IMPORTANT NOTICE v

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1 IMPORTANT NOTICE THE ATTACHED BASE PROSPECTUS IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER: (1) QIBs (AS DEFINED BELOW) THAT ARE ALSO QPs (AS DEFINED BELOW); OR (2) NOT U.S. PERSONS (AS DEFINED IN REGULATION S (AS DEFINED BELOW)). IMPORTANT: You must read the following before continuing. The following applies to the attached base prospectus (the "Base Prospectus") and you are therefore advised to read this carefully before reading, accessing or making any other use of the attached Base Prospectus. In accessing the attached Base Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from the Trustee, KFH, the Arrangers and the Dealers (each as defined below) as a result of such access. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN THE UNITED STATES OR IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES DESCRIBED IN THE ATTACHED BASE PROSPECTUS HAVE NOT BEEN AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE U.S. OR OTHER JURISDICTIONS, NOR MAY THEY BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ("REGULATION S")), EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO PERSONS REASONABLY BELIEVED TO BE "QUALIFIED INSTITUTIONAL BUYERS" ("QIBs") WITHIN THE MEANING OF RULE 144A WHO ARE ALSO QUALIFIED PURCHASERS AS DEFINED IN SECTION 2(A)(51)(A) OF THE U.S. INVESTMENT COMPANY ACT OF 1940, AS AMENDED (EACH A "QP") WHO REPRESENT THAT: (A) THEY ARE QPS WHO ARE QIBS WITHIN THE MEANING OF RULE 144A; (B) THEY ARE NOT BROKER DEALERS WHO OWN AND INVEST ON A DISCRETIONARY BASIS LESS THAN U.S.$25 MILLION IN SECURITIES OF UNAFFILIATED ISSUERS; (C) THEY ARE NOT A PARTICIPANT DIRECTED EMPLOYEE PLAN, SUCH AS A 401(K) PLAN; (D) THEY ARE ACTING FOR THEIR OWN ACCOUNT, OR THE ACCOUNT OF ONE OR MORE QIBS, EACH OF WHICH IS ALSO A QP; (E) THEY ARE NOT FORMED FOR THE PURPOSE OF INVESTING IN THE SECURITIES OR THE TRUSTEE; (F) THEY UNDERSTAND THAT THE TRUSTEE MAY RECEIVE A LIST OF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOK ENTRY DEPOSITORIES; AND (G) THEY WILL PROVIDE NOTICE OF THESE TRANSFER RESTRICTIONS TO ANY SUBSEQUENT TRANSFEREES; OR (2) IN AN OFFSHORE TRANSACTION TO A PERSON THAT IS NOT A U.S. PERSON IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT. THE DISTRIBUTION IN THE UK OF THE BASE PROSPECTUS, ANY FINAL TERMS AND ANY OTHER MARKETING MATERIALS RELATING TO THE SECURITIES IS BEING ADDRESSED TO, OR DIRECTED AT: (A) IF THE SECURITIES ARE "ALTERNATIVE FINANCE INVESTMENT BONDS" ("AFIBS") AND THE DISTRIBUTION IS BEING EFFECTED BY A PERSON WHO IS NOT AN AUTHORISED PERSON UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000 (THE "FSMA"), ONLY THE FOLLOWING PERSONS: (I) PERSONS WHO ARE INVESTMENT PROFESSIONALS AS DEFINED IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (THE "FINANCIAL PROMOTION ORDER"); (II) PERSONS FALLING WITHIN ANY OF THE CATEGORIES OF PERSONS DESCRIBED IN ARTICLE 49 (HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC.) OF THE FINANCIAL PROMOTION ORDER; AND (III) ANY OTHER PERSON TO WHOM IT MAY OTHERWISE LAWFULLY BE MADE IN ACCORDANCE WITH THE FINANCIAL PROMOTION ORDER; AND (B) IF THE SECURITIES ARE NOT AFIBS AND THE DISTRIBUTION IS EFFECTED BY A PERSON WHO IS AN AUTHORISED PERSON UNDER THE FSMA, ONLY THE FOLLOWING PERSONS: (I) PERSONS FALLING WITHIN ONE OF THE CATEGORIES OF INVESTMENT PROFESSIONAL AS DEFINED IN ARTICLE 14(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (PROMOTION OF COLLECTIVE INVESTMENT SCHEMES) (EXEMPTIONS) ORDER 2001 (THE "PROMOTION OF CISS ORDER"); (II) PERSONS FALLING WITHIN ANY OF THE CATEGORIES OF PERSON DESCRIBED IN ARTICLE 22 (HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC.) OF THE PROMOTION OF CISS ORDER; AND (III) ANY OTHER PERSON TO WHOM IT MAY OTHERWISE LAWFULLY BE MADE IN ACCORDANCE WITH THE v

2 PROMOTION OF CISS ORDER (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS"). THE ATTACHED BASE PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE ATTACHED BASE PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORISED, AND WILL NOT BE ABLE, TO PURCHASE ANY OF THE SECURITIES DESCRIBED THEREIN. CONFIRMATION OF YOUR REPRESENTATION: In order to be eligible to view the attached Base Prospectus or make an investment decision with respect to the Certificates (as defined in the attached Base Prospectus), an investor must be: (i) a person that is outside the United States and is not a U.S. person (within the meaning of Regulation S); or (ii) a person that is a "qualified institutional buyer" ("QIBs") (within the meaning of Rule 144A under the Securities Act ("Rule 144A")) that is also a "qualified purchaser" (each a "QP") (within the meaning of Section 2(a)(51)(A) of the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act")), and the rules and regulations thereunder. The attached Base Prospectus is being sent at your request and by accepting the and accessing the attached Base Prospectus, you shall be deemed to have represented to Kuwait Finance House K.S.C.P. ("KFH"), KFH Sukuk Company SPC Limited (the "Trustee"), KFH Capital Investment Company K.S.C.C. and Standard Chartered Bank (the "Arrangers") and each of KFH Capital Investment Company K.S.C.C., Standard Chartered Bank and any other dealers appointed under the Programme (as defined herein) from time to time by KFH and the Trustee, which appointment may be for a specific issue of securities or on an ongoing basis (together, the "Dealers") that: (a) you and any customers you represent are either: (1) persons other than U.S. persons (within the meaning of Regulation S); or (2) QIBs that are also QPs; (b) you are a person who is permitted under applicable law and regulation to receive the attached Base Prospectus; and (c) you consent to delivery of the attached Base Prospectus and any amendments or supplements thereto by electronic transmission. By accessing the attached Base Prospectus you further confirm to us that: (i) you understand and agree to the terms set out herein; (ii) you will not transmit the attached Base Prospectus (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person; and (iii) you acknowledge that you will make your own assessment regarding any credit, investment, legal, taxation or other economic considerations with respect to your decision to subscribe or purchase any of the Certificates. You are reminded that the attached Base Prospectus has been delivered to you on the basis that you are a person into whose possession the attached Base Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver the attached Base Prospectus to any other person. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions. The attached Base Prospectus does not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that an offering of securities described herein be made by a licensed broker or dealer and the Arrangers and any Dealer or any affiliate of the Arrangers or the relevant Dealer is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by such Arranger or Dealer or such affiliate on behalf of the Trustee or holders of the applicable securities in such jurisdiction. Under no circumstances shall the attached Base Prospectus constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities described herein in any jurisdiction in which such offer, solicitation or sale would be unlawful. Recipients of the attached Base Prospectus who intend to subscribe for or purchase the Certificates are reminded that any subscription or purchase may only be made on the basis of the information contained in the attached Base Prospectus as completed by the applicable Final Terms and/or supplement(s) to the Base Prospectus (if any). The attached Base Prospectus may only be communicated to persons in the United Kingdom in circumstances where Section 21(1) of the Financial Services and Markets Act 2000, as amended does not apply v

3 The distribution of the attached Base Prospectus in certain jurisdictions may be restricted by law. Persons into whose possession the attached Base Prospectus comes are required by the Trustee, KFH, the Arrangers and the Dealers to inform themselves about, and to observe, any such restrictions. The attached Base Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently neither the Trustee, KFH, the Arrangers and Dealers nor any person who controls them nor any director, officer, employee nor agent of them or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Base Prospectus distributed to you in electronic format and the hard copy version available to you on request from the Trustee, KFH, the Arrangers and the Dealers. Please ensure that your copy is complete. If you received the Base Prospectus by , you should not reply by to this announcement. Any reply communications, including those you generate by using the "reply" function on your software, will be ignored or rejected. You are responsible for protecting against viruses and other destructive items. Your use of this is at your own risk, and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature v

4 BASE PROSPECTUS KFH SUKUK COMPANY SPC LIMITED (incorporated in the Dubai International Financial Centre as a Special Purpose Company) U.S.$3,000,000,000 Trust Certificate Issuance Programme Under the U.S.$3,000,000,000 trust certificate issuance programme (the "Programme") described in this base prospectus (the "Base Prospectus"), KFH Sukuk Company SPC Limited (in its capacity as issuer and as trustee, the "Trustee"), subject to compliance with all relevant laws, regulations and directives, may from time to time issue trust certificates (the "Certificates") denominated in any currency agreed between the Trustee and the relevant Dealer(s) (as defined below). The maximum aggregate face amount of all Certificates outstanding from time to time will not be more than U.S.$3,000,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement described herein), subject to any increase as described herein. Each Tranche (as defined in "Terms and Conditions of the Certificates" (the "Conditions")) of Certificates issued under the Programme will be constituted by: (i) a master declaration of trust dated 16 May 2018 (the "Master Declaration of Trust") entered into between the Trustee, Kuwait Finance House K.S.C.P. ("KFH") and Citibank, N.A., London Branch as delegate of the Trustee (in such capacity, the "Delegate"); and (ii) a supplemental declaration of trust in relation to the relevant Series (each a "Supplemental Declaration of Trust" and together with the Master Declaration of Trust, each a "Declaration of Trust"). Certificates of each Tranche confer on the holders of the Certificates from time to time (the "Certificateholders") the right to receive certain payments (as more particularly described herein) arising from a pro rata ownership interest in the assets of a trust declared by the Trustee in relation to the relevant Series (the "Trust") over the Trust Assets (as defined herein). Certificates may only be issued in registered form. The Certificates may be issued on a continuing basis to one or more of the Dealers specified under "Overview of the Programme" and any additional Dealer appointed under the Programme from time to time (each a "Dealer" and together, the "Dealers"), which appointment may be for a specific issue or on an ongoing basis. References in this Base Prospectus to the "relevant Dealer" shall, in the case of an issue of Certificates being (or intended to be) subscribed by more than one Dealer, be to all Dealers agreeing to subscribe for such Certificates. The Certificates will be limited recourse obligations of the Trustee. An investment in Certificates issued under the Programme involves certain risks. For a discussion of certain of these risks, please see "Risk Factors" on page 9. This Base Prospectus has been approved by the Central Bank of Ireland (the "Central Bank") as competent authority under Directive 2003/71/EC, as amended, and includes any relevant implementing measure in a relevant Member State of the European Economic Area (for the purposes of this Base Prospectus, the "Prospectus Directive"). The Central Bank only approves this Base Prospectus as meeting the requirements imposed under Irish and European Union ("EU") law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange plc, trading as Euronext Dublin ("Euronext Dublin") for Certificates issued under this Programme during the period of 12 months from the date of this Base Prospectus to be admitted to the official list (the "Official List") and to trading on its regulated market (the "Main Securities Market"). The Main Securities Market is a regulated market for the purposes of the Markets in Financial Instruments Directive (Directive 2014/65/EU) ("MiFID II"). Such approval relates only to Certificates which are to be admitted to trading on a regulated market for the purposes of MiFID II and/or which are to be offered to the public in any Member State of the European Economic Area. References in this Base Prospectus to Certificates (other than Non-PD Certificates (as defined below)) being "listed" (and all related references) shall mean that such Certificates have been admitted to trading on the Main Securities Market and have been admitted to the Official List. Notice of the aggregate face amount of the Certificates, profit (if any) payable in respect of the Certificates, the issue price of the Certificates and certain other terms and conditions not contained herein which are applicable to each Tranche of Certificates (other than Non-PD Certificates) will be set out in the applicable final terms (the "Final Terms") which will be delivered to the Central Bank and Euronext Dublin. The Programme also permits Certificates to be issued on the basis that they will not be admitted to listing, trading on a regulated market for the purposes of the Markets in Financial Instruments Directive in the European Economic Area and/or quotation by any competent authority, stock exchange and/or quotation system or may be admitted to listing, trading and/or quotation by such other or further competent authorities, stock exchanges and/or quotation systems as may be agreed between the Trustee, KFH and the relevant Dealer ("Non-PD Certificates"). The Certificates have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or any U.S. state securities laws and subject to certain exceptions, the Certificates may not be offered or sold in the United States or to, or for the account or the benefit of, U.S. persons (as defined in Regulation S under the Securities Act ("Regulation S")). The Certificates are being offered and sold outside the United States to persons who are not U.S. persons in reliance on Regulation S and within the United States only to persons who are reasonably believed to be "qualified institutional buyers" ("QIBs") in reliance on Rule 144A under the Securities Act ("Rule 144A") that are also "qualified purchasers" (each a "QP") within the meaning of Section 2(a)(51)(A) of the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations thereunder. Please see "Form of Certificates" for a description of the manner in which Certificates will be issued. Certificates are subject to certain restrictions on transfer. Please see "Subscription and Sale and Transfer and Selling Restrictions". Prospective purchasers are hereby notified that sellers of the Certificates may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. The Trustee is a "covered fund" for the purposes of the "Volcker Rule" contained in Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Volcker Rule"). The acquisition of the Certificates is likely to be considered an acquisition of an "ownership interest" (as that term is used in the Volcker Rule) in a "covered fund". Accordingly, entities that may be "banking entities" for the purposes of the Volcker Rule, which is broadly defined to include U.S. banks and bank holding companies and many non-u.s. banking entities, together with their respective subsidiaries and other affiliates, may be restricted from holding the Certificates. Any prospective investor in the Certificates, including a U.S. or foreign bank or a subsidiary should consult its own legal advisors regarding such matters and other effects of the Volcker Rule. For further information, see "Important Notices". KFH has been assigned a long-term foreign currency issuer default rating of A+ with a stable outlook from Fitch Ratings Limited ("Fitch") and a long-term bank deposits rating of A1 with a negative outlook from Moody's Investors Service Ltd. ("Moody's"). Each of Fitch and Moody's has also rated the Trustee's Programme at A+ and A1, respectively. The rating of certain Series of Certificates to be issued under the Programme and the credit rating agency issuing such rating may be specified in the applicable Final Terms. Where an issue of Certificates is rated, its rating will not necessarily be the same as the rating applicable to the Programme. Each of Fitch and Moody's is established in the European Union and is registered under the Regulation (EC) No. 1060/2009 (as amended) (the "CRA Regulation"). As such, each of Fitch and Moody's is included in the list of credit rating agencies published by the European Securities and Markets Authority on its website in accordance with the CRA Regulation. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. The transaction structure relating to the Certificates (as described in this Base Prospectus) has been approved by the KFH Capital Shari'a Committee and the Shariah Supervisory Committee of Standard Chartered Bank. Prospective Certificateholders should not rely on the approval referred to above in deciding whether to make an investment in the Certificates and should consult their own Shari'a advisors as to whether the proposed transaction described in the approval referred to above is in compliance with their individual standards of compliance with Shari'a principles. Arrangers KFH Capital KFH Capital Dealers Standard Chartered Bank Standard Chartered Bank The date of this Base Prospectus is 16 May v

5 IMPORTANT NOTICES This Base Prospectus comprises a base prospectus for the purposes of Article 5.4 of the Prospectus Directive and for the purpose of giving information with regard to the Trustee, KFH, the Group (as defined below) and the Certificates which, according to the particular nature of the Trustee, KFH, the Group and the Certificates, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Trustee, KFH and the Group. The Trustee and KFH accept responsibility for the information contained in this Base Prospectus and the applicable Final Terms for each Series of Certificates issued under the Programme. To the best of the knowledge of the Trustee and KFH (each having taken all reasonable care to ensure that such is the case) the information contained in this Base Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. Each Tranche of Certificates will be issued on the terms set out herein under "Terms and Conditions of the Certificates" as completed by the applicable Final Terms. This Base Prospectus must be read and construed together with any amendments or supplements hereto and with any information incorporated by reference herein and, in relation to any Tranche of Certificates which is the subject of the Final Terms, must be read and construed together with the applicable Final Terms. The only persons authorised to use this Base Prospectus in connection with an offer of Certificates are the relevant Dealers or the Managers (as identified in the relevant subscription agreement), as the case may be. Copies of the applicable Final Terms will be available from the registered office of the Trustee and the specified office of each of the Paying Agents (as defined in "Terms and Conditions of the Certificates"). Certain statistical information included in this Base Prospectus has been extracted from official public sources (see further, "Presentation of Financial and other Information Presentation of Statistical Information"). Certain information appearing on pages 171 to 174 (inclusive) of this Base Prospectus under the heading "Book-Entry Clearance Systems" has been obtained from the clearing systems referred to herein. The Trustee and KFH confirms that all third party information contained in this Base Prospectus has been accurately reproduced and that, so far as it is aware and is able to ascertain from information published by the relevant third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. The source of any third party information contained in this Base Prospectus is stated where such information appears in this Base Prospectus. No person is or has been authorised by the Trustee or KFH to give any information or to make any representation not contained in or not consistent with this Base Prospectus or any other document entered into in relation to the Programme or any other information supplied by the Trustee or KFH or such other information as is in the public domain in connection with the Programme or the Certificates and, if given or made, such information or representation must not be relied upon as having been authorised by the Trustee, KFH or the Arrangers or any Dealers. To the fullest extent permitted by law, neither the Arrangers, the Delegate, the Agents nor any of the Dealers accept (1) any responsibility for (i) the contents of this Base Prospectus or (ii) any information incorporated by reference into this document or (iii) for any other statement made, or purported to be made, by the Arrangers or any Dealer or on any of their affiliates on their behalf or (2) any responsibility for any acts or omissions of the Trustee, KFH or any other person (other than the relevant Arranger or Dealer), in connection with the Trustee, KFH, or the issue and offering of the Certificates. The Arrangers, the Delegate, the Agents and each Dealer accordingly disclaims all and any liability whether arising in tort or contract or otherwise which it might otherwise have in respect of this Base Prospectus or any such statement. Neither this Base Prospectus, any Final Terms nor any other information supplied in connection with the Programme or any Certificates: (i) is intended to provide the basis of any credit or other evaluation; or (ii) should be considered as a recommendation by the Trustee, KFH, the Arrangers, v i

6 the Dealers, the Delegate or the Agents that any recipient of this Base Prospectus, any Final Terms or any other information supplied in connection with the Programme or any Certificates should purchase any Certificates. Each investor contemplating purchasing any Certificates should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Trustee and/or KFH. Neither this Base Prospectus, any Final Terms nor any other information supplied in connection with the Programme or the issue of any Certificates constitutes an offer or invitation by or on behalf of the Trustee, KFH, the Arrangers, the Delegate, the Agents or any of the Dealers to any person to subscribe for or to purchase any Certificates. The only persons authorised to use this Base Prospectus in connection with an offer of Certificates are the persons named in the relevant subscription agreement as the relevant Managers. Neither the delivery of this Base Prospectus, any Final Terms nor the offering, sale or delivery of any Certificates shall in any circumstances imply that the information contained herein concerning the Trustee and/or KFH is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Programme is correct as of any time subsequent to the date indicated in the document containing the same. The Arrangers, the Delegate, the Agents and the Dealers expressly do not undertake to review the financial condition or affairs of the Trustee or KFH during the life of the Programme or to advise any investor in the Certificates of any information coming to their attention. USE OF BENCHMARK Amounts payable under the Certificates may be calculated by reference to: EURIBOR (as defined in the Conditions), which is provided by the European Money Markets Institute; and LIBOR (as defined in the Conditions), which is provided by the ICE Benchmark Administration, each such provider together referred to as the "Administrators". As at the date of this Base Prospectus, the Administrators do not appear on the register of administrators and benchmarks established and maintained by the European Securities and Markets Authority ("ESMA") pursuant to article 36 of the Benchmark Regulation (Regulation (EU) 2016/1011) (the "Benchmark Regulations"). As far as the Trustee and KFH are aware, the transitional provisions in Article 51 of the Benchmark Regulations apply, such that the Administrators are not currently required to obtain authorisation or registration (or, if located outside the European Union, recognition, endorsement or equivalence). This Base Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any Certificates in the United States or in any jurisdiction, in each case, to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Base Prospectus and the offer or sale of Certificates may be restricted by law in certain jurisdictions. None of the Trustee, KFH, the Arrangers, the Delegate, the Agents or the Dealers represent that this Base Prospectus may be lawfully distributed, or that any Certificates may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Trustee, KFH, the Arrangers, the Delegate, the Agents or the Dealers which is intended to permit a public offering of any Certificates or distribution of this Base Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Certificates may be offered or sold, directly or indirectly, and neither this Base Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Base Prospectus or any Certificates may come must inform themselves about, and observe, any such restrictions on the distribution of this Base Prospectus and the offering and sale of Certificates. In particular, there are restrictions on the distribution of this Base Prospectus and the offer, sale or transfer of v ii

