds. The rules set out the general terms and structures for sukuk issuers. There are also new standards for governance and ensuring shariah compliance.

That framework may make the sukuk sector more appealing to lending corporations looking to broaden their investment offerings, Fitch experts said. Financial institutions and corporations that want to begin offering Islamic finance products need a sufficient credit rating to issued debt. They will also be subject to an approval process with both the CMA and Central Bank of Kuwait.