Kuwait Currency Board

The Kuwait Currency Board was established as a separate legal entity attached to the Ministry of Finance and Economy. Its governing members consisted of a chairman, as the head of the Board, and six directors, all appointed by an Amiri Decree for a three-year period. The Board was the sole authority for the issuance of notes and coin, and had to maintain a gold currency cover of at least 50 per cent. The balance could consist of convertible foreign exchange, government paper, and prime commercial paper. The Currency Board’s revenue from its holdings of bills and paper was to accrue to a reserve fund until this fund totaled 10 per cent of the currency in circulation; additional revenue had to revert directly to the Government.

Over the period of its existence, 1960-69, the Currency Board carried out its designated functions successfully. Nevertheless, with the substantial expansion in banking and financial activities in the latter part of the 1960s, the Currency Board’s powers were considered to be too limited to deal with the growing needs of the financial sector. Accordingly, the Kuwaiti authorities decided to replace the Currency Board by a central bank.

Central Bank of Kuwait

The Central Bank was established on April 1, 1969 under the Law Concerning Currency the Central Bank of Kuwait and the Organization of Banking Business.¹ In addition to being endowed with a paid-up capital of KD 2 million (which was subsequently increased to KD 5 million) it took over the assets and liabilities of the Currency Board. The law represented the first comprehensive set of rules governing Kuwait’s money and banking system. It was amended in a number of particulars in 1977.² As implied by its title, the law is divided into three major chapters: the first deals with the national currency, the second with the Central Bank of Kuwait, and the third with the regulation of the banking system. The first chapter restates the main provisions of the previous currency board law, i.e., it defines the national currency, its issuance, its circulation and withdrawal, and the currency cover requirements. While initially it was mandated that 50 per cent of the value of currency in circulation be covered by gold, this requirement was deleted by an amendment in 1977.

The second chapter of the law focuses on the Central Bank’s objectives and the rules for its capitalization, management, and operations. The Central Bank’s main objectives are to safeguard the internal and external value of the national currency, to maintain the currency’s international convertibility, and to promote appropriate monetary conditions for strengthening the country’s financial system and economy. In order to achieve these objectives, the Central Bank of Kuwait is empowered to issue currency, administer the country’s international reserves, regulate the banking system, function as the Government’s fiscal agent and financial advisor, engage in open market operations, and trade in coins, bullion, or other precious metals, and foreign exchange. Moreover, the Central Bank of Kuwait may, subject to the approval of the Minister of Finance, trade in the securities of Kuwaiti joint stock companies, concessionary companies in Kuwait, or public agencies. Against the collateral of such securities, the Central Bank of Kuwait may make loans to banks or to public financial or credit establishments, provided that the amounts allocated for the acquisition of such securities, or for making loans, shall not exceed the value of the Bank’s reserves. Direct advances to the Government may not exceed 10 per cent of the previous year’s general government revenues. While according to the law the Central Bank is the fiscal agent of the Government, in fact it holds a relatively small part of the Government’s assets. The Central Bank holds dinar-denominated deposits of the Government arising from the Government’s domestic operations and also receives a part of foreign exchange receipts of the Government for conversion to dinar deposits for the account of the Government. The Government normally converts a small part of its foreign exchange receipts to dinars, maintaining the remaining large part with the Ministry of Finance which invests it abroad for the account of the Government. Besides the general budget account, the Ministry of Finance maintains two other accounts: one is the Reserve Account which functions as a conduit for all extrabudgetary operations, and the other is the Reserve Fund for Future Generations which received 50 per cent of total funds of the Reserve Account upon its establishment in 1976 and is credited annually with 10 per cent of total government revenues, 10 per cent of investment income accruing to the Reserve Account, and all the income accruing from the investments of the Reserve Fund for Future Generations. The Reserve Fund for Future Generations was established in order to provide a source of income when the oil reserves of the country are depleted and the income derived from them ceases. The total foreign asset holdings of the country are estimated to have amounted to about US$68 billion at the end of 1981.

The Central Bank of Kuwait is managed by a board of directors consisting of a Governor, a Deputy Governor, a representative of the Ministry of Finance, a representative of the Ministry of Commerce and Industry, and four other members. The Governor, appointed by a decree for a renewable period of five years on the recommendation of the Minister of Finance, is the Central Bank’s chief executive with full powers to manage the Bank’s operations. The board of directors performs such functions as formulating the Central Bank’s policies regarding reserve requirements, discount rates, commission charges (on loans, advances, and discounted commercial paper), and credit ceilings for loans and advances by the commercial banks operating in Kuwait. The representative of the Ministry of Finance to the board of directors may delay any resolution relating to monetary and credit policy by referring the resolutions to the Minister of Finance; if the Minister fails to decide on the matter within seven days, the resolution becomes effective.

The third chapter of the law deals with the organization and supervision of the commercial banking system. Public credit institutions, investment banks, and companies financing the acquisition and development of real estate are exempt from the provisions of this chapter, although a procedure exists to subject them to its provisions if necessary. All commercial banks operating in Kuwait must have a minimum capital of KD 3 million. Commercial banks must be registered with the Central Bank and any cessation of operations or merger must receive the approval of the Minister of Finance on the recommendation of the Central Bank. The Central Bank may delete the registration of a bank in the case of bankruptcy, merger, liquidity or solvency problems, cessation of its operations, or for violation of the law. Commercial banks are not allowed to engage (as a line of regular business) in trade, industry, real estate, nor are they allowed to deal in their own shares. Commercial banks may, without prior approval of the Central Bank, purchase for their own account, up to an amount not exceeding 50 per cent of their own funds, shares of commercial companies. The Central Bank is authorized to issue instructions to the commercial banks to give effect to its credit and monetary policy. Various financial ratios and limits may be established by the Central Bank. These relate to liquidity and solvency requirements, credit ceilings to individual borrowers, documentary credit deposits, legal reserve requirements, local asset ratios, composition of portfolios, and maximum rates of interest on loans and deposits. All commercial banks must submit regular reports to the Central Bank. Special rules are applicable to specialized banks. Banks, financial companies, and investment institutions are subject to inspection by the Central Bank.

The Central Bank used its powers sparingly during its early years and only thereafter did it take significant measures to influence credit and monetary conditions. During 1973 the Central Bank used moral suasion to persuade commercial banks to curtail credit expansion for purchases of stocks which had been experiencing a rapid and speculative rise in value. Late in 1973 the Central Bank imposed, for the first time, a liquidity ratio and instituted payment of interest on deposits of commercial banks with it. It set the liquidity ratio at 25 per cent of all deposit liabilities of commercial banks, with 7 ½ percentage points of this ratio to be maintained in domestic currency. It set the interest rate on commercial bank deposits with the Central Bank at ½ per cent above the prevailing savings deposit rate of 4 per cent. In late 1974 and early 1975, with the acceleration of economic activity and the accompanying sharp increase in demand for credit, commercial banks had begun to experience some pressure on their liquidity in Kuwaiti dinars because they could not convert foreign assets without incurring a loss. To remedy the situation, the Central Bank took a number of measures, effective February 1, 1975. It opened a discount window for commercial paper of three months’ maturity; the discount rate for this paper was set at 5 ½ per cent. The Central Bank established a second line of credit for commercial banks with interest rates to be determined case by case. To further assist the commercial banks in meeting their immediate needs, the Central Bank placed part of the government deposits with these banks. Also, to prevent weakening of the Kuwaiti dinar’s exchange rate vis-à-vis the currencies of Kuwait’s trading partners, the authorities unpegged the dinar from the U.S. dollar as of March 18, 1975. Since then, the exchange rate for the Kuwaiti dinar has been maintained on the basis of its value in terms of a weighted average of currencies of Kuwait’s main trading partners. During the subsequent three years monetary expansion accelerated. To check this acceleration the central bank authorities took a number of measures as summarized below.

Prior to 1977, interest rates in Kuwait were subject to a legal ceiling of 7 per cent, and within this ceiling the Central Bank was empowered to determine interest rates offered and charged by commercial banks.³ During most of the 1968-76 period the effective market interest rate was near or at the 7 per cent ceiling and this ceiling was seldom exceeded. In November 1976 the law setting this legal ceiling was amended and the Central Bank was authorized to determine the interest rate ceilings with the approval of the Ministry of Finance. Consequently, effective February 20, 1977, the Central Bank increased the ceiling rate to 10 per cent on Kuwaiti dinar borrowing and lending operations by the domestic financial system, including the investment companies. However, a maximum rate of 7 per cent was maintained for loans to the productive sectors (defined to include trade, manufacturing, and construction) secured by approved collateral and with a maturity of one year or less. For all other loans of one-year maturity or less, the ceiling rate was raised to 8.5 per cent, while loans of over one-year maturity were subject to a 10 per cent legal ceiling. At the same time, the minimum interest rate payable on savings deposits was increased from 4 per cent to 4.5 per cent; the determination of time deposit rates was left to market forces subject to the legal 10 per cent ceiling. Interest rates on loans and deposits denominated in foreign currency were not subject to any limits. Also in February 1977 the Central Bank increased the interest rate payable on commercial bank time deposits at the Central Bank from 4.5 per cent (effective since late 1973) to 5 per cent. Considering the openness of the Kuwaiti economy and the free movement of capital, the rigidity of the interest rate structure had at times led to flows of funds in response to large differentials between rates in the domestic market and those prevailing in international money markets. Moreover, reliance on fixed interest rate ceilings had prevented their use as an important instrument of monetary and credit policy.

With regard to discount policy, as mentioned before, the Central Bank began discounting commercial paper in February 1975, but limited acceptable notes and bills to a maturity of three months or less from the date of acquisition by the Bank. In October 1977 some flexibility was added to the Central Bank’s discount policy. An amendment to the Central Bank Law authorized the Central Bank to discount commercial papers with maturities of up to one year at rates ranging between 5.5 and 6.5 per cent.

A number of other important amendments to the Central Bank Law became effective as of 1977 under Decree Law No. 130. These authorized the Central Bank to issue negotiable money market instruments to be used to approximate open market operations, and to extend the maturity period of the Bank’s emergency credit for commercial banks from three to six months. The amendments also permitted the Government to deposit long-term Kuwaiti dinar funds with financial institutions other than the Central Bank after seeking the opinion of the Central Bank and in a manner not conflicting with the monetary policy in force. In addition, the Central Bank was authorized to recommend the final decision with respect to the opening of new banks and the closing of banks violating the banking laws, to inspect all banks and restrict their dealings if these were considered harmful to the banking system, and to issue directives (rather than recommendations as previously) to the banks in order to achieve monetary and credit objectives. The paid-up capital of the Central Bank was set at KD 5 million and the General Reserve Fund of the Bank was allowed to be increased by KD 3 million to KD 25 million through the allocation of net profits. At the same time, the Central Bank was authorized to undertake the sale and management of securities issued (or guaranteed) by the Government or issued by any other Kuwaiti public institution. Amendments also canceled the provisions fixing a gold parity for the Kuwaiti dinar and a minimum gold currency cover.