7 Certificates in the Dubai International Financial Centre, the European Union, Hong Kong, Japan, Malaysia, the Kingdom of Bahrain, the Kingdom of Saudi Arabia, Singapore, the State of Kuwait, the State of Qatar, the United Arab Emirates (the "UAE") (excluding the Dubai International Financial Centre), the United Kingdom and the United States. Please see "Subscription and Sale and Transfer and Selling Restrictions". The Certificates may not be a suitable investment for all investors. Each potential investor in the Certificates must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: have sufficient knowledge and experience to make a meaningful evaluation of the Certificates, the merits and risks of investing in the Certificates and the information contained or incorporated by reference in this Base Prospectus or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Certificates and the impact such investment will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Certificates, including Certificates with principal or profit payable in one or more currencies, or where the currency for principal or profit payments is different from the potential investor's currency; understand thoroughly the terms of the Certificates and be familiar with the behaviour of any relevant indices and financial markets; and be able to evaluate (either alone or with the help of a financial advisor) possible scenarios for economic, profit rate and other factors that may affect its investment and its ability to bear the applicable risks. Some Certificates may be complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as stand-alone investments. They generally purchase complex financial instruments as a way to reduce risk or enhance yield with an understood, measured and appropriate addition of risk to their overall portfolios. A potential investor should not invest in an issue of Certificates which are complex financial instruments unless it has the expertise (either alone or with a financial advisor) to evaluate how the Certificates will perform under changing conditions, the resulting effects of the value of the Certificates and the impact this investment will have on the potential investor's overall investment portfolio. In the case of any Certificates which are to be admitted to trading on a regulated market within the European Economic Area or offered to the public in a Member State of the European Economic Area in circumstances which require the publication of a prospectus under the Prospectus Directive, the minimum specified denomination shall be 100,000 (or its equivalent in any other currency as of the date of issue of the Certificates). None of the Trustee, KFH, the Arrangers, the Delegate, the Agents or the Dealers has authorised, nor do they authorise, the making of any offer of Certificates in circumstances in which an obligation arises for the Trustee, KFH or any Dealer to publish or supplement a prospectus for such offer. In making an investment decision, investors must rely on their own independent examination of the Trustee and KFH and the terms of the Certificates being offered, including the merits and risks involved. None of the Trustee, KFH, the Arrangers, the Delegate, the Agents or the Dealers makes any representation to any investor in the Certificates regarding the legality of its investment under any applicable laws. Any investor in the Certificates should be able to bear the economic risk of an investment in the Certificates for an indefinite period of time v iii

8 Legal investment considerations may restrict certain investments. The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisors to determine whether and to what extent: (i) the Certificates constitute legal investments for it; (ii) the Certificates can be used as collateral for various types of borrowing; and (iii) other restrictions apply to any purchase or pledge of any Certificates by the investor. Financial institutions should consult their legal advisors or the appropriate regulations to determine the appropriate treatment of the Certificates under any applicable risk-based capital or similar rules and regulations. The requirement to publish a base prospectus under the Prospectus Directive only applies to Certificates which are to be admitted to trading on a regulated market for the purposes of MiFID II in the European Economic Area and/or offered to the public in the European Economic Area other than in circumstances where an exemption is available under Article 3.2 of the Prospectus Directive (as implemented in the relevant Member State(s)). References in this Base Prospectus to "Non-PD Certificates" are to Certificates issued by the Trustee for which no base prospectus is required to be published under the Prospectus Directive. The Central Bank of Ireland has neither approved nor reviewed information contained in this Base Prospectus in connection with Non-PD Certificates. U.S. INFORMATION This Base Prospectus is being provided on a confidential basis in the United States to a limited number of QIBs who are also QPs for informational use solely in connection with the consideration of the purchase of certain Certificates issued under the Programme. Its use for any other purpose in the United States is not authorised. It may not be copied or reproduced in whole or in part nor may it be distributed or any of its contents disclosed to anyone other than the prospective investors to whom it is originally provided. Certificates may only be offered or sold only to persons who are not U.S. persons, or to persons who are QIBs that are also QPs, in transactions exempt from registration under the Securities Act. The Certificates are being offered and sold in the United States in reliance upon an exemption from registration under the Securities Act for an offer and sale of the Certificates which does not involve a public offering. Prospective purchasers are hereby notified that sellers of the Certificates may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. THE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION, ANY SECURITIES COMMISSION OF ANY STATE IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAS ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF CERTIFICATES OR THE ACCURACY OR THE ADEQUACY OF THIS BASE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. Each purchaser or holder of Individual Certificates (as defined herein), Certificates represented by a Restricted Global Certificate (as defined herein) or any Certificates issued in registered form in exchange or substitution therefor (together "Legended Certificates") will be deemed, by its acceptance or purchase of any such Legended Certificates, to have made certain representations and agreements intended to restrict the resale or other transfer of such Certificates as set out in "Subscription and Sale and Transfer and Selling Restrictions". Unless otherwise stated, terms used in this paragraph have the meanings given to them in "Form of Certificates". VOLCKER RULE The Trustee is a "covered fund" for the purposes of the "Volcker Rule" contained in Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The definition of "covered fund" in the Volcker Rule includes (generally) any entity that would be an investment company under the Investment Company Act, but for the exemption provided under Section 3(c)(1) or 3(c)(7) thereunder. Because the Trustee intends to rely on Section 3(c)(7) of the Investment Company Act for its exemption from registration thereunder, (which limits sales of the Certificates to QPs), it is considered to be a covered v iv

9 fund. The Volcker Rule generally prohibits "banking entities" (which is broadly defined to include U.S. banks and bank holding companies and many non-u.s. banking entities, together with their respective subsidiaries and other affiliates) from: (i) engaging in proprietary trading; (ii) acquiring or retaining an ownership interest in or sponsoring a "covered fund"; and (iii) entering into certain relationships with such funds. "Ownership interest" under the Volcker Rule is defined broadly to include any participation or other interest that entitles the holder of such interest to, amongst other things: (i) vote to remove management or otherwise, other than as a creditor exercising remedies upon an event of default, (ii) share in the income, gains, profits or excess spread of the covered fund or (iii) receive underlying assets of the covered fund. Any prospective investor in the Certificates, including a U.S. or foreign bank or a subsidiary or other affiliate thereof, should consult its own legal advisors regarding such matters and other effects of the Volcker Rule. AVAILABLE INFORMATION To permit compliance with Rule 144A in connection with any resales or other transfers of Certificates that are "restricted securities" within the meaning of Rule 144(a)(3) of the Securities Act, the Trustee (failing which, KTH) has undertaken in the Master Declaration of Trust to furnish, upon the request of a holder of such Certificates or any beneficial interest therein, to such holder or to a prospective purchaser designated by such holder or beneficial owner, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act if, at the time of the request, any of the Certificates remain outstanding as "restricted securities" within the meaning of Rule 144(a)(3) of the Securities Act and the Trustee is neither subject to Sections 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") nor exempt from reporting requirements pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act. SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES The Trustee is a special purpose company incorporated in the Dubai International Financial Centre (the "DIFC") and KFH is a Public Kuwaiti Shareholding Company incorporated in Kuwait. All of the officers and directors of the Trustee and KFH named herein reside outside the United States and all or a substantial portion of the assets of each of the Trustee and KFH and its officers and directors are located outside the United States. As a result: it may not be possible for investors to effect service of process outside the DIFC upon the Trustee or its officers and directors, or to enforce judgments against them predicated upon United States federal securities laws; and it may not be possible for investors to effect service of process outside the State of Kuwait upon KFH or its officers and directors, or to enforce judgments against them predicated upon United States federal securities laws. The Certificates and the Transaction Documents (excluding the Master Purchase Agreement as supplemented by the applicable Supplemental Purchase Agreement (which are governed by Kuwaiti law)) are governed by English law and disputes in respect of them may be settled under the Arbitration Rules of the London Court of International Arbitration (the "LCIA Rules") in London, England. Investors may have difficulties in enforcing any arbitration award against the Trustee or KFH in the courts of Kuwait. In addition, even if English law is accepted as the governing law, this will only be applied to the extent that it is compatible with the mandatory rules of Kuwaiti law and public policy. Moreover, judicial precedent in Kuwait has no binding effect on subsequent decisions and there is no formal system of reporting court decisions in Kuwait. These factors create greater judicial uncertainty than would be expected in certain other jurisdictions. See "Risk Factors Risks Relating to Enforcement Certificateholders will only be able to enforce their contractual rights under the Certificates through arbitration before the London Court of International Arbitration ("LCIA") and LCIA awards relating to disputes arising under the Certificates may not be enforceable in Kuwait". NOTICE TO RESIDENTS OF THE KINGDOM OF BAHRAIN In relation to investors in the Kingdom of Bahrain, Certificates issued in connection with this Base Prospectus and related offering documents may only be offered in registered form to existing accountholders and accredited investors as defined by the Central Bank of Bahrain ("CBB") in the v v

10 Kingdom of Bahrain where such investors make a minimum investment of at least U.S.$100,000 or the equivalent amount in any other currency or such other amount as the CBB may determine. This Base Prospectus does not constitute an offer of securities in the Kingdom of Bahrain pursuant to the terms of Article (81) of the Central Bank and Financial Institutions Law 2006 (decree Law No. 64 of 2006). This Base Prospectus and related offering documents have not been and will not be registered as a prospectus with the CBB. Accordingly, no Certificates may be offered, sold or made the subject of an invitation for subscription or purchase nor will this Base Prospectus or any other related document or material be used in connection with any offer, sale or invitation to subscribe or purchase Certificates, whether directly or indirectly, to persons in the Kingdom of Bahrain, other than to accredited investors for an offer outside the Kingdom of Bahrain. The CBB has not reviewed, approved or registered this Base Prospectus or related offering documents and it has not in any way considered the merits of the Certificates to be offered for investment, whether in or outside the Kingdom of Bahrain. Therefore, the CBB assumes no responsibility for the accuracy and completeness of the statements and information contained in this Base Prospectus and expressly disclaims any liability whatsoever for any loss howsoever arising from reliance upon the whole or any part of the content of this Base Prospectus. No offer of securities will be made to the public in the Kingdom of Bahrain and this Base Prospectus must be read by the addressee only and must not be issued, passed to, or made available to the public generally. NOTICE TO RESIDENTS OF THE KINGDOM OF SAUDI ARABIA This Base Prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Rules on the Offer of Securities and Continuing Obligations issued by the Capital Market Authority of the Kingdom of Saudi Arabia (the "Capital Market Authority"). The Capital Market Authority does not make any representations as to the accuracy or completeness of this Base Prospectus and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this Base Prospectus. Prospective purchasers of Certificates should conduct their own due diligence on the accuracy of the information relating to the Certificates. If a prospective purchaser does not understand the contents of this Base Prospectus, he or she should consult an authorised financial advisor. NOTICE TO RESIDENTS OF THE STATE OF QATAR The Certificates will not be offered, sold or delivered, at any time, directly or indirectly, in the State of Qatar (including the Qatar Financial Centre) in a manner that would constitute a public offering. This Base Prospectus has not been and will not be reviewed or approved by or registered with the Qatar Central Bank, the Qatar Exchange, the Qatar Financial Centre Regulatory Authority or the Qatar Financial Markets Authority in accordance with their regulations or any other regulations in the State of Qatar. The Certificates are not and will not be traded on the Qatar Exchange. NOTICE TO RESIDENTS OF THE STATE OF KUWAIT Unless all necessary approvals from the Kuwait Capital Markets Authority (the "CMA") pursuant to Law No. 7 of 2010, and its executive bylaws (each as amended) (the "CML Rules") together with the various resolutions, regulations, directives and instructions issued pursuant thereto, or in connection therewith (regardless of nomenclature) or any other applicable law or regulation in Kuwait, have been given in respect of the marketing and sale of the Certificates, the Certificates may not be offered for sale, nor sold, in Kuwait. This Base Prospectus is not for general circulation to the public in Kuwait nor will the Certificates be sold by way of a public offering in Kuwait. In the event where the Certificates are intended to be purchased onshore in Kuwait, the same may only be so purchased through a licensed person duly authorised to undertake such activity pursuant to the CML Rules. Investors from Kuwait acknowledge that the CMA and all other regulatory bodies in Kuwait assume no responsibility whatsoever for the contents of this Base Prospectus and do not approve the contents thereof or verify the validity and accuracy of its contents. The CMA, and all other regulatory bodies in Kuwait, assume no responsibility whatsoever for any damages that may result from relying (in whole or in part) on the contents of this Base Prospectus. Prior to purchasing any Certificates, it is recommended that a prospective holder of any Certificates seeks professional advice from its advisors in respect to the contents of this Base Prospectus so as to determine the suitability of purchasing the Certificates v vi

11 NOTICE TO RESIDENTS OF MALAYSIA The Certificates may not be issued, offered or sold and no invitation to subscribe for or purchase the Certificates in Malaysia may be made, directly or indirectly, and any document or other materials in connection therewith may not be distributed in Malaysia other than to persons falling within the categories set out in Schedule 6 or Section 229(1)(b) and Schedule 8 or Section 257(3) and Schedule 7 or Section 230(1)(b), read together with Schedule 9 or Section 257(3) of the Capital Market and Services Act 2007 of Malaysia ("CMSA"). The Securities Commission of Malaysia shall not be liable for any non-disclosure on the part of the Trustee or KFH and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in this Base Prospectus. NOTICE TO UK RESIDENTS Any Certificates to be issued under the Programme which do not constitute "alternative finance investment bonds" ("AFIBs") within the meaning of Article 77A of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010 will represent interests in a collective investment scheme (as defined in the Financial Services and Markets Act 2000, as amended (the "FSMA")) which has not been authorised, recognised or otherwise approved by the United Kingdom Financial Conduct Authority. Accordingly, this Base Prospectus is not being distributed to, and must not be passed on to, the general public in the United Kingdom. The distribution in the United Kingdom of this Base Prospectus, any applicable Final Terms and any other marketing materials relating to the Certificates is being addressed to, or directed at: (A) if the Certificates are AFIBs and the distribution is being effected by a person who is not an authorised person under the FSMA, only the following persons: (i) persons who are Investment Professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Financial Promotion Order"); (ii) persons falling within any of the categories of persons described in Article 49 (high net worth companies, unincorporated associations, etc.) of the Financial Promotion Order; and (iii) any other person to whom it may otherwise lawfully be made in accordance with the Financial Promotion Order; and (B) if the Certificates are not AFIBs and the distribution is effected by a person who is an authorised person under the FSMA, only the following persons: (i) persons falling within one of the categories of Investment Professional as defined in Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (the "Promotion of CISs Order"); (ii) persons falling within any of the categories of person described in Article 22 (high net worth companies, unincorporated associations, etc.) of the Promotion of CISs Order; and (iii) any other person to whom it may otherwise lawfully be made in accordance with the Promotion of CISs Order. Persons of any other description in the United Kingdom may not receive and should not act or rely on this Base Prospectus, any applicable Final Terms or any other marketing materials in relation to the Certificates. Potential investors in the United Kingdom in any Certificates which are not AFIBs are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in such Certificates and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme. Any individual intending to invest in any investment described in this Base Prospectus should consult his professional advisor and ensure that he fully understands all the risks associated with making such an investment and that he has sufficient financial resources to sustain any loss that may arise from such investment. MIFID II PRODUCT GOVERNANCE / TARGET MARKET The Final Terms in respect of any Certificates may include a legend entitled "MiFID II Product Governance" which will outline the target market assessment in respect of the Certificates and which channels for distribution of the Certificates are appropriate. Any person subsequently offering, selling or recommending the Certificates (a "distributor") should take into consideration the target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Certificates (by either adopting or refining the target market assessment) and determining appropriate distribution channels v vii

12 A determination will be made in relation to each issue about whether, for the purpose of the MiFID II Product Governance rules under EU Delegated Directive 2017/593 (the "MiFID II Product Governance Rules"), any Dealer subscribing for any Certificates is a manufacturer in respect of such Trust Certificates, but otherwise neither the Arrangers nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of the MiFID Product Governance Rules. IMPORTANT EEA RETAIL INVESTORS If the applicable Final Terms in respect of any Certificates includes a legend entitled "Prohibition of Sales to EEA Retail Investors", the Certificates, from the date of application of Regulation (EU) No 1286/2014 (the "PRIIPs Regulation"), are not intended to be offered, sold or otherwise made available to and, with effect from such date, should not be offered, sold or otherwise made available to any retail investor in the European Economic Area ("EEA"). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; (ii) a customer within the meaning of Directive 2002/92/EC ("IMD"), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in the Prospectus Directive. Consequently, no key information document required by the PRIIPs Regulation for offering or selling the Certificates or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Certificates or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. SUPPLEMENTARY PROSPECTUS Following the publication of this Base Prospectus, a supplement may be prepared by the Trustee and approved by the Central Bank in accordance with Article 16 of the Prospectus Directive. Statements contained in any such supplement shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or supersede statements contained in this Base Prospectus. Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Base Prospectus. The Trustee and KFH have given an undertaking to the Arrangers and Dealers that if at any time during the duration of the Programme there is a significant new factor, material mistake or inaccuracy relating to information contained in this Base Prospectus which is capable of affecting the assessment of any Certificates and whose inclusion in or removal from this Base Prospectus is necessary for the purpose of allowing an investor to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Trustee and KFH, and the rights attaching to the Certificates, the Trustee shall prepare an amendment or supplement to this Base Prospectus or publish a replacement Base Prospectus for use in connection with any subsequent offering of the Certificates and shall supply to the Arrangers and each Dealer such number of copies of such supplement hereto as the Arrangers and/or such Dealer may reasonably request. STABILISATION IN CONNECTION WITH THE ISSUE OF ANY TRANCHE OF CERTIFICATES, ONE OR MORE RELEVANT DEALERS (THE "STABILISATION MANAGER(S)") (OR ANY PERSON ACTING ON BEHALF OF ANY STABILISATION MANAGER(S)) MAY OVER-ALLOT CERTIFICATES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, STABILISATION MAY NOT NECESSARILY OCCUR. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADKFH PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE RELEVANT TRANCHE IS MADE AND, IF BEGUN, MAY CEASE AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE RELEVANT TRANCHE AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE RELEVANT TRANCHE. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE RELEVANT STABILISATION MANAGER(S) (OR PERSONS ON BEHALF OF ANY STABILISATION MANAGER(S)) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES v viii

13 PRESENTATION OF FINANCIAL AND OTHER INFORMATION Presentation of Financial Information This Base Prospectus contains the audited consolidated financial statements of the Group as at and for the year ended 31 December 2017 (with comparative data for the year ended 31 December 2016) (the "2017 Consolidated Financial Statements") and the audited consolidated financial statements of the Group as at and for the year ended 31 December 2016 (with comparative data for the year ended 31 December 2015) (the "2016 Consolidated Financial Statements" and, together with the 2017 Consolidated Financial Statements, the "Financial Statements"). Except where explicitly disclosed, the financial data relating to KFH and its financial position presented in this Base Prospectus and relating to the financial information as at and for the year ended 31 December 2017 is derived from the 2017 Consolidated Financial Statements and relating to the financial information as at and for the year ended 31 December 2016 is derived from the comparative financial information as at and for the year ended 31 December 2016 included in the 2017 Consolidated Financial Statements. The financial data relating to KFH and its financial position presented in this Base Prospectus and relating to the financial information as at and for the year ended 31 December 2015 is derived from comparative financial information as at and for the year ended 31 December 2015 included in the 2016 Consolidated Financial Statements. The Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted for use in the State of Kuwait for financial services institutions regulated by the CBK, as further described in Note 2.1 (Basis of Preparation) to the 2017 Consolidated Financial Statements and Note 2.1 (Basis of Preparation) to the 2016 Consolidated Financial Statements. The Financial Statements have been jointly audited by Ernst & Young Al Aiban, Al Osaimi & Partners with license no. 68A ("EY") and Deloitte & Touche Al Wazzan & Co. with license no. 62A ("Deloitte") in accordance with International Standards on Auditing ("ISAs") as stated in their audit reports included therein. The CBK regulations require the adoption of all IFRS requirements except the IAS 39 "Financial Instruments: Recognition and Measurement" requirement for collective provision on credit facilities, which has been replaced by the CBK's requirement for a minimum general provision to be made on all applicable credit facilities that are not impaired (net of certain categories of collateral). Therefore, the Group's policy for the calculation of collective provision on credit facilities complies in all material respects with the relevant requirements of the CBK. For further information, see Note 2.1 (Basis of Preparation) to the 2017 Consolidated Financial Statements and Note 2.1 (Basis of Preparation) to the 2016 Consolidated Financial Statements. The Group's financial year ends on 31 December and references in this Base Prospectus to any specific year are to the 12-month period ended on 31 December of such year. The Group publishes its financial statements in Kuwaiti dinars. Any financial information regarding the Group in this Base Prospectus labelled as "unaudited" has not been extracted from the Financial Statements, but has been extracted or derived from interim financial statements or from the KFH's, the Group's or any Subsidiaries' unaudited management accounts based on accounting records of the relevant entity, as applicable, or is based on calculations of figures from interim financial statements and/or unaudited management accounts. This Base Prospectus contains the interim condensed consolidated financial information (unaudited) of the Group as of and for the three months ended 31 March 2018 and the notes thereto set forth elsewhere herein (the "2018 Interim Financial Statements"). Certain numerical figures set out in this Base Prospectus, including financial and operating data have been subject to rounding adjustments and some of these and other figures are also presented in KD millions or KD billions rather than in KD thousands as in the Financial Statements. Therefore, the sums of amounts given in some columns or rows in the tables and other lists presented in this Base Prospectus may slightly differ from the totals specified for such columns or rows. Similarly, some percentage values presented in the tables in this Base Prospectus have been subject to rounding adjustments and the totals specified in such tables may not add up to 100 per cent. Percentages and amounts reflecting changes over time periods relating to financial and other data are calculated using the numerical data in the relevant Financial Statements and not using the numerical data in the narrative description thereof v ix

