Below is an interview with Prof. Laurent Marliere, Ceo of ISFIN, the world’s leading network of Islamic Finance Lawyers. Prof. Marliere is one of the most attentive observers of Islamic finance at a global level and on the developments of I.F. in non-Muslim countries. From Brussels, he explains the expectations the world has on the upcoming elections in Kuwait.
What can we expect from the elections in Kuwait concerning Islamic Finance?
There is currently a tremendous opportunity for Kuwait to profile itself as a hub for Islamic finance and Islamic banking. We see a growing competition between Saudi Arabia, UAE, Qatar and Bahrain. There is no reason for Kuwait not to take a winning edge in the competition. The situation is rather similar to what is happening in Asia. Let us recall that Islamic finance is in riper state in Asian Muslim countries than in Arab Muslim countries. Malaysia has been leading the way for a decade but other jurisdictions have now entered in a battle to challenge that leadership: Singapore, Hong-Kong, Indonesia… The winners of the Kuwaiti elections could take a challenger’s position in the region and benefit from the numerous advantages of the country to pioneer new ways of conceiving Islamic finance. It comes at an appropriate time as Islamic finance itself is being challenged to redefine its model, and not mimick conventional finance. There are great expectations around the globe concerning Islamic finance and Islamic banking, which is a discipline that does not belong exclusively to Muslims but one that has turned into a global phenomenon. The world expects Islamic financial institutions to take a leadership stance on global finance and one of the biggest challenges facing the industry is lack of innovation and poor marketing. The election in Kuwait comes at a right time to surf on the worldwide wave of Islamic finance. Internally, on the political side, it is a smart move to make to satisfy the local population, which is demanding and keen to access Islamic banking products. Oman has been smart in that area and has heard the voice of the street. Islamic finance is also an element of stability for the Kuwaiti authorities. Will the winners of the election be broadminded enough to catch that wave? That is the question.
What makes you think that Kuwait can have a solid Islamic finance position?
Historically, Kuwait is actually a pioneer in Islamic banking!
The Islamic banking institutions in Kuwait are regulated by the Central Bank of Kuwait, established in 1968 under the Central Bank of Kuwait Law (CBK). The CBK Law provides for the Islamic banking regulatory and supervisory framework and sets the requirement for the Shari’ah Governance framework.
The CBK Law is a very lucid piece of legislation which comprises 4 chapters wherein Islamic banking provisions to deal with the organization of banking business. It explicitly defines Islamic banking business and provides for the Shari’ah principles, which should be part of that business. This means that the legal framework is ready to enhance banking activities including the ones recognized by customary practices and Shari’ah law compliance. The country’s Islamic banking industry is set to embark on the market without being hindered by substantial legislative formalities. A lot of time can be gained using pre-existing legislation!
What services can Islamic banks offer to their clients?
According to the CBK law, banks can supply most retail and corporate services:
- Accept all types of deposits, in the form of current, savings, or investment accounts, whether for fixed terms and purposes or otherwise.
- Carry out financing operations for all terms, using Shari’ah Contracts, such as: Murabaha, Musharakah and Mudarabah
- Provide various types of banking and financial services to their customers and to the public.
- Conduct financial and direct investment operations whether on their own account or on the account of other parties or in partnership with others, including the establishment of companies or holding equity participations in existing companies or companies under establishment, which undertake various economic activities, in accordance with both Islamic Shari’ah principles and controls laid down by the Central Bank, and all that in compliance with the provisions of this Law.
Actually, one of the incentives owned by Kuwait, in the battle to develop a hub in Islamic banking, is the flexibility of its legislation. The text is very modern and should be dug out of the sand by the new government.
Why is the legal framework so important to the development of Islamic banking?
Islamic banking is one of the businesses that cannot suffer rigidity in its regulation and supervision. It is a fast growing area of world finance, and competitive jurisdictions must react accordingly.
Bringing legislative amendments is not an easy process, especially when a country is going through political changes. The newly elected political authority may not always share the same feeling with the industry regulators and supervisors. It thus takes time and investors do not like instability and slowness.
A Shari’ah-compliant investment consists of a third of money, a third of religion and a third of law. The latter third is becoming more and more important as we live in an unsecure world and the legal framework is a guarantee to provide more security.
About the Author
ISFIN is the World’s Leading Islamic Finance Lawyers www.isfin.net