Islamic Finance

Other Islamic Finance Sectors in Kuwait

| 30 August, 2018 | General
Other Islamic Finance Sectors in Kuwait
 

This article is an extract from the Islamic Finance in Kuwait: Broadening Horizons report.

The report can be downloaded from HERE.

 

Sharia-compliant Debt Securities     

In 2015, the Capital Markets Authority (CMA) introduced a regulatory framework to encourage both Sukuk and conventional bond issuance. 

These rules lay out the conditions that Sukuk must fulfil to be tradeable and detail specific Sukuk types such as instruments with perpetual tenors and those that can be converted into shares. The CMA and CBK must approve Sukuk

Kuwait’s parliament approved a new legal framework that extends Kuwait’s borrowing limits, raising the debt ceiling to $82.0 billion from $33.2 billion and extending maturities to up to 30 years from the previous limit of 10 years. Kuwait’s successful debut in the international bond market in March 2017, where the country raised $8 billion from regional and international investors — order books totaled $28.9 billion — is likely to help pave the way for sovereign Sukuk issues in the future. As of 2017-end, Kuwait entities had issued $396.2 million of Sukuk.      

Four Takaful Companies Listed on Stock Exchange      

Historically, there was little take-up of insurance in the Middle East, aside from compulsory requirements like vehicle insurance.  In Kuwait, the first Takaful companies were established in the 1990s, and as of 2017-end 16, including two windows, of the country’s 35 domestic insurers operated according to Islamic principles. Of the 14 full-fledged Takaful companies, there are only four listed on the stock exchange. Kuwait’s four listed Takaful companies — First Takaful Insurance Company, Wethaq Takaful, Kuwait Insurance Company and Warba Takaful Insurance Company — had $374.8 million of assets at the end of 2017, while their contributions totalled $101.2 million. 

In terms of market share, Warba Takaful is the dominant player, accounting for 72.1% of assets and 67.5% of contributions in 2017. First Takaful and Wethaq Takaful held 16.1% and 10.6% of assets, respectively, also claiming 17.5% and 14.2% of contributions last year.      

CBK Country Report_Kuwait Islamic Finance chart

Islamic Funds Represent 56% Market Share      

Consumer demand for Sharia-compliant investment vehicles has spurred growth in Kuwait’s Islamic asset management industry.  Of the country’s 113 investment funds, 57 are Sharia-compliant and combined these Islamic funds had $944 million of assets under management at the end of 2017, up from $931 million a year earlier. 

In 2011, the CMA became the regulator for Kuwait’s Islamic funds industry, taking over from the CBK.  On a longer timeframe, Islamic funds’ assets under management have declined, a drop that coincides with the lackluster performance of Gulf equities markets, in which these funds are major investors. For example, Saudi Arabia’s benchmark is down 29% from a 2014 high — its peak of the past five years. Likewise, Dubai’s index has fallen 41% from its 2014 high and Kuwait’s bourse is down 19% from a 2013 peak. 

All those closing highs were achieved prior to  the steep and sustained drop in oil prices which  began in mid-2014, with reduced state crude  revenues impacting government spending and  denting investor confidence, even if few energy  companies are listed on regional exchanges. 

A Brent crude price rally from 2017’s low of $47 last June to around $70 today bodes well for both equity markets and Islamic mutual funds, however.  Islamic fund managers, of course, cannot and will not invest in companies connected with haram activities such as the arms trade, tobacco or gambling. They mostly rely on retail investors for growth, unlike conventional funds which follow an investing mandate but also have a large institutional investor base. As the Gulf pension sector expands, Islamic funds should benefit.      

Islamic Investment Companies Outperform Conventional Peers 

Second only to banks in terms of their share of Kuwait’s financial system, the investment company sector is becoming increasingly influenced by Sharia principles.  Of the 68 investment companies, 39 are Islamic, and their share of total sector assets has increased from 44% in 2013 to 57% in 2017. 

Overall, assets have fallen for both conventional and Sharia-compliant companies during this period, mirroring weak regional stock markets.  But the decline for Islamic investment companies has been markedly less pronounced, dropping 10.7% versus a 45.4% drop at conventional investment companies. This outperformance suggests Islamic firms have been more prudent in their investments and also that in times of market turbulence investors are more comfortable committing their money to investment companies that follow Sharia principles. 

 

Read the full Islamic Finance in Kuwait - Broadening Horizons report

Report: Islamic Finance in Kuwait: Broadening Horizons

© Thomson Reuters 2018 All rights reserved

Read the full Islamic Finance in Kuwait - Broadening Horizons report.

Like 

MORE INTERESTING TOPICS