As a result of the amendments, the Central Bank was able to initiate a number of additional monetary measures including the revision of the liquidity requirements that became effective April 1, 1978. The new liquidity requirements were applied to both the commercial and specialized banks, but the investment companies were excluded. For demand deposits the liquidity ratio was increased to 35 per cent, and liquid assets were defined to include free demand or time deposits with the Central Bank or current deposits with other banks. For savings deposits, the liquidity ratio was set at 30 per cent, while for time deposits and certificates of deposit, the ratio was allowed to vary according to the term of the deposit or certificate from 30 per cent for maturities of one month or less to 5 per cent for maturities of six months to one year; no liquidity ratio was applied to deposits or certificates of more than one-year maturity. For savings and time deposits, the definition of liquid assets was expanded to include time deposits with and certificates of deposit and bankers’ acceptances by other banks, all with a maturity of one month or less. Of the total liquid assets held against all types of deposits, at least one third was to be held in Kuwaiti dinar-denominated assets.

In April 1978 the monetary authorities initiated Kuwaiti dinar/U.S. dollar swap arrangements with the commercial banks in order to enhance the Central Bank’s control over bank liquidity. The practice thus far has been for the Bank to buy U.S. dollars spot from the commercial banks and sell them forward, although it can also use the arrangement in the opposite direction. The swap rates quoted by the Central Bank are based on the difference between interest rates in the Eurodollar market and the Kuwaiti dinar interbank market. In order to introduce flexibility into its control of commercial bank liquidity, the Central Bank initiated the issuance of short-term marketable bills. At the same time it discontinued a central bank time deposit facility which had been provided to the banks.

Commercial banks

Until 1952 a branch of the British Bank of the Middle East was the only commercial bank operating in Kuwait, and other foreign banks were precluded from opening branches. In 1952 a group of Kuwaiti merchants formed the National Bank of Kuwait, which has since risen rapidly in prominence. Another Kuwaiti-owned bank, the Commercial Bank of Kuwait, began operations in April 1961, and in the same year a third local bank, the Gulf Bank, opened for business. Since then three additional commercial banks have been opened. The commercial banks have over 100 branches in Kuwait.

Commercial banks in Kuwait act mainly as intermediaries or clearinghouses for Kuwaiti funds that are to be invested abroad. A substantial proportion of their total resources is invested in foreign assets which have risen sharply, increasing from KD 487 million at the end of March 1973 to KD 1.9 billion at the end of December 1980. The main reason for this investment pattern is the scarcity of domestic investment opportunities. (Nevertheless, as a result of a recent rapid growth of domestic economic and financial activities, there has been a decline in the ratio of foreign to total commercial banks’ assets from 63 per cent at the end of 1973 to 39 per cent at the end of December 1980.) Commercial banks maintain a substantial proportion of their foreign assets in short-term deposits with foreign banks abroad. At the same time commercial banks are active in short-term borrowing and investing in European money markets. Although very little is known about the nature of these operations, their existence is evidenced by the erratic movements in banks’ foreign liabilities. Movements in commercial banks’ net foreign assets tend to reflect developments in international financial markets, especially interest rate changes and the uncertainties associated with the exchange rates of major currencies.

An impediment to the domestic operations of commercial banks was the relative lack of breadth in the local money market. However, in more recent years there has been a substantial expansion in the operations of this market, and this impediment has been removed. Active money market operations take place not only in the interbank deposit and the foreign exchange markets but also in primary and secondary commercial paper, certificates of deposit, and bank acceptances. The interbank money market among Kuwait’s commercial and specialized banks has expanded rapidly under the encouragement of the Central Bank. The availability of debt instruments has expanded as a number of international institutions have marketed in Kuwaiti bonds denominated in Kuwaiti dinars since 1973 and domestic financial institutions have initiated since late 1975 the floating of their own bonds. The leading domestic institutions in this respect have been the Industrial Bank of Kuwait and the Kuwait Real Estate Bank, which have floated a number of issues of their own bonds with maturities of from three to ten years. Beginning in October 1977 all commercial and specialized banks were allowed to issue certificates of deposit. Under current regulations, a certificate’s term may range up to three years, but most of the KD 54 million of certificates outstanding at the end of October 1979 (and issued by three commercial and two specialized banks) have one year’s maturity. The scope of monetary instruments has expanded further with the issuance of short-term bills by the Central Bank.

The sectoral distribution of commercial bank credit in Kuwait has undergone a gradual shift. In 1973/74 commercial bank credit was primarily accounted for by the trade sector (31 per cent), the construction sector (26 per cent), and by personal loans (22 per cent). During the 1975/76 economic boom and the speculative surge in the equity and real estate markets, the sharpest increases in credit were recorded by short-term lending for financial and other services (200 per cent), for the construction sector (55 per cent), and for the trade sector and personal loans (50 per cent each); from a very limited base, credit classified as “other,” but which includes borrowing by the specialized banks, expanded by over 400 per cent. In 1976/77 the impact of central bank measures directed at tightening credit policy in order to curb speculative financing was reflected in a sharp decline in the growth of lending for financial and other services, while the rate of growth of credit for personal loans has risen steeply despite the Bank’s moral suasion policy. The category of loans extended to the trade and construction sectors has remained in the range of 50–55 per cent, while credit in the “other” category has risen rapidly.

During 1980 and 1981 the Central Bank adopted a number of monetary policy measures. These were designed to help maintain price stability, to encourage growth of the productive sectors, and to restrain speculative activities. In order to rationalize credit operations, banks were asked, for the first time, in January 1980 to scale down the ratio of their overdrafts from the then prevailing ratio of 80 per cent to 55 per cent of their total credit by the end of 1980; this ratio was required to be further reduced to 45 per cent by the end of 1981.

In order to facilitate the holding by banks of bills issued by the Central Bank of Kuwait, an automatic Repurchase Agreement Scheme was introduced during 1981. Under this scheme an emergency overdraft in a bank’s current account with the Central Bank could be covered by a part of the bank’s bills held in safe custody with the Central Bank, pending the restoration of normal conditions in its balances. The scheme was designed not so much as a source of central bank credit as a device to cover overdrawn accounts through the use of Central Bank of Kuwait bills. It was expected to help extend the ownership base of Central Bank of Kuwait bills to more banks and thereby, in the course of time, to contribute to the flexible operation of the market for them. In addition, financial and investment companies were authorized to hold these bills.

In 1981 the Central Bank permitted the reopening of the primary market for Kuwaiti dinar bond issues. This market had been suspended in 1979 in view of the then severe strain on domestic liquidity. The reopening of the market was accompanied by a number of other measures aimed at reorganizing the management of new issues so as to avoid detrimental effects on domestic liquidity in the future and to ensure the solvency of the borrowers.

Liquidity ratios have been continued as before and a complementary measure of reserve requirements was introduced in the middle of 1980. At the same time, the Central Bank continued its policy of providing liquidity to banks, as and when needed, through swap and rediscount facilities. All these policies were supplemented by the use of moral suasion and close supervision of bank operations.

The Central Bank’s policy of stipulating a ceiling on all lending rates for Kuwaiti dinar transactions was continued during the year. This policy is not, however, as rigid in practice as it might otherwise appear. Banks in Kuwait, faced with demand for credit and competition from the international markets, have adopted certain indirect devices to raise the effective cost of credit to their borrowers. Moreover, the ceilings on interest rates have not remained unchanged. Prior to 1977, the overall ceiling on interest rates on loans in Kuwaiti dinars was 7 per cent. This was subsequently raised to 10 per cent. It should be noted that the Central Bank is empowered not only to vary the ceilings but also to introduce multiple ceilings—higher on medium- and long-term loans, and lower on shorter-term commercial loans.

The structure of interest rates in Kuwait may also be considered from the deposit standpoint. The rate on time deposits of banks was about 10-11 per cent in 1980 and 1981, while that on certificates of deposit was about 11 per cent. These rates were highly sensitive, varying with the rates in the interbank market, which, in turn, responded to changes in rates in the international markets. Since deposit rates are allowed to move freely while the maximum on lending rates is fixed, banks’ profit margins have narrowed. At the end of 1980, the weighted average cost of Kuwaiti dinar bank time deposits and the weighted average cost of bank loans was 9.3 per cent and 9.2 per cent, respectively. These figures compare with the corresponding figures of 7.9 per cent and 8.5 per cent at the end of 1979. The negative spread late in 1980 did not necessarily imply that the banks incurred losses. This was because a large proportion of their deposits—about one fifth—was in interest-free demand deposits and the maximum rate on savings deposits was much below the rate on time deposits. Furthermore, the banks were generally in a position to cushion their costs by borrowing from the Central Bank at a rate much lower than the interbank rate or the rate they paid on time deposits.

Other financial institutions

Established financial institutions other than commercial banks are numerous; the major ones are the Kuwait Fund for Arab Economic Development, the Kuwait Investment Company, the Kuwait Foreign Trading Contracting and Investment Company, the Kuwait International Investment Company, the Industrial Bank of Kuwait, the Savings and Credit Bank, and the Kuwait Real Estate Bank. This sector also includes insurance companies, exchange dealers, and stockbrokers.

The role of the publicly owned investment banks such as the Kuwait Fund for Arab Economic Development, the Investment Company, and the Foreign Trading Contracting and Investment Company has been mainly to act as intermediaries in placing abroad part of government surplus funds. The Kuwait Fund for Arab Economic Development has been the vehicle for soft-loan finance, while the other two institutions have concentrated on commercial development finance by underwriting stocks and bonds. The Government has been the most important single source of funds for these institutions. The Government has also participated in their Eurobond transactions and it has on occasion purchased their unsold bonds. With inducements from the Government, these institutions have increased their investment in Arab and non-Arab developing countries. They have done this by providing various lines of credit as well as by establishing direct branch networks and associated companies. Another publicly supported financial institution, the Savings and Credit Bank of Kuwait, provides (only for domestic customers) largely medium-term loans at low interest rates for construction, agriculture, and social purposes. The bank is allowed to accept deposits, fixed and current, on which it pays interest. Its liabilities are fully guaranteed by the Government.

The institutions with private ownership, such as the Industrial Bank of Kuwait, the Kuwait International Investment Company, and the Kuwait Real Estate Bank, extend credit from their own capital and from proceeds of bonds sold to private investors and institutions. They also engage in heavy underwriting of stocks for local and foreign companies. During 1977 and 1978 two new financial institutions were established. The Arab Company for Trading Shares was established in mid-1977 for the purpose of promoting a secondary market in Kuwaiti dinar-denominated money market instruments as well as Eurocurrency-denominated bonds involving Arab management or underwriting. The Kuwait Finance House was established in September 1978 with the objective of conducting interest-free banking in accordance with Islamic law. Holders of time deposits along with the shareholders would receive a proportion of the company’s profits. The company does not undertake interest-bearing investments, but instead limits its undertakings to real estate and equities.

Mention should also be made of a regional financial institution, located in Kuwait, in which Kuwait is an active participant. This is the Arab Fund for Economic and Social Development.

section i. unit of currency and par value

Art. 1. The unit of currency shall be the Kuwaiti dinar and shall be divided into one thousand Fils.

