Saturday, January 10, 2009
Kuwait plans sukuk to support local banks
The Kuwaiti government may issue sukuk to support local banks including Global Investment House, which recently defaulted on its debt, and The Investment Dar, which recently requested $1 billion in loans from the government. It is unclear how the sukuk would be structured; the article said: "the government had finalised plans for a bill to issue sukuk or other Islamic financing instruments such as murabaha, using qualified firms' assets as collateral against the bonds". A murabaha financing is used for financing purchases of goods and is not typically secured by other assets. It is criticized in some cases for being nearly identical to conventional finance and would likely attract criticism on these grounds if it were used to raise capital (not finance the purchase of goods) for banks. If the financing were based on the banks' assets (e.g. buildings owned by the bank), I would imagine that the sukuk would more likely be structured as an ijara where the asset is sold to an SPV and leased back to the bank. Both conventional and Islamic banks have faced difficulties caused by credit market disruptions and falling global economic growth.