Kuwait as a financial centre: Opportunities and challenges

Since his Highness Sheikh Sabah Al-Ahmad
Al-Sabah was sworn into office in 2006 as the Emir of the State of Kuwait, he
repeatedly expressed his vision and wish of transforming Kuwait into a
financial centre. Unfortunately, little effort was exerted in this regard
between 2005 and 2009. In 2010, the government announced its future vision
which was called “Kuwait 2035” which was centred on the idea of transforming
Kuwait into a financial and trade centre.

In fact, achieving this objective has
become a challenge for the Prime Minister and his cabinet, the Parliament and
the business community. In this article I will highlight some of the issues,
requirements, challenges and opportunities for establishing a financial centre
in Kuwait. 

Establishing Kuwait as a financial
centre, requires that Kuwait provides the necessary financial services for
investors and business people conducting business in the region. This includes
banking services (eg deposit acceptance, loan provision and issuance of
guarantees), investment services (eg asset management and establishing mutual
funds), insurance services (eg property and life), and having a well organised,
developed and supervised financial markets that provide diversified sources of
finance for businesses.

There are many elements playing a role
in establishing a city as financial centre. Having a sound financial
infrastructure, which is composed of banks, investment, consultancy and
insurance companies, and financial markets, can be considered as the main
element for any successful financial centre. Investing in the infrastructure
could be costly, however the benefits that could result from turning Kuwait
into a financial centre most likely will exceed the cost. Among these benefits,
is promoting local financial institutions and expanding their client base.
Banks, for instance, will be able to provide services to a larger range of
customers and to enter new international markets that will enable them to gain
experience and to improve institutional efficiency by operating in more
competitive and sophisticated business environments. 

A key question is the following: Does
Kuwait currently has the required financial infrastructure? The answer is not
clear since Kuwait currently has only some elements of the infrastructure.
First, with regard to banks, the number of commercial banks (both local and
foreign) is twenty banks, which is considered relatively small even at the
regional level. Second, the number of investment companies is ninety-seven, and
a significant number of them are considered, based on size and services,
investment banks. Third, there are one hundred and eleven investment (mutual)
funds. It should be noted that financial institutions in Kuwait operate on
traditional and Islamic financial principles.

In addition, Kuwait has the third
largest stock market in the Arab world (based on market value of listed
companies), and last year the Parliament passed a law creating a financial
market authority that is expected to significantly improve supervision and
transparency in the stock market. Therefore, Kuwait has the potential to become
a specialised financial centre since other neighbouring countries in the region
have successfully established themselves as financial centres. A realistic
choice might be focusing on Islamic banking and investment or asset management
centre.

Finally, to move forward with and
realising the vision of turning Kuwait into a financial centre, the government
must speed the process of amending and passing new laws that are necessary to
enhance the current business environment and make Kuwait attractive for
businesses. Legislators should work with the government and focus on laws
related to taxes, foreign investment, anti-money laundering and investor
protection. 

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