Art. 2. The basis for fixing the exchange rate for the Kuwaiti dinar shall be specified by a decree after the opinion of the Governor of the Central Bank has been sought.

Art. 3. (1) Every transaction or agreement relating to money or involving the payment of money shall, in the absence of express agreement to the contrary, be deemed to have been made and agreed to be executed on the basis of the Kuwaiti dinar.

(2) The Central Bank shall, whenever necessary and for all legal purposes it defines including the collection of duties, declare the exchange rates for the most important foreign currencies, either on the basis of the par value declared by the IMF or on any other basis which the Bank may decide.²

section ii. issue of currency notes and coins

Art. 4. (1) The issue of currency shall be the exclusive privilege of the State. This privilege shall be exercised solely and exclusively by the Central Bank.

(2) No party other than the Central Bank may issue or circulate any notes or coins or any instrument or document payable to bearer on demand and apt to be circulated as legal tender, for the purpose of using them as means of payment in place of the currency issued in accordance with the provisions of this Law.

(3) Any person who violates the provisions of this Article shall be subject to the penalties laid down in the Penal Code for forgery of currency notes or coins.

Art. 5. (1) The Central Bank may issue currency notes in the following denominations: one dinar, five dinars and ten dinars, or in such higher denominations as may be specified by a decree issued upon a recommendation of the Minister of Finance and a proposal by the Board of Directors of the Bank.

(2) The above notes shall bear the signatures of the Minister of Finance and the Governor of the Central Bank.

(3) The currency notes referred to in this Article shall be legal tender in the State of Kuwait for the payment of any amount.

Art. 6. (1) The Central Bank may issue currency notes of a value less than the unit of currency in denominations of half a dinar and a quarter dinar.

(2) The above currency notes shall bear the signatures of the Minister of Finance and the Governor of the Central Bank.

(3) The currency notes referred to in this Article shall be legal tender in the State of Kuwait for the payment of amounts up to the following limits:

• (a) twenty Kuwaiti dinars for half-dinar notes;

• (b) ten Kuwaiti dinars for quarter-dinar notes.

(4) The Central Bank and the cash-offices of the State and banks operating in the State of Kuwait shall accept currency notes of small denominations without any quantitative limitation.

Art. 7. (1) The Central Bank may issue coins.

(2) Non-gold coins shall be legal tender in the State of Kuwait for the payment of any amount up to two dinars, but the Central Bank shall accept them without any quantitative limitation.

(3) The Central Bank may specify the conditions for selling and buying gold coins by its cash-offices.

(4) The Central Bank may issue gold and non-gold commemorative coins, and the Bank shall determine the terms and conditions for the sale and purchase of such coins.

(5) Any person who refuses to accept the Kuwaiti currency provided for in this Article and in the preceding two Articles, as per their traded value and within their relative legal tender, shall be liable to the payment of a fine not exceeding one hundred dinars.

Art. 8. The Council of Ministers shall decide the following on the recommendation of the Central Bank:

(1) The wording to be borne by currency notes for indicating their value, as well as the form, design and other characteristics of the notes.

(2) The denominations of coins to be issued by the Central Bank, their designs, forms, standard weights and permitted variations in weight, composition, and other specifications.

section iii. circulation and withdrawal of notes and coins

section iv. currency cover

Art. 12. Currency in circulation and demand deposits held with the Central Bank shall have a cover consisting, at all times, of the following:

• (a) gold coins or bullion;

• (b) demand or time deposits in freely convertible currencies, placed with local banks or placed abroad with central banks, state treasuries, the Bank for International Settlements, the International Monetary Fund or with commercial banks;

• (c) foreign securities, instruments, bills or certificates issued or guaranteed by foreign governments or by international financial or monetary institutions, provided that they are expressed in freely convertible currencies and easily negotiable in financial markets;

• (d) foreign securities or bills other than those issued or guaranteed by foreign governments or international financial or monetary institutions, provided that they are expressed in freely convertible currencies and easily negotiable in financial markets;

• (e) commercial papers expressed in freely convertible foreign currencies and acceptable to foreign commercial banks;

• (f) treasury bills and bonds issued or guaranteed by the Government of Kuwait, and advances granted by the Central Bank to the Treasury of the Government of Kuwait;

• (g) domestic commercial papers discounted in the Central Bank, and loans and advances granted to local banks against adequate guarantees.

section i. establishment of the central bank

Art. 13. There shall be established a public institution, having an independent juridical personality, to be called “Central Bank of Kuwait.” It shall be referred to in this Law as the Central Bank.

The City of Kuwait shall be the seat of the Bank, and the Bank may open branches in the State of Kuwait and appoint agents and correspondents abroad.

Art. 14. The Central Bank shall have a special budget which shall be prepared in a commercial pattern.

The Bank shall be considered as a merchant in its relations with other parties, and its operations and accounts shall be conducted and organised in accordance with commercial banking rules.

Apart from Constitutional provisions in force with regard to the operations, budget and closing account of the Bank, the Board of Directors shall, with the approval of the Minister of Finance, lay down all rules and regulations concerning the administrative and financial affairs of the Bank, including staff and accounting matters, without being limited in all this by the provisions of the Public Tenders and Civil Service Laws.

The provisions concerning advance control in Law No. 30 of 1964 establishing the Audit Bureau shall not apply to the operations of the Central Bank. The functions of the Audit Bureau shall be limited to auditing the accounts and assets of the Bank, and the Bureau shall not, in any manner, interfere in the operations of the Bank or question its policy. The technical officer of the Audit Bureau, assigned to audit the operations of the Bank, shall have adequate technical qualifications and special experience in banking business.

section ii. objects of the central bank

Art. 15. The objects of the Central Bank shall be:

• (a) to exercise the privilege of the issue of currency on behalf of the State;

• (b) to endeavour to secure the stability of the Kuwaiti currency and its free convertibility into foreign currencies;

• (c) to endeavour to direct credit policy in such a manner as to assist the social and economic progress and the growth of national income;

• (d) to control the banking system in the State of Kuwait;

• (e) to serve as Banker to the Government;

• (f) to render financial advice to the Government.

section iii. capital and reserves of the central bank

Art. 16. The capital of the Central Bank shall be five million Kuwaiti dinars and shall be fully paid by the Government. The capital of the Bank may be increased by decree, and such increase shall be taken from the General Reserve of the Bank.

Art. 17. (1) The Central Bank shall establish a General Reserve Fund.

(2) At the end of each financial year net profit shall be the profits realised by the Bank, after deducting the expenses of operations and making the provisions necessary to meet bad or doubtful debts, depreciation in assets, contributions to the Pension Fund and such other contingency expenses usually provided for by banks.

(3) The net profit of the Bank shall be dealt with as follows:

• (a) The net profit of the Bank shall be paid into the General Reserve Fund until the balance of the Fund amounts to twenty-five million Kuwaiti dinars. The General Reserve Fund may be increased by a decision of the Board of Directors of the Bank with the approval of the Minister of Finance.

• (b) When the balance of the General Reserve Fund reaches the specified maximum limit the net profit shall be fully paid to the Government.

• (c) If the General Reserve Fund, in any year, is insufficient to meet the losses of the Bank, or if it cannot be used to meet the losses, the Government shall cover the deficit.

section iv. management

Art. 18. The management of the Central Bank shall be carried out by a Board of Directors composed of:

• (a) the Governor, who shall be the Chairman of the Board;

• (b) the Deputy Governor;

• (c) a representative of the Ministry of Finance;

• (d) a representative of the Ministry of Commerce and Industry;

• (e) four other members;

provided that all members of the Board shall be Kuwaitis.

Art. 19. The Governor and the Deputy Governor shall be appointed by decree for a renewable period of five years on the recommendation of the Minister of Finance, provided that they have experience in banking business.

The salaries, allowances and emoluments of the Governor and Deputy Governor shall be fixed by a decision of the Council of Ministers on the recommendation of the Minister of Finance.

Art. 20. (1) The Council of Ministers shall, on the recommendation of the Ministers concerned, appoint the representatives of the Ministry of Finance and the Ministry of Commerce and Industry and fix their remunerations, and shall name the alternates to take their place in their absence.

(2) The other members shall be appointed by decree on the recommendation of the Minister of Finance for a renewable period of three years, provided that they shall have experience in economic and financial or banking affairs. Their remunerations shall be fixed by a decision of the Council of Ministers, on the recommendation of the Minister of Finance.

(3) The members referred to in the preceding two paragraphs may not be directors, managers or officials of any bank operating in the State of Kuwait.

Art. 21. (1) The Governor shall have the full powers necessary to manage the operations of the Central Bank and to issue the regulations and instructions relevant thereto. He shall be responsible for the implementation of this Law and the regulations of the Bank as well as for the execution of the resolutions of the Board of Directors. He shall be the legal representative of the Bank and shall have the power to sign on its behalf. The Governor may, upon approval of the Board of Directors, delegate some of his powers to the Deputy Governor or to any other official of the Bank.

(2) The Deputy Governor shall temporarily replace the Governor in his absence or if his office becomes vacant.

(3) The Governor and the Deputy Governor shall devote the whole of their professional time to their work in the Bank and, while holding office, neither of them may occupy any other office, or work for any party other than the Bank, whether with or without remuneration, or have an interest in obligations entered into by the Government or public establishments or combine his office with membership in the board of directors of any company.

Exceptions to this shall be the activities related to committees, establishments or organisations formed by the Government, or by public institutions and organisations, and the activities related to international conferences.

Art. 22. (1) No person shall be appointed member of the Board of Directors of the Central Bank who:

• (a) has been convicted of an offence involving dishonesty or misconduct;

• (b) has been declared bankrupt, or has suspended payment.

(2) Apart from the cases provided for in the preceding paragraph the services of any member of the Board of Directors may be terminated by decree or by a decision of the Council of Ministers, whichever is the relevant means of appointment, in the following two cases:

• (a) if he gravely violates his duties or commits serious mistakes in the administration of the Bank;

• (b) if he is absent from all meetings of the Board of Directors during three consecutive months without the approval of the Board, unless such absence is due to his being on official assignment, annual leave or sick leave.

Art. 23. The Board of Directors shall convene at the request of the Governor, and the Governor shall summon the Board to convene if the meeting is requested by the Minister of Finance or by three members at least. The meetings of the Board may not be less than eight times a year.

Art. 24. At meetings of the Board the quorum shall consist of five members at least, including the Governor or his Deputy and the representative of the Ministry of Finance or his alternate.

Resolutions shall be adopted by a majority of the votes of the members present, and in case of an equality of votes, the Chairman’s side shall prevail.

Art. 25. The Board of Directors may seek the assistance of experts, and may invite to its meetings any persons whose advice on any particular subject it wishes to listen to.

