Kuwait’s Islamic financial sector has become increasingly dynamic since the end of the Covid-19 pandemic. Two banks, Kuwait Finance House (KFH) and Warba Bank, have made acquisitions that will expand their reach domestically and lay the groundwork for expansion in other regional markets where Islamic banking is not as developed as it is in Kuwait. The passage of Kuwait’s Public Debt Law in March 2025 will improve local banks’ liquidity and spur much needed improvements in the local sukuk (Islamic bonds) market. Internationally, the growth of sukuk providers has been a boon for Kuwait’s Islamic banks, who have been bookrunners for significant amounts of issues in 2023 and 2024. Sectoral improvements, such as those carried out by the Insurance Regulatory Unit (IRU), and clarified guidelines for digital banks published by the Central Bank of Kuwait (CBK), are driving innovation and efficiency improvements.
Structure
The Kuwaiti Islamic banking sector is regulated by the CBK, which has been led by Basel Al Haroon as governor and chairman since April 2022. In addition to the chairman, the CBK’s board has a deputy governor, who hails from the private banking sector; undersecretaries from both the Ministry of Finance (MoF) and the Ministry of Commerce and Investment (MoCI); and four representatives from the private sector. Law No. 32 of 1968, known as the CBK Law, established the bank and lays out its structure, responsibilities and supervision. The CBK Law saw a major amendment in 2003 when Law No. 30 added a section on Islamic banking. Section 10 states that the CBK is the regulator of Kuwaiti Islamic banks and Kuwait-based branches of foreign banks.
To carry out this regulation, the 2003 amendment established the Higher Committee for Sharia Supervision within the CBK, whose responsibility it is to ensure that Islamic banks follow sharia guidelines in their products and services, in addition to approving people for the banks’ sharia boards and mediating disagreements within boards at these banks. The legislation states that existing conventional banks can establish an Islamic bank subsidiary in which they must retain 51% ownership, but for regulators this will be considered an independent banking institution. Beyond the need for a sharia board and religiously compliant products and services, the regulations for Islamic banks are similar to those of conventional banks. However, if the CBK is to give emergency finance to Islamic banks, the capital injection has to conform to Islamic principles. The CBK law was amended again in 2016 to strengthen sharia governance in banks and improve the auditing and external review mechanisms.
Oversight
The CBK licences Kuwait’s Islamic finance and Islamic investment firms. According to the CBK, there is only one regulated Islamic finance company, Al Mulla International Finance Company, and eight Islamic investment businesses. According to the 2022 CBK economic report, sharia-compliant investment organisations had total assets of KD2.4bn ($7.8bn) in 2022, more than the KD2.3bn ($7.5bn) of conventional investment firms the same year. The second key regulator for Kuwait’s Islamic finance sector is the Capital Markets Authority (CMA), which regulates securities and sukuk in addition to Kuwaiti finance funds. The CMA was established in February 2010 by Law No.7 of 2010, known as the Capital Markets Law. The CMA amended the 2010 law in February 2022, issuing new regulations and bylaws to regulate the issuance and listing of green and environmental, social and governance (ESG)-focused sukuk and bonds. In addition, the authority is developing a framework to regulate sovereign sukuk, which will be overseen by the MoF.
Just like with conventional funds, individuals managing Islamic funds must be licensed by the CMA, but require an additional step where a sharia council within the CMA expresses an opinion on whether a fund and its investment adhere to Islamic requirements. The third regulator of note is the IRU, which regulates the country’s insurance sector, including takaful. This entity was created by Law No. 129 of 2019, known as the Insurance Law, which laid out the IRU’s responsibilities and established guidelines for the insurance industry.
The Insurance Law also strengthened requirements for foreign insurance organisations operating in Kuwait, eased licence renewal for extant insurance companies and regularised the requirements for insurance professionals in the industry. The IRU has a technocratic leadership, with a chairman and their deputy, in addition to three members nominated by the MoCI, a representative from the MoCI and a representative from the central bank. Digitalising regulatory processes and easing applications have been some of the major achievements of the IRU since its establishment.