14 The financial information included in this Base Prospectus is not intended to comply with the applicable accounting requirements of the Securities Act and the related rules and regulations which would apply if the Certificates were being registered with the U.S. Securities and Exchange Commission (the "SEC"). The information with respect to the Group has not been prepared in accordance with, and is not intended to comply with, the applicable accounting requirements of the Securities Act and the related rules and regulations of the SEC which would apply if the Certificates were being registered with the SEC. In particular, the average balances and related data are based on materially less frequent averaging methods than those used by other banks in the United States, Western Europe and other jurisdictions in connection with similar offers of securities. Prospective investors should be aware that the results of the analysis for the Group would likely be different, if alternative or more frequent averaging methods were used and such differences could be material. Certain Reclassifications In the 2017 Consolidated Financial Statements certain reclassifications to the comparative financial information as at and for the year ended 31 December 2016 have been made to conform to the presentation of such financial information adopted in the 2017 Consolidated Financial Statements. These reclassifications were made to more appropriately present certain items of consolidated statement of financial position, consolidated statement of income, consolidated cash flow statement and disclosures. Since these reclassifications are not reflected in the 2016 Consolidated Financial Statements (which contain financial information as at and for the year ended 31 December 2016 as well as the comparative financial information as at and for the year ended 31 December 2015) due to the fact that the 2016 Consolidated Financial Statements have not been so restated, investors should be aware that financial information contained in the 2016 Consolidated Financial Statements is not comparable in all respects with that contained in the 2017 Consolidated Financial Statements. The key reclassifications are summarized below: the "investment in sukuk" asset line item, as set out in the Consolidated Statement of Financial Position of the Group on page 103 of the Base Prospectus, has been presented as a separate asset line item as at 31 December 2017 and as at 31 December As at 31 December 2015, "investment in sukuk" were not set out as a separate asset line item and instead were aggregated together within the "investments" asset line item which comprised of "investment in sukuk" and other investments. A separate line item was put in place in the 2017 Consolidated Financial Statements for "investment in sukuk" given they were a major component of "investments" for the Group as at 31 December 2017 and as at 31 December This reclassification was done for better financial data presentation and to match industry presentation benchmarks; the "sukuk payables" liabilities line item, as set out in the Consolidated Statement of Financial Position of the Group on page 103 of the Base Prospectus, has been presented as a separate liabilities line item as at 31 December 2017 and as at 31 December As at 31 December 2015, "sukuk payables" were not set out as a separate liabilities line item and instead were aggregated together within the "due to banks and other financial institutions" liabilities line item which comprised of "sukuk payables" and other dues to banks and other financial institutions. A separate line item was put in place in the 2017 Consolidated Financial Statements for "sukuk payables" given they were a major component of "due to banks and other financial institutions" for the Group as at 31 December 2017 and as at 31 December This reclassification was done for better financial data presentation and to match industry presentation benchmarks; Consolidated Statement of Income of the Group on page 102 of the Base Prospectus reflects certain reclassifications with respect to some of the figures relating to the year ended 31 December "(Loss)/Profit after tax for the year from discontinued operations" for the year ended 31 December 2015 was presented below the line item Profit for the year from continuing operations" in the 2016 Consolidated Financial Statements. This has been moved above the line item "Profit before taxation and proposed directors' fees" as "(Loss)/Profit for the year from discontinued operations" on page 105 of the Base Prospectus to ensure consistency with the presentation in the 2017 Consolidated Financial Statements. On account of the change, "(Loss)/Profit after tax for the year from discontinued operations has been renamed to "(Loss)/Profit for the year from discontinued operations and the figure has changed from KD 21.9 million to KD 22.7 million, Profit before taxation and proposed directors fees has changed from KD million to KD million and taxation has changed from KD 20.4 million to KD 21.2 million for the year ended 31 December v x

15 This amendment in presentation does not change the overall Profit for the year amount with respect to the year ended 31 December Investors should be aware that, to the limited extent identified above, the financial information as at 31 December 2017 and 31 December 2016 contained in the 2017 Consolidated Financial Statements is not comparable with that contained in the 2016 Consolidated Financial Statements. Alternative Performance Measures Certain financial measures included in this Base Prospectus are not defined in accordance with IFRS accounting standards. KFH believes that these non-ifrs measures and alternative performance measures (as defined in the European Securities and Markets Authority guidelines (the "ESMA Guidelines") on Alternative Performance Measures ("APMs")) provide useful supplementary information to both investors and to KFH's management as they facilitate the evaluation of underlying operating performance and financial position across financial reporting periods. However, investors should note that, since not all companies calculate non-ifrs financial measurements (such as the APMs presented by KFH in this Base Prospectus) in the same manner, these are not always directly comparable to performance metrics used by other companies. Such non-ifrs measures should not be considered in isolation and are not measures of financial performance or liquidity under IFRS. Accordingly, these non-ifrs measures should not be considered as an alternative to revenues, profit or loss for the period or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating, investing or financing activities or any other measure of liquidity derived in accordance with IFRS. Non-IFRS measures do not necessarily indicate whether cash flow will be sufficient or available for cash requirements and may not be indicative of actual results of operations. In addition, the APMs presented by KFH in this Base Prospectus may not be comparable to other similarly titled measures used by other companies. Because of the discretion that KFH and other companies have in defining these measures and calculating the reported amounts, care should be taken in comparing these various measures with similar measures used by other companies. Additionally, the APMs presented by KFH in this Base Prospectus are unaudited and have not been prepared in accordance with IFRS or any other accounting standards. Accordingly, these financial measures should not be seen as a substitute for measures defined according to IFRS. KFH considers that the following metrics (which are set out below along with their reconciliation with the Financial Statements (to the extent that such information is not defined according to IFRS and not included in the Financial Statements included elsewhere in this Base Prospectus)) presented in this Base Prospectus constitute APMs for the purposes of the ESMA Guidelines: APM Method of Calculation Reconciliation with Financial Statements Return on average assets Return on average equity Profit for the year divided by average assets for the year. Profit for the year attributable to shareholders of KFH divided by average shareholders' equity for the year. Profit for the year (as set out in the consolidated statement of income in the Financial Statements) divided by the average assets for the year. Average asset is the sum of total assets at the beginning of the year and at the end of each quarter divided by five. Refers to the same concept/figure as total assets (as set out in the consolidated statement of financial position in the Financial Statements). Profit for the year attributable to shareholders of the bank (as set out in the consolidated statement of income in the Financial Statements) divided by the average shareholders' equity for the year. Average shareholders' equity is the sum of total equity attributable to the shareholders of the bank at the beginning of the year and at the end of each quarter divided by five. Refers to the same concept/figure as total equity attributable to the shareholders of the bank (as set out in the consolidated statement of financial position in the v xi

16 APM Method of Calculation Reconciliation with Financial Statements Financial Statements). Cost to income ratio Net profit margin Total operating expenses for the year divided by the total operating income for the year. Profit for the year attributable to shareholders of KFH divided by the total operating income for the year. Total operating expenses for the year (as set out in the consolidated statement of income in the Financial Statements) divided by the total operating income for the year (as set out in the consolidated statement of income in the Financial Statements). Profit for the year attributable to shareholders of the bank (as set out in the Consolidated Statement of Income in the Financial Statements) divided by the total operating income for the year (as set out in the Consolidated Statement of Income in the Financial Statements). Impaired ratio Provision coverage ratio Liquidity coverage ratio Loans to total deposits ratio CET 1 capital adequacy ratio Non-performing financing (net of deferred and suspended profit) divided by financing receivables (net of deferred and suspended profit). Impairment for financing receivables divided by non-performing cash finance facilities before impairment (net of deferred and suspended profit). Calculated and disclosed as daily averages of the ratio components for the corresponding quarterend in accordance with the requirements of CBK Circular number 2/IBS/346/2014 dated 23 December Total financing receivables divided by total depositors' accounts. CET 1 capital divided by risk-weighted assets at a given date. Calculated in accordance with the requirements of the CBK and the capital adequacy regulations issued by the CBK as stipulated in CBK Circular number 2/RB, RBA/A336/2014 dated 24 June Non-performing cash finance facilities before impairment (net of deferred and suspended profit) (as set out in Note 10 (Financing Receivables) to the 2017 Consolidated Financial Statements and Note 10 (Financing Receivables) to the 2016 Consolidated Financial Statements) divided by financing receivables (net of deferred and suspended profit) (as set out in Note 10 (Financing Receivables) to the 2017 Consolidated Financial Statements and Note 10 (Financing Receivables) to the 2016 Consolidated Financial Statements). Impairment for financing receivables (as set out in Note 10 (Financing Receivables) to the 2017 Consolidated Financial Statements and Note 10 (Financing Receivables) to the 2016 Consolidated Financial Statements) divided by nonperforming cash finance facilities before impairment (net of deferred and suspended profit) (as set out in Note 10 (Financing Receivables) to the 2017 Consolidated Financial Statements and Note 10 (Financing Receivables) to the 2016 Consolidated Financial Statements). Calculated as stipulated in accordance with the requirements of CBK Circular number 2/IBS/346/2014 dated 23 December Financing receivables for the year (as set out in the consolidated statement of financial position in the Financial Statements) divided by depositors' accounts for the year (as set out in the consolidated statement of financial position in the Financial Statements). CET 1 capital calculated in accordance with the requirements of the CBK and the capital adequacy regulations issued by the CBK as stipulated in CBK Circular number 2/RB, RBA/A336/2014 dated 24 June 2014 divided by risk-weighted assets (as set out in Note 32 (Capital Management) to the 2017 Consolidated Financial Statements and Note 32 (Capital Management) to the 2016 Consolidated Financial Statements) v xii

17 APM Method of Calculation Reconciliation with Financial Statements Tier 1 capital adequacy ratio Total capital adequacy ratio Leverage ratio Tier 1 capital resources divided by risk-weighted assets at a given date. Calculated in accordance with the requirements of the CBK and the capital adequacy regulations issued by the CBK as stipulated in CBK Circular number 2/RB, RBA/A336/2014 dated 24 June Total capital resources divided by risk-weighted assets at a given date. Calculated in accordance with the requirements of the CBK and the capital adequacy regulations issued by the CBK as stipulated in CBK Circular number 2/RB, RBA/A336/2014 dated 24 June "Capital" measure (being Tier 1 capital) divided by the "exposure" measure (being the sum of onbalance sheet assets, derivative exposures and off-balance sheet exposures). Calculated in accordance with the requirements of CBK Circular number 2/BS/342/2014 dated 21 October As set out in Note 32 (Capital Management) to the 2017 Consolidated Financial Statements and Note 32 (Capital Management) to the 2016 Consolidated Financial Statements. Calculated in accordance with the requirements of the CBK and the capital adequacy regulations issued by the CBK as stipulated in CBK Circular number 2/RB, RBA/A336/2014 dated 24 June As set out in Note 32 (Capital Management) to the 2017 Consolidated Financial Statements and Note 32 (Capital Management) to the 2016 Consolidated Financial Statements. Calculated in accordance with the requirements of the CBK and the capital adequacy regulations issued by the CBK as stipulated in CBK Circular number 2/RB, RBA/A336/2014 dated 24 June Tier 1 capital (as set out in Note 32 (Capital Management) to the 2017 Consolidated Financial Statements and Note 32 (Capital Management) to the 2016 Consolidated Financial Statements) divided by total exposure (as set out in Note 32 (Capital Management) to the 2017 Consolidated Financial Statements and Note 32 (Capital Management) to the 2016 Consolidated Financial Statements). Calculated in accordance with the requirements of CBK Circular number 2/BS/342/2014 dated 21 October Presentation of Statistical Information Certain statistical information included in this Base Prospectus (including in "Overview of Kuwait" and "Banking Industry and Regulation in Kuwait") has been derived from official public sources, including the CBK, the IMF, the Kuwait Public Authority for Civil Information, OPEC and the Statistics Bureau. All such statistical information may differ from that stated in other sources for a variety of reasons, including the fact that the underlying assumptions and methodology (including definitions and cut-off times) may vary from source to source. This data may subsequently be revised as new data becomes available and any such revised data will not be circulated by KFH to investors who have purchased any Certificates. The statistical information in this Base Prospectus, including in relation to GDP and revenues of Kuwait, have been obtained from public sources identified in this Base Prospectus. All statistical information provided in this Base Prospectus, and the component data on which it is based, may not have been compiled in the same manner as data provided, and may be different from statistics published, by other sources. Accordingly, the statistical data contained in this Base Prospectus should be treated with caution by prospective investors. Where information has not been independently sourced, it is KFH's own information. Presentation of Other Information Certain Definitions Capitalised terms which are used but not defined in any section of this Base Prospectus will have the meaning attributed thereto in the Conditions or any other section of this Base Prospectus. In addition, the following terms as used in this Base Prospectus have the meanings defined below: "Boursa Kuwait" means the Kuwait Stock Exchange; v xiii

18 "CBK" means the Central Bank of Kuwait; "CMA" means the Kuwait Capital Markets Authority; "EU" means the European Union; "GCC" means the Gulf Co-operation Countries; "GDP" means the gross domestic product; "Government" means the government of Kuwait; "Group" means KFH and its consolidated subsidiaries (taken as a whole); "IMF" means the International Monetary Fund; "KFH Capital" means KFH Capital Investment Company K.S.C.C. (as a wholly-owned subsidiary of KFH); "Kuwait" means the State of Kuwait; "LCR" means liquidity coverage ratio; "Member State" means a Member State of the European Economic Area; "MENA region" means the Middle East and North Africa region; "NPF" means, in the case of Islamic banks, non-performing facilities and, in the case of conventional banks, non-performing loans; "NSFR" means net stable funding ratio; "OPEC" means the Organisation of the Petroleum Exporting Countries; "PRC" means the People's Republic of China; "Statistics Bureau" means the Central Statistics Bureau of Kuwait; "U.S." and "United States" mean the United States of America; and "WTO" means the World Trade Organisation. The language of the Base Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. Certain Conventions All references in this Base Prospectus to "dinar" and "KD" refer to Kuwaiti dinar being the legal currency for the time being of Kuwait and all references to "fils" are to the sub-unit of the dinar; all references to "U.S. dollars" and "U.S.$" refer to United States dollars being the legal currency for the time being of the United States; all references to "euro", "EUR" and " " refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended; all references to "renminbi", "CNH" and "CNY" are to the currency of the PRC; all references to "TRY" and "Turkish lira" are to Turkish lira being the legal currency for the time being of the Republic of Turkey; all references to "Bahraini dinar" are to the legal currency for the time being of the Kingdom of Bahrain; and all references to "Malaysian ringgit" are to the legal currency for the time being of Malaysia. The CBK's policy for the Kuwaiti dinar exchange rate aims at maintaining and enhancing the relative stability of the Kuwaiti dinar against other currencies and shielding the domestic economy against the impacts of imported inflation. Since 1975, the Kuwaiti dinar has been pegged to the Kuwaiti Dinar Basket v xiv

19 (defined as the undisclosed weighted basket of international currencies of Kuwait's major trade and financial partner countries), except between January 2003 and May 2007, when the Kuwaiti dinar was pegged to the U.S. dollar within margins around a parity rate. The CBK has the ability to adjust the Kuwaiti Dinar Basket at its discretion. The following table sets forth the U.S. dollar exchange rate against the Kuwaiti dinar based on daily data for the year ended 31 December 2017 and for the year ended 31 December High Low Difference Change (%) 31 December December Source: CBK. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS Some statements in this Base Prospectus may be deemed to be "forward-looking statements". Forwardlooking statements include statements concerning the Group's plans, objectives, goals, strategies and future operations and performance as well as the assumptions underlying these forward-looking statements. When used in this Base Prospectus, the words "anticipates", "estimates", "expects", "believes", "intends", "plans", "aims", "seeks", "may", "will", "should" and any similar expressions generally identify forward-looking statements. These forward-looking statements are contained in "Risk Factors", "Description of Kuwait Finance House K.S.C.P." and other sections of this Base Prospectus. KFH has based these forward-looking statements on the current view of its management with respect to future events and financial performance. Although KFH believes that the expectations, estimates and projections reflected in its forward-looking statements are reasonable, if one or more of the risks or uncertainties related to such expectations, estimates and projections materialise (including those identified below or which KFH has otherwise identified in this Base Prospectus) or if any of KFH's underlying assumptions prove to be incomplete or inaccurate, the Group's actual results of operation may vary from those expected, estimated or predicted. The risks and uncertainties referred to above include: macroeconomic and financial market conditions generally and, in particular, the current depressed macroeconomic environment, driven by ongoing volatility in international oil prices and challenging conditions in the international debt and equity capital markets; political and economic conditions in Kuwait and the Middle East; credit risks, including the impact of a higher level of credit defaults arising from adverse economic conditions, the Group's ability to successfully re-price and restructure loans, the impact of provisions and impairments of credit facilities and concentration of the Group's portfolio; liquidity risks, including the inability of the Group to meet its contractual and contingent cash flow obligations or the inability to fund its operations; and changes in profit rates and other market conditions. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under "Risk Factors". These forward-looking statements speak only as at the date of this Base Prospectus. Without prejudice to any requirements under applicable laws, the Trustee and the Group expressly disclaim any obligation or undertaking to disseminate after the date of this Base Prospectus any updates or revisions to any forwardlooking statements contained herein to reflect any change in expectations thereof or any change in events, conditions or circumstances on which any forward-looking statement is based. Given the uncertainties of forward-looking statements, the Trustee and the Group cannot assure potential investors that projected v xv

20 results or events will be achieved and the Trustee and the Group cautions potential investors not to place undue reliance on these statements v xvi

21 CONTENTS Page OVERVIEW OF THE PROGRAMME... 1 RISK FACTORS... 9 STRUCTURE DIAGRAM AND CASH FLOWS FORM OF THE CERTIFICATES FORM OF FINAL TERMS TERMS AND CONDITIONS OF THE CERTIFICATES USE OF PROCEEDS DESCRIPTION OF THE TRUSTEE SELECTED FINANCIAL INFORMATION FINANCIAL REVIEW OF KUWAIT FINANCE HOUSE K.S.C.P DESCRIPTION OF KUWAIT FINANCE HOUSE K.S.C.P MANAGEMENT AND EMPLOYEES BANKING INDUSTRY AND REGULATION IN KUWAIT OVERVIEW OF KUWAIT SUMMARY OF THE PRINCIPAL TRANSACTION DOCUMENTS BOOK-ENTRY CLEARANCE SYSTEMS TAXATION ERISA AND CERTAIN OTHER U.S. CONSIDERATIONS SUBSCRIPTION AND SALE AND TRANSFER AND SELLING RESTRICTIONS GENERAL INFORMATION INDEX TO FINANCIAL STATEMENTS... F

22 OVERVIEW OF THE PROGRAMME The following overview does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Base Prospectus and, in relation to the terms and conditions of any particular Tranche of Certificates, is completed by the applicable Final Terms. The Trustee, KFH and any relevant Dealer may agree that Certificates shall be issued in a form other than that contemplated in the terms and conditions of the Certificates as laid out in this Base Prospectus (the "Conditions"), in which event, in the case of Certificates other than Non-PD Certificates, a new Base Prospectus or a supplement to the Base Prospectus, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Certificates. This overview constitutes a general description of the Programme for the purposes of Article 22.5(3) of Commission Regulation (EC) No. 809/2004 implementing the Prospectus Directive. Words and expressions defined in "Structure Diagram and Cashflows", "Terms and Conditions of the Certificates", "Form of Certificates" and "Summary of the Principal Transaction Documents" shall have the same meanings in this overview. Issuer, Trustee and Purchaser Ownership of the Trustee Administration of the Trustee KFH Sukuk Company SPC Limited, as trustee for and on behalf of the Certificateholders and, in such capacity, as issuer of the Certificates, a Special Purpose Company incorporated with limited liability in the DIFC on 7 September 2017 with registered number 2563 and with its registered office at c/o Maples Fund Services (Middle East) Limited, Office 616, 6 th Floor, Liberty House, Dubai International Financial Centre, P.O. Box , Dubai, United Arab Emirates. The Trustee has been incorporated solely for the purpose of participating in the transactions contemplated by the Transaction Documents (as defined below) to which it is a party. The Trustee shall on each Issue Date issue the Certificates to the Certificateholders and act as Trustee in respect of the Trust Assets for the benefit of the Certificateholders. The authorised share capital of the Trustee is U.S.$100 consisting of 100 shares of U.S.$1.00 each, all of which are issued, fully-paid and held by MaplesFS Limited on trust for charitable purposes. Maples Fund Services (Middle East) Limited, a corporate service provider incorporated in the DIFC acts as the secretary and corporate administrator of the Trustee (in such capacity, the "Corporate Service Provider"). Pursuant to the terms of a corporate services agreement dated 16 April 2018 entered into between the Trustee and the Corporate Service Provider (the "Corporate Services Agreement"), the Corporate Service Provider has agreed to provide, or procure the provision of, certain administrative functions to the Trustee, including registered office, director and alternate director, secretarial, administrative and other services until termination of the Services Agreement. The offices of the Corporate Service Provider are situated at Office 616, 6 th Floor, Liberty House, Dubai International Financial Centre, P.O. Box , Dubai, United Arab Emirates. Obligor, Seller and Wakeel Kuwait Finance House K.S.C.P., a Public Kuwaiti Shareholding Company incorporated in the State of Kuwait with its registered office at Abdullah Al-Mubarak Street, AlMirqab Area, Murqab, Kuwait City, State of Kuwait v

23 Description Size Risk Factors U.S.$3,000,000,000 Trust Certificate Issuance Programme. Up to U.S.$3,000,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement (as defined herein)) outstanding at any time (the "Programme Limit"). The Trustee and KFH may increase the Programme Limit in accordance with the terms of the Programme Agreement. There are certain factors that may affect the Trustee's ability to fulfil its obligations under Certificates issued under the Programme and KFH's ability to fulfil its obligations under the relevant Transaction Documents. In addition, there are certain factors which are material for the purpose of assessing the market risks associated with Certificates issued under the Programme. These include certain risks relating to the structure of a particular Series of Certificates and certain market risks. Please see "Risk Factors". Arrangers Dealers KFH Capital Investment Company K.S.C.C. and Standard Chartered Bank KFH Capital Investment Company K.S.C.C., and Standard Chartered Bank and any other Dealer(s) appointed from time to time in accordance with the terms of the Programme Agreement (as defined herein) or in relation to a particular Tranche of Certificates. The Trustee may from time to time terminate the appointment of any dealer under the Programme or appoint additional dealers either in respect of one or more Tranches or in respect of the whole Programme. References in this Base Prospectus to "Permanent Dealers" are to the persons listed above as Dealers and to such additional persons that are appointed as dealers in respect of the whole Programme (and whose appointment has not been terminated) and references to "Dealers" are to all Permanent Dealers and all persons appointed as a dealer in respect of one or more Tranches. Delegate Principal Paying Agent, Exchange Agent and Transfer Agent Registrar (in respect of Unrestricted Certificates, as defined in the Agency Agreement) Registrar (in respect of Restricted Certificates, as defined in the Agency Agreement) Citibank, N.A., London Branch (the "Delegate"). In accordance with the Master Declaration of Trust, the Trustee will, inter alia, unconditionally and irrevocably appoint the Delegate to be its attorney and to exercise certain future duties, powers, authorities and discretions vested in the Trustee by certain provisions in the Master Declaration of Trust in accordance with the terms of the Master Declaration of Trust. In addition, pursuant to the Master Declaration of Trust, certain powers will be vested solely in the Delegate. Citibank, N.A., London Branch. Citigroup Global Markets Deutschland AG Citigroup Global Markets Deutschland AG v

