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Kuwait, one of the six GCC countries, is a small yet wealthy nation. It has a population of around 4.5 million and is considered to have the third highest GDP per capita in the world. In the Middle East, it is second only to Qatar. It has a largely oil-based economy, though it has diversified to some extents, and is seen globally as a highly favorable business destination.
The population of the country consists largely of expatriates, with around 3 million of them, while the number of Kuwaiti nationals is closer to 1.5 million. While their population is low, they do make up a vital part of the country’s economy.
The governing bank of the country is the Central Bank of Kuwait. Their responsibilities and duties are as follows:
The Banking Regulations
The Central Bank of Kuwait has separate regulations for Islamic banks apart from the general regulations. However, the general idea with Islamic banks is that they must follow the same laws as conventional banks except in specific areas where it is otherwise stated through the law.
Setting up an Islamic Bank within Kuwait:
The matter of setting up of an Islamic bank in Kuwait is covered under the Central Bank Circular Number 3 for Islamic banks, also known as Instructions Number (2/IBS/114/2003). Hereinafter referred to as Central Bank Circular. In there it is stated that in order to set up a Branch of an Islamic Bank within Kuwait, a written application must first be made to the CBK. The first section of the circular covers what exactly should be present within the application so as to ensure an easy a job as possible for the CBK.
On top of this, the CBK is looking for an economic feasibility study along with the basic application, which should include the following:
Section 4 of the circular relates to all potential Islamic banks. Under this section, the Central Bank shall take into account certain regulatory standards. These include:
Section 5 of the Circular states that if the Central Bank approves the application, there will then be a 12 month period over which the bank must then set up the proposed branch. Though the general period of incorporation of the bank is 1 year, the banks may obtain an extension if it feels that it will be unable to incorporate the said branch within the time prescribed.
Sharia Compliance:
One key aspect of Islamic banks is the requirement of a Sharia Supervisory Board. The role of this board is to ensure that all the banking activities fall in line with the Sharia principles and customs, and such board is covered under Circular Number 13 Instruction Number (2/IBS/100/2003).
Article 2 states that the Sharia Supervisory Board should consist of a minimum of three members, who are to be elected by the bank’s board of directors. This Supervisory Board will hold regular meetings to look into the bank’s activities.
Section 4 lays out the powers and duties of the board. It will be the duty of the board to ensure that all THE banking activities are Sharia-compliant, and in doing so, they shall provide their opinion on the banking activities from the Sharia point of view. They shall inspect all contracts, agreements, policies, and bank transactions. The Board shall have the power to request any such documents and the bank will not be in a position to deny them.
In the case that an activity being performed or proposed is one that the board does not have the ability to confirm or deny, they shall be obliged to obtain a fatwa on the matter. Once this is obtained, it should be made available for any who wish to read it, as this will help in future cases and across other branches and banks. This is confirmed under Section 8 of the circular.
Interest:
Finally, one of the primary difference between an Islamic bank and a conventional one would have to be a matter of interest. Islamic banks do not charge interest on loans and have other methods of obtaining their profits. As such, they are exempt from any pieces of legislation relating to interest.
In general, the regulations governing Islamic banks are the same as those for conventional banks. The only differences arise where the law specifically states that there will be some difference. Areas such as Sharia Supervisory Boards and interest rates are the only differences that are of immediate note.
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