OpinionOthers

Skukuzations, an ongoing legal challenge

By Atyab Al-Shatti

Sukuk are considered one of most essential economic mechanisms for the country to regulate levels of liquidity in the banking market. The skukuzations is the sister mechanism for the Central Bank to monitor and supervise the work of Islamic banks, and therefore the law gave the Central Bank the legal authority to issue “finance skukuzations” methods that comply with the Islamic sharia according to article 95 sub-article 3 of the law 32 for the year 1968. Yet the legislator does not tackle or cure the vacuum within the legislative system, leaving such fundamental economic tool unresolved.

The law allows the relevant government agencies (specifically the Central Bank of Kuwait and the Kuwait Investment Authority) to carry out the tasks of issuing, offering and managing these sukuk, as well as some of the administrative and accounting tasks required for sukuk issuance, in the context of facilitating the implementation process.

Law No 50 of the year 1987 amended by Decree-Law No 3 of 2009 authorizes the Ministry of Finance to issue Islamic bonds and sukuk to fulfill its obligations towards government agencies, institutions and bodies with attached and independent budgets.

A bill draft was once was suggested to cure such vacuum which included a provision that the approval of the Central Bank of Kuwait would be obtained for sukuk issuances inside the State of Kuwait, whether in Kuwaiti dinars or foreign currencies, in light of the responsibility of the Central Bank of Kuwait, and in accordance with its establishment law No. 32 of 1968 and its amendments, for organizing Liquidity levels in the local market in line with the developments of the economic, monetary and banking conditions in the country, and to maintain the stability of the exchange rate.

But since the bill draft has not come to finalization yet, then the legal sources are basically the contract that governs contractual obligations. With respect to skukuzations, the contract must be supervised by a sharia authority that shall confirm the compliance of this contract to the Islamic principles. If the Islamic principles did not tackle a certain subject that was stated within the contract, then the source of interpretation to the contract shall be the commercial law, unlike the securitizations agreements; the agreement does not need the revision and confirmation of a sharia authority and shall be interpreted immediately according to the commercial law.

Moreover, as in for the finance skukuzations issued by the public sector, the Central Bank can issue skukuzations according to article 95, sub article 3 of law 32 for the year 1968 which stated it is permissible for the bank to issue methods that comply with sharia principles for finance. Also sub article 2 from the same abovementioned article permitted the Central Bank to deal, purchase and sell skukuzations for the purpose of regulating banks liquidity.

As in for the skukuzations issued by private sector before issuing the new commercial companies’ law 25 for the year 2012, minister of commerce issued ministerial resolution number 388 for the year 2007 regulating dealing with stock, and defined skukuzations as “a document of equal values issued by companies according to sharia jurisprudence such as partnership, Murabaha, Ijarah, investment and agency skukuzations according to sharia types After issuing the new commercial company’s law: articles from 178 to 2007 have filled some of the legislation gaps that should tackle securitization.

Law number 2 for the year 2009 related to enhancing financial stability of the state defined sukuk in article one as a money tool issued by the ministry of finance on behalf of the state according to the sharia principles. But this definition lacks the differentiation between sukuk and debentures from my point of view. For Kuwait’s economy to flourish and thrive, it is fundamental to issue a skukuzations law.

 

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