24 Murabaha Agent Method of Issue Issue Price Status of the Certificates Form and Delivery of Certificates Clearing Systems Initial Delivery of Certificates Citi Islamic Investment Bank, Bahrain The Certificates will be issued on a syndicated or nonsyndicated basis. The Certificates will be issued in series (each a "Series") having one or more issue dates and on terms otherwise identical (or identical other than in respect of the first payment of profit), the Certificates of each Series being intended to be interchangeable with all other Certificates of that Series. Each Series may be issued in tranches (each a "Tranche") on the same or different issue dates. The specific terms of each Tranche (which will be completed, where necessary, with the relevant terms and conditions and, save in respect of the issue date, issue price, first payment of profit and face amount of the Tranche, will be identical to the terms of other Tranches of the same Series) will be completed in the applicable Final Terms. The Certificates may be issued on a fully-paid basis and at an issue price as specified in the applicable Final Terms. The price and amount of Certificates to be issued under the Programme will be determined by the Trustee, KFH and the relevant Dealers at the time of issue in accordance with prevailing market conditions. Each Certificate will represent an undivided ownership interest in the Trust Assets of the relevant Series and is a direct, unsubordinated, unsecured and limited recourse obligation of the Trustee. Each Certificate will, save for such exceptions as may be provided by applicable legislation that is both mandatory and of general application, at all times rank pari passu and without any preference or priority with all other Certificates of the relevant Series. The Certificates will be issued in registered form only, one Certificate being issued in respect of each Certificateholder's entire holding of Certificates of one Series. Certificates that are registered in the name of a nominee for a common depositary for one or more clearing systems are referred to as "Global Certificates". Certificates sold in an "offshore transaction" within the meaning of Regulation S to persons who are not U.S. persons will initially be represented by an Unrestricted Global Certificate (an "Unrestricted Global Certificate"). Certificates sold to QIBs that are also QPs will initially be represented by a Restricted Global Certificate (a "Restricted Global Certificate"). Certificateholders must hold their interest in the relevant Global Certificate in book-entry form through Euroclear and/or Clearstream, Luxembourg and/or DTC and in relation to any Series, such other clearing system as may be agreed between the Trustee, KFH, the relevant Dealer(s), the Principal Paying Agent and the Delegate. Transfers within and between each of Euroclear or Clearstream, Luxembourg and/or DTC will be in accordance with the usual rules and operating procedures of the relevant clearing system. On or before the issue date for each Tranche, the Global Certificates may be deposited with a common depositary for Euroclear and Clearstream, Luxembourg and/or DTC (as applicable). Global Certificates may also be deposited with any other clearing system or may be delivered outside any clearing system, provided that the method of such delivery v

25 has been agreed in advance by the Trustee, KFH, the Delegate and the relevant Dealer. Certificates that are to be credited to one or more clearing systems on issue will be registered in the name of nominees or a common nominee for such clearing systems. Currencies Redenomination, Renominalisation and/or Consolidation Maturities Specified Denomination Trust Assets Limited Recourse Periodic Distribution Amounts Subject to compliance with all relevant laws, regulations and directives, Certificates may be issued in any currency agreed between the Trustee, KFH and the relevant Dealer(s). Certificates denominated in a currency of a country that subsequently participates in the third stage of European Economic and Monetary Union may be subject to redenomination, renominalisation and/or consolidation with other Certificates then denominated in euro. The Certificates will have such maturities as may be agreed between the Trustee, KFH and the relevant Dealers, subject to such minimum or maximum maturities as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the Trustee or the relevant Specified Currency. The Certificates will be in such denominations as may be specified in the applicable Final Terms, subject to compliance with the current laws and regulations and the provisions of the following sentence. Certificates will have a minimum denomination of 100,000 (or its equivalent in other currencies), and: (i) in case of any Certificates (including Certificates denominated in Sterling) which have a maturity of less than one year and in respect of which the issue proceeds are to be accepted by the Trustee in the United Kingdom or whose issue otherwise constitutes a contravention of Section 19 of the FSMA, the minimum specified denomination shall be 100,000 (or its equivalent in other currencies), unless otherwise permitted by then current law and regulations; and (ii) in the case of any Certificates to be sold to QIBs that are also QPs, the minimum specified denomination shall be U.S.$200,000 (or its equivalent in other currencies). Pursuant to the Declaration of Trust for each Series, the Trustee has declared that it will hold the Trust Assets (as defined in Condition 5.1 (Trust Assets)) upon trust absolutely for, and on behalf of, the Certificateholders pro rata according to the face amount of Certificates held by each Certificateholder. Save as provided in Condition 4.2 (Limited Recourse), the Certificates will not represent an interest in or obligation of any of the Trustee, the Delegate, KFH (acting in any capacity), any of the Agents or any of their respective affiliates. The proceeds of the relevant Trust Assets are the sole source of payments on the Certificates of each Series. The net proceeds of the realisation of, or enforcement with respect to, the relevant Trust Assets may not be sufficient to make all payments due in respect of the relevant Series of Certificates. Certificateholders are entitled to receive Periodic Distribution v

26 Amounts calculated on the basis specified in the Conditions. Dissolution on the Scheduled Dissolution Date Early Dissolution of the Trust Unless the Certificates are previously redeemed, purchased and cancelled, the Trustee will redeem the Series of Certificates at an amount equal to the relevant Dissolution Distribution Amount on the Scheduled Dissolution Date specified in the applicable Final Terms for such Series and, following the payment of all such amounts in full and the execution of a sale agreement pursuant to the Purchase Undertaking, the Trust in relation to the relevant Series will be dissolved by the Trustee, the Certificates shall cease to represent undivided ownership interests in the relevant Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. Subject to the applicable Final Terms in respect of each Series, the Trust may be dissolved prior to the Scheduled Dissolution Date upon: (a) (b) (c) (d) (e) the occurrence of a Tax Event; the exercise by KFH of an Optional Dissolution Right; the exercise by the Certificateholders of a relevant Series of a Certificateholder Put Right; the occurrence of a Dissolution Event; or all of the Certificates of the relevant Series being cancelled following the purchase of such Certificates by or on behalf of KFH and or any of its subsidiaries. Early Dissolution for Tax Reasons Optional Dissolution Right and the Certificateholder Put Right Where the Trustee has or will become obliged to pay any additional amounts in respect of the Certificates pursuant to Condition 10 (Taxation) or KFH has or will become obliged to pay additional amounts pursuant to the terms of any Transaction Document as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the relevant Series (as specified in the applicable Final Terms), and such obligation cannot be avoided by the Trustee or KFH (as applicable) taking reasonable measures available to it, the Trustee shall redeem the Certificates in accordance with Condition 8.2 (Early Dissolution for Taxation Reasons). The applicable Final Terms issued in respect of each Series of Certificates will state whether such Certificates may be redeemed prior to the Scheduled Dissolution Date at the option of KFH or at the option of the Certificateholders and, if so, the terms applicable to such redemption. See further Condition 8.3 (Dissolution at the Option of KFH (Optional Dissolution Right)) and Condition 8.4 (Dissolution at the Option of Certificateholders (Certificateholder Put Right)) v

27 For Shari'a reasons, the Optional Dissolution Right and the Certificateholder Put Right cannot both be specified as applicable in the applicable Final Terms in respect of any single Tranche of Certificates. Dissolution Events Wakala Portfolio Asset Substitution Trustee Covenants Negative Pledge Withholding Tax Ratings The Certificates will be subject to certain dissolution events as described in Condition 12 (Dissolution Events). Following the occurrence of a Dissolution Event, the Certificates of the relevant Series will be redeemed at an amount equal to the relevant Dissolution Distribution Amount on the relevant Dissolution Event Redemption Date. The Wakeel may at any time substitute any Tangible Asset constituting the Wakala Portfolio Assets, and KFH may at any time request such substitution, in accordance with the Sale and Substitution Undertaking and provided that the Value (as defined in the Wakala Agreement) of any substitute assets shall be at least equal to the Value of the Wakala Portfolio Assets to be so substituted. See "Summary of the Principal Transaction Documents Sale and Substitution Undertaking". The Trustee has agreed to certain restrictive covenants as set out in Condition 6.1 (Trustee Covenants). The Certificates will have the benefit of a negative pledge granted by KFH, as described in Condition 6.2 (Negative Pledge). All payments under the Transaction Documents in respect of the Certificates will be made free and clear of withholding taxes of a Relevant Jurisdiction. Tranches of Certificates may be rated or unrated. Where a tranche of Certificates is to be rated, such rating (and the credit rating agency issuing such rating) will be specified in the applicable Final Terms. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating. Governing Law Transaction Documents The Transaction Documents (as defined below), excluding the Master Purchase Agreement as supplemented by the applicable Supplemental Purchase Agreement (which are governed by Kuwaiti law), are governed by English law. The Master Declaration of Trust as supplemented by the relevant Supplemental Declaration of Trust, the Agency Agreement, the Master Purchase Agreement as supplemented by the applicable Supplemental Purchase Agreement, the Sale and Substitution Undertaking (together with each relevant sale agreement executed upon exercise of the Sale and Substitution Undertaking), the Purchase Undertaking (together with each relevant sale agreement executed upon exercise of the Purchase Undertaking), the Wakala Agreement and, if applicable to a Series, the Master Murabaha Agreement (together with all offers, acceptances and confirmations delivered pursuant to any of the foregoing v

28 in connection with the relevant Series), the Commodity Agency Agreement, the Settlement Deed, the Commodity Sale Agreement and the Commodity Purchase Agreement (each a "Transaction Document" and, together, the "Transaction Documents") Listing and Admission to Trading This Base Prospectus, as approved and published by the Central Bank, in accordance with the requirements of the Prospectus Directive, comprises a Base Prospectus for the purposes of the Prospectus Directive and the Prospectus (Directive 2003/71/EC) Regulations 2005, and for the purpose of giving information with regard to the issue of Certificates issued under this Programme, during the period of twelve months after the date hereof. Application has been made to list Certificates issued under the Programme (other than Non-PD Certificates) on the Official List and to admit them to trading on the Main Securities Market. The Central Bank has neither approved nor reviewed information contained in this Base Prospectus in connection with Non-PD Certificates. Certificates may be listed or admitted to trading, as the case may be, on other or further stock exchanges or markets agreed between the Trustee, KFH and the relevant Dealer in relation to the Series. Certificates which are neither listed nor admitted to trading on any market may also be issued. The applicable Final Terms will state whether or not the relevant Certificates are to be listed and/or admitted to trading and, if so, on which stock exchanges and/or markets. Certificateholders Meetings Tax considerations Selling Restrictions Transfer Restrictions A summary of the provisions for convening meetings of Certificateholders of each Series to consider matters relating to their interests as such is set out in Condition 16.1 (Meetings of Certificateholders). See "Taxation" for a description of certain tax considerations applicable to the Certificates. There are restrictions on the offer, sale and transfer of the Certificates in the Dubai International Financial Centre, the European Union, Hong Kong, Japan, Malaysia, the Kingdom of Bahrain, the Kingdom of Saudi Arabia, Singapore, Kuwait, the State of Qatar, the United Arab Emirates (excluding the Dubai International Financial Centre), the United Kingdom and the United States. Additional restrictions may be required in connection with the offering and sale of a particular Tranche of Certificates. Please see "Subscription and Sale and Transfer and Selling Restrictions Selling Restrictions". There are restrictions on the transfer of Certificates represented by a Restricted Global Certificate or any Certificates issued in exchange or substitution therefor. See "Subscription and Sale and Transfer and Selling Restrictions Transfer Restrictions". ERISA Plans and other entities subject to ERISA or Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the "Code") or similar laws may not acquire Certificates (or any v

29 interest in a Certificate). United States Selling Restrictions Regulation S, Category 2. Rule 144A/ Section 3(c)(7) and TEFRA not applicable, as specified in the applicable Final Terms v

30 RISK FACTORS The purchase of any Certificate may involve a number of risks and uncertainties and is suitable only for sophisticated investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and merits of an investment in the Certificates. Before making an investment decision, prospective purchasers of Certificates should consider carefully the risks and uncertainties associated with the Group's business and the purchase of any Certificate in the light of their own financial circumstances and investment objectives and together with all of the information that is included in this Base Prospectus and should form their own view before making an investment decision with respect to the Certificates. In particular, prospective investors should evaluate the risks and uncertainties referred to or described below, which may have a material adverse effect on the Trustee's ability to pay any amounts in connection with any Certificate or on the Group's ability to perform any of its obligations in respect of the Transaction Documents to which it is a party. Prospective investors should also read the detailed information set out elsewhere in this Base Prospectus and reach their own views prior to making any investment decision. Each of the Trustee and KFH believes that the factors described below represent the principal risks inherent in investing in the Certificates, but the Trustee's inability to pay any amounts in connection with any Certificate and/or KFH's inability to perform any of its obligations in respect of the Transaction Documents to which it is a party may occur for other reasons and the Trustee and KFH do not represent that the statements below regarding the risks of holding any Certificate are exhaustive. Additional risks not presently known to the Trustee and KFH or that the Trustee and KFH currently deem immaterial may also impair their ability to perform their respective obligations under the Certificates and/or the Transaction Documents to which they are a party. Words and expressions defined in "Structure Diagram and Cash Flows", "Form of the Certificates" and "Terms and Conditions of the Certificates" shall have the same meanings in this section. Risks Relating to the Trustee The Trustee is a special purpose company with limited liability, incorporated under the laws of the Dubai International Financial Centre on 7 September 2017 and, accordingly, only has a limited operating history. The Trustee will not engage in any business activity other than the issuance of Certificates under the Programme, the acquisition of the Trust Assets as described herein, acting in the capacity as Trustee and other activities incidental or related to the foregoing as required under the Transaction Documents. The Trustee's only material assets, which will be held on trust for Certificateholders, will be the Trust Assets relating to each Series of Certificates, including its right to receive payments under the relevant Transaction Documents. The ability of the Trustee to pay amounts due on the Certificates of each Series will primarily be dependent upon receipt by the Trustee of all amounts due from KFH under the relevant Transaction Documents. Therefore, the Trustee is subject to all the risks to which the Group is subject to the extent that such risks could limit KFH's ability to satisfy in full, and on a timely basis, its obligations under the Transaction Documents to which it is a party. For a description of certain risks to which the Group is subject, see " Risks Relating to the Group" and " Risks Relating to the Regions in which the Group Principally Operates". Risks Relating to the Group The Group's financing income and assets are subject to concentration of credit risk Credit risk is the risk that a customer or counterparty to a financial asset fails to meet its contractual obligations and causes the Group to incur a financial loss. The Group is exposed to credit risk through, amongst others, its financing receivables, leased assets, wakalah arrangements with financial institutions and investments in sukuk. The Group's primary exposure to credit risk arises through its financing facilities to customers. In addition, the Group is also exposed to off-balance sheet credit risk through contingent liabilities assumed by it. Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be affected similarly by changes in economic, political or v

31 other conditions. Concentrations of credit risk may also arise as a result of large exposures to individuals or a group of related counterparties. Concentrations of credit risk indicate the relative sensitivity of the Group's performance to developments affecting a particular industry or geographic location. As at 31 December 2017, 44.3 per cent. of the Group's operating income and per cent. of the Group's total assets were located in Kuwait while 34.5 per cent. of the Group's operating income and 25.6 per cent. of the Group's total assets were located in the Republic of Turkey. In addition, as at 31 December 2017, 47.2 per cent. and 27.1 per cent. of the Group's gross financing receivables were from the trading and manufacturing sector and construction and real estate sector, respectively. As a result of such concentration, the Group may be affected by the financial, political and general economic conditions prevailing from time to time in Kuwait, the Republic of Turkey and/or the wider MENA region generally. For instance, if the current challenging macroeconomic conditions in Kuwait have an adverse effect on consumer confidence levels, consumer spending, liquidity levels, bankruptcy rates and commercial and residential real estate prices, among other factors, this may impact the Group's customers and counterparties and, in certain cases, adversely affect their ability to pay their financings or other obligations to the Group. Moreover, if the Group is unable to effectively monitor and control the level of or, where required, successfully restructure its impaired financings with debtors in financial distress, or its allowances for financing impairment are insufficient to cover financing losses, the Group's business, results of operations and financial condition may be materially adversely affected, see " A substantial increase in new impairment allowances or losses greater than the level of previously recorded impairment allowances for doubtful financings and advances to customers would adversely affect the Group's results of operations and financial condition". Accordingly, although the Group regularly reviews its credit exposures and has in place systems for assessing the financial condition and creditworthiness of its debtors (see "Description of Kuwait Finance House Risk Management"), its failure to do so accurately or effectively may have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. A substantial increase in new impairment allowances or losses greater than the level of previously recorded impairment allowances for doubtful financings and advances to customers would adversely affect the Group's results of operations and financial condition In connection with lending activities, the Group periodically establishes impairment allowances for financing losses, which are recorded in its income statement. The Group's overall level of impairment allowances is based upon its assessment of prior loss experience, the volume and type of lending being conducted, collateral held, industry standards, past due financings, economic conditions and other factors related to the recoverability of various financings. Although the Group endeavours to establish an appropriate level of impairment allowances based on its best estimate of the amount of incurred loss, it may have to significantly increase its impairment allowances for financing losses in the future as a result of increases in non-performing assets, deteriorating economic conditions leading to increases in defaults and bankruptcies, or for other reasons. As at the date of this Base Prospectus, IFRS 9 has been introduced for financial reporting periods commencing on 1 January 2018, replacing IAS 39 and introducing an "expected credit loss" model for the measurement of the impairment of financial assets, such that it is no longer necessary for a credit event to have occurred before a credit loss is recognised. The Group has adopted IFRS 9 effective 1 January 2018 which is reflected in the 2018 Interim Financial Statements as at 31 March 2018, except for IFRS 9 requirement of Expected Credit Losses ("ECL") on financing facilities, which have been replaced by the CBK s requirement for credit losses. The Group will also avail the exemption allowing it not to restate comparative information for prior periods. Differences in the carrying amounts of financial assets resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January As at the date of this Base Prospectus, it is not possible to fully assess the impact of the Group's adoption of IFRS 9 on its assessment and calculation of impairment allowances going forward. Also, any v

32 unforeseen further changes to such impairment calculation models imposed by IFRS 9 or any future regulations may adversely impact impairment allowances established by the Group which would have an adverse effect on the Group's business, results of operations and financial condition. Any significant increase in impairment allowances for financing losses or a significant change in the Group's estimate of the risk of loss inherent in its portfolio of non-impaired financings, as well as the occurrence of financing losses in excess of the impairment allowances allocated with respect thereto, would have an adverse effect on its business, results of operations and financial condition. The Group may experience a higher level of customer and counterparty defaults arising from adverse changes in credit and recoverability that are inherent in the Group's business Credit risks could arise from a deterioration in the credit quality of specific customers of the Group and recoverability from such parties, from a general deterioration in local or global economic conditions or from systemic risks within the financial systems, all of which could affect the recoverability and value of the assets of the Group and which would require an increase in the provisions for the impairment of its assets and other credit exposures. As at the date of this Base Prospectus, the prevailing unstable macroeconomic climate has prompted reduced fiscal budgets and public spending plans in recent years across the GCC economies, with particular concerns around the ongoing impact of the volatility of global crude oil prices (see further " Kuwait's economy and Government revenues are significantly impacted by, and are dependent upon, international oil prices"), the effects of the economic slowdown in emerging markets generally, and volatility in the Chinese economy in particular, and the broader impact thereof on global debt and equity markets. Although oil prices have risen and remained stable during 2017, the prices still remain low compared to historic figures. As a result of these recent adverse market conditions (see "- Market risk"), certain customers to which the Group may extend credit from time to time and counterparties of the Group may experience decreased revenues, financial losses, insolvency, difficulty in obtaining access to financing and increased funding costs and some of these customers have been unable to meet their service obligations or other expenses as they become due, including amounts payable to the Group. Although the Group maintains a credit risk management strategy (see "Description of Kuwait Finance House Risk Management"), there can be no assurance that such measures eliminate or reduce, or will continue to eliminate or reduce, credit risks or result in full or partial recovery of overdue financings. Accordingly, the Group may experience a higher level of credit defaults (including non-performing financings and consequential increases in impairment allowances for doubtful financings and advances) in the immediate future, which could have a material adverse effect on the Group's business, results of operations, financial condition and thereby affect KFH's ability to perform its obligations under the Transaction Documents. As at 31 December 2017, the Group's financing receivables (net of deferred and suspended profit and impairment) amounted to KD 9,216.5 million, as compared to KD 8,175.8 million as at 31 December 2016 and KD 8,095.5 million as at 31 December The Group's impairment charge for financing receivables totalled KD 90.9 million for the year ended 31 December 2017 and KD million and KD million, respectively, for the years ended 31 December 2016 and 31 December Of its total financing receivables portfolio as at 31 December 2017, the customers in respect of 64.1 per cent. of the financings were located in the Middle East region (principally in Kuwait), as compared to 64.9 per cent. as at 31 December This level of geographic concentration causes the Group's credit risk profile to be susceptible to adverse economic conditions at a regional level. In particular, factors such as house prices, levels of employment, profit rates and the amount of consumers disposable income in the Middle East region can each have an impact on its business. Security interests or financing guarantees provided in favour of the Group may not be sufficient to cover any losses and may not be legally enforceable The practice of pledging assets (such as share portfolios and real estate assets) to obtain a bank financing is subject to certain limitations and administrative restrictions under Kuwaiti law. In particular, such security may not be enforced without a court order. As a result, security over certain pledged assets may not be enforced in Kuwaiti courts. Accordingly, the Group may have difficulty foreclosing on collateral (including any real estate collateral) or enforcing guarantees or other third party credit support arrangements when debtors default on their financings v