Art. 26. Within the provisions of this Law, the Board of Directors shall exercise the full powers necessary to perform its duties, and shall do the following in particular:

• (a) draw up the monetary and credit policy of the Bank;

• (b) decide on matters relating to the issue, circulation and withdrawal of currency;

• (c) determine the system of discounting and rediscounting commercial papers, granting of loans and advances, and specify the collaterals required;

• (d) fix the rates of discount, rediscount, interest and commission to be charged by the Bank on loans, advances and discount of commercial papers;

• (e) decide on matters relating to the organisation and control of the banking business;

• (f) consider applications received from the Government for advances;

• (g) fix the maximum limit for advances and loans which may be given to banks operating in Kuwait;

• (h) fix the amounts allocated for the purchase and discount of public securities or government treasury bills;

• (i) establish clearing centres;

• (j) establish Staff and Employees Pension Fund and decide on contributions by the Bank to the said Fund;

• (k) approve the estimates of the annual revenues and expenditures;

• (l) review periodically the position of the Bank and the progress of its operations;

• (m) approve the annual balance sheet, the profit and loss account and the closing account of the Bank. The Board’s approval of the estimates of revenues and expenditures, the balance sheet, the profit and loss account and the closing account shall be sanctioned by the Minister of Finance;

• (n) approve the Bank’s annual report to be submitted by the Governor to the Minister of Finance in accordance with the provisions of Article 50 of this Law;

• (o) issue the internal regulations relating to the financial and administrative affairs, as well as any other regulations it deems necessary for the proper management of the Bank;

• (p) deal with all matters which under this Law, or any other law, are within the competence of the Board of Directors.

Art. 27. The representative of the Ministry of Finance in the Board of Directors may request the suspension of any resolution issued by the Board relating to monetary and credit policy for referral to the Minister of Finance. If the Minister of Finance does not give a decision on the issue within seven days from the date of suspension, such resolution shall become effective.

Art. 28. Unless otherwise permitted by law, no member of the Board of Directors, manager, official or employee of the Central Bank shall disclose any information which relates to the affairs of the Bank or its customers or the affairs of other banks subject to the control of the Central Bank and to which he has access by reason of the duties of his office.

Information which shall not be disclosed will be determined by a decision of the Minister of Finance after having obtained the opinion of the Board of Directors of the Central Bank.

Without prejudice to the application of any severer punishment under any other law, anyone who violates the prohibition provided for in the preceding two paragraphs shall be liable to imprisonment for a term not exceeding three months and to the payment of a fine not exceeding two hundred and twenty-five dinars, or to either one of the said punishments plus dismissal from service in all cases.

Art. 29. No salary, wages, fees, allowance, remuneration or bonus may be paid by the Central Bank to or for the benefit of those working for it on the basis of the profits realised by the Bank.

section v. operations of the central bank

section vi. accounts and statements

Art. 46. The financial year of the Central Bank shall be the same as the financial year of the State.

Art. 47. The bases for evaluation of the assets of the Central Bank shall be specified by decree.

Art. 48. The Central Bank shall enter in a Special Account the profits realized and the losses incurred as a result of altering the exchange rate of the Kuwaiti currency or any foreign currency, or altering the value of gold in terms of the Kuwaiti currency, as well as the profits resulting from the withdrawal of currency notes and coins under the provisions of Articles 10 and 11 of this Law.

Credit balances on this account shall not be entered in the Profit and Loss Account of the Bank. Debit balances shall be met by the Government unless the Board of Directors decides otherwise.

Art. 49. The accounts of the Central Bank shall be audited by one auditor or more. The Council of Ministers shall, on the proposal of the Minister of Finance, select the auditor or auditors and fix their fees.

Art. 50. The Governor of the Central Bank shall submit to the Minister of Finance:

• (a) A monthly statement showing the assets and liabilities of the Bank. Such statement shall be published in the Official Gazette.

• (b) An annual report on the Bank’s operations, including the Balance Sheet and the Profit and Loss Account for the ending financial year, and a general review of the monetary, banking, financial and economic affairs. This report shall be submitted not later than four months after the end of the financial year.

• (c) A report on the events affecting the monetary or financial position, including the causes and outcome of such events and recommendations for handling them.

general provisions

Art. 51. The Central Bank shall be exempt from all taxes, duties, and financial dues whatsoever, whether they be for the Treasury, municipalities or any other public institution or body.

The Bank shall also be exempt from the advance payment of judicial fees, deposits and guarantees, and settlement thereof shall be deferred until the case under litigation has been decided.

Art. 52. Debts due to the Central Bank shall be treated in the same way as debts due to the Government, and shall take priority over debts due to other creditors. Such debts shall be collected by the same procedures provided for the collection of debts due to the State.

Art. 53. The Central Bank may only be liquidated by a law specifying the liquidation procedures and their dates.

section i. establishment of banks

Art. 54. Banks are those institutions whose basic and usual functions involve the receipt of deposits for use in banking operations such as the discount, purchase and sale of commercial papers, granting of loans and advances, issuing and collecting cheques, placing public and private loans, dealing in foreign exchange and precious metals, and any other credit operations or operations considered by the Law of Commerce or by custom as banking operations. For the purposes of implementation of the provisions of this Law, and unless provided otherwise, the branches of any bank operating in the State of Kuwait shall be considered as one bank.

Art. 55. The provisions of this chapter shall not apply to:

• (a) Public credit institutions set up by law.

• (b) Financial and investment institutions and companies even if they are permitted by their articles of association to receive deposits and execute investment operations and some banking operations.

• (c) Real-estate companies which undertake the partition of land or the construction of buildings and the sale thereof on credit.

The Board of Directors of the Central Bank may—upon approval of the Minister of Finance—subject all or some of the institutions and companies referred to in this Article to all or some of the provisions of this chapter, or to any rules which the Board of Directors may draw up for purposes of supervision and which are in harmony with the nature of the activities of such institutions and companies.

The opinion of the Central Bank shall be sought in respect of the articles of association and memorandums of agreement relating to financial and investment companies, or amendments thereto, in order to ascertain the economic viability of such companies.

Art. 56. (1) Without prejudice to the provisions of the Law of Commerce, wherever they are not in conflict with the provisions of this Law, banking business may only be practised by institutions set up in the form of joint-stock companies the shares of which are placed for public subscription.

(2) Joint-stock companies in which the Government is a cofounder, and branches of foreign banks in which the Government of Kuwait or Kuwaiti banking or financial institutions are shareholders, may be excepted from the provisions of the preceding paragraph by a decision of the Council of Ministers when such banks are permitted to open branches in Kuwait.

(3) Before the formalities of incorporation are processed, the applications for setting up banks should be presented to the Board of Directors of the Central Bank to issue the recommendations necessary.

Art. 57. The paid-up capital of any bank shall not be less than three million dinars.

Branches of any foreign bank shall prove that they have allocated an amount equal to this sum for their operations in Kuwait.

Art. 58. If the capital of a bank falls below the minimum limit referred to in the preceding Article the bank shall cover the deficit within such period as may be fixed by the Central Bank, provided that the period shall not exceed one year from the date the bank concerned is notified.

The Central Bank shall solely have the right to assess the amount of the deficit in the capital.

section ii. registration of banks

Art. 59. Without prejudice to the provisions of the Law of Commerce and the Law of Commercial Companies, wherever they are not in conflict with the provisions of this Law, no banking institution is allowed to start operation until it has been registered in the Register of Banks at the Central Bank.

No institutions other than those registered in the Register of Banks are allowed to practice banking business or use in their business addresses, publications or advertisements the terms: “bank,” “banker,” “bank owner” or any other wording the usage of which may mislead the public as to the nature of the institution.

• The Central Bank may—where necessary—ascertain by any means it deems fit that no particular company or individual firm violates the provisions of the preceding paragraph.

Without prejudice to any severer punishment under any other law, anyone who violates the provisions of the preceding two paragraphs shall be liable to imprisonment for a term not exceeding three months and the payment of a fine not less than one hundred dinars but not exceeding two hundred and twenty-five dinars, or to either one of these two punishments. Where the violation is repeated the place of business shall be closed down.

Art. 60. Registration or refusal of registration of banks shall be effected by a decision of the Minister of Finance on the recommendation of the Board of Directors of the Central Bank.

The Minister of Finance shall, on the recommendation of the Board of Directors of the Central Bank, issue regulations for the registration of banks, including the rules, procedures and dates for registration, amendments and publication of registration.

Art. 61. (1) Registered banks shall notify the Central Bank of any amendment they intend to make to their Memorandum of Agreement or Articles of Association. If such amendment is approved in principle by the Central Bank, the formalities necessary for processing them may then be accomplished in accordance with the provisions of the Law of Commercial Companies. Such amendments shall not be effective until they have been entered in the Register of Banks.

(2) Amendment of entries related to other data which are subject to registration in the Register but not involving amendment of the Articles of Association or Memorandum of Agreement may be effected upon approval thereof by the Governor of the Central Bank.

section iii. deletion from register and liquidation of banks

Art. 62. Without prejudice to the provisions of the Law of Commercial Companies, no bank may cease its operations or merge with any other bank unless it is given an advance permission by the Minister of Finance on the recommendation of the Board of Directors of the Central Bank.

The Board of Directors of the Central Bank shall, in such a case, ascertain that the bank has discharged all its obligations toward its customers and creditors in accordance with the general provisions laid down in this respect.

Art. 63. (1) A bank may be deleted from the Register of Banks:

• (a) at its own request;

• (b) if it does not start business within one year from the date it is notified of the decision regarding its registration in the Register of Banks;

• (c) if it is declared bankrupt;

• (d) if it merges with another bank;

• (e) if it ceases its operations or if its liquidity or solvency are endangered;

• (f) if it commits any act in violation of the provisions of this Law.

(2) The deletion of any bank under (e) and (f) above shall not be proposed until the bank concerned has been notified of the proposal and given an opportunity to express its views.

(3) The Minister of Finance shall, on the proposal of the Board of Directors of the Central Bank, issue a decision regarding the deletion. The decision shall be effective from the date of its publication in the Official Gazette.

Art. 64. Before proposing the deletion from the Register of any bank the liquidity or solvency of which is endangered, the Board of Directors of the Central Bank may take any or all of the following measures:

• (a) forbid the bank from undertaking certain operations, or set limits on the business of the bank;

• (b) appoint a temporary controller to supervise the progress of the bank’s business;

• (c) assign the Central Bank to manage the bank for a certain period of time, and thereafter decide whether the bank can carry on by itself or should be deleted from the Register and liquidated. Expenses incurred for management purposes shall be borne by the bank involved.

In all cases, the Central Bank may—if it deems it in the interest of depositors—ask the appropriate court to issue a decision prohibiting measures against the bank involved and staying all lawsuits filed against it. Such a decision shall be valid for one year.

Art. 65. Every bank which it has been decided to delete from the Register of Banks shall be liquidated. The Board of Directors of the Central Bank shall specify the rules for liquidating the transactions outstanding at the time the decision is issued.

section iv. activities not to be undertaken by banks

Art. 66. Banks must not:

• (a) engage in trade or industry, or own any goods unless such goods have been acquired in settlement of debts due to them. Such goods shall be sold by the bank within one year from the date of acquisition;

• (b) purchase any real estate other than that required for conducting their business or accommodating their staff, unless such property has been acquired in settlement of debts. In the latter case, the bank shall sell the real estate within a period not exceeding three years. The said period, however, may be extended by a decision of the Board of Directors of the Central Bank;

• (c) own or deal in their own shares unless such shares have been acquired in settlement of debts due to them, and provided that they sell them within two years from the date of acquisition.