Key Players
The CBK has licensed four Islamic lenders – KFH, Boubyan Bank, Kuwait International Bank (KIB), and Warba Bank – of which KFH is the largest. According to the CBK, conventional banks have a total of 217 branches in Kuwait, while Islamic banks have 167, of which 80 are of KFH. The only foreign Islamic bank with a presence in Kuwait is Al Rajhi Bank, which has one branch office in the country. By assets, KFH is the largest, with KD36.7bn ($119.5bn) as of December 2024, followed by Boubyan Bank with KD9.4bn ($30.6bn) in assets, then Warba Bank with KD5.3bn ($17.3bn), and finally KIB, which had KD3.9bn ($12.7bn) in assets. For comparison, the largest bank in the country is the conventional National Bank of Kuwait (NBK), with KD40.3bn ($131.2bn) in assets.
Following a regional trend in bank sector consolidation, two of Kuwait’s sharia-compliant financial service providers have pursued acquisitions. KFH acquired Bahrain-headquartered finance group Ahli United Bank in July 2022 and completed the merger in September 2024 to become the world’s second-largest Islamic bank. The acquisition has given KFH a foothold in Egypt, where the Islamic banking sector is still relatively small. Warba Bank acquired a 32.75% stake in Gulf Bank in April 2025, and the two entities are planning a merger and turning Gulf Bank into an sharia-compliant lender. Considering the relatively small size of KIB and growing competitive pressures, additional lending concentration in the country’s Islamic banking industry is likely to be seen in the years ahead.
Despite the CBK only launching a licensing process for digital banks in 2022, there are three digital lenders with operations in or connections to Kuwait. Boubyan Bank, through its Bank of London and the Middle East subsidiary, launched Nomo Bank, a sharia-compliant digital bank based in the UK in July 2021. Weyay Bank, a subsidiary of NBK, was launched in November 2021, targeting the country’s large young population. In October 2023 KFH launched Tam Digital Bank, the first sharia-compliant digital bank based in Kuwait, again targeting the country’s youth. The same year, the central bank announced a regulatory sandbox to encourage the expansion of Kuwait’s financial technology sector. The country’s regulators have been hesitant to open the financial market to cryptocurrency and crypto-related assets, however, citing the risks of fraudulent activity and the unregulated nature of digital assets.
In the insurance sector, there were sixteen takaful companies holding licenses issued by the IRU as of November 2025. Of these, at least six are privately owned and two – Wethaq Takaful Insurance Company and First Takaful – are listed on the Kuwait Stock Exchange. Boubyan Bank, KFH, and KIB have direct subsidiaries that operate in the takaful sector, while Warba Bank’s non-Islamic insurance subsidiary Warba Insurance and Reinsurance has its own takaful subsidiary, Ritaj Takaful Insurance Company. Conventional insurance organisations Gulf Insurance Group (GIG) and Kuwait Insurance Company both also operate takaful subsidiaries. Two Bahraini companies, T’azur and Solidarity Bahrain, also operate takaful organisations in Kuwait.
Growth Potential
Despite the numerous firms, the takaful (Islamic insurance) sector in Kuwait is relatively nascent. The two listed Kuwaiti takaful businesses, Wethaq Takaful Insurance Company and First Takaful, had combined assets of approximately KD17m ($55.4m) in 2024, compared to GIG’s total assets of KD1.2bn ($3.9bn). GIG’s takaful subsidiary’s total assets were much smaller than its conventional parent, with KD43.8m ($142.6m) in assets in 2024, still three times larger than KFH Takaful, which recorded assets of KD13.2m ($42.9m) the same year.
