"Sukuk" ... The Government's Gateway to Enhancing Sharia-Compliant Sovereign Financing Sources Domestically and Internationally

In a significant step toward developing Kuwait’s sovereign financing framework, the country has officially incorporated government sukuk into its toolkit for funding public needs and managing debt, underpinned by a comprehensive legislative framework that enables the state to issue a wide range of sukuk both domestically and internationally.

This development follows the issuance of Law-Decree No. 90 of 2026 concerning Government Sukuk, which was published in the *Kuwait Today* newspaper. The decree comprises 35 articles regulating the issuance of sukuk in Kuwaiti dinars and foreign currencies, their offering through public or private subscriptions, and their management and trading locally and abroad. It also links the sukuk to the provisions of Law-Decree No. 60 of 2025 concerning Sovereign Financing.

The decree permits the issuance of sukuk within Kuwait and overseas, while opening the subscription process to natural and legal persons, including non-Kuwaitis. However, certain issuances may be restricted to Kuwaiti nationals, as specified in the prospectus for each issue, which outlines eligible investor categories and participation conditions.

Minister of Finance Dr. Yaqoub Al-Rafai described the approval of the Government Sukuk Law as a crucial step in advancing Kuwait’s sovereign financing system. He noted that it expands the range of instruments available to the state and introduces a Sharia-compliant financing tool.

In a statement to the press, Al-Rafai said the law enhances the flexibility of managing funding requirements, diversifies funding sources and the investor base both locally and internationally, and supports the state’s efforts to develop capital markets and improve the efficiency of financial liability management. These measures align with fiscal sustainability targets and help maintain the strength of the state’s financial position.

He added that the law provides greater flexibility in managing the debt portfolio by diversifying instruments, markets, maturity profiles, and the investor base. It also strengthens the ability to manage refinancing and liquidity risks, allowing the state to select the timing, size, and structure of issuances in line with its funding needs and domestic and global market conditions.

According to Al-Rafai, issuing government sukuk supports the development of the local debt market and the construction of a sovereign sukuk yield curve across various maturities. This enhances pricing efficiency, provides a benchmark reference for issuances by companies and financial institutions, and contributes to deepening the secondary market and improving its liquidity levels.

The explanatory memorandum accompanying the decree states that the legislation aims to establish a comprehensive legal and regulatory framework for government sukuk, recognizing their distinct nature compared to private sukuk. The sukuk are intended to serve as a tool for refinancing existing debt in alignment with the government’s financing plan, as part of a broader diversification of fiscal policy instruments to fund the objectives outlined in Law-Decree No. 60 of 2025 on Financing and Liquidity, which constitutes the overarching framework for government borrowing and financing.

The law permits the issuance of sukuk backed by existing government assets, usufruct rights and operational rights over government assets, or assets to be acquired in the future. These include asset lease sukuk, usufruct and operational rights lease sukuk, salam (forward sale) sukuk, istisna’a (manufacturing) sukuk, as well as mudaraba (profit-sharing) and musharaka (joint venture) structures for new government projects within development plans, along with other Sharia-compliant issuance structures.

This diversity allows the government to structure issuances tailored to the nature of assets, projects, and varying funding needs, rather than relying on a single sukuk model.

Among the most notable innovations introduced by the decree-law is the establishment of a special purpose vehicle (SPV) structured as a single-shareholder company, wholly owned by the State, to assume roles related to the structuring of sukuk and the management of their underlying assets. The regulations governing this company cover its establishment, objectives, registration, legal form, as well as its management and oversight.

The decree also exempts the company from fees and taxes, while referring the details of the register of such companies maintained by the Ministry of Commerce and Industry, along with the registration system, to the executive regulations.

In line with protecting the interests of sukuk holders, the law permits the SPV, with the approval of the Minister, to appoint a custodian and an investment manager to safeguard and manage the sukuk assets in a manner that serves the interests of their holders. The decree dedicates a chapter to sukuk management, addressing the responsibilities of the investment manager, disclosure requirements for investors, and the organization of the sukuk holders’ body, the external auditor, and the fiscal year for sukuk.

The law establishes a unified Shariah Advisory and Supervisory Authority for all SPVs involved in government issuances. This authority is tasked with verifying that the conditions and structures of government sukuk comply with Islamic Shariah provisions, as well as ruling on Shariah-related aspects in accordance with the rules governing its operations.

The law sets specific regulations depending on the issuance currency and location. It requires prior written approval from the Central Bank of Kuwait for the issuance of government sukuk within Kuwait denominated in Kuwaiti Dinars. If the issuance takes place within Kuwait but in foreign currencies, coordination is required with the Central Bank of Kuwait and relevant authorities.

The legislation distinguishes between government sukuk and commercial or private securities. It stipulates that the provisions of Law No. (7) of 2010 concerning the establishment of the Capital Markets Authority and the regulation of securities activities, along with its executive regulations and amendments, do not apply to the issuance, offering, and management of government sukuk issued under the new law.

Conversely, the decree permits, with the approval of the Minister of Finance, the listing of government sukuk on local and foreign capital markets. Such sukuk shall be traded in the local market in accordance with the rules of the Capital Markets Authority, the conditions set forth in the prospectus, and the determinations of the Shariah Advisory and Supervisory Authority.

The law permits subscription by natural and legal persons, including non-Kuwaitis, in government sukuk. However, it grants the government flexibility to restrict certain issuances exclusively to Kuwaiti nationals, as specified in the prospectus for each issuance.

Furthermore, the law allows for one or more underwriters in sukuk issuances. An underwriter may commit to fully covering the issuance and re-offering it in a single tranche if it is not fully subscribed by qualified subscribers, or to cover the remaining portion of the issuance that remains unsubscribed.

The decree-law addresses the attachment of government sukuk and their profits, subjecting forced execution to the rules applicable to securities under the Capital Markets Authority Law, to the extent that such rules do not conflict with the provisions of the Government Sukuk Law.

The executive regulations for the “Sukuk” law must be issued by a Cabinet decision, upon the proposal of the Minister of Finance, within three months from the date the law comes into effect.