33 In addition, even if such security interests are enforceable in Kuwaiti courts, the time and costs associated with enforcing security interests in Kuwait may make it uneconomic for the Group to pursue such proceedings, adversely affecting the Group's ability to recover its financing losses. As at 31 December 2017, a significant portion of the Group's financing receivables were assets having a benefit of collateral, primarily including cash, shares and real estate. The Group typically requires additional collateral in the form of cash and/or other assets in situations where the Group may not be able to exercise rights over pledged shares or where it enters into guarantees or other third party credit support arrangements for financings made to individuals and corporations. Any decline in the value or liquidity of such collateral may prevent the Group from foreclosing on such collateral for its full value or at all in the event that a customer becomes insolvent and enters bankruptcy, and could thereby adversely affect the Group's ability to recover the full amounts advanced to the customer. The occurrence of any of the foregoing could have a material adverse effect on the Group's business, results of operations and financial condition. The Group could be adversely affected by the soundness or the perceived soundness of other financial institutions and counterparties Against the backdrop of constraints on liquidity and the high cost of funds in the interbank lending market, and given the high level of interdependence between financial institutions that became most evident following the bankruptcy of Lehman Brothers in 2008, the Group is subject to the risk of deterioration in the commercial and financial soundness, or perceived soundness, of other financial institutions. Within the financial services industry, the default of any one institution could lead to significant losses, and potentially defaults, by other institutions. As was experienced in 2008 and 2009, concerns about, or a default by, one institution could also lead to significant liquidity problems, losses or defaults by other institutions, because the commercial and financial soundness of many financial institutions is closely related as a result of their credit, trading, clearing or other relationships. Even the perceived lack of creditworthiness of, or questions about, a particular counterparty may lead to marketwide liquidity problems and losses or defaults by the Group or other institutions. This risk, often referred to as "systemic risk", may also adversely affect other financial intermediaries, such as clearing agencies, clearing houses, securities firms and exchanges, with whom the Group interacts on a daily basis. Systemic risk, should it materialise, could have a material adverse effect on the Group's ability to raise new funding and on its business, financial condition and results of operations. The Group relies on short-term demand and time deposits as a major source of funding but primarily has medium- and long-term assets, which may result in asset-liability maturity gaps The Group is exposed to liquidity risk as a result of mismatches in maturity dates of assets and liabilities. In common with other banks in Kuwait, many of the Group's liabilities are short-term demand and time deposits, whereas its assets are generally medium- to long-term financings. Mismatches between the Group's maturities of assets and liabilities could arise if the Group is incapable of obtaining new deposits or alternative sources of finance of the existing or future financing portfolio or the cost of obtaining them differs from market prices. In the past, a substantial portion of such customer deposits have been rolled over upon maturity or maintained with the Group and, as a result, such deposits have over time been a stable source of funding for the Group. The Group cannot assure, however, that customers will continue to roll over or maintain their deposits with the Group. If a substantial portion of the Group's depositors withdraw their on demand deposits or do not roll over their time deposits upon maturity, or the Group fails to refinance some of its large short- to medium-term borrowings, the Group may need to access more expensive sources to meet its funding requirements, which could have a material adverse effect on the Group's business, results of operations, financial condition and thereby affect KFH's ability to perform its obligations under the Transaction Documents. In addition, there are certain unavoidable timing differences between cash payments the Group owes on its liabilities and the cash payments due to it on its investments and other assets. The Group's ability to overcome these cash mismatches may be adversely affected if the fixed income markets were to experience significant liquidity problems which could have a material adverse effect on the Group's business, results of operations, financial condition and thereby affect KFH's ability to perform its v

34 obligations under the Transaction Documents. Also, under certain market conditions, the Group could be unable to sell additional products or be unable to sell its portfolio investments in sufficient amounts to raise the required cash which could have a material adverse effect on KFH's ability to perform its obligations under the Transaction Documents. If short-term deposits or on demand deposits are not rolled over upon maturity or maintained with Group posing a risk to liquidity, a number of contingencies are available to the Group, including raising US dollar liquidity by collateralizing certain of its marketable and liquid assets (such as Sukuk) or raising KD liquidity by entering into repo transaction with the CBK. In addition, the Group can efficiently access wholesale funding through Interbank Money Market borrowing with banks, government financial institutions and sovereign funds. Although the Group has historically accessed such wholesale funding in order to diversify and increase the maturity of its funding sources, such borrowings on their own do not completely eliminate asset-liability maturity gaps. As at 31 December 2017, 60.4 per cent. of the Group's funding (which comprises total liabilities and equity) had remaining maturities of one year or less or were payable on demand (as compared to 62.1 per cent. as at 31 December 2016 and 62.4 per cent. as at 31 December 2015). No assurance can be given that the Group will be able to obtain additional funding on commercially reasonable terms as and when required, or at all. The Group's inability to refinance or replace such deposits with alternative funding could materially adversely affect the Group's liquidity, business, results of operations and financial condition. The Group has significant off-balance sheet credit-related commitments that may lead to potential losses As part of its normal banking business, the Group issues revocable and irrevocable commitments to extend credit, guarantees, letters of credit and other financial facilities and makes commitments to invest in securities before such commitments have been fully funded. All of these are accounted for off-balance sheet until such time as they are actually funded or cancelled. Although these commitments are contingent and therefore off-balance sheet they, nonetheless, subject the Group to related credit, liquidity and market risks. Credit-related commitments are subject to the same credit approval terms and compliance procedures as financing receivables (in the form of financings, advances and Islamic financing to customers) and commitments to extend credit are contingent on customers maintaining required credit standards. Although the Group anticipates that not all of its obligations in respect of these commitments will be triggered, it may have to make payments in respect of a substantial portion of such commitments, which could have a material adverse effect on its financial position and, in particular, its liquidity position. As at 31 December 2017, the Group had KD 2.5 billion in such contingent liabilities and commitments, equal to 27.1 per cent. of its financing receivables (as compared to KD 2.2 billion, representing 27.2 per cent. of its financing receivables as at 31 December 2016 and KD 2.0 billion, representing 24.8 per cent. of its financing receivables as at 31 December 2015). Difficult macroeconomic and financial market conditions have affected, and may continue to affect, the Group adversely KFH (as well as the Group), in common with other financial institutions, is susceptible to changes in the macroeconomic environment and the performance of financial markets generally. In particular, the Group's business is, and will continue to be, affected by economic and political developments in or affecting Kuwait, the Republic of Turkey and the wider MENA region generally, including: regional political instability, including government or military regime change, riots or other forms of civil disturbance or violence, including through acts of terrorism; military strikes or the outbreak of war or other hostilities involving nations in the region or natural disasters; sovereign events such as defaults or restructuring; a material curtailment of the industrial and economic infrastructure development in Kuwait, the Republic of Turkey and across the wider MENA region; v

35 a material increase in costs of funds in Kuwait, the Republic of Turkey or the wider MENA region resulting from a material reduction in liquidity in the financial markets; government intervention, including expropriation or nationalisation of assets or increased levels of protectionism; an increase in inflation and the cost of living; cancellation of contractual rights, expropriation of assets and/or inability to repatriate profits and/or dividends; increased government regulations, or adverse governmental activities, with respect to price, import and export controls, the environment, customs and immigration, capital transfers, foreign exchange and currency controls, labour policies and land and water use and foreign ownership; arbitrary, inconsistent or unlawful government action; changing tax regimes; and difficulties and delays in obtaining governmental and other approvals for operations or renewing existing ones. There can be no assurance that either the economic performance of, or political stability in, the countries in which the Group currently operates, or may in the future operate, can or will be sustained (see also " Risks Relating to the Regions in which the Group Principally Operates Kuwait is located in a region that has been subject to ongoing political and security concerns"). As at the date of this Base Prospectus, global debt and equity markets have been adversely impacted by the ongoing volatility in the macroeconomic climate which has had, and which continues to have, a material adverse effect on the economies of the MENA region, including Kuwait, as well as the Republic of Turkey. These extremely volatile market conditions have resulted in reduced liquidity, widening of credit spreads and lack of price transparency in credit and capital markets. The adverse market conditions have impacted investment markets both globally and in the MENA region, with increased volatility in interest rates and exchange rates. The decision of the U.S. Federal Reserve to raise interest rates in December 2015 (for the first time since 2006), and again in December 2016 and March 2017 (with further rate rises expected in 2018 and beyond) will, if the pace of U.S. interest rate movements develops as expected, likely further exacerbate the reduced liquidity environment. Any shortage of liquidity in markets that are sources of funding for the Group could contribute to an increase in the Group's marginal borrowing costs and any increase in interbank reference rates could also affect the value of certain assets that are subject to changes in applicable interest rates, both of which may have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Moreover, against the backdrop of constraints on liquidity and the high cost of funds in the interbank lending market, and given the high level of interdependence between financial institutions that became most evident following the bankruptcy of Lehman Brothers in 2008, the Group is also subject to the risk of deterioration in the commercial and financial soundness, or perceived soundness, of other financial institutions. Within the financial services industry, the default of any one institution could lead to significant losses, and potentially defaults, by other institutions. As was experienced in 2008 and 2009, concerns about, or a default by, one institution could also lead to significant liquidity problems, losses or defaults by other institutions, because the commercial and financial soundness of many financial institutions is closely related as a result of their credit, trading, clearing or other relationships. Even the perceived lack of creditworthiness of, or questions about, a particular counterparty may lead to marketwide liquidity problems and losses or defaults by KFH, other members of the Group or other financial institutions in the market. This risk, often referred to as "systemic risk", may also adversely affect other financial intermediaries, such as clearing agencies, clearing houses, securities firms and exchanges, with whom the Group interacts on a daily basis. A prolonged or further decline in economic conditions in the MENA region including Kuwait, the Republic of Turkey or the wider MENA region (and emerging markets generally) as well as in the United States, European and international trading market conditions and/or related factors and/or a v

36 materialisation of systemic risk may have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. The Group may be adversely affected by liquidity risks Liquidity risk is the risk that the Group (or any entity within the Group, including Kuveyt Türk Katilim Bankasi A.Ş. ("Kuveyt Türk") in Turkey) may be unable to meet its payment obligations when they fall due under normal and stressed circumstances. Liquidity risks could arise in a number of circumstances, including: if the Group's (or any entity's within the Group) cash flow from its operations is not sufficient to meet its short-term and medium-term contractual and contingent payment obligations coming due, the Group could experience liquidity issues. Such liquidity issues could occur if the Group's (or any entity's within the Group) available liquidity is not sufficient to enable it to service its debt, fulfil financing commitments or meet other on-balance sheet or off-balance sheet payment obligations on specific dates, even if the Group continues to receive new deposits from customers, proceeds from its current business operations and/or its future revenue streams; if there is an unexpected outflow from depositors' accounts; if there is a material decline in the value of the Group's (or any entity's within the Group) liquid investments portfolio; or if the Group (or any entity within the Group) is unable to anticipate and/or provide for unforeseen decreases or changes in funding sources or is otherwise unable to secure funding at commercially acceptable rates to bridge any funding gap. Any of the foregoing may result in a default by the Group (or any entity within the Group) in respect of any of its contractual or contingent payment obligations and could, therefore, have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. In addition, the Group is subject to the Basel III LCR as adopted by the CBK pursuant to CBK Circular number 2/IBS/346/2014 (the "CBK Guidelines"). The LCR is a metric introduced by the Basel Committee on Banking Supervision as part of the Basel III criteria to measure a bank's ability to manage a sustained outflow of customer funds in an acute stress event over a 30-day period. The ratio is calculated by taking a financial institution's stock of high quality liquid assets ("HQLAs") (which include low-risk, highly marketable asset classes, designed to provide significant sources of liquidity in such a stress scenario) and dividing it by its projected net cash outflows over the immediately following 30-day period. The LCR requires that banks have sufficient HQLAs in their liquidity buffer to cover the difference between expected cash outflows and expected capped cash inflows over a 30-day stressed period. Basel III requires that the minimum value of the ratio is per cent. (i.e., an institution's stock of HQLAs should at least equal total net cash outflows) while the CBK has introduced LCR in a phased manner, setting a benchmark of 70.0 per cent. in 2016 which would later reach per cent. by Kuwaiti banks are required to submit, along with existing liquidity reports, their LCR reports on a daily and monthly basis for monitoring purposes as well as LCRs by major currency. As at 31 December 2017, the Group held a portfolio of HQLAs valued at KD 3,849 billion and had an LCR ratio (based on CBK Guidelines) of 176 per cent., compared to 148 per cent. as at 31 December 2016 and 198 per cent. as at 31 December The Group's requirement to comply with the LCR and the associated requirement to maintain a significant buffer of HQLAs may adversely affect its banking business, particularly given the inherent cost of maintaining an HQLA portfolio of sufficient size and quality to cover regulatory outflow assumptions embedded in the LCR. If the Group was to choose to mitigate against these additional costs by introducing selective deposit fees or minimum lending rates, this may result in a loss of depositors' accounts, net new money outflows and/or a declining market share. Additionally, the inherent costs associated with LCR compliance and maintaining a sufficient portfolio of HQLAs may place the Group at a competitive disadvantage to its peer financial institutions based in other GCC states or in the Republic of Turkey that have yet to fully implement Basel III v

37 Failure by a member of the Group to comply with regulatory requirements and maintain certain capital adequacy ratios may result in actions being taken by the regulators, including imposition of sanctions by the CBK which may have a material adverse effect on the Group's business, results of operations and financial condition. A negative change in KFH's and Kuveyt Türk's credit ratings could limit its ability to raise funding and may increase its borrowing costs KFH has as at the date of this Base Prospectus a long-term foreign currency issuer default rating of "A+" with stable outlook from Fitch and a long-term bank deposits rating of "A1" with stable outlook from Moody's. These ratings, which are intended to measure KFH's ability to meet its debt obligations as they mature, are an important factor in determining KFH's cost of borrowing funds. Kuveyt Türk has as of the date of this Base Prospectus a long-term local currency rating of "BBB-" from Fitch. This rating, which is intended to measure Kuveyt Türk's ability to meet its debt obligations as they mature, is an important factor in determining Kuveyt Türk's cost of borrowing funds. In addition, one or more independent credit rating agencies may also assign credit ratings to the Certificates. In light of the difficulties in the financial markets, there can also be no assurance that the rating agencies will maintain KFH's or Kuveyt Türk's current ratings or outlooks. Any ratings of KFH or Kuveyt Türk may not reflect the potential impact of all risks related to the Certificates, the global financial market and the Kuwaiti or Turkish banking sectors. There is no assurance that the ratings will remain in effect for any given period of time or that the ratings will not be lowered or withdrawn entirely if circumstances in the future so warrant. A downgrade of KFH's (or that of any other entity within the Group) credit ratings, or a negative change in their outlook, may: limit KFH's or the Group's ability to raise funding; increase KFH's or the Group's cost of borrowing; and limit KFH's or the Group's ability to raise capital, each of which may have a material adverse effect on KFH's or the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Moreover, actual or anticipated changes in KFH's (or any entity's within the Group) credit rating may affect the market value of the Certificates. In addition, a downgrade or potential downgrade of Kuwait's or Turkey's sovereign ratings could negatively affect the perception of each of KFH, Kuveyt Türk or any other Group member's ratings. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Ratings may not reflect the potential impact of all risks related to structure, market, the risk factors discussed in this section and others that may affect the value of the Certificates. The Group may be adversely affected by market risks The Group's business exposes it to market risk, which is the risk that changes in market prices (such as interest rates, equity prices, commodity prices, foreign exchange rates and credit spreads) will affect the Group's income or the fair value of its holdings of financial instruments. KFH is not exposed to any risk in terms of the re-pricing of its liabilities since KFH does not provide contractual rates of return to its depositors and other financing arrangements are at fixed profit rate in accordance with Shari'a principles. The Group is, however, exposed to the following non-trading market risks: interest rate risk arising from any fluctuations in interest rates which may affect the fair value of the Group's financial assets. Such fluctuations may be caused by a number of factors beyond the Group's control, including the policies of central banks (such as the CBK and the U.S. Federal Reserve), political factors and domestic and international economic conditions; v

38 currency risk arising from any fluctuations in foreign exchange rates. This risk includes the possibility that the value of a foreign currency asset or liability will change due to changes in currency exchange rates as well as the possibility that the Group may have to close out any open position in a foreign currency at a loss due to an adverse movement in exchange rates. The Group attempts to match the currencies of its assets and liabilities and any open currency position is maintained within the limits set by the CBK (or any other central bank which may, from time to time, exercise regulatory scrutiny over any member of the Group). However, where KFH (or any member of the Group) is not so hedged, it is exposed to fluctuations in foreign exchange rates and any above-mentioned hedging activity may not, in all cases, protect the Group against such risks. For instance, the Group has historically had significant exposure to U.S. dollars and Bahraini dinars in respect of the Group's non-trading monetary assets and liabilities as well as its forecast cash flows. As at 31 December 2017, a 1.0 per cent. increase in the exchange rate for U.S. dollars or Bahraini dinars would have increased the Group's profit for the year by KD 890,000 or KD 428,000, respectively; and equity price risk arising from any fluctuations in the levels of equity indices and/or the value of individual stocks. Such fluctuations may be caused by a number of factors beyond the Group's control (see " Risks Relating to the Group Difficult macroeconomic and financial market conditions have affected, and may continue to affect, the Group adversely"). The Group holds investment securities (equity and fixed income) and a decrease in the realised and unrealised fair value investment gains, together with fair value losses on such investment securities may have a material adverse impact on the Group's business, results of operations and financial condition. For instance, as at 31 December 2017, a 1.0 per cent. increase in the Boursa Kuwait index would have increased the Group's fair value reserve by KD 910,000 (as a result of a change in the fair value of financial assets available for sale as at 31 December 2017). In addition, the Group's income from securities operations depends on numerous factors beyond its control, such as overall market trading activity, fluctuations in currency exchange rates and general market volatility. The Group cannot predict the amount of realised or unrealised gain or loss for any future period, and variations from period to period are not indicative of future performance. Gains on the Group's investment portfolio may not continue to contribute to net income at levels consistent with those from recent periods or at all. Adverse movements in interest and foreign exchange rates and/or equity indices may also adversely impact the revenues and financial condition of the Group's depositors and counterparties which, in turn, may impact the Group's deposit base and the quality of its exposures to certain counterparties and may therefore have a material adverse impact on the Group's business, results of operations and financial condition. The foregoing, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. The Group may be adversely affected by operational risks Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. The Group has established policies and control procedures that are intended to ensure that its operational risks are minimised and any incidents appropriately managed and resolved. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. Some of the operational risks currently faced by the Group are: in the course of its business activities, the Group is exposed to a variety of risks, the most significant of which are credit risk, market risk, liquidity risk and operational risk (see "Description of Kuwait Finance House Risk Management"). Investors should note that any failure to adequately control these risks could result in material adverse effects on the Group's business, results of operations and financial condition, as well as its general reputation in the markets in which the Group operates. In addition, there can be no assurance that the Group's risk management and internal control policies and procedures will adequately control, or protect it against, all credit, market, liquidity, operational and other risks or if all risks are accurately quantified by the Group's risk management systems. Any material deficiency in the Group's risk management or other internal control policies or procedures may expose it to significant credit, market, liquidity or operational risk, which may in turn have a material adverse effect on its business, financial condition and results of operations; v

39 accounting policies and methods are fundamental to how the Group records and reports its financial condition and results of operations. Pursuant to IFRS rules and interpretations in effect as at the date of this Base Prospectus, the Group is required to make certain estimates in preparing its financial statements (see: " A substantial increase in new impairment allowances or losses greater than the level of previously recorded impairment allowances for doubtful financings and advances to customers would adversely affect the Group's results of operations and financial condition" above). Management identifies the most significant judgments and estimates made by it for any particular period in the relevant financial statements (for instance, see Note 2.6 (Summary of Significant Accounting Policies) to the 2017 Consolidated Financial Statements and Note 2.6 (Summary of Significant Accounting Policies) to the 2016 Consolidated Financial Statements). The Group has established policies and control procedures that are intended to ensure that its significant accounting estimates and judgments are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. However, due to the uncertainty surrounding such judgments and the estimates pertaining to these matters, the Group cannot guarantee that it will not be required to make changes in accounting estimates or restate prior period financial statements in the future. Should the estimated values for such items prove substantially different to actual values, particularly because of significant and unexpected market movements, or if the methods by which such values were determined are revised in future IFRS rules or interpretations, the Group may experience unexpected losses; the Group's ability to maintain and grow its business will depend, in part, on its ability to continue to recruit and retain qualified and experienced banking and management personnel. In particular, the Group depends on the efforts, skill, reputation and experience of its senior management, as well as synergies among their diverse fields of expertise and knowledge. The loss of key personnel could delay or prevent the Group from implementing its strategies. In addition, even after hiring its employees, the Group may face challenges in retaining such employees due to the continued recruitment efforts of its competitors and such employees moving to competitors. Further, in common with other banks in the GCC, KFH experiences a shortage of qualified employees residing in Kuwait, which requires it to recruit from outside Kuwait. In recent years, the Kuwaiti government has made a number of announcements regarding its intention to encourage a better balance of Kuwaiti and non-kuwaiti nationals in the private sector workforce. This process, known as "Kuwaitisation", involves the establishment of suggested ratios for the numbers of Kuwaiti nationals that should be employed by respective industries, with the Government's recommended policy for financial institutions being that 64.0 per cent. of a bank's total personnel should consist of Kuwaiti nationals. KFH's Kuwaitisation level as at 31 December 2017 was 66.0 per cent, compared to 65 per cent. as at 31 December 2016 and 65 per cent. as at 31 December If KFH is not able to meet or exceed the Government's minimum threshold for Kuwaiti employees, it may be subject to certain penalties, including an exclusion from participation in certain Government-related tender processes, the imposition of fines by the Kuwait Ministry of Social Affairs or the imposition of corrective action by the CBK; the Group's employees could engage in misrepresentation, misconduct or improper practice that could expose the Group to direct and indirect financial loss and damage to its reputation. Such practices may include embezzling clients' funds, engaging in corrupt or illegal practices to originate further business, intentionally or inadvertently releasing confidential information about clients or failing to follow internal procedures. Despite the Group instituting appropriate systems, processes and procedures aimed at preventing such practices (see "Description of Kuwait Finance House Risk Management"), it is not always possible to detect or deter employee misconduct and the precautions the Group takes to detect and prevent misconduct may not be effective in all cases. There can be no assurance that measures undertaken to combat employee misconduct will be successful. Such actions by employees could expose the Group to financial losses resulting from the need to reimburse clients who suffered loss or as a result of fines or other regulatory sanctions, and could damage the Group's reputation, which may in turn have a material adverse effect on its business, financial condition and results of operations; the Group operates in businesses that are highly dependent on information systems and technologies and relies heavily on its financial, accounting and other data processing systems. If any of these systems do not operate properly or are disabled, the Group could suffer financial v