After a decade of substantial development, the Kuwaiti insurance sector is transitioning into a new phase from 2025, shaped by maturing growth drivers and evolving policy priorities. Afya, a government-sponsored health insurance programme targeting retirees launched in 2014, was suspended in September 2024 due to elevated costs. Afya was a central pillar for growth in the Kuwaiti insurance sector, and its suspension without a clear timeline for renewal is likely to impact its growth prospects. Furthermore, the spike in new insurance policies as a result of mandatory expatriate insurance rules implemented in 2023 has given the sector a boost, the impact of which could dissipate as coverage among foreign nationals increases. Insurance penetration in Kuwait in 2022 stood at 1%, below the GCC average of 1.5% and further below the global average of 6.8%, indicating that there is still substantial room for the sector to grow.
Performance
In the banking sector, general profitability was up in 2024, continuing a trend that has taken place since the pandemic thanks to higher interest rates. However, in contrast to previous years, the conventional banking sector outperformed the Islamic lending segment, with profits increasing by 9.5% while those in the sharia-compliant subsector declined by 1%. Total assets also tilted in favour of conventional banks, as conventional bank assets grew by about 2% while those of Islamic banks stayed largely stable.
The CBK does not publish a breakdown in non-performing loan rates for conventional Islamic banks, but did report that the non-performing loan ratio rose by 0.8 percentage points in 2024 to reach 4.8%, though this is down from around 7% in 2020. Asset growth for the conventional banking sector has been steady since 2020, hovering between 2% and 8%. It has seen more moderation for Islamic banks, rising from 10% in 2020 to 30% in 2022 and then dropping to less than 1% asset growth in 2024. As a result, Islamic banks made up 48% of total assets in 2024, down from 50% in 2023. Lending continued to be the main activity for banks, with net loans being 60.2% of total assets across the sector in 2024, with investment declining slightly from 19.2% to 18.4%.
While credit card use played some role in the expanding loan portfolio, lending to large corporates made up the majority of the growth. Sectorally, households, real estate and services made up more than half of total loans in 2024. Investment abroad, especially in the UAE and Saudi Arabia, rose by 21% and 27%, respectively, that year. This is in part due to the absence of a sovereign bond market in Kuwait in 2024 due to the negotiation of the Public Debt Law. June 2025 statistical data from the CBK indicates that Islamic banks saw asset growth substantially higher than their conventional counterparts in the first six months of the year. Islamic bank assets went from KD45.9bn ($149.5bn) in January 2025 to KD49.4bn ($160.8bn) in June, while those of non-Islamic banks have grown from KD45.7bn ($148.8bn) to KD47.9bn ($156bn) over the same period.
Regarding individual bank performance, the Islamic lending segment trend is positive. KIB saw its operating income expand from KD72.5m ($236m) in 2023 to KD91.4m ($297.6m) in 2024, and yearly profits increase from KD19.3m ($62.8m) to KD23.3m ($75.9m). Warba Bank saw substantial development in net operating income, from KD64.1m ($208.7m) in 2023 to KD80.3m ($261.4m) in 2024, with yearly profits expanding from KD19.7m ($64.1m) to KD22.4m ($72.9m) over the same period. The trend was the same with Boubyan Bank, whose operating income increased from KD218m ($709.8m) to KD246.2m ($801.6m) from 2023 to 2024, and whose yearly profit rose from KD78.2m ($254.6m) to KD96.9m ($315.5m). KFH, by far the largest Islamic bank in the country, was the only exception to this general positive trend – operating income increased from KD1.5bn ($4.9bn) to KD1.6bn ($5.2bn), but yearly profits contracted slightly from KD675.1m ($2.2bn) to KD641.9m ($2.1bn).
Regional Model
Growth in the Kuwaiti insurance sector has broadly been strong. In 2022 it was the fastest growing insurance sector in the GCC, expanding by an average of 8.7% between 2017 and 2022, primarily due to the implementation of required medical insurance for expatriates and a rise in premium for retiree medical coverage. Regionally, the Islamic insurance sector is expected to grow at 10% per year in 2025 and 2026 according to credit ratings agency Standard & Poor’s.