Art. 67. Banks may:

• (a) purchase, for their own account, shares of other commercial companies within a limit of 50 per cent of the bank’s own funds. This limit may not be exceeded without prior approval by the Central Bank;

• (b) own shares or other assets held with them in settlement of debts due to them. In such cases the bank shall dispose of these assets within two years from the date of acquisition.

Art. 68. No person who has been convicted of an offence involving dishonourable conduct or dishonesty, or who has been declared bankrupt or has suspended payment, may be a member of the board of directors or a manager of any bank.

Art. 69. Banks must not, in any form, give loans or overdrafts through current account, or issue guarantees in favour of the members of their boards of directors without prior permission from the General Assembly. Such loans, advances and guarantees shall be subject to the rules applied by the bank to other customers.

This prohibition shall not include the opening of documentary credits.

Art. 70. No bank may issue “travellers’ cheques” without prior permission from the Central Bank.

section v. provisions relating to supervision

Art. 71. The Central Bank may issue to the banks such instructions as it deems necessary to realize its credit or monetary policy or to ensure the sound progress of banking business.

Art. 72. The Board of Directors of the Central Bank may—whenever necessary—draw up rules and regulations to which all banks shall adhere in order to ensure their liquidity and solvency, particularly with regard to the ratios which must be maintained between the following items:

• (a) the bank’s own funds on the one hand and the amount of its liabilities on the other;

• (b) the bank’s liquid funds on the one hand and the aggregate of its term and demand liabilities on the other;

• (c) the amount of the bank’s own funds on the one hand and the amount of its liabilities in the form of acceptances and guarantees on the other.

In the instructions issued and notified by the Central Bank to the banks the Central Bank shall define the meaning of the terms: “bank’s own funds,” “liquid funds,” “liabilities” and such other items.

Art. 73. The Board of Directors of the Central Bank may, upon approval of the Minister of Finance:

(1) Fix for banks the maximum amount for discount or loan operations, or for other banking operations which they may carry out with effect from a certain date.

(2) Fix for banks:

• (a) the minimum amount which customers must pay in cash to cover the opening of documentary credits;

• (b) the maximum amount which may be lent to any single person—whether natural or juridical—in proportion to the bank’s own funds;

• (c) the proportion of the bank’s funds which must be deposited in cash with the Central Bank;

• (d) the proportion of the bank’s funds which must be invested in the local market;

• (e) the rate of interest which the banks shall pay on deposits, and the maximum rates of interest and commission which they may charge their customers.³

Art. 74. Decisions issued by the Central Bank in application of the provisions of the preceding two Articles shall have no retroactive effect and shall not hinder the execution of agreements concluded between banks and their customers prior to the issue of such decisions.

Art. 75. In the event exceptional circumstances rise and threaten the regularity of banking business, the Governor of the Central Bank may—upon approval of the Minister of Finance—order the banks to close temporarily and to stop all their operations. The banks shall, then, resume their operations by a decision to be issued by the Governor of the Central Bank and approved by the Minister of Finance.

section vi. specialized banks

Art. 76. Specialized banks are meant to be those banks the main function of which is to finance certain economic sectors, such as the real-estate, industrial or agricultural sectors, and which do not basically receive demand deposits.

Art. 77. Specialized banks shall be subject to the provisions relating to the organisation of banking business, wherever such provisions are not in conflict with the nature of the activities of these banks.

The Board of Directors of the Central Bank may lay down special rules for the supervision of each type of the specialized banks. Such rules shall, in particular, cover the following:

• (a) terms for receipt of deposits;

• (b) the maximum limit for the value of bonds specialized banks may issue, as well as the terms for such issue;

• (c) the terms relating to loans and other credit facilities given by specialized banks;

• (d) the rules relating to participation in other companies, or the purchase of their shares.

section vii. inspection of banks and institutions subject to supervision by the central bank

Art. 78

• (1) The Central Bank shall, at any time, inspect banks and financial companies and institutions subjected to supervision by the Central Bank under the provisions of this Law.

• (2) Central Bank staff authorized to conduct inspection shall have the right to see the accounts, books, records, instruments and all documents they deem necessary for inspection. They may ask any member of the board of directors, or any official of the bank or institution to submit and give such data and information they deem necessary for the purposes of inspection. Review of books, records and instruments shall be carried out within the premises of the bank or institution inspected.

• (3) The Central Bank shall make a comprehensive report on the findings of inspection made in any bank or institution. The report shall incorporate recommendations on the measures the Central Bank deems useful for rectifying any unsound position discovered through inspection. The Governor of the Central Bank shall send a copy of the report to the chairman of the board of directors or to the manager of the bank or institution inspected. The Governor of the Central Bank may fix a period of grace for the bank or institution to eliminate violations or correct unsound positions discovered through inspection. Periodic dates and rules relating to inspection shall be set by the Board of Directors of the Central Bank.

Art. 79. Without prejudice to any severer penalty under any other law, every member of the board of directors, manager, or official of the bank or institution inspected, who refuses to submit information and data or to present books, records, and instruments required by the inspector for inspection purposes, or who gives information or data while knowing that it is untrue, shall be liable to imprisonment for a term not exceeding three months and to the payment of a fine not less than one hundred but not exceeding two hundred twenty-five dinars, or to either of these two punishments.

Art. 80. Central Bank officials authorized to conduct inspection shall—during the term of their service and after quitting their jobs—maintain the secrecy of accounts, books, and instruments they review by virtue of their duty. They shall not disclose any information relating to the affairs of banks or institutions inspected, or to the affairs of their customers, except in such cases where it is permissible to do so by law.

Without prejudice to any severe punishment under any other law, every person who violates the prohibition provided for in the preceding paragraph shall be liable to imprisonment for a period not exceeding three months and to the payment of a fine not exceeding two hundred twenty-five dinars, or to either of these two punishments plus discharge from service.

section viii. accounts and statements

Art. 81. Banks shall do the following:

• (a) end their financial year on the thirty-first of December every year;

• (b) submit to the Central Bank, within three months from the end of their financial year, their balance-sheet and profit and loss account.

Foreign bank branches permitted to be opened under the provisions of Article 56 of this Law shall maintain independent accounts for all their operations in Kuwait, including balance-sheets and profit and loss accounts.

Art. 82. (1) The Central Bank may ask the banks to submit such statements, information and statistical data as the Bank considers necessary to carry out its functions. The Central Bank may also establish a system for the collection of statistics of banking credit on periodical basis.

(2) The nature of such statements, information and statistical data, as well as their forms and the periods during which they should be submitted, shall be specified by the Board of Directors of the Central Bank.

(3) Banks must submit to the Central Bank all the statements, information and statistical data it requests in accordance with the system the Bank lays down for this purpose.

All such information shall remain confidential, but statistical data may be published in consolidated form.

Art. 83. The Central Bank may establish a System of Risks for the purpose of assisting banks to evaluate the financial positions of persons applying to them for credit, and for enabling the Central Bank to be constantly aware of the trends of banking credit and to assist in the application of the system of discount and rediscount at the Central Bank.

The Board of Directors of the Central Bank shall lay down the rules and procedures for the System, and shall fix the data and returns relating to its enforcement.

Data and information acquired through the System of Risks shall only be disclosed to persons who should be advised thereof under the rules laid for the implementation of the System.

Without prejudice to any severer punishment under any other law, anyone who violates this prohibition shall be liable to imprisonment for a term not exceeding three months and to the payment of a fine not exceeding two hundred twenty-five dinars, or to either one of these two punishments plus discharge from service in all cases.

Art. 84

• (1) The auditor shall indicate in his annual report the means and practices whereby he ascertained the assets and evaluated them, and how the valuation of outstanding liabilities was effected by him.

• (2) The auditor shall clarify in his report whether the operations audited were contrary to any rules or provisions of the “Law Concerning the Central Bank and the Organization of Banking Business”, or to the regulations and decisions issued in pursuance of the said Law. A copy of the report shall be forwarded to the Governor of the Central Bank.

• (3) The auditor shall—on request of the Central Bank—sign any statements or accounting data forwarded to the Central Bank by the bank the accounts of which have been checked by the auditor. Such signature shall testify to the correctness of the statements and data.

• (4) The auditor may not receive any loans—whether with or without collateral—or guarantees from the bank the accounts of which he audits.

section ix. administrative penalties

Art. 85. (1) If a bank violates the provisions of its Articles of Association or the provisions of this Law or the arrangements imposed by the Central Bank in pursuance of the provisions of this Law, or if it fails to submit the documents, statements or information required from it, or submits statements in variance with facts, the following penalties may be imposed on it:

• (a) warning;

• (b) reduction or suspension of credit facilities granted to it;

• (c) prohibition from carrying out certain operations, or the imposition of any other limitations on its business;

• (d) appointment of a temporary controller to supervise the progress of its business;

• (e) deletion from the Register of Banks.

(2) The penalties provided for in paragraphs (a) and (b) shall be imposed by a decision of the Governor. The other penalties shall be imposed by a decision of the Board of Directors of the Central Bank. All this shall be after hearing the explanation of the bank concerned, and the implementation of penalties provided for in paragraphs (c), (d) and (e) shall require the approval of the Minister of Finance.

i. fundamentals of incorporation

Art. 1. In accordance with the provisions of law and these Articles of Association, a Kuwaiti shareholding company is hereby established under the name: “Kuwait Finance House,” by and between the shareholders, as per the rules of ownership set hereinafter and without prejudice to such rules which exempt the Company from laws in force, as explained in these Articles, and which are confirmed by the law issued with respect to the establishment of the said Company.

Art. 2. The head office and legal domicile of the Company shall be in the City of Kuwait, and the Board of Directors may institute branches, offices or agencies for the Company inside and outside Kuwait.

Art. 3. The duration of the Company shall be unlimited.

Art. 4. The objectives of the Company shall be as follows:

1. To conduct all banking operations and services, whether for its own account or for the account of third parties, without practicing usury in any form whatsoever.

2. To carry out direct investments, or purchase or finance projects or activities owned by others, on a basis that is not usurious.

The Company may cooperate with other organizations which engage in activities similar to its own, or which may assist it to achieve its own objectives. The Company may further participate in such organizations, or associate with them in one way or another, through agency or procuration or integration and may join any consortium recognized by law or by custom, covering holding, subsidiary or associated companies and corporations.

Art. 5. With respect to banking services and operations, the Company may for example:

1. Receive various types of cash deposits, either for safe-custody or for conditional or unconditional reinvestment, provided that this shall not be on a usurious basis.

2. Purchase and sell gold bullion, acquire foreign exchange, and sell or purchase drafts in such exchange.

3. Provide short-term financing, against collateral in the form of commercial papers and at an agreed commercial yield not involving usury.