40 loss, a disruption to its business, liability to clients, regulatory intervention and reputational damage. In addition, the Group's current information systems and technologies may not continue to be able to accommodate the Group's growth unless it continues to invest in upgrading its operational systems. Such a failure to accommodate growth, or an increase in costs related to such information systems, would have a material adverse effect on the Group's business, results of operations and financial condition. The cost of improving or upgrading such systems and technologies may be substantial and the cost of maintaining such systems is likely to increase from its current level. Each Group member's business operations and business processes are vulnerable to damage or interruption from fires, floods, extreme weather, power loss, bomb threats, explosions or other forms of terrorist activity and other natural and man-made disasters or other extreme events. These systems may also be subject to criminal damage, vandalism, theft and similar wrongdoing. If there is a disaster or other disruption and the Group's disaster recovery plans are found to be inadequate for any reason (including, for instance, due to the Group's geographically concentrated operations), there could be an adverse impact on the Group's business, financial condition and results of operations; and in common with other financial institutions based in the GCC, Turkey and elsewhere in the world, the threat to the security of the Group's information and customer data from cyber-attacks is real and continues to grow at pace. Activists, rogue states and cyber criminals are among those targeting computer systems around the world. Risks to technology and cyber-security change rapidly and require continued focus and investment. Given the increasing sophistication and scope of potential cyber-attack, it is possible that future attacks may lead to significant breaches of security. Failure to adequately manage cyber-security risk and continually review and update current processes in response to new threats could disrupt the Group's business, result in the disclosure of confidential information, create significant financial and/or legal exposure and damage the Group's reputation and/or brands, which could have a material adverse effect on the Group's business, financial condition and results of operations. The foregoing, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Regulatory risks KFH is subject to extensive regulation and changes in applicable laws or regulations, the interpretation and enforcement of such laws or regulations, or any failure by KFH to comply with these laws and regulations could have a material adverse effect on KFH KFH is subject to many prudential and regulatory controls designed to maintain the safety and soundness of banks, ensure their compliance with economic, social and other objectives and limit their exposure to risk (see "Banking Industry and Regulation in Kuwait"). These controls include laws and regulations decreed by the CBK, the CMA and the Kuwait Stock Exchange (the "KSE"), as well as the laws and regulations of the other countries in which the Group operates including, but not limited to, the Republic of Turkey, the Kingdom of Bahrain and the Federation of Malaysia. In particular (but without limitation), the Group is subject to the following guidelines in Kuwait: Liquidity regulations The CBK requires Islamic banks, such as KFH, to maintain 18.0 per cent. of their KD customer deposits in the form of balances with the CBK and, due to the Shari'a-compliant nature of Islamic banks, such as KFH, also maintain: (a) financing sukuk issued by the Islamic Development Bank (IDB) or governments of the GCC member countries (provided existence of underlying liquidity and credit rating of no less than investment grade ("BBB"); or equivalent according to rating by the international credit rating agencies (Moody s, Standard & Poor s, Fitch)); or (b) financing sukuk issued by the International Islamic Liquidity Management ("IILM"). As part of the CBK's implementation of Basel III in Kuwait, the CBK has introduced LCR in a phased manner, setting a minimum level of 90 per cent. in 2018 which would later reach 100 per v

41 cent. by 1 January The minimum required Net Stable Funding Ratio ("NSFR"), introduced by the CBK in 2015, is calculated as the ratio of available stable funding to required stable funding with a minimum level set at 100 per cent. effective beginning of Basel III capital adequacy and leverage regulations The CBK requires that KFH's capital adequacy ratio requirement is set at 15.0 per cent (inclusive of the systemically important banks "D-SIB" set at 2 per cent.) which started from 31 December As at 31 December 2017, the Group's Tier 1 capital adequacy ratio (calculated according to CBK Basel III guidelines) was per cent. and its total capital adequacy ratio was per cent. (31 December 2016: Tier 1 capital adequacy ratio per cent. and total capital adequacy ratio per cent. and 31 December 2015: Tier 1 capital adequacy ratio per cent. and total capital adequacy ratio per cent.), in each case comfortably above the minimum CBK threshold (including the additional D-SIB surcharge). Additionally, pursuant to CBK regulations on Basel III capital adequacy, banks in Kuwait may also be subject to a countercyclical capital buffer, ranging from 0 per cent. to an additional 2.5 per cent. As at the date of this Base Prospectus, and for the years ended 31 December 2017, 2016 and 2015, the countercyclical capital buffer is not included in the minimum capital requirements of Kuwaiti banks and the CBK has not indicated when the countercyclical capital buffer will be required. The CBK have also introduced a Basel III leverage ratio (which is defined as the "capital" measure made up of Tier 1 capital divided by the total exposure being the sum of onbalance sheet assets, derivative exposures and off-balance sheet exposures) requirement of a minimum of 3 per cent. as a supplementary measure to ensure that Kuwaiti banks do not become overly leveraged. The Group's leverage ratio was 9.99 per cent. as at 31 December 2017, 9.99 per cent. at 31 December 2016 and 9.90 per cent. as at 31 December 2015, in each case comfortably above the minimum CBK requirement. Credit risk regulations With effect from October 2016, Kuwaiti banks are restricted by the CBK from lending amounts in excess of 90 per cent. of qualifying deposits, irrespective of the maturity profile of the relevant qualifying deposit. As at 31 December 2017, the Bank is in compliance with this regulation. Concentration risk regulations Subject to certain exceptions or where prior CBK approval has been obtained, the total credit liabilities of any single customer (including its legally or economically associated entities) to a bank may not exceed 15 per cent. of the bank's regulatory capital. As at 31 December 2017, the Bank is in compliance with this regulation. The aggregate of large credit concentrations (being concentrations which exceed 10 per cent. of a bank's regulatory capital), including any exceptions approved by the CBK, may not exceed four times a bank's regulatory capital. As at 31 December 2017, the Bank is in compliance with this regulation. Profit rate cap regulations The CBK's resolutions issued in respect of profit rate ceilings provide that the maximum limits for profit rates on KD-denominated financings to corporates should not exceed: (i) 2.5 per cent. over the CBK's discount rate in the case of commercial financings with a maturity of one year or less; and (ii) 4 per cent. over the CBK's discount rate in the case of commercial financings exceeding one year. As at 31 March 2017, the CBK's discount rate available to banks in Kuwait was 2.75 per cent. and, in the period between 4 October 2012 and 31 December 2017, has fluctuated from between 2 per cent. and 2.75 percent. Such regulations may limit the Group's ability to increase its financing portfolio or raise capital or may increase the Group's cost of doing business. Any further changes in laws or in CBK and other applicable regulations or policy and/or the manner in which they are interpreted or enforced may affect the Group's v

42 reserves, revenues and performance and may have a material adverse effect on the Group's business, results of operations and financial condition. Furthermore, the Group's ability to satisfy minimum capital adequacy requirements may be adversely impacted by many factors, including, among other things: (i) an increase in risk-weighted assets at KFH; (ii) an increase in credit risk, credit losses or impairment allowances; (iii) an inability to obtain capital; (iv) the results of KFH's activities; (v) a decline in the value of KFH's securities portfolio; (vi) the inaccurate estimates adopted by KFH regarding the amount of capital required to cover operating risk; (vii) changes in the accounting principles or recommendations related to the calculation of the solvency ratio of banks; (viii) fluctuations in exchange rates which influence the value of foreign currency denominated assets; (ix) changes in interest rates; and (x) changes in regulations or in the methods by which the regulatory authorities, including the CBK, apply capital adequacy regulations. Non-compliance with regulatory guidelines could expose KFH to potential liabilities and fines. Although KFH works closely with its regulators and continually monitors compliance with CBK and other applicable regulations and policy, future changes in regulation, fiscal or other policies cannot be predicted and are beyond its control. Risks Relating to the Regions in which the Group Principally Operates Kuwait's economy and Government revenues are significantly impacted by, and are dependent upon, international oil prices The majority of the Group's current operations and interests are located in Kuwait and the Republic of Turkey. The Group's results of operations are, and will continue to be, generally affected by financial and economic developments in or affecting Kuwait, the Republic of Turkey and the wider MENA region and, in particular, by the level of economic activity in these regions which, in turn, is affected by the prevailing level of global crude oil prices. The oil sector is the principal contributor to Kuwait's economy and oil revenues account for the majority of the Government's total revenues and export earnings. The oil sector accounted for 52.4 per cent. of Kuwait's real GDP in 2015 and oil revenues comprised 68.1 per cent. of total Government current revenues for the fiscal year ended 31 March Accordingly, Kuwait's economy is significantly impacted by, and is dependent upon, oil and gas and related industries, as well as the prices and production quantities of these commodities. Oil prices have, however, been volatile in recent years, which has impacted economic growth in Kuwait. For example, following the significant decline in international oil prices in the second half of 2008 and comparatively very low prices for most of 2009, Kuwait's real GDP contracted by 7.1 per cent. in 2009 and by 2.4 per cent. in 2010, according to CBK data. Since June 2014, international oil prices have fallen significantly, with the monthly average price of the OPEC reference basket falling from U.S.$ in July 2014 to a low of U.S.$26.50 in January Since then, international oil prices have generally increased, with the yearly average OPEC reference basket price being U.S.$40.76 in 2016 and U.S.$52.43 in The monthly average price of the OPEC reference basket was U.S.$66.85 in January These significantly lower oil prices have adversely affected Kuwait's economy. Real GDP in Kuwait grew by 0.5 per cent. in 2014, by 0.5 per cent. in 2015 and, on a provisional basis, by 3.5 per cent. in 2016, according to data collected by the Kuwait Central Statistical Bureau. The IMF projects Kuwait's real GDP to have increased by 2.5 per cent. in 2016 and to have declined by 2.1 per cent. in The current sustained decline in global oil prices can be attributed to a number of factors including, but not limited to, a decline in demand for oil due to a worsening of global economic conditions, the increase in oil production by other producers and competition from alternative energy sources. In general, international prices for crude oil are also affected by the economic and political developments in oilproducing regions (particularly in the Middle East), the price and availability of new technologies such as renewable energy and unconventional oil and gas extraction methods, and the global geopolitical climate and other relevant conditions. Oil demand may also be affected in the long-term by international regulatory efforts, such as the 2015 Paris Climate agreement to curb greenhouse gas emissions and limit climate change. There can be no assurance that these factors, in combination with others, will not result in a prolonged or further decline in oil prices, which may continue to have an adverse effect on the Kuwaiti economy v

43 Potential investors should note the significance of changes in international oil prices on Kuwait's economy. Many of Kuwait's other economic sectors are in part dependent on the oil and gas sector. For example, the Government has reduced and may continue to reduce, government expenditures in light of the budgetary pressures caused by low or falling oil prices. Government fiscal deficits are likely to result in a weakened net asset position, larger external financing needs and/or continued lower Government current spending. In addition, ancillary industrial activities related to oil and gas exploration and production are also negatively affected by low oil prices. Furthermore, sectors that are dependent on Government consumption may be adversely affected by lower levels of economic activity that may result from lower Government revenue from oil production. Financial institutions, such as KFH (and to a certain extent the other members of the Group), may experience lower liquidity or impairments if government expenditure in Kuwait is reduced as a result of budgetary pressures caused by low oil prices. In addition, the Kuwaiti government has sought to rationalise its subsidy framework by fully removing kerosene and diesel subsidies in January Should international oil prices continue to remain at low levels for an extended period, this will be likely to continue to adversely affect Kuwait's economy. Additionally, although the CBK has the ability to offset the components of the undisclosed weighted basket of international currencies of Kuwait's major trade and financial partner countries against which the dinar is pegged (the "KD Basket"), there can be no assurance that the CBK will maintain the KD Basket at its current level, which could lead to higher inflation and negatively affect confidence in Kuwait's economy. If the prevailing low international prices for oil and other hydrocarbon products are sustained for a significant period of time into the future this could continue to have a significant adverse effect on Kuwait's economy. This, coupled with political and economic developments both within and outside the Middle East (which are known to have a significant impact on the volatility of prices of oil and other hydrocarbon products due to changes in market confidence and inter-relationships within the global financial markets) and the implementation by the Government of restrictive fiscal or monetary policies or regulations (including changes with respect to interest rates, new legal interpretations of existing regulations or the introduction of taxation or exchange controls) could have a material adverse effect on the Group's business, results of operations and financial condition. This, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Kuwait is located in a region that has been subject to ongoing political and security concerns The majority of the Group's current operations and interests are located in Kuwait and the wider MENA region. The Group's results of operations are, and will continue to be, generally affected by political developments in or affecting Kuwait, the GCC and the wider MENA region. It is not possible to predict the occurrence of events or circumstances, such as war or hostilities, or the impact of such occurrences, and no assurance can be given that the Group would be able to sustain the operation of its business if adverse political events or circumstances were to occur in locations in which the Group operates. A general downturn or instability in certain sectors of the Kuwaiti or the regional economy could have an adverse effect on the Group's business, results of operations and financial condition. Although Kuwait generally enjoys domestic political stability and healthy international relations, it is located in a region that is strategically important and parts of this region have experienced regional geopolitical instability. The 1990 invasion of Kuwait by Iraqi forces and the subsequent United States led coalition to remove Iraqi forces has had a lingering effect on Kuwait's perception in the region as a vulnerable country, surrounded by aggressive actors, although full diplomatic relations with the Republic of Iraq have since been restored. In recent years, there has been social and political unrest and/or armed conflict in a range of countries in the wider MENA region, including the Arab Republic of Egypt, the People's Democratic Republic of Algeria, Libya, the Kingdom of Bahrain, the Kingdom of Saudi Arabia, the Republic of Yemen, the Republic of Iraq, the Syrian Arab Republic, Palestine, the Republic of Tunisia, the Sultanate of Oman and the Republic of Turkey, including the multinational conflict with the Islamic State of Iraq and the Levant ("ISIL"), also known as Daesh or ISIS. This unrest has ranged from public demonstrations to, in extreme cases, armed conflict, the overthrow of existing leadership and governments and increased political uncertainty across the region. Certain of these recent and ongoing conflicts are a continuation of the significant political and military upheaval experienced since early 2011, commonly referred to as the "Arab Spring", which gave rise to several instances of regime change and increased political uncertainty in the wider MENA region. On 5 June 2017, the Kingdom of Saudi Arabia, the United Arab Emirates, the v

44 Arab Republic of Egypt and the Kingdom of Bahrain announced the severing of diplomatic ties with the State of Qatar (which included the withdrawal of ambassadors as well as the imposition of trade and travel restrictions). These situations have caused, and may continue to cause, significant disruption to the economies of the affected countries, including having a destabilising effect on international oil prices. Furthermore, other world events could have an impact on the political and security situation in Kuwait and the wider MENA region. For instance, in March 2017, the CBK increased its interest rate by 0.25 per cent. subsequent to the U.S. Federal Reserve's interest rate hike by 0.25 per cent. This was CBK's only rate increase in 2017 and the second since Kuwait and the United States have enjoyed close economic and strategic ties since the 1990 Gulf War. On 20 January 2017, Donald J. Trump was inaugurated as the 45th President of the United States ("President Trump"). President Trump's foreign policy objectives, including trade, immigration, military and economic support of historic partners, and the United States' relationship with Iran, have remained somewhat opaque, making his stance towards a continuing relationship with Kuwait and the wider region unclear. While President Trump has stated that he intends to pursue a non-interventionist agenda that would increasingly focus U.S. investment on domestic matters, he has also advocated expanding domestic oil and gas drilling operations and pledged support of American troops being deployed in the region to confront ISIL. However, a shift in the relationship between Kuwait and the United States or changing U.S. political priorities in the region could have a material adverse effect on Kuwait's economic, political or financial condition. Any of the foregoing may have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. The banking industry is competitive and the Group is exposed to significant competition in Kuwait KFH faces high levels of competition for all of its products and services in Kuwait. In particular, KFH competes with other domestic banks (both conventional and Islamic), in addition to the Kuwaiti branches of non-kuwaiti banks, and such competition may increase. The Kuwaiti banking sector comprises five locally-based conventional commercial banks and branches of 12 other non-kuwaiti banks. In addition, in a more specialised banking sector of Islamic finance, there are five banks operating according to the provisions of Islamic Shari'a (including KFH) and a branch of a Saudi Arabian bank which is also licensed to operate in Kuwait. While the domestic consumer banking sector is dominated by Kuwaiti banks in terms of market share (particularly as a result of the relatively high barriers to entry for non-kuwaiti banks in terms of local licensing requirements, access to KD liquidity and the need for a Kuwaiti branch network), KFH faces greater competition from non-kuwaiti banks in the domestic corporate and private banking sector (see "Description of Kuwait Finance House Competition and Competitive Strengths"). The competitive nature of the Kuwaiti banking market and any failure by the Group to continue to compete successfully in Kuwait may have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. The Government is under no obligation to support KFH Following the global financial crisis in 2007 and its impact on the Kuwaiti banking sector, the Government initiated several plans to support its domestic banks. Although the Government has in the past supported the domestic banking industry, there can be no assurance that it will continue to provide support to the domestic banking industry in the future. The Certificates are not guaranteed by the Government, any of KFH's shareholders or any other party. Tax changes in Kuwait may have an adverse effect on the Group As at the date of this Base Prospectus, Kuwait does not impose value-added tax ("VAT") on the sale of goods and services. However, investors should be aware that the GCC states, including Kuwait, have agreed to the implementation of a GCC-wide VAT framework, to be introduced at a rate of 5 per cent. (the "Framework"). The national legislation in Kuwait implementing the Framework has yet to be promulgated and no Kuwait-specific details of the regime have been released as at the date of this Base Prospectus. Therefore, it is impossible to state with any accuracy if, and when, VAT will be introduced in v

45 Kuwait. Further, due to the wide discretion conferred to each GCC member state under the Framework, the terms and conditions of the VAT regime, if introduced, are not known as at the date of this Base Prospectus. It is possible that, once VAT is introduced in Kuwait, KFH's costs would increase and its future profitability could be negatively affected. In addition, the proposed imposition of a 10.0 per cent. corporate income tax on corporate earnings (if applicable to KFH's operations in Kuwait) would reduce its profits from continuing operations. As at the date of this Base Prospectus, KFH is not currently subject to corporation tax on its earnings within Kuwait. The implementation of VAT and/or any future corporation tax regime which may be introduced in Kuwait may have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. The Kuwait legal system continues to develop and this may create an uncertain environment for investment and business activity Kuwait is in the process of developing governing institutions and legal and regulatory systems, which are not yet as firmly established as they are in Western Europe and the United States. Kuwait (together with other countries in the GCC region) has enacted measures to promote greater efficiency and certainty within its legal and regulatory systems. Among those measures, Kuwait and countries within the GCC region have assumed obligations under the General Agreement on Tariffs and Trade ("GATT") (as administered by the WTO) and Kuwait has enacted legislation, inter alia, to extend foreign ownership of businesses. However, Kuwait may experience changes in its economy and government policies (including, without limitation, policies relating to the continued extension of the rights of foreign ownership pursuant to Kuwait's GATT/WTO obligations) that may affect the rights of Certificateholders. The legal system in Kuwait may not provide the same degree of protection or require the levels of disclosure of information that would be the case in Western Europe or the United States. Any unexpected changes in the legal systems in Kuwait may have a material adverse effect on the rights of Certificateholders. Such changes may also affect the investments that KFH has made or may make in the future. This may have a material adverse effect on the Group's business, results of operations and financial condition which, in turn, could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Investing in securities involving emerging markets countries, such as Kuwait, the Republic of Turkey or the wider MENA region generally involves a higher degree of risk than investments in securities of issuers or obligors from more developed countries Investing in securities involving emerging markets countries, such as Kuwait, the Republic of Turkey or the wider MENA region generally involves a higher degree of risk than investments in securities of issuers or obligors from more developed countries. In the case of Kuwait, the Republic of Turkey or the wider MENA region, these higher risks include those discussed herein as well as higher volatility and limited liquidity in the markets, a heightened risk of sudden changes in the legal, economic and political environment, instability in neighbouring countries, a heightened risk of business dealings in jurisdictions with operating risks relating to fraud, bribery and corruption and lack of adequate infrastructure necessary to accelerate economic growth. In addition, there can be no assurance that the market for securities bearing emerging market risk, such as the Certificates, will not be affected negatively by events elsewhere, especially in emerging markets. International investors' reactions to events occurring in one emerging market country or region sometimes appear to demonstrate a "contagion" effect, in which an entire region or class of investment consequently becomes out of favour with such investors. If such a "contagion" effect were to occur, the trading price of the Certificates could be adversely affected by negative economic or financial developments in other emerging market countries, particularly in the wider MENA region, over which the Group has no control. Additionally, emerging markets may be particularly susceptible to disruptions in the capital markets and the reduced availability of credit, or the increased cost of debt, which could result in their experiencing v

46 financial difficulty. No assurance can be given that this will not be the case in the future for Kuwait, the Republic of Turkey or other countries in the wider MENA region. As a consequence, an investment in the Certificates carries risks that are not typically associated with investing in securities issued by issuers and/or obligors in more mature markets. Accordingly, prospective investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is suitable only for sophisticated investors who fully appreciate the significance of the risks involved. Risk Factors Relating to Taxation in Kuwait The application and enforcement of the Kuwaiti income tax regime is uncertain, and holders of the Certificates which are "non-gcc corporate entities" may become subject to the Kuwaiti income tax regime in certain limited circumstances. Pursuant to Article 150 (bis) of Law No. 22 of 2015 amending Law No. 7 of 2010 Concerning the Establishment of the Capital Markets Authority and the Regulating of Securities Activities (the "CMA Law Amendment") yields of securities, bonds, finance sukuk and all other similar securities regardless of the issuer thereof shall be exempted from taxation. Whilst the CMA Law Amendment has been acknowledged by the Ministry of Finance Administrative Resolution No of 2015 (the "Administrative Resolution"), issued by the Minister of Finance, to date, there has been no official statement made by the Department of Income Tax ("DIT") regarding its interpretation of the CMA Law Amendment and/or the scope of its application. Similarly, the Kuwaiti courts (who will be the final arbiters on the matter) have not been required to interpret such provision to date. Furthermore, the DIT has to date not always adopted consistent rulings on Kuwaiti tax matters more generally. Accordingly, to the extent that the exemption afforded by the CMA Law Amendment is held not to apply to the Certificates, or to a particular Certificateholder, such Certificateholder or the Certificateholders which are non-gcc corporate entities may become subject to income tax in Kuwait (see "Taxation Kuwait" for further details). In addition, neither the CMA Law Amendment nor the Administrative Resolution address the issue of whether or not there remains an obligation, as described under "Taxation Kuwait Retention", to make a deduction of five per cent. of the amount of any payments made by KFH to the Trustee or, where applicable, the Certificateholders. In the event of any such deduction, the terms and conditions of the Certificates provide, subject to certain exceptions, that the Trustee and/or KFH, as the case may be, will pay such additional amounts in order that the net amounts received by the Certificateholders shall equal the amount which would have been receivable in the absence of such deduction. Prospective purchasers of the Certificates are advised to consult their tax advisors as to the consequences under Kuwaiti and other applicable tax laws of acquiring, holding and disposing of the Certificates and receiving payments thereunder. Risks Related to the Group's largest and most significant Subsidiary Largest Subsidiary The majority of the Group's current operations and interests are located in Kuwait and the Republic of Turkey. As at the date of this Prospectus, KFH owns per cent. of the share capital of Kuveyt Türk, which is the largest subsidiary of KFH. As at 31 December 2017, 44.3 per cent. of the Group's operating income and 47.7 per cent. of the Group's total assets were located in Kuwait, while 34.5 per cent. of the Group's operating income and 25.6 per cent. of the Group's total assets were located in the Republic of Turkey. The Group's results of operations are, and will continue to be, generally affected by financial and economic developments not only in Kuwait but also in Turkey v

47 Kuveyt Türk's business, financial condition and results of operations have been affected by credit risks and will likely continue to be affected by credits risks, particularly if economic conditions in Turkey deteriorate. Kuveyt Türk may experience credit default arising from adverse changes in credit and recoverability that are inherent in Kuveyt Türk's banking businesses Extending financings to small to medium-sized enterprises ("SMEs") and corporate clients has historically been one of the core banking businesses of Kuveyt Türk. As of 31 December 2017, financings to SME and corporate customers constituted 81.5 per cent. of total financings (according to the Kuveyt Türk audited unconsolidated financial statements as at and for the year ended 31 December 2017). Many factors affect SMEs' and corporate clients' ability to pay their financings or meet their other obligations to Kuveyt Türk. Some of these factors, including adverse changes in consumer confidence levels due to local, national and global factors, consumer spending, banking rates, and increased market volatility, are difficult to anticipate and are outside Kuveyt Türk's control. In addition, it is generally accepted that lending to SMEs, corporate clients and retail customers represents a relatively higher degree of risk than comparable lending to other groups, and there can be no guarantee that Kuveyt Türk's non-performing financings for SMEs, corporate clients and retail customers, or any of its other customers, will not materially increase in the near to medium term, particularly if there is a deterioration in macroeconomic conditions in Turkey or if Kuveyt Türk is unable to accurately model the risk associated with the SME, corporate clients and retail customers or other customers to which it extends credit. Other factors are dependent upon Kuveyt Türk's strategy for financing growth (including sector focus) and the viability of Kuveyt Türk's internal credit application and monitoring systems. Finally, the Turkish government scheme run by the Turkish Treasury known as the Credit Guarantee Fund ("CGF") also plays an important role in Kuveyt Türk's strategy and risk assessment in SME lending space. Any adverse change to the terms of the CGF or withdrawal of the Turkish Treasury guarantee to the CGF would have a material adverse effect on the Turkish SME lending market through potentially lower availability of credit, potential adverse impact on the credit origination levels, negative market sentiment and market stagnation as well as potential issues with credit collection and recoveries, which, in turn, could have a material adverse impact on Kuveyt Türk's business, financial condition and results of operations. All of the aforementioned risks could have an adverse impact on Kuveyt Türk's business, financial condition and results of operations. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. The policy of the Central Bank of Turkey (the "CBT") on reserve requirements and interest rates could negatively affect Kuveyt Türk's business, financial condition and results of operations In order to simplify the structure of reserve requirements that are used as monetary and macro prudential policy tools, the CBT has adopted a new approach. Instead of deducting specified items from total domestic liabilities, only the items subject to reserve requirements are directly taken into account while calculating liabilities subject to reserve requirements. Thus, immaterial items, which do not have a direct impact on monetary policy but reduce the efficiency of the operational processes, have been excluded from reserve requirements coverage, as a result making the reserve requirements based on a more stringent criteria. In early 2017, the CBT took a number of measures against soaring exchange rates, with limited success. In the light of the CBT being unable to achieve the desired levels of exchange rates, it took steps to tighten the Turkish lira liquidity and suggested using a late liquidity window, which is a measure used in exceptional circumstances. As a consequence, instead of borrowing from 8 per cent. of the weekly repo auction and 8.5 per cent. interest from the overnight borrowing facility (which was 8.3 per cent. at the beginning of 2017), Turkish banks had to borrow overnight at an interest rate of 8.5 per cent. and borrow at a late liquidity window at an interest rate of 10 per cent. instead. Given these circumstances, with time, the average cost of funding from banks would increase in the desired way. As at the date of this prospectus, one-week repo rate of the CBT is 8 per cent. and the late liquidity window lending rate is per cent v

48 Kuveyt Türk might not be able to pass on any increased costs associated with such regulatory changes to its customers, particularly given the high level of competition in the Turkish banking market (see "Overview of the Turkish Banking Sector and Regulations" for further details). Accordingly, Kuveyt Türk might not be able to sustain its level of profitability in light of these regulatory changes and Kuveyt Türk's profitability might be materially adversely impacted. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. The CBT's increase in initial rates and regulatory changes such as increased reserve requirements, the non-payment of interest/returns on reserves and caps on interest rates/rates of return charged on credit cards may have an adverse impact on Kuveyt Türk's net return income, thereby exerting downward pressure on Kuveyt Türk's net return margins. New laws and regulations may increase Kuveyt Türk's cost of doing business or limit its activities and might be adopted, enforced or interpreted in a manner that could have an adverse effect on Kuveyt Türk's business, financial condition, cash flows and results of operations. In addition, such measures could also limit or reduce growth of the Turkish economy and consequently the demand for Kuveyt Türk's products and services. In addition to the recent devaluation of the Turkish lira, as a consequence of certain of these changes, Kuveyt Türk was required to increase its capital reserves and may need to access more expensive sources of financing to meet its funding requirements. Any failure by Kuveyt Türk to adopt adequate responses to these or future changes in the regulatory framework could have an adverse effect on Kuveyt Türk's business, financial condition and results of operations. In addition, non-compliance with regulatory guidelines could expose Kuveyt Türk to potential liabilities and fines and damage its reputation. All of the above factors can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Kuveyt Türk faces significant competition in the Turkish banking sector, which may result in reduced margins, volume growth and funding Although Kuveyt Türk is a participation bank (i.e. a bank operating and providing services in compliance with the principles of interest-free banking, known as participation banking) dealing in financial products that differ in many ways from the products of conventional banks, it faces significant competition from not only other participation banks, but also from conventional banks in the Turkish banking sector. As at 31 December 2017, there were a total of 51 banks (excluding the CBT) licensed to operate in Turkey, 24 of which were banks with foreign ownership (including the subsidiaries of foreign banks and joint ventures between Turkish and foreign shareholders) and five of which were participation banks. A small number of banks in the Turkish banking sector dominate the market. According to the Banking Regulation and Supervision Agency of Turkey (the "BRSA"), as at 31 December 2017, the top five banks in Turkey (in terms of asset size), two of which were state controlled, held approximately 54 per cent. of the banking sector's total credit portfolio, approximately 50 per cent. of total bank assets in Turkey and approximately 60 per cent. of total depositors in Turkey. State-controlled banks in Turkey have historically focused on government and government-related projects but are increasingly focusing on the private sector, leading to increased competition and pressure in margins. The Government of Turkey has granted approvals to two state-controlled banks to enter the participation banking market recently through the establishment of subsidiaries which operate as participation banks. Ziraat Katılım Bankası started its operations in May 2015 and Vakıf Katılım Bankası started its operations in February Those two participation banks exhibited substantial growth in a short period of time and reached a total asset size of TRY 27.6 billion. International banks have shown an increased interest in the banking sector in Turkey. For example, Standard Chartered Bank acquired Credit Agricole's Turkish banking operations (announced in August 2012), and Bank Audi of Lebanon launched retail operations in Turkey through its Odea Bank subsidiary after receiving its operating licence from the BRSA in October In December 2012, the BRSA approved the incorporation of a new bank (with a deposit taking licence) by the Bank of Tokyo- Mitsubishi UFJ, Ltd and The Bank of Tokyo-Mitsubishi UFJ, Ltd was granted an operational permit in September The Commercial Bank of Qatar (Q.S.C.) acquired per cent. of Alternatif Bank A.S. in July In August 2013, Rabobank International Holding B.V. was granted an authorisation to v

49 establish a deposit bank in Turkey. In April 2014, Industrial and Commercial Bank of China Ltd. announced that it had signed an agreement to acquire 75.5 per cent. of Tekstilbank from GSD Holding A.S. In December 2015, a Qatari commercial bank Qatar National Bank (QNB) purchased the per cent. share of Finansbank. On the other hand, in February 2017, Spanish bank BBVA purchased the 10 per cent. share of Doğuş Group in Garanti Bankası and increased its total share to per cent. in Garanti Bankası. The entry of foreign-owned banks to the sector, either directly or in collaboration with existing Turkish banks, may increase the already significant competition in the market, especially given that some of these foreign competitors have significantly greater resources and less expensive funding sources than Turkish banks. Although Kuveyt Türk has been adapting to the changing conditions based on competition to limit effects on its operations, this increased competition may have a negative impact on the margins Kuveyt Türk can charge for its products. Competitors may also direct greater resources and be more effective in the development and/or marketing of technologically advanced products and services that may compete directly with Kuveyt Türk's products and services, adversely affecting the acceptance of Kuveyt Türk's products and/or leading to adverse changes in the spending habits of Kuveyt Türk's customer base. There can be no assurances that further competitive pressures will not result in margin compression or that Kuveyt Türk will be able to keep pace with competitors' development of new products and services, which could have a material adverse effect on Kuveyt Türk's business, financial condition and results of operations and prospects. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Risk factors relating to Turkey Kuveyt Türk operations Kuveyt Türk has a number of standalone and/or programmatic debt issuances currently outstanding and may issue further debt in the future. Any claims against Kuveyt Türk under any such debt it currently has outstanding or it may put in place from time to time will be unsecured claims payable from, among other sources, Kuveyt Türk's funds in Turkey. The ability of Kuveyt Türk to make any such payments from Turkey will depend, among other factors, upon the Turkish government not having imposed any prohibitive foreign exchange controls, Kuveyt Türk's ability to obtain U.S. dollars in Turkey and Kuveyt Türk's ability to secure any applicable necessary approval from the relevant authorities, which could be affected by the circumstances described below. Any such restrictions or failure to obtain the necessary approval could affect Kuveyt Türk's ability to make payment of interest and principal under its debt instruments. Furthermore, Kuveyt Türk is predominantly engaged in business in Turkey and its results of operations and financial condition are to a large extent dependent upon the overall level of economic activity and political stability in Turkey. In recent years, Turkey has been affected by the global financial crisis and has seen a degree of domestic and international political volatility. These risks could have a material adverse effect on Kuveyt Türk's business, financial condition and results of operations and prospects. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Emerging market risks Turkey is also still generally considered by international investors to be an emerging market. In general, investing in the securities of issuers that have operations primarily in emerging markets like Turkey involves a higher degree of risk than investing in the securities of issuers with substantial operations in the United States, the countries of the EU or other similar jurisdictions. Summarised below are a number of risks relating to operating in Turkey and other emerging markets: Turkey's economy has been subject to significant inflationary pressures in the past and may become subject to significant pressures in the future; v

50 Turkey's high current account deficit may result in governmental policies to decrease economic activity; Turkey may be subject to greater risks than more developed markets, including in some cases significant legal, economic and political risks. On 1 May 2018, Global ratings agency Standard & Poor's ("S&P") downgraded Turkey's unsolicited foreign and local currency sovereign credit ratings and assigned a stable outlook. S&P stated that the downgrade was due to increasing macroeconomic imbalances, mainly in Turkey's widening debt-financed current account deficit and high inflation. S&P noted concerns over a deteriorating inflation outlook and the long-term depreciation and volatility of Turkey's exchange rate, notwithstanding the recent decision by the Central Bank of Turkey to hike its late liquidity window rate. The rating action also reflected S&P's concerns over Turkey's deteriorating external position and rising distress in the externally leveraged private sector and reflects their view of weakening in Turkey's fiscal position as a result of continued public and quasi-public stimulus to the economy. S&P stated that Turkey's institutional setting is increasingly characterized by centralized decision-making processes, while the move toward an executive presidency may raise further concerns over checks and balances, which also constrained the rating. S&P indicated that it could lower Turkey's credit ratings further if (1) external financing conditions and Turkey's exchange rate were to deteriorate further, (2) Turkey's fiscal position on a stock and flow basis were to deteriorate further should the government continue to rely on fiscal stimulus measures to support the economy, or (3) contingent liabilities increased or negatively affect the government of Turkey's balance sheet. These risks, together with the most recent and any possible future rating actions with respect to Turkey's sovereign rating, could have a material adverse effect on Kuveyt Türk's business, financial condition and results of operations and prospects. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Terrorism and conflicts Turkey and its economy are subject to external and internal unrest and the threat of terrorism Turkey is located in a region which has been subject to ongoing political and security concerns, particularly in recent years. Political uncertainty within Turkey and in certain neighbouring countries, such as Iran, Iraq, Georgia, Armenia and Syria, has historically been one of the potential risks associated with investment in securities issued by Turkey. Since December 2010, political instability has increased markedly in a number of countries in the Middle East and North Africa, such as Tunisia, Egypt, Jordan, Yemen, Syria, Iraq and Libya. Political instability in the Middle East and elsewhere remains a concern, most recently exemplified by the war in Syria, the rise and demise of the Islamic State and ongoing internal conflicts in Iraq, as well as existing tensions between Iran and Israel and growing tensions between some of the countries located in the GCC region. Unrest in those countries and regions may also have implications for the wider global economy and may negatively affect market sentiment towards other countries in the region, including Turkey and between Iran and member countries of the Gulf Cooperation Council ("GCC"). The conflict in Syria has been the subject of significant international attention and is inherently volatile and its impact and resolution is difficult to predict. In early October 2012, Turkish territory was hit by shells launched from Syria, some of which killed Turkish civilians. On 4 October 2012, the Turkish Parliament authorised the government for one year to send and assign military forces in foreign countries should such action be considered appropriate by the government, and on 3 October 2013, the authorisation was extended for one year. In November 2015, relations between Turkey and Russia deteriorated as a result of the downing of a Russian war plane on the border of Turkey and Syria. As a result, Russia has implemented a series of economic sanctions against Turkey. Any such sanctions or any future sanctions by Russia or any other country or group of countries may negatively impact Turkey's economy. In early 2014, political unrest and demonstrations in Ukraine led to a change in the national government v

51 While the United States and the EU recognised the new government, Russia claimed that the new government was illegitimate and was violating the rights of ethnic Russians living in the Crimean Peninsula and elsewhere in Ukraine. Escalating military activities in Ukraine and on its borders, including Russia effectively taking control of Crimea (and Crimea's independence vote and absorption by Russia), have combined with Ukraine's very weak economic conditions to create great uncertainty in Ukraine and the global markets. Resolution of Ukraine's political and economic conditions will likely not be obtained for some time, and the situation could even degenerate into increased violence and/or economic collapse. While not directly impacting Turkey's territory, the disputes could materially negatively affect Turkey's economy, including through its impact on the global economy and the impact it might have on Turkey's access to Russian energy supplies. Turkey has also experienced problems with domestic terrorist and ethnic separatist groups. For example, Turkey has been in conflict for many years with the People's Congress of Kurdistan, formerly known as the PKK (an organisation that is listed as a terrorist organisation by states and organisations including Turkey, the EU and the United States). On 9 January 2013, three PKK activists were killed in Paris jeopardising Turkish-Kurdish peace talks. Furthermore, tensions between Syria and Turkey have intensified following the shooting down of a Turkish aircraft by Syrian forces in June 2012 and more recently a mortar attack on the Turkish border town of Akcakale which killed five civilians. In response to this, the Turkish Parliament authorised the government on 4 October 2012 to task the military and send troops outside Turkey for a one-year period, if deemed necessary, while the United Nations Security Council issued a statement condemning the attack on Akcakale by the Syrian armed forces. Most recently, the terrorist attack in Suruc which killed 32 civilians has prompted a counter-offensive by the Turkish military in Syria and raids against the PKK have also intensified. Turkey recently also suffered a terrorist attack in one of its key tourist destinations killing 15 civilians, a number of whom were foreigners. Such circumstances and domestic terrorist attacks have had and could continue to have a material adverse effect on the Turkish economy and Kuveyt Türk's business, financial condition and results of operations. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. While regional conflicts, terrorist attacks and the threat of future terrorism have not had a major negative impact on Turkey's capital markets, the level of tourism, foreign investment and other elements of the Turkish economy, additional attacks or conflicts may occur in the future with such a negative impact which could have an adverse effect on Kuveyt Türk's business, financial condition and results of operations. While Kuveyt Türk's property and business interruption insurance covers damage to insured property directly caused by terrorism, there can be no assurance that such amounts will be sufficient to cover any losses that may occur. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Kuveyt Türk may also be affected if there are regional, political or economic events that prevent it from delivering its services. It is not possible to predict the occurrence of such events or circumstances or the impact of such occurrences and no assurance can be given that Kuveyt Türk would be able to fulfil its obligations if such events or circumstances were to occur. A general economic downturn or instability in certain sectors of the regional economy could have an adverse effect on Kuveyt Türk's business, financial condition and results of operations. These risks could have a material adverse effect on Kuveyt Türk's business, financial condition and results of operations and prospects. This, in turn, can have a material adverse effect on the Group's business, financial condition and results of operations and prospects and therefore could affect KFH's ability to perform its obligations in respect of the Transaction Documents to which it is a party. Increased political risks following the coup attempt of July 2016 may impact the business and financial prospects of Kuveyt Türk On 15 July 2016, the Turkish government was subject to an attempted coup by a group within the Turkish army. The Turkish government and the Turkish security forces (including parts of the Turkish army) took control of the situation in a short period of time and the ruling government remained in control. Following the coup attempt, there have been arrests of numerous individuals, including senior members of the military, police and judiciary, as well as suspension, dismissal, travel bans and legal proceedings against police officers, public employees and the business community. As of the date of this Prospectus, v

52 investigations with respect to the attempted coup are ongoing. Any future investigations or other restrictions may include customers of Kuveyt Türk, which could impact Kuveyt Türk's growth or such customers' ability to meet their obligations and may in turn have an adverse impact on Kuveyt Türk's financing portfolio. The ongoing investigations following the failed coup attempt and state of emergency may contribute to uncertainty about the Turkish political landscape. There might be further arrests and actions taken by the Turkish government in relation to these investigations, including changes in policies and laws. Under Article 120 of the Turkish Constitution, in the event of serious indications of widespread acts of violence aimed at the destruction of the free democratic order, a state of emergency may be declared in one or more regions of, or throughout, the country for a period not exceeding six months; however, this period may be extended. On 20 July 2016, the government declared a three-month state of emergency in the country, entitling the government to exercise additional powers. The state of emergency was extended in the years 2016, 2017 and 2018, in each case by an additional three months, and with the most recent extension is currently expected to remain effective until 19 April 2018, which may be extended further. Although Kuveyt Türk's operations have not been materially affected by the attempted coup, the impact on political and social circumstances following the attempted coup and its aftermath (including rating downgrades of Turkey) might have a negative impact on the Turkish economy and institutions and could have a material adverse effect on Kuveyt Türk's business, financial condition and results of operations (including the value of the Turkish Lira, international investors' willingness to invest in Turkey and domestic demand) and/or the value and/or market price of an investment in the Certificates. In addition, Kuveyt Türk's asset quality might be adversely affected as a result of the negative impact of the attempted coup on the Turkish tourist industry and slowing growth in the construction and energy sectors. As such, political uncertainty continues. In a referendum held on 16 April 2017, the majority of votes cast approved proposed amendments to certain articles of the Turkish Constitution including replacing the existing parliamentary system of government with an executive presidency and a presidential system. Most of the amendments are expected to be implemented by the end of As of the date of this Prospectus, any possible social, institutional and economic effects of such amendments remain uncertain. As such, political uncertainty remains elevated. There can be no assurance that the political situation in Turkey will not deteriorate. In addition, certain regulatory actions, investigations, allegations of past or current wrongdoing and similar actions (including as described below subjecting certain Turkish individuals to trial for violations of U.S. sanctions against Iran) might increase perceptions of political conflict or instability. Actual or perceived political instability in Turkey and/or other political circumstances (and related actions, rumours and/or uncertainties) could have a material adverse effect on Kuveyt Türk's or the Group's business, financial condition and/or results of operations and/or on the market price of the Certificates. Regional developments may have a material adverse effect on Kuveyt Türk's business, financial condition and results of operations Turkey is located in a region that has been subject to ongoing political and security concerns, especially in recent years. Since December 2010, political instability has increased in a number of countries in the Middle East and North Africa. The conflict in Syria has been the subject of significant international attention and is inherently volatile and its impact and resolution is difficult to predict. There have recently been military and civilian hostilities in both directions across the Syrian-Turkish border. Although there is no direct military conflict between Turkey and Syria, there can be no assurance that Turkey may use increased military force in Syria in an effort to enhance its own border security which may have political repercussions in Turkey and an adverse impact on the Turkish economy. On 25 September 2017, the Kurdish Regional Government ("KRG") in Northern Iraq held a referendum for the independence of the region administered by the Northern Iraqi Kurdish Regional Government. Turkish government officials announced that Turkey will not recognise the outcome of the referendum and might take punitive measures, including economic sanctions (e.g., cutting off the pipeline that allows the transport of oil from Northern Iraq to third countries) and closing its airspace and border crossing to Northern Iraq. On 16 October 2017, Turkey closed its airspace to the Northern Iraqi Kurdish region. As at the date of this Prospectus, the KRG have announced that it has no current intention to declare independence, although the possible political and economic impact of the referendum remains unclear v

53 On 8 October 2017, the U.S. diplomatic mission in Turkey and the Turkish diplomatic mission in the United States suspended all non-immigrant visit services for the other country's citizens. The immediate response of the markets resulted in the depreciation of Turkish lira by approximately 6 per cent. against the U.S. dollar and a decrease on BIST-I00 by approximately 3.3 per cent. On 6 November 2017, the United States' embassy in Ankara announced that the United States will resume issuing visas in Turkey on a limited basis. On the same date, the Turkish embassy in Washington made a similar announcement indicating that Turkey will resume processing visa applications of United States citizens in the United States on a limited basis. Any similar events in the future might result in (or contribute to) a deterioration of the relationship between Turkey and the United States. As such, political uncertainty is likely to continue. The events surrounding any future political developments could contribute to the volatility of Turkish financial markets and/or have an adverse effect on investors' perception of Turkey, including Turkey's ability to adopt macroeconomic reforms, support economic growth and manage domestic social conditions, which could in turn have a material adverse effect on Kuveyt Türk's business, financial condition and/or results of operations which, in turn, may have an adverse impact on the Group's business, financial condition and/or results of operations. Risks Related to the Certificates The Certificates are limited recourse obligations The Certificates are not debt obligations of the Trustee. Instead, the Certificates represent an undivided ownership interest solely in the Trust Assets. Recourse to the Trustee in respect of each Series is limited to the Trust Assets of that Series and proceeds of such Trust Assets are the sole source of payments on the relevant Certificates. Upon the occurrence of a Dissolution Event, or any early redemption of the Certificates at the option of the Certificateholders pursuant to Condition 8.4 (Dissolution at the Option of Certificateholders (Certificateholder Put Right)), the sole rights of each of the Delegate and, through the Trustee and/or the Delegate, the Certificateholders of the relevant Series will be against KFH to perform its obligations under the Transaction Documents to which it is a party. Certificateholders will have no recourse to any assets of the Trustee (other than the Trust Assets), the directors of the Trustee, KFH (to the extent that KFH fulfils all of its obligations under the Transaction Documents) in respect of any shortfall in the expected amounts due under the relevant Trust Assets, other than what is agreed under the Transaction Documents. KFH is obliged to make certain payments under the Transaction Documents to which it is a party directly to the Trustee and/or the Delegate. The Delegate will (in the name of the Trustee) have recourse against KFH to recover such payments due to the Trustee pursuant to the Transaction Documents to which it is a party. In the absence of default by the Delegate, investors have no direct recourse to KFH, through the Trustee and there is no assurance that the net proceeds of any enforcement action with respect to the Trust Assets (which, as described above, will be by way of enforcing KFH's and the Trustee's respective obligations under the Transaction Documents to which they are a party) will be sufficient to make all payments due in respect of the relevant Certificates. After enforcing or realising the rights in respect of the Trust Assets of a Series (in the manner described above) and the distribution of the net proceeds of such Trust Assets in accordance with Condition 5.2 (Application of Proceeds from Trust Assets), the obligations of the Trustee in respect of the Certificates of the relevant Series shall be satisfied and neither the Delegate nor any Certificateholder may take any further steps against the Trustee to recover any further sums in respect of such Certificates and the right to receive any such sums unpaid shall be extinguished. Furthermore, under no circumstances shall the Trustee, the Delegate or any Certificateholder be entitled in respect thereof to petition or take any steps for the winding-up of the Trustee nor have any right to cause the sale or other disposition of any of the Trust Assets except pursuant to the Transaction Documents. The sole right of the Trustee, the Delegate (acting in the name of the Trustee) and the Certificateholders (acting through the Delegate) against KFH shall be to enforce the obligation of KFH to perform its obligations under the Transaction Documents to which it is a party. As a result, the obligations of KFH under the Transaction Documents are unsecured and rank pari passu with the other unsecured indebtedness of KFH. The terms of the Certificates may be modified by a majority of Certificateholders without the consent of, or notice to, all Certificateholders The Conditions of the Certificates contain provisions for calling meetings of Certificateholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all v

54 Certificateholders, including Certificateholders who did not attend and vote at the relevant meeting and Certificateholders who voted in a manner contrary to the majority. The Master Declaration of Trust and the Conditions also provide that the Delegate may, without the consent of the Certificateholders: (a) agree to any modification of any of the provisions of the Master Declaration of Trust or the Transaction Documents that is, in the sole opinion of the Delegate, (i) of a formal, minor or technical nature or (ii) is made to correct a manifest error or (iii) is not materially prejudicial to the interests of the outstanding Certificateholders provided that such modification is, in the case of (iii), other than in respect of a Reserved Matter; or (b): (i) agree to any waiver or authorisation of any breach or proposed breach, of any of the provisions of the Declaration of Trust or the Transaction Documents; or (ii) determine that any Dissolution Event shall not be treated as such, in each case as further described in Condition 16 (Meetings of Certificateholders, Modification and Waiver). The transferability of the Certificates may be limited under applicable securities and tax laws, which may adversely affect the value of the Certificates The Certificates have not been registered under the Securities Act or the securities laws of any state of the United States or any other jurisdiction. In addition, neither the Trustee nor KFH has registered and neither intends to register as an investment company under the Investment Company Act, in reliance on the exemption set forth in Section 3(c)(7) thereof. The Certificates may not be offered, sold or otherwise transferred in the United States or to or for the account or benefit of a U.S. person other than to persons that are QIBs that are also QPs. In addition, each purchaser of a Certificate will be required to represent that it is not a "benefit plan investor" as described under "ERISA and Certain Other U.S Considerations". Each purchaser of the Certificates will also be deemed, by its acceptance of such Certificates, to have made certain representations and agreements intended to restrict transfers of the Certificates as described under "Subscription and Sale and Transfer and Selling Restrictions". It is the sole obligation of each purchaser of the Certificates to ensure that its offers and sales of the Certificates comply with all applicable securities laws. To the fullest extent permitted by law, none of the Trustee, KFH, the Arrangers or the Dealers assume any responsibility for facilitating any such distribution or offering. In addition, if at any time the Trustee or KFH determines that any owner of Certificates, or any account on behalf of which an owner of Certificates purchased its Certificates, is a person that is required to be a QIB that is also a QP and does not meet those requirements, or is a "benefit plan investor", the Trustee or KFH may (a) require that such owner's Certificates be sold or transferred to a person who: (i) is a U.S. Person who is a QIB that is also a QP that is otherwise qualified to purchase the certificate or interest therein in a transaction exempt from registration under the Securities Act; or (ii) is not a U.S. Person within the meaning of Regulation S in an offshore transaction in compliance with Regulation S; or (b) compel such transferee to sell the certificate or its interest therein to a person designated by or acceptable to the Trustee at a price equal to the lesser of: (x) the purchase price therefor paid by the original transferee; (y) 100 per cent. of the principal amount thereof; or (z) the fair market value thereof. The Trustee is a "covered fund" for purposes of the Volcker Rule, which could negatively affect the liquidity and the value of the Certificates Under Section 619 of the U.S. Dodd-Frank Act and the corresponding implementing regulations (the "Volcker Rule"), relevant "banking entities" (as defined under the Volcker Rule) are generally prohibited from, among other things, acquiring or retaining any equity, partnership, or other "ownership interest" in, or in "sponsoring", any "hedge fund" or "private equity fund", together "covered funds" (each as defined under the Volcker Rule). An "ownership interest" in a covered fund is broadly defined. In addition, in certain circumstances, the Volcker Rule restricts banking entities from entering into certain credit related transactions with covered funds. A "hedge fund" and a "private equity fund" are defined widely, and include any issuer which would be required to register as an investment company under the Investment Company Act but for section 3(c)(1) or 3(c)(7) of that Act. As the Trustee is exempt from registration under the Investment Company Act in reliance on the exemption provided by section 3(c)(7) thereof, the Trustee will be a "covered fund" and acquisition of the Certificates is likely to be considered an acquisition of an "ownership interest" in a "covered fund" (as those terms are used in the Volcker Rule). In the absence of an available exemption, it is expected that the provisions of the Volcker Rule will severely limit the ability of U.S. banking entities (including controlled affiliates of U.S. banking institutions outside the United States) to hold an ownership interest in the Trustee. The marketability and liquidity of the Certificates may be significantly impaired if there is no available exemption v

55 Any entity that is a "banking entity" as defined under the Volcker Rule and is considering an investment in ownership interests (for purposes of the Volcker Rule) of the Trustee should consult its own legal advisors and consider the potential impact of the Volcker Rule in respect of such investment. Each investor is responsible for analysing its own position under the Volcker Rule and any similar measures and none of the Trustee, the Company, the Arrangers or the Dealers makes any representation regarding such position, including with respect to the ability of any investor to acquire or hold the Certificates, now or at any time in the future. Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Prospective investors should consult their legal advisors to determine whether and to what extent: (1) the Certificates are legal investments for such prospective investors; (2) the Certificates can be used as collateral for various types of borrowing; and (3) other restrictions apply to their purchase or pledge of any Certificates. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of Certificates under any applicable risk-based capital or similar rules. The European Monetary Union may cause Certificates denominated in certain currencies to be re-denominated in euro If Certificates are issued under the Programme which are denominated in the currency of a country which, at the time of issue, is not a member of the European Monetary Union which has adopted the euro as its sole currency and, before the relevant Certificates are redeemed, the euro becomes the sole currency of that country, a number of consequences may follow, including, but not limited to, any or all of the following: (i) all amounts payable in respect of the relevant Certificates may become payable in euro; and (ii) applicable law may allow or require such Certificates to be re-denominated into euro and additional measures to be taken in respect of such Certificates. The introduction of the euro in such a country could be accompanied by a volatile interest rate and/or economic environment which could adversely affect investors in the Certificates. Any of these or any other consequences could materially and adversely affect the holders of the relevant Certificates. Certificates where denominations involve integral multiples: Individual Certificates In relation to any issue of Certificates which have denominations consisting of a minimum Specified Denomination (as specified in the applicable Final Terms) plus one or more higher integral multiples of another smaller amount, it is possible that such Certificates may be traded in amounts in excess of the minimum Specified Denomination that are not integral multiples of such minimum Specified Denomination. In such a case a holder who, as a result of trading such amounts, holds a principal amount of less than the minimum Specified Denomination in his account with the relevant clearing system, would need to purchase an additional amount of Certificates such that it holds an amount equal to at least the minimum Specified Denomination to be able to trade such Certificates. Certificateholders should be aware that Certificates which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade. If a Certificateholder holds an amount which is less than the minimum Specified Denomination in his account with the relevant clearing system at the relevant time, such Certificateholder may not receive an Individual Certificate in respect of such holding (should Individual Certificates be printed) and would need to purchase a principal amount of Certificates such that its holding amounts to at least a Specified Denomination in order to be eligible to receive an Individual Certificate. If Individual Certificates are issued, holders should be aware that Individual Certificates which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade. Risks related to Certificates which are linked to "benchmarks" The London Interbank Offered Rate ("LIBOR"), the Euro Interbank Offered Rate ("EURIBOR") and other interest rate or other types of rates and indices which are deemed to be "benchmarks" are the subject of ongoing national and international regulatory reform. Following the implementation of any such v

56 potential reforms, the manner of administration of benchmarks may change, with the result that they may perform differently than in the past, or benchmarks could be eliminated entirely, or there could be other consequences which cannot be predicted. For example, on 27 July 2017, the UK Financial Conduct Authority (the "FCA") announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021 (the "FCA Announcement"). The FCA Announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after The potential elimination of the LIBOR benchmark or any other benchmark, or changes in the manner of administration of any benchmark, could require an adjustment to the terms and conditions, or result in other consequences, in respect of any Certificates linked to such benchmark (including but not limited to Floating Rate Certificates whose interest rates are linked to LIBOR). Any such consequence could have a material adverse effect on the value of and return on any such Certificates. Compliance of the Certificates with the principles of Islamic finance The KFH Capital Shari'a Committee and the Shariah Supervisory Committee of Standard Chartered Bank have each issued a fatwa in respect of the Certificates and the related structure and mechanism described in the Transaction Documents and their compliance with Shari'a principles. However, a fatwa is only an expression of the view of the relevant Shari'a advisory board based on its experience in the subject and is not a binding opinion. There can be no assurance as to the Shari'a permissibility of the structure or the issue and the trading of the Certificates and neither the Trustee, KFH, the Delegate nor the Dealers makes any representation as to the same. Investors are reminded that, as with any Shari'a views, differences in opinion are possible. Investors are advised to obtain their own independent Shari'a advice as to whether the structure meets their individual standards of compliance and make their own determination as to the future tradability of the Certificates on any secondary market. Questions as to the Shari'a permissibility of the structure or the issue and the trading of the Certificates may limit the liquidity and adversely affect the market value of the Certificates. In addition, prospective investors are reminded that the enforcement of any obligations of any of the parties would be, if in dispute, the subject of arbitration under the Arbitration Rules of the London Court of International Arbitration (the "LCIA Rules"). Shari'a requirements in relation to interest awarded by a court In accordance with applicable Shari'a principles, each of the parties thereto will waive all and any entitlement it may have to interest awarded in its favour in any arbitral award in connection with any dispute under any of the Transaction Documents to which it is a party. Should there be any delay in the enforcement of an arbitral award given against KFH, judgment interest may accrue in respect of that delay and, as a result of the waiver referred to above, Certificateholders will not be entitled to receive any part of such interest. Investors in the Certificates must rely on DTC, Euroclear and Clearstream, Luxembourg procedures to exercise certain rights under the Certificates The Certificates of each Series will be represented on issue by one or more Global Certificates that may be deposited with a common depositary for Euroclear and Clearstream, Luxembourg or may be deposited with a nominee for DTC (see further, "Form of the Certificates"). Except in the circumstances described in each Global Certificate, investors will not be entitled to receive Certificates in definitive form. Each of Euroclear, Clearstream, Luxembourg and DTC and their respective direct and indirect participants will maintain records of the beneficial interests in each Global Certificate held through it. While the Certificates are represented by a Global Certificate, investors will be able to trade their beneficial interests only through the relevant clearing systems and their respective participants. While the Certificates are represented by Global Certificates, the Trustee will discharge its payment obligations under the Certificates by making payments through the relevant clearing systems. A holder of a beneficial interest in a Global Certificate must rely on the procedures of the relevant clearing system and its participants in relation to payments under the Certificates. Neither the Trustee nor KFH has any responsibility or liability for the records relating to, or payments made in respect of, ownership interests in any Global Certificate v

57 Holders of ownership interests in a Global Certificate will not have a direct right to vote in respect of the Certificates so represented. Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant clearing system and its participants to appoint appropriate proxies. The Trustee may, without the consent of the Certificateholders, issue additional Certificates. These additional Certificates, even if they are treated for non-tax purposes as part of the same series as the original Certificates, may be treated as a separate series for U.S. federal income tax purposes The Trustee may, without the consent of the holders of the Certificates of the relevant Series, issue additional Tranches of Certificates which may be consolidated and form a single Series with one or more Tranches previously issued. Notwithstanding the foregoing, such additional Tranches may be treated as a separate series for U.S. federal income tax purposes. In such a case, the Certificates of any such additional Tranche may be considered to have been issued with "original issue discount" for U.S. federal income tax purposes and this may reduce the market value of the Certificates of such Tranche to certain classes of investor. A secondary market may not develop for any Certificates and there may be limited liquidity for Certificateholders The Certificates may have no established trading market when issued, and one may never develop. If a market does develop, it may not be liquid. The liquidity of any market for the Certificates that may develop depends on a number of factors, including: the method of calculating the dissolution and periodic distribution amounts in respect of the Certificates of the relevant Series; the time remaining to the maturity of the Certificates of the relevant Series; the outstanding amount of the Certificates of the relevant Series; the redemption features of the Certificates of the relevant Series; and the level, direction and volatility of market interest rates generally. Therefore, investors may not be able to sell their Certificates easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. A lack of liquidity may have a material and adverse effect on the market value of Certificates. The Certificates may be subject to exchange rate risk and exchange controls The Trustee will pay Periodic Distribution Amounts and Dissolution Amounts on the Certificates in the Specified Currency. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls which could adversely affect an applicable exchange rate. The Trustee does not have any control over the factors that generally affect these risks, such as economic, financial and political events and the supply and demand for applicable currencies. In recent years, exchange rates between certain currencies have been volatile and volatility between such currencies or with other currencies may be expected in the future. However, fluctuations between currencies in the past are not necessarily indicative of fluctuations that may occur in the future. An appreciation in the value of the Investor's Currency relative to the Specified Currency would decrease: (i) the Investor's Currencyequivalent yield on the Certificates; (ii) the Investor's Currency-equivalent value of the principal payable on the Certificates; and (iii) the Investor's Currency-equivalent market value of the Certificates. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate as well as the availability of a specified foreign currency at the time of any payment of any Periodic Distribution Amount or Dissolution Amounts on a Certificate. As a result, investors may receive less amounts under the Certificates than expected, or no such amounts. Even if there are no actual exchange controls, it is possible that the Specified Currency for any particular Certificate may not be available at such Certificate's maturity v

58 Credit ratings may not reflect all risks One or more independent credit rating agencies may assign credit ratings to the Certificates. The ratings may not reflect the potential impact of all risks related to the structure, market, additional factors discussed in this Base Prospectus and other factors that may affect the value of the Certificates. There is no assurance that the ratings will remain in effect for any given period of time or that the ratings will not be lowered or withdrawn entirely if circumstances in the future so warrant. In general, European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the European Union and registered under the CRA Regulation (and such registration has not been withdrawn or suspended). Such general restriction will also apply in the case of credit ratings issued by non- European Union credit rating agencies, unless the relevant credit ratings are endorsed by a European Union-registered credit rating agency or the relevant non-european Union rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended). The list of registered and certified rating agencies published by the European Securities and Markets Authority ("ESMA") on its website in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency being included in such list as there may be delays between certain supervisory measures being taken against a relevant rating agency and publication of an updated ESMA list. Limited information with respect to the credit rating agencies and ratings will be disclosed in the applicable Final Terms. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by its assigning rating agency at any time. A change of law may materially adversely affect the Certificates The Transaction Documents (excluding the Master Purchase Agreement as supplemented by the applicable Supplemental Purchase Agreement (which are governed by Kuwaiti law)) and the Conditions are based on English law in effect as at the date of this Base Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of any Certificates nor whether any such change could adversely affect the ability of the Trustee to make payments under the Certificates or of KFH to comply with its obligations under the Transaction Documents. Investments in emerging markets are subject to greater risk than investments in more developed markets Investors in emerging markets should be aware that these markets are subject to greater risks than more developed markets, including, but not limited to, in some cases significant legal, economic and political risks. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in the light of those risks, their investment is appropriate. Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risk involved. The Certificates may be subject to early dissolution In certain circumstances the Certificates may be subject to early dissolution. In the event that the Trustee or KFH would be obliged to increase the amounts payable in respect of any Series of Certificates due to certain changes affecting taxation in a Relevant Jurisdiction or any political subdivision or authority therein or thereof having the power to tax as provided or referred to in Condition 10 (Taxation), or in either case any change in the application of official interpretation of such laws or regulations, of which a change or amendment becomes effective on or after the date of issuance of the first Tranche of the relevant Series of Certificates, and in connection therewith, KFH delivers an exercise notice to the Trustee in accordance with the relevant provisions of the Sale and Substitution Undertaking, the Trustee may redeem all but not some only of the outstanding Certificates of such Series in accordance with Condition 8.2 (Early Dissolution for Taxation Reasons). If so provided in the applicable Final Terms, a Series may be redeemed early at the option of KFH. In the case of Certificates with an additional optional dissolution feature, KFH may choose to redeem such Certificates when its cost of borrowing is lower than the profit rate on the Certificates. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective profit rate as high v

59 as the profit rate on the Certificates being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time. In addition, such an optional dissolution feature could limit the market value of Certificates prior to or during any period when KFH may elect to redeem Certificates as the market value of those Certificates generally would not rise substantially above the Dissolution Amount at which they can be redeemed. Risks relating to the Wakala Portfolio Assets Ownership of the Wakala Portfolio Assets In order to comply with the requirements of Shari'a, an interest in the Wakala Portfolio Assets will pass to the Trustee under the relevant Master Purchase Agreement, as supplemented by the relevant Supplemental Purchase Agreement. The Trustee will declare a trust in respect of such Wakala Portfolio Assets and the other relevant Trust Assets in favour of the Certificateholders of the relevant Series pursuant to the Master Declaration of Trust, as supplemented by the relevant Supplemental Declaration of Trust. Accordingly, Certificateholders will, through the ownership interest of the Trustee, have a beneficial ownership interest in the relevant Wakala Portfolio Assets unless the transfer of the Wakala Portfolio Assets is prohibited by, or is ineffective under, any applicable law (see " Transfer of the Wakala Portfolio Assets" below). No investigation or enquiry will be made and no due diligence will be conducted in respect of any Wakala Portfolio Assets. The Wakala Portfolio Assets will be selected by KFH in its absolute discretion (subject to the provisions contained in the Transaction Documents) and the Certificateholders will have no ability to influence such decision. Only limited representations will be obtained from KFH in respect of the Wakala Portfolio Assets of any Series. In particular, the precise terms of such Wakala Portfolio Assets or the nature of the assets sold or held will not be known (including whether there are any restrictions on transfer or any further obligations required to be performed by KFH to give effect to the transfer of the ownership interest in the Wakala Portfolio Assets). No steps will be taken to perfect the transfer of the ownership interest (including registration) in the Wakala Portfolio Assets with any relevant regulatory authority in Kuwait or the UAE, or otherwise give notice to any lessee or obligor in respect thereof. The obligors in respect of such Wakala Portfolio Assets may have rights of set-off or counterclaim against KFH in respect of such Wakala Portfolio Assets. In addition, if and to the extent that a third party is able to establish a direct claim against the Trustee, the Delegate or any Certificateholders on the basis of any legal or beneficial ownership interest in the Wakala Portfolio Assets of any Series, KFH has agreed in the Declaration of Trust to indemnify the Trustee, the Delegate and the Certificateholders against any such liabilities. In the event that KFH is unable to meet any such claims then the Certificateholders may suffer losses in excess of the original face amount invested. Transfer of the Wakala Portfolio Assets No investigation has been or will be made as to whether any Wakala Portfolio Assets may be transferred as a matter of the law governing the contracts (if any), the law of the jurisdiction where such assets are located or any other relevant law. No investigation will be made to determine if any Supplemental Purchase Agreement will have the effect of transferring the Wakala Portfolio Assets of the relevant Series of Certificates. KFH has agreed in the Purchase Undertaking to indemnify the Trustee for the purposes of redemption in full of the outstanding Certificates in the event that any transfer of an ownership interest in any Wakala Portfolio Assets is found to be ineffective. In addition, KFH has agreed in the Purchase Undertaking that, to the extent that the sale and purchase or transfer of any ownership interest in any Wakala Portfolio Assets is not (or is alleged not to be) effective in any jurisdiction for any reason, it will make payment of an amount equal to the relevant exercise price. Nevertheless, as indicated earlier, the Certificateholders will not have any rights of enforcement as against the Trust Assets and their rights are limited to enforcement against KFH of its obligation to purchase the Wakala Portfolio Assets pursuant to the terms of the Purchase Undertaking, and to pay all outstanding amounts of the Deferred Sale