The problems in Kuwait in 2009 in the Islamic financial sector arose in the aftermath of the global financial crisis the previous year. It was investment companies with significant international exposure that were most affected: notably The Investment Dar, as the value of its investments declined, resulting in it not being able to pay on time its Sukukholders. Lessons have been learnt, and it is unlikely that the mistakes of the past will be repeated. The Investment Dar has been restructured and its shares have been de-listed from the Kuwait Stock Exchange, but it will continue to exist as a private company.
The Islamic banks in Kuwait were largely unaffected by the global financial crisis as their international exposure is limited. From January until December 2011 Kuwait Finance House has seen its profits rise by over 18%. Conditions in Kuwait are buoyant thanks to high oil prices and the banks’ overseas expansion in Turkey has proved profitable, not least as the Turkish economy has been one of the most rapidly growing in the world. The stagnation in the Eurozone will have a limited impact on Turkey as the country has diversified its trade into other regions during the last 10 years.
In short the Islamic banks in Kuwait seem well placed for the future and the problems facing some Islamic investment companies are being solved, though these may take another two or three years to be resolved fully.
RODNEY WILSON
Emeritus professor, Durham University
Kuwait regulatory support for Islamic finance and its aggressive expansion in the overseas market has made it one of the most progressive countries in Islamic finance. Here in Canada besides KFH no other major Islamic bank is active in the market.
Being a leader in Islamic finance its institutions have led the industry in absorbing and learning from past defaults which will empower its management to best strategize with future downturns in the market. This experience does not exist in many other countries and institutions. The lack of tangible case examples of failures has been a concern and with any industry these defaults will give case example for future growth.
OMAR KALAIR
President and CEO, UM Financial Group (Canada)