4. Open letters of credit and provide banking credit facilities, with or without security.

5. Issue guarantees in favour of third parties, with or without security.

6. Collect the value of drafts, promissory notes, cheques, bills of lading and all other instruments against commission for the account of permanent customers and other parties.

7. Receive subscription payments related to the establishment of new shareholding companies or capital increases.

8. Purchase and sell shares, certificates of investment and similar financial papers either for the account of the Company or for the account of other parties (not on a usurious basis).

9. Safe-keep all kinds of currencies, precious metals, jewellery, documents, packages and parcels, and rent safes for private use.

10. Act as depository and agent, accept agencies and appoint agents with or without fee.

In general, the Company may carry out all banking operations and services as well as other operations permissible by law, regulations and statutes observed by banks, on condition that such operations shall not be usurious.

Art. 6. With regard to investment operations, the Company may, for example:

1. Establish new companies, and participate in or provide financing to companies in existence.

2. Provide individuals, organizations and governments with studies, expertise, research, and advice on capital placements, including the provision of all services concerning such operations.

3. Open documentary credits, and provide all banking facilities with or without security, in return for participation in commercial yields.

4. Engage in various activities related to overland transport and marine and air navigation, or finance such activities for fleet construction or operation.

5. Engage in all kinds of activities related to import and export of crops and various commodities.

6. Finance trade in commodities and movables intended to be offered for sale or rent.

7. Store all kinds of commodities and crops by traditional methods or in modern cold storage facilities or installations.

8. Purchase land and other real estate either for the purpose of selling them in their original condition or after parcellation, or for renting them as open land or including installations, buildings, and equipment added thereto.

9. Establish mutual relief associations subject to Islamic Shari’ah provisions, to insure the Company’s own funds, cash deposits and all other fixed and movable assets, as well as mutual insurance organizations for the benefit of other parties.

10. Invest funds in construction activities and related engineering industries, as well as in electrical, mechanical, electronic and related activities.

11. Invest funds in activities related to metal and oil extraction, quarries, fertilizer production and other natural resources.

12. Invest funds in all agricultural enterprises related to production of natural crops, fruits and forests, or to animal husbandry or dairy or wool production.

13. Invest funds for the construction, expansion and replanning of towns, and related infrastructure and housing.

14. Invest funds in fisheries, sponge dredging, pearling and other marine or riverine resources.

15. Invest funds for building ships, tankers and boats of all kinds and sizes, and for construction of dry docks, floating docks, and shipping maintenance and repair yards.

16. Invest funds for digging, widening, dredging and maintaining canals.

17. Invest funds in public information media, such as newspapers, magazines, radio, television and cinemas, and in projects for verification, publication and dissemination of human heritage, as well as in activities related to archeological excavations and exhibits.

In general, the Company may carry out all such activities as may assist it realize its banking and investment objectives whether directly or through cooperation with other organizations, companies and governments, provided that it shall not do so on a usurious basis.

ii. capital of the company

Art. 7. The capital of the Company shall be KD 10,000,000/-(Kuwaiti dinars ten million) divided into ten million shares of one dinar each. All shares shall be paid for in cash.

Art. 8. The founders shall subscribe to 4,900,000 shares (four million nine hundred thousand shares) in the capital of the Company, and undertake to pay twenty-five per cent of the nominal value amounting to four million nine hundred thousand dinars by deposit with one of the registered banks in Kuwait.

The remaining shares, amounting to five million one hundred thousand, shall be placed for public subscription in Kuwait, and the founders shall specify the procedures and conditions for subscription.

Art. 9. The shares of the Company shall be nominal and shall not be owned by non-Kuwaitis.

Art. 10. Each subscriber shall pay twenty-five per cent of the share’s value at the time of subscription. The remaining value must be paid within the maximum of five years from the date of issue of the establishment Decree, on such dates and in such manner as may be determined by the Board of Directors. In case of default by any subscriber, the Board of Directors shall have the right to sell the shares for the account of such shareholder, on his own responsibility and without need for any advance official notification provided that such sale shall be by auction. The Board shall then have priority to collect from the proceeds of the sale the value of installments due on the shares plus all relative charges, and refund the balance to the defaulting shareholder. In case the proceeds of the sale are insufficient to cover the amount due, the Company shall have the right to set claim against the shareholder’s private funds.

Art. 11. No person may subscribe to more than fifty shares, or at any time own more than 4,000 shares (four thousand shares) except through inheritance or will.

Art. 12. The Board of Directors shall issue each shareholder a provisional certificate representing the shares he owns, within three months from the date the incorporation of the Company is declared final.

Final delivery of shares shall be effected by the Board within three months from the date of payment of the last installment.

Art. 13. Ownership of shares shall ipso facto purport acceptance of the Articles of Association of the Company and the resolutions of the General Assembly.

Art. 14. Each share shall entitle its holder to such unprivileged and equal right as that of other shareholders in both ownership of the assets of the Company and in dividends distributable in the manner indicated hereinafter. As the Company’s shares are nominal, the last owner whose name is registered in the Company’s records shall solely have the right to receive the share earnings whether in the form of dividends or equity in the Company’s assets.

Art. 15. The capital of the Company may not be increased unless the value of the original shares has been paid in full. New shares may not be issued at less than their face value but where such shares are issued at more than that value, the difference outstanding after paying off the expenses of the issue shall be added to the statutory reserves. The General Assembly shall have the right either to determine priorities related to subscription to new share issues or forgo such priorities or restrict them.

i. board of directors

Art. 16. The Company shall be managed by a Board of Directors consisting of ten members of whom five shall be appointed by the founders and the other five elected by the General Assembly in secret ballot.

Members of the Board of Directors shall serve for a term of three years, and may be re-elected.

Art. 17. An elected member of the Board of Directors should be the owner of not less than five hundred shares—either through his personal capacity, or through representation of a juristic entity. If at the time of election a member did not own this number of shares, he shall have to acquire such number within one month, otherwise his membership shall drop. This number of shares shall be retained as membership commitment guarantee, and shall be deposited with the Company within one month from the date of appointment, to be held therewith—without being negotiable—until the term of membership ends, and the balance sheet for the last fiscal year during which the member performed his duties has been approved. If a member, however, fails to submit the guarantee in the above-prescribed manner, his membership shall be considered void.

With respect to the first Board of Directors, however, a member of the Board shall deposit the membership guarantee shares within three months from the date the first Company balance sheet is published for a period of at least twelve months.

Art. 18. A member of the Board of Directors may not be a member of the Board of Directors of any similar or competitory company, nor may he be a merchant engaged in business similar to or competitory with that of the Company, or have any direct or indirect interest in contracts and transactions concluded with the Company, or for its own account, or have an interest conflicting with the Company’s unless he is given special authorization by the General Assembly, and under such conditions as the Company may apply to deals with third parties.

Neither the Chairman nor any member of the Board of Directors—even where he represents a juristic entity—may use any information acquired by virtue of his position, for his own benefit or for the benefit of others, nor may he sell or buy the Company shares during the term of his service as a member of the Board of Directors.

Art. 19. In the event the post of an elected member of the Board of Directors becomes vacant it shall be occupied by the unsuccessful candidate who had obtained the highest number of votes in the latest ballot.

In the event the vacant posts are equal to one quarter of the original number of posts, or no qualified candidates are available, the Board of Directors must convene the General Assembly within two months from the date on which the last post became vacant for election of members to fill the vacant posts. In all such cases, the new member shall only serve up to the end of the term of his predecessor.

Art. 20. The Board of Directors shall elect its Chairman and Deputy Chairman by secret ballot for a three-year term.

Art. 21. The Chairman shall represent the Company before judicial authorities and shall be responsible for the execution of resolutions passed by the Board.

The Deputy Chairman shall replace the Chairman in his absence as well as in case he is incapacitated.

The Board of Directors may appoint one or more of its members as Managing Director, and may also appoint a General Manager for the Company and determine his duties.

Art. 22. Authority to sign solely on behalf of the Company shall be given to the Chairman of the Board of Directors, or to his Deputy in his absence, or to any other member assigned for the purpose by the Board.

Art. 23. The Board of Directors shall convene at the request of the Chairman at least once every three months. It shall also convene if requested to do so by at least three Board members. At meetings of the Board, a quorum shall consist of the majority of members, but attendance by proxy shall not be held valid.

Art. 24. Resolutions of the Board of Directors shall pass by majority of the votes of the members present, and in case of a tie, the Chairman shall have a casting vote. Minutes of the Board meeting shall be recorded in a special register to be signed by the Chairman, and any dissenting member may request that his opinion be recorded therein.

Art. 25. A member of the Board of Directors shall lose his post in any of the following cases:

1. If he fails to attend four consecutive meetings without valid justification upon a resolution by the Board of Directors.

2. If he submits his resignation in writing.

3. If he becomes incapacitated.

4. If he is declared bankrupt.

5. If he occupies any salaried position in the Company, other than the post of Chairman, Managing Director or General Manager.

6. If he is convicted of an offence involving dishonesty or misconduct.

Art. 26. Without prejudice to the provisions of the Law of Commercial Companies, the Ordinary General Assembly shall fix the remunerations of the Board of Directors, and the Board of Directors shall fix the remunerations of the Managing Directors and the salary of the General Manager.

Art. 27. The Board of Directors shall have full authority to manage the Company and to conduct all such activities as may be required to realize the objectives of the Company. The Board’s authority shall only be limited by restrictions provided for by Law, by these Articles, or by such resolutions as may be issued by the General Assembly.

The Board of Directors may, in particular, pay all initial fees and expenses required for the establishment of the Company, including fees and expenses related to registration, publication and implementation of requirements embodied in the Memorandum of Agreement. It may also carry out all legal procedures required for these purposes, fix the general expenses for the Management, draw up Company by-laws and work procedures and appoint managers, supervisors, officers, deputies and assistants of all administrative levels. Furthermore, the Board may draw up job descriptions, specify staff authorities and responsibilities, and fix their salaries and bonuses.

Art. 28. The Board of Directors shall have full power to purchase and sell movables and immovables, and to dispose of the Company’s assets in whole or in part by sale or otherwise, against such price as it may deem profitable, or in exchange for shares, stocks or other financial papers issued by any other company. The Board shall also have power to borrow or acquire money in such manner as it may deem suitable, inside or outside Kuwait, and to conclude lease agreements or any and all transactions it deems suitable and within the Company’s objectives. The Board of Directors may further sell or mortgage the Company’s property, or issue guarantees or conclude loans against security of the Company’s real estate; provided that all this shall not be effected on a usurious basis. Moreover, the Board may give permission for filing lawsuits or defending the interests of the Company before courts, whether the Company is plaintiff or defendant. It may also endorse reconciliation and arbitration, quash entries, waive rights—with or without recompense—and decide how the Company’s assets including reserves should be used. In general, the Board shall manage the Company in the most appropriate way.

Art. 29. The members of the Board of Directors shall not be personally held liable for Company undertakings by reason of performing their duties within the limits of their competence.

