Kuwait sukuk law widens government financing options

• Kuwait approves first sukuk law
• Allows issuance of Islamic bonds
• Country’s oil income has plunged

Kuwait has approved its first law governing sovereign sukuk, paving the way for the government to issue Sharia-compliant debt as it expands its borrowing programme.

The law was issued at the weekend, nearly 18 months after Kuwait endorsed debt legislation allowing the emirate to return to local and global debt markets to finance its oil-reliant budget and avoid depleting its vast overseas assets.

Kuwait, which controls more than 100 billion barrels of proven crude reserves, endorsed the sukuk law as it grapples with a severe liquidity shortage after a sharp decline in oil exports through the Strait of Hormuz.

The law establishes a special purpose vehicle, financed by Kuwait’s state general reserve fund, to manage the issuance of various types of Islamic bonds in both Kuwaiti dinar and foreign currencies.

“This new law will create a suitable legal framework for the issuance of sovereign sukuk. This will stimulate the debt market and also boost the engagement of Islamic banks in the country,” said Ali Al-Anzi, head of Kuwait’s Al-Manakh economic centre.

Kuwait has four Shariah-compliant banks: Kuwait Finance House (KFH), Kuwait International Bank, Boubyan Bank and Warba Bank.

KFH is the world’s second-largest Islamic bank after Saudi Al-Rajhi, with assets of around $119 billion at the end of 2025, according to the Union of Arab Banks.

“The sukuk law represents an important step in developing Kuwait’s sovereign financing system by expanding the range of financing instruments available to the state and adding an instrument compliant with Islamic Sharia principles,” finance minister Yacoub Al-Rifai said, quoted by the state news agency.

Since it decided to return to the debt market in March 2025, Kuwait’s debt has jumped by nearly five times to reach KD8.6 billion ($28 billion) at the end of June as the country stepped up borrowing to offset the oil export fall.

A drop in oil income widened Kuwait’s 2025-26 budget deficit by nearly 13 percent to KD7 billion, with revenue almost 10 percent below the prior forecast, the finance ministry said earlier this year.

“I believe the sukuk law in Kuwait will attract a large variety of investors because it is a safe investment instrument and there has been a good appetite for such tools in the region,” said Jamal Banoun, head of the Riyadh-based SMS economic centre.