Kuwait Adopts New Legislative Framework for Issuing Government Sukuk

Kuwait issued Decree-Law No. 90 of 2026 concerning Government Sukuk, published in the Official Gazette “Kuwait Al-Yaum,” to provide a comprehensive legislative framework enabling the state to issue sukuk domestically and internationally, in Kuwaiti dinars or foreign currencies, as part of tools for financing public needs and managing debt.

The law allows natural and legal persons, including non-Kuwaitis, to subscribe to government sukuk, while permitting certain issuances to be restricted to Kuwaiti citizens, with the subscription prospectus for each issuance specifying eligible categories and participation conditions.

According to the explanatory memorandum, the legislation aims to establish a legal and regulatory system suited to the specific nature of government sukuk, providing an additional financing tool for the state to support the diversification of fiscal policy instruments and refinance existing debt in accordance with the government’s financing plan.

Multiple Issuance Structures

The law grants the government flexibility in choosing sukuk structures based on the nature of assets, projects, and financing purposes. It permits issuance backed by existing government assets, operational benefits and rights from government assets, or assets to be provided in the future.

The explanatory memorandum outlines various forms, including sukuk al-ijara (lease-based sukuk) for government assets, sukuk al-ijara for operational benefits and rights of government assets, sukuk al-salam and istisna (advance purchase and manufacturing sukuk), as well as mudaraba and musharaka sukuk for new government projects within development plans, and other structures compliant with Islamic Shariah principles.

State-Owned Special Purpose Vehicle for Issuance Management

The decree-law established a single-shareholder special purpose company fully owned by the state to handle roles related to sukuk structuring and asset management, with regulations governing its establishment, registration, administration, and oversight.

The company is exempt from fees and taxes, while the executive regulations will detail the register of special purpose companies and the system for recording therein.

The law authorizes the company, with the Minister’s approval, to delegate one or more entities to act on its behalf in issuing, offering, and managing sukuk, whether domestically or internationally, and in Kuwaiti dinars or foreign currencies.

Regulation of Asset Custody and Management

To regulate the relationship with sukuk holders, the law allows the special purpose company, with the Minister’s approval, to appoint a custodian and an investment manager to safeguard and manage sukuk assets in the best interests of holders.

The legislation also includes provisions for sukuk management, covering the investment manager’s responsibilities, investor disclosure requirements, and the organization of the sukuk holders’ body, the auditor, and the fiscal year for sukuk.

Unified Shariah Supervisory Authority

The law mandates the establishment of a unified Shariah Fatwa and Supervisory Authority for all special purpose companies linked to government issuances. This authority will verify that sukuk terms and structures comply with Islamic Shariah rulings and adjudicate Shariah-related matters according to its governing rules.

Central Bank Approval for Dinar-Issued Sukuk

The legislation sets controls regarding the currency and location of issuance. It requires prior written approval from the Central Bank of Kuwait for government sukuk issued domestically and denominated in Kuwaiti dinars.

For issuances within Kuwait in foreign currencies, coordination with the Central Bank of Kuwait and relevant authorities is required.

Special Regulations for Issuance and Trading

The decree-law 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 law permits, with the Finance Minister’s approval, the listing of government sukuk on local and foreign capital markets. Trading in the local market must follow the rules of the Capital Markets Authority, consistent with the subscription prospectus and the rulings of the Shariah Fatwa and Supervisory Authority.

Subscription Open to Kuwaitis and Non-Kuwaitis

The law allows natural and legal persons, including non-Kuwaitis, to subscribe to government sukuk, while reserving the right for the government to restrict certain issuances to Kuwaiti citizens, as specified in each issuance’s prospectus.

It also permits the involvement of one or more underwriters, who can commit to fully underwriting and re-offering the issuance if eligible subscribers do not fully subscribe, or to cover the remaining portion of the issuance.

Electronic Sukuk Register

The legislation regulates the creation of a dedicated sukuk register for all issuances, with sukuk recorded in the nominal value of holders in electronic registers. It also governs sukuk certificates, their trading, and ownership transfer procedures.

Furthermore, it addresses the attachment of government sukuk and their profits, subjecting enforcement procedures 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.

A Tool for Debt Refinancing and Financing Diversification

The explanatory memorandum notes that government sukuk are not limited to providing Shariah-compliant investment instruments; they also serve as a means to refinance existing debt in line with the government’s financing plan.

Sukuk are part of a broader effort to diversify fiscal policy instruments for financing the objectives outlined in Decree-Law No. 60 of 2025 concerning Financing and Liquidity, which serves as the overarching framework for government financing and borrowing.

According to the explanatory memorandum, the legislation also aims to contribute to the development of local markets, strengthen the national economy, provide new investment tools, and expand investment opportunities for citizens, residents, and foreign investors.

The law stipulates that the Public Reserve Fund will bear the costs of implementing the decree-law. The executive regulations will be issued by a Cabinet decision based on a proposal from the Finance Minister within three months of the law’s effective date, tasked with completing procedural and regulatory aspects, particularly those related to the special purpose company, the Shariah Fatwa and Supervisory Authority, and the mechanisms for implementing the law’s provisions.