Art. 30. The Chairman and members of the Board of Directors shall account to the Company, the shareholders and third parties for any fraudulent act, misuse of authority, violation of the Law or of the Articles of Association or mismanagement.

No vote by the General Assembly shall absolve the Board of Directors from responsibility, or prevent the filing of lawsuits against it for liability.

ii. general assembly

Art. 31. Invitations for meetings of the General Assembly, of whatever nature, shall be addressed to the shareholders by registered mail and shall include the agenda. The agenda for meetings of the Constituent General Assembly shall be prepared by the founders but the agenda for meetings of the Ordinary or Extraordinary General Assembly shall be prepared by the Board of Directors.

Where it is permissible to convene the General Assembly at the request of the shareholders, or the auditors, or the Ministry of Commerce and Industry, the agenda shall be prepared by the party requesting the meeting, but items not listed on the agenda may not be discussed at such meetings.

Art. 32. Each shareholder shall be entitled to a number of votes equal to the number of shares he owns. Attendance of meetings by proxy shall be allowed, and minors and interdicted persons shall be represented by their legal conservators.

No shareholder or representative by proxy may vote on his own behalf or on behalf of the person he represents on matters connected with his personal interest or on disputes between him and the Company.

Art. 33. Shareholders shall register their names in a special record to be prepared for this purpose at the Head Office of the Company, at least twenty-four hours prior to the date set for the meeting of the General Assembly. Each shareholder shall be provided with an admission card indicating the number of votes he is entitled to.

Art. 34. The quorum for meetings of the General Assembly, and for the majority of votes necessary to pass resolutions, shall be subject to the provisions of the Law of Commercial Companies.

Art. 35. Voting in General Assembly meetings shall be carried out in such manner as may be prescribed by the Chairman unless the General Assembly decides otherwise. The election and discharge of the members of the Board of Directors shall be conducted by secret ballot.

Art. 36. The founders shall—within thirty days from the date of closing subscription—invite the shareholders to meet as a Constituent General Assembly, and shall submit a report on the formalities of incorporation of the Company, together with the relevant supporting documents. The General Assembly shall ascertain the correctness of such documents and their conformity with the provisions of the law, the Memorandum of Agreement and the Articles of Association. The Assembly shall also look into reports which may be submitted by the Ministry of Commerce and Industry in this connection, and elect the members of the Board of Directors, appoint the auditors, and announce the final incorporation of the Company.

Art. 37. The Ordinary General Assembly shall convene upon invitation of the Board of Directors at least once a year, but within three months from the end of the fiscal year of the Company. The Board of Directors may call this General Assembly whenever it deems necessary, and shall also convene it whenever requested to do so by a number of shareholders owning not less than one tenth of the capital. The General Assembly shall also convene if so requested by the Ministry of Commerce and Industry.

Art. 38. The Ordinary General Assembly shall have power to consider all matters related to the Company’s activities, except for those matters which by Law and/or the Articles of Association are to be considered by an Extraordinary Assembly or by the Constituent Assembly.

Art. 39. The Board of Directors shall submit to the Ordinary General Assembly a full report on the operations of the Company and its financial and economic position, including the Balance Sheet, Profit and Loss Account, the Board of Directors’ remunerations, the auditor’s fees, and a proposal for distribution of dividends.

Art. 40. The Ordinary General Assembly shall consider and decide on the report of the Board of Directors, and shall review the auditor’s report, and the report of the Ministry of Commerce and Industry, if any. It shall also elect the members of the Board of Directors and determine their remunerations and appoint the auditors for the next year and fix their fees.

Art. 41. The Extraordinary General Assembly shall convene either upon invitation by the Board of Directors or upon a written request from a number of shareholders holding not less than one quarter of the Company’s shares. In the latter case, the Board of Directors shall convene the General Assembly within one month from the date on which the Board receives the request.

Art. 42. The following matters shall be considered only by an Extraordinary General Assembly:

1. Amendments to the Memorandum of Agreement or the Articles of Association of the Company.

2. Sale or disposal of the Company’s entire project.

3. Dissolution of the Company, or its merger or affiliation with any other company or entity.

4. Increase or decrease of the Company’s capital.

However such amendments, disposal, merger, affiliation or any other action aimed at bolstering the Company’s financing capability shall not under any circumstances infringe on the concept of not dealing with usury in any form whatsoever.

Moreover, no amendment to the Articles of Association of the Company shall be considered effective except after the Ministry of Commerce and Industry has approved it, and all requirements in the Law concerning Currency, the Central Bank of Kuwait and the Organization of Banking Business, and the Law of Commercial Companies have been satisfied. Furthermore, no amendment involving the name of the Company, or its objectives or capital (excluding increase of the capital through issue of shares against profits realized by the Company, or as a result of adding nonblocked reserves to the capital), shall be considered effective unless a Decree is issued in connection therewith.

iii. operations of the company

iv. accounts of the company

Art. 52. The Company shall have one or more certified auditors whose appointment and fees shall be decided by the General Assembly, and who shall be responsible for auditing the accounts for the fiscal year for which he is appointed.

Art. 53. The fiscal year of the Company shall commence on the 1st of January and end on the 31st of December each year, with the exception of the first fiscal year which shall commence from the date of final incorporation of the Company and end on the 31st of December the following year.

Art. 54. The auditor shall have such power and carry out such obligations as stated in the Law of Commercial Companies. In particular, he shall have access to all books, records and documents of the Company at all times, and may request any information he may deem necessary. He shall also have the right to ascertain the assets and liabilities of the Company, and in the event he is obstructed or unable to exercise these powers he shall report the fact in writing to the Board of Directors and to the General Assembly. He may also invite the General Assembly to convene for this purpose.

Art. 55. The auditor shall submit to the General Assembly a report stating whether the Balance Sheet and Profit and Loss Account reflect fairly the actual financial position of the Company; whether the Company keeps proper books of account; whenever inventories were conducted in accordance with established practices; whether the information given in the report of the Board of Directors is in agreement with the books of the Company; whether any violations of the law or the Company Articles of Association were committed during the fiscal year in such a way as to materially affect the Company’s activities or financial position; and in his capacity as agent for all shareholders, the auditor shall be responsible for the accuracy of the information contained in his report, and any shareholder may, during the General Assembly meeting, discuss and request clarification on the contents of the auditor’s report.

Art. 56. A percentage of the gross profits shall be fixed and allocated by the Board of Directors for formation of special reserves such as debt reserves, currency fluctuation reserves, depreciation reserves and any other reserves and allocations required by law or custom or under the provisions of these Articles.

Art. 57. A percentage of the gross profits shall be fixed and allocated by the Board of Directors for amortization or depreciation of the Company’s assets. Such deduction shall be used for purchase of materials, machines and replacements for repair. Moreover, a portion of the gross profits shall also be recommended by the Board of Directors and approved by the Ordinary General Assembly, for discharge of the Company’s obligations under labor laws.

Art. 58. The net profits shall be disposed of as follows:

1. Ten per cent to be allocated to the Statutory Reserve Account.

2. Ten per cent to be allocated to the Voluntary Reserve Account. This allocation shall be stopped by a decision of the Ordinary General Assembly on the recommendation of the Board of Directors.

3. A five per cent deduction shall be set aside as first portion of the profits to be distributed among shareholders and investment depositors for the paid value of their shares.

4. An amount not exceeding 10 per cent of the net profits shall then be set aside as remunerations for the Board of Directors, pending approval of the Ordinary General Assembly.

5. The remaining portion of profits shall either be distributed among shareholders and investment depositors as an extra profit, or carried forward to the following year on the recommendation of the Board of Directors or allocated for formation of a reserve for settlement of profits in such years where the net profit is inadequate, or for formation of extraordinary allocations.

Art. 59. Dividends shall be paid to shareholders at such place and time as may be specified by the Board of Directors.

Art. 60. The reserve funds shall be utilized upon decision of the Board of Directors to the best interest of the Company. The statutory reserve shall not be distributed among shareholders, but may be used to secure distribution, among shareholders, of dividends amounting to 5 per cent in such years where the profits of the Company do not facilitate distribution up to such percentage.

If the statutory reserve exceeds half the capital of the Company, the General Assembly may decide to discontinue deductions or to use the excess amount in such manner as it deems appropriate and in the interest of the Company and its shareholders.

Art. 61. Cash funds of the Company shall be deposited with such bank or banks as may be specified by the Board of Directors. The Board of Directors shall fix the maximum limit for cash which the treasurer may hold in the Company’s safe. All such arrangements shall be made with full regard to legal provisions concerning deposits with the Central Bank of Kuwait.

(a) Real Estate Credits

1. Providing individuals with loans—guaranteed by mortgage—to construct private dwellings, to repair the existing ones, or to render them more useful.

2. Giving loans to cooperatives and institutions authorized by law—guaranteed by mortgage—for the purpose of building dwellings for their members.

3. Granting loans guaranteed by the Government to citizens whose income is limited and who do not, as yet, possess title deeds. The loans are to be used for building dwellings or enlarging the existing ones. However, the title deeds will not be issued to the beneficiaries until they have paid all the necessary payments to the Bank.

(b) Industrial Credits

Providing loans to the owners of factories and industrial projects guaranteed by mortgage or the fixed assets of the plant. The loans are to be used for setting up factories, enlarging or improving the existing ones, or constructing housing units for their workers.

(c) Agricultural Credits

Providing loans to farmers guaranteed by mortgage or their agricultural produce, so that they can purchase seeds, fertilizers, farming machines, cattle or for breeding poultry, constructing water pipelines, digging wells, or other related agricultural activities.

Second, providing social credits to citizens guaranteed by mortgage, shares of Kuwaiti companies which are legally recognized, personal pledge from a co-signer of solid financial status, pledge from the employer, the salaries, remunerations, or the accrued pensions of the officials, employees, or workers, in compliance with the prevailing laws.

Third, mobilizing the savings, investing them, and paying the investment returns to the savers. The Government guarantees the savings and their returns.

Art. 5. The Bank, in order to achieve the objectives specified in the preceding Article, is entitled to own and dispose of real estate and transfers.

The Bank is also allowed to establish or to participate in establishing firms which engage in activities that have bearing on its objectives and help to achieve them. The Bank may subscribe to the capital of such firms, may contribute to the implementation of the construction projects, and may invest its surplus funds in any type of secured investments.

Art. 6. The capital of the Bank is 20,000,000 dinars, to be drawn from the general reserve fund of the State. The Minister of Finance and Industry is authorized to do this in one or more payments. Some of the payments can be in the form of a transfer to the Bank of government financial claims on others.

Also considered part of the capital are the funds which had already been paid to the Credit Bank, which was established by Law No. 40 for the year 1960.

Art. 7. The Bank can borrow funds from the Government or from others, with the Government acting as a guarantor, within limits that do not exceed its paid-in capital.

The Bank can also borrow by issuing bonds. The terms which determine the issuing and maturity of such bonds must be established by a decree.

