The Establishment and Legislative Framework of Kuwaiti Islamic Banks

Abstract

Islamic banks in the State of Kuwait have witnessed gradual development since their establishment, as some were founded from the outset under a banking system compliant with Islamic Sharia principles, while conventional banking institutions were later converted to operate in accordance with Islamic banking principles. In its early stages, this sector faced a legislative challenge represented by the absence of a dedicated legal framework regulating the operations of Islamic banks, as they were subject to the general provisions of the Monetary Law, the Central Bank of Kuwait, and the regulation of banking practice, in addition to the general rules of civil law. With the development of the sector, a specific law for Islamic banks was issued in 2003, representing a significant milestone in the regulatory framework, as it established an independent legal system governing the activities of these banks and defining their operational controls. It also mandated the establishment of Sharia supervisory boards within each bank to ensure compliance with Islamic Sharia principles. This framework was further strengthened by the establishment of the Higher Sharia Supervisory Authority at the Central Bank of Kuwait in 2020 to oversee Islamic banking operations and their affiliated Sharia supervisory boards. This research aims to examine the historical development of Islamic banks in Kuwait, analyze the impact of their specific legislative framework on their banking and supervisory performance, and highlight the role of Sharia supervisory boards and the Higher Sharia Authority in enhancing compliance with Islamic Sharia provisions. The study adopts both the historical method and the legal analytical method to trace this development and analyze its regulatory and legislative dimensions.