Abstract
Regional Islamic capital market for fixed income securities has been growing steadily and noticeably as Sukuk has been emerging as an alternative and important instrument to conventional debt instrument in the fixed income market. Although the country has largest muslim population, Kuwait’s fixed income capital market is still dominated by conventional debt instruments. Further, the central bank of Kuwait has been the major issuer of the conventional bond and not an issuer of Sukuk. The small number of sukuk issues in Kuwait compared to bonds is due to lack of clear law and regulation, shortage of expertise in structuring sukuk, and absence of government issued sukuk. Among the sukuk issued in Kuwait, only one sukuk has defaulted and has gone through restructuring during the period of global financial crisis when many financial institutions have failed around the world. This should be taken positively as a prospect of sukuk as an alternative to bond as viable fixed income security. We believe that the role of central bank is key to the prospect of flourishing Islamic financial instruments such as sukuk in Kuwait as well as in the global fixed income markets.
Highlights
Demand for Islamic financial instruments has been on the rise around the world
Said and Grassa find that the bonds market has had a positive impact on the Sukuk market, and one can say that this is a complementary instrument rather than a substitute. They suggest that countries with a high quality of regulation support the development of the Sukuk market, especially those that have adopted Islamic shariah law mixed with common law, since shariah provides the principles on which Islamic finance based
The review of the sukuk literature and Kuwait fixed income market data show that the Kuwait market is influenced by the global economic growth in debt market especially for the introduction of Sukuk
Summary
Demand for Islamic financial instruments has been on the rise around the world. Since the global financial collapse of 2008, Islamic financial instruments have been regarded as an attractive alternative to traditional financial instruments. Islamic instruments are designed in full compliance with Islamic Shariah rules that considers factors such as prohibition of interest (riba), risk sharing, prohibition of speculative behavior, security of contracts and preservation of property rights Even under these constraints, Islamic financial instruments offer very competitive return compared to traditional instruments and that has received attention from investors with Islamic faith and from investors with other religion. Islamic financial instruments offer very competitive return compared to traditional instruments and that has received attention from investors with Islamic faith and from investors with other religion Bond instrument, both government and corporate, has been one of the main sources of funding in the capital market and fixed income security for investors. Has there been any Sukuk defaults in Kuwait, and if so what impacts, if any, have these had on the capital market?
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