Art. 8. The assets and liabilities of the Credit Bank, which was established by Law No. 40 for the year 1960, and amended by Laws Nos. 8, 12, 18, and 33 for the year 1961, are to be transferred to the Credit and Savings Bank.

Art. 9. With the exception of the provisions of Article 118 of the Law of Commerce, discerning minors are allowed to deposit their savings in the Bank. The terms of depositing and withdrawing of such savings are subject to the provisions and conditions set by the Board of Directors in this regard.

Art. 10. The officials, employees, and workers of the Bank are subject to the provisions of the Public Civil Employment Law.

Art. 11. Law No. 40, for the year 1960, which established the Credit Bank, together with its amendments, Laws Nos. 8, 12, 18, and 33 for the year 1961, are to be abolished.

Art. 12. The Minister of Finance and Industry, and all other Ministers of the Cabinet—each within his own jurisdiction—are to implement this law and put it into effect on the date it is published in the official journal.

{The promulgation clause is omitted here.)

general provisions

Art. 1. The Kuwait Fund for Arab Economic Development, hereinafter called the Fund, is a Kuwaiti Public Corporation with an independent legal personality as well as financial and administrative autonomy under the supervision of the Prime Minister who shall be the Chairman of its Board of Directors.

Art. 2. The purpose of the Fund is to assist Arab and other developing States in developing their economies and, in particular, to provide such States with loans for the implementation of their development programs, in accordance with the provisions of this Charter.

Art. 3. The capital of the Fund is one thousand million Kuwaiti dinars.

Art. 4. The principal office of the Fund shall be located in the City of Kuwait.

the administration of the fund

Art. 5. The Fund shall be administered by a Board of Directors composed of the Prime Minister, as Chairman, and eight other Kuwaiti members of recognized competence appointed by the Prime Minister for a term of two years subject to renewal.

In the event that the office of a member shall become vacant, a new member shall be appointed to hold office for the remainder of the term of his predecessor.

The Director-General of the Fund shall attend the meetings of the Board of Directors and participate in its deliberations but shall not be entided to vote.

The Chairman may designate a member of the Board of Directors to preside over a meeting of the Board of Directors in his absence.

Art. 6. The Chairman of the Board of Directors shall have the authority to sign agreements whereby the Fund lends or borrows money, as well as any bonds issued by the Fund. The Chairman may delegate such authority to the Director-General.

Art. 7. The Board of Directors shall be the highest authority of the Fund. It shall have the power to determine the general policy of the Fund for the achievement of its objectives and shall, in particular, have the power to:

• (a) consider the recommendations submitted by the Director-General concerning proposed loans and other forms of assistance to Arab and other developing States and make the appropriate decisions;

• (b) determine, subject to the provisions of this Charter, the form and terms for the participation of the Fund in the development project and programs of Arab and other developing States;

• (c) approve the amounts of loans and other types of assistance;

• (d) determine the general policy of investments by the Fund and the forms of such investments. The Board of Directors may delegate its powers in this respect to the Director-General;

• (e) authorize the borrowings of the Fund and determine the amounts and terms of such borrowings;

• (f) lay down administrative and financial regulations for the Fund and supervise their implementation;

• (g) approve the proposed administrative budget and the closing account of the Fund;

• (h) appoint the Fund auditors and determine their remuneration.

Art. 8. The Board of Directors shall hold at least four meetings annually. Meetings shall be held at the invitation of the Chairman or the Director-General. A quorum for any meeting of the Board of Directors shall be a majority of the members. Unless otherwise provided in this Charter, resolutions of the Board of Directors shall be adopted by a simple majority of the votes of members present. In the event of an equal division of votes, the vote of the Chairman shall be deemed a casting vote.

Art. 9. The Board of Directors may from time to time appoint subcommittees from among its members to study such matters as may be referred to them and submit their recommendations to the Board. Each subcommittee shall elect a Chairman from among its members.

Art. 10. The resolutions of the Board of Directors approving loans and grants, as well as the administrative budget and the closing account, shall be subject to confirmation by the Chairman.

Art. 11. The Chairman of the Board of Directors shall appoint the Director-General of the Fund and one or more Deputies upon the recommendation of the Board of Directors. The appointment of other staff of the Fund shall be made in accordance with the staff regulations to be laid down by the Board of Directors.

Art. 12. The Director-General shall have the direct responsibility for all administrative, financial and technical matters in the Fund. He shall represent the Fund before the Courts of Law and in relation to third parties. His functions shall, in particular, include the following:

• (a) implementation of the resolutions of the Board of Directors;

• (b) preparation and submission to the Board of Directors of the proposed administrative budget and the closing account;

• (c) authorization of expenditures within the limits of the administrative budget;

• (d) submission of an annual report to the Board of Directors on the progress of work in the Fund; such report shall include financial statements certified by auditors and a detailed account of the activities of the Fund during the preceding financial year;

• (e) receipt of applications for loans and financial and technical assistance; appraising such applications and submitting appropriate recommendations thereon to the Board of Directors;

• (f) implementation of loan and other agreements for the provision of assistance; and

• (g) undertaking such other tasks as may be entrusted to him by the Board of Directors in conformity with the provisions of this Charter.

The Director-General shall be assisted by one or more Deputies in carrying out his duties. The senior Deputy present shall act for the Director-General in his absence.

operations of the fund

Art. 13. The Fund may assist Arab and other developing States in implementing development projects and programs by making loans to such states or to corporate entities which are under the control of such states or which are subjects of, or constitute joint ventures among such states, provided that the objectives of such corporate entities are not purely limited to the making of profit. The Fund may also provide assistance by issuing guarantees for the obligations of such states or corporate entities, or through any other means which the Board of Directors may consider appropriate.

Art. 14. The Fund may not finance by means of a loan more than 50 per cent of the total costs of any project or program. Notwithstanding this provision, the Board of Directors may, by a majority of two thirds of the members present, approve loans in amounts exceeding the aforesaid limit in exceptional cases when the necessary financing for a vital project or program cannot otherwise be obtained on reasonable terms.

Art. 15. The loans made by the Fund shall be for the purpose of financing, exclusively, all or part of the foreign exchange costs of projects or programs. However, in exceptional cases where sufficient justification exists, the Fund may, pursuant to a decision of the Board of Directors by a majority of two-thirds of the members present, participate in financing the local component of the cost of such projects or programs.

Art. 16. The Kuwaiti dinar shall be the unit of account in all operations of the Fund. All loans and other forms of financial assistance made by the Fund shall be paid and repaid, as the case may be, in Kuwaiti dinars on the basis of the gold parity of the dinar as specified in the Special Agreement with the International Monetary Fund at the time of signing the agreement for the loan or other type of financial assistance.

Art. 17. Each loan agreement shall provide for the payment to the Fund, in addition to the interest charged, if any, of a service charge of one-half of one per cent (0.5%) annually on the amounts withdrawn from the loan and outstanding, to cover administrative expenses and other costs incurred in the execution of the loan agreement.

Art. 18. All loan agreements between the Fund and the borrowers shall include the following:

• (a) financial clauses specifying the duration allowed and conditions for withdrawal of proceeds of the loan, and the dates and conditions for the repayment of the principal thereof and payment of interest, if any, and other charges on the loan;

• (b) an undertaking by the borrower to furnish sufficient information to the Fund on the progress of work on the project financed, starting from the date of signature of the loan agreement until the loan is fully repaid;

• (c) an undertaking by the borrower to afford all the necessary facilities to representatives of the Fund to enable them to follow up the progress of the project financed;

• (d) provisions setting out arrangements for ensuring that the amounts withdrawn from the loan shall be used exclusively for financing expenditures on the project financed and only as such expenditures are actually incurred;

• (e) an undertaking that no other external debt shall have priority over the loan of the Fund or the interest or other charges there on by way of a lien on the assets of the borrower, except within such limits as the Fund may accept;

• (f) an undertaking to exempt all transactions, assets and income of the Fund in the recipient state from all taxes, dues and other impositions;

• (g) an undertaking from the monetary or any other competent authority in the recipient state to facilitate all the financial operations of the Fund and, in particular, to lift all foreign exchange restrictions on direct and indirect transfers arising out of the loan agreement;

• (h) an undertaking to consider all Fund documents, records, correspondence and similar material, as confidential, and to accord the Fund full immunity from censorship and inspection of printed matters; and

• (i) an undertaking to exempt all the assets and income of the Fund from nationalization, confiscation and seizure.

Where the loan is made to an entity other than the recipient state, the undertakings set out in paragraphs (f), (g), (h) and (i) of this Article shall be incorporated in a Guarantee Agreement to be concluded between the Fund and the Government of the State guaranteeing the loan.

Art. 19. The Fund may require, depending on the nature of each transaction, additional guarantees other than those provided for in the preceding Article, and may accept guarantees made by third parties including those of national, regional and international financial institutions.

Art. 20. In considering loan applications the Fund shall be guided by the recognized principles of development finance including, in particular, the following:

• (a) the degree of importance of the project or program for which the loan is requested and its priority rating in relation to other projects or programs;

• (b) the completeness and accuracy of the cost estimates for the project or program;

• (c) the adequacy of the economic and technical evaluation of the project;

• (d) ascertainment of the availability of the funds necessary, in addition to the financing to be provided by the Fund, for the execution and completion of the project or program;

• (e) the solvency of the applicant and the guarantor, if any.

Art. 21. All loan agreements between the Fund and the borrowers shall be made in the Arabic language.

Art. 22. The Fund shall not make grants to any beneficiaries except against its accumulated net profits.

Art. 23. The Fund may borrow money, issue bonds and give guarantees within the limit of twice the amount of its capital and reserves, in accordance with such terms and conditions as may be determined by the Prime Minister upon the recommendation of the Board of Directors.

financial provisions

Art. 24. The financial year of the Fund shall begin on the first day of April and end on the last day of March of the following year.

Art. 25. The Fund shall have an administrative budget comprising its income and current expenditures and shall prepare a closing account in respect of such income and expenditures. The Director-General shall submit the draft administrative budget to the Board of Directors not later than two months before the end of each financial year.

Art. 26. The Fund shall prepare a Balance Sheet, an Income and Expenditure Statement and a Reserve Account. The said financial statements shall be certified by auditors and submitted to the Board of Directors, together with the Closing Account and the Annual Report on the activities of the Fund, not later than June 30 of each year.

Art. 27. The Fund shall keep proper books of accounts to show a true and fair view of the state of affairs of the Fund and explain its transactions. The Auditors’ report shall be submitted to the Board of Directors for consideration and approval.

Art. 28. Without prejudice to the provisions of Article 22 of this Charter, net profits of the Fund shall be credited to a reserve account until reserves shall become equal to twenty per cent (20%) of the capital of the Fund. Thereafter, net profits shall be added to the capital of the Fund provided, however, that the reserves shall always remain equal to twenty per cent of the capital.

miscellaneous provisions

Art. 29. The Prime Minister may delegate all or part of his powers under this Charter to the Minister of Finance and Oil.

Art. 30. This Charter may be amended by a decision of the Prime Minister upon the recommendation of the Board of Directors.