Considering Kuwait’s insurance sector is smaller than the combined size of the UAE’s and Saudi Arabia’s financial sectors, positive regional stories can hide challenging national trends. Due to the private nature of most Kuwaiti takaful organisations, company-by-company data is limited. Information from the listed takaful firms indicates that Kuwait’s takaful sector is undergoing a more gradual growth trajectory than that seen in parts of the GCC.
First Takaful, one of two listed takaful organisations, registered a KD182,000 ($593,000) loss in 2024, though this was less than a loss of KD231,000 ($752,000) in 2023. Wethaq Takaful also witnessed a substantial decline in net profits, from KD88,300 ($288,000) to KD56,000 ($182,000) between 2023 and 2024. Assets increased, however, from KD4.2m ($13.7m) to KD4.3m ($14m). GIG Takaful, the sharia-compliant subsidiary of GIG, saw its revenue increase from KD15.8m ($51.4m) to KD22.3m ($72.6m) but this was in large part due to a recalculation of its assets. However, the organisation saw its profits grow from KD839,000 ($2.7m) to KD1m ($3.3m) over the same period.
Legislative Update
Kuwait’s sukuk market experienced minimal growth for several years due to the government not passing its Public Debt Law. Local sukuk holdings therefore peaked in June 2024 and have been declining since then, though holdings of foreign bonds and sukuk has almost doubled over the same period. However, with the passing of the Public Debt Law in March 2025, the local sukuk market should pick up again as the government starts issuing new debt. As part of the Public Debt Law, the MoF has stated that it will develop a separate regulatory framework for sovereign sukuk, creating a new supply for sharia-compliant sovereign instruments that is expected to dramatically improve the liquidity management of Islamic banks. Of the debt the government has issued since passing the law, about 27% has been in the form of sukuk.
Despite limited sukuk activity within Kuwait, Kuwaiti financial service providers have played a major role in international sukuk deals. In 2024 KFH Capital, the investment arm of KFH, led and arranged $17.8bn in sukuk issuances, including a $3.5bn sukuk for the Saudi Public Investment Fund and a $1bn sukuk for Al Rajhi Bank. Warba Bank issued Kuwait’s first sustainable sukuk on the London Stock Exchange in September 2024, valued at $500m. Warba Bank was also involved in $6bn worth of international sukuk, primarily in the UAE and Saudi Arabia. Green sukuk and ESG-related sukuk are growing rapidly, but are still a fraction of total global sukuk and ESG issuances. In 2023, 6.8% of sukuk was green, though green sukuk was in more demand than traditional offerings. Improving standards and promoting common regulatory frameworks are central to growing the sukuk market.
In the sharia-compliant investment subsector, the number of companies and their asset sizes are shrinking. According to the CBK, there were 29 Islamic investment firms in 2020, which dropped to eight as of December 2025. Islamic investment company assets have also contracted significantly, from comprising approximately half of the total assets held by investment companies to 26.5%. According to the CBK, the downturn in investment companies, both sharia and conventional, was due to elevated compliance costs as these firms have to adhere to both CMA and CBK regulations.
Outlook
The outlook for Kuwait’s Islamic financial sector is broadly positive. The insurance sector will face modest growth due to policies enacted in the early 2020s, such as mandatory expatriate insurance, reaching maturity and the suspension of the Afya programme. Growing competition may also lead to consolidation in the highly fragmented insurance sector, especially as the sector’s major players like GIG and Al Ahli Bank can offer better prices than small, undiversified providers. Kuwait is well positioned to benefit from the growing demand for Islamic financial instruments due to the country’s well developed institutional framework.
While the UAE and Saudi Arabia lead global sukuk issuance and are positioning themselves as centres for ESG and green Islamic finance, their progress offers a clear reference point for Kuwait. By further aligning sovereign wealth, government-related entities and private sector participants around shared priorities, Kuwait is well placed to further bolster its regulatory framework and institutional capacity and to expand its role in the evolving Islamic finance ecosystem, ensuring local firms contribute to the market’s next phase of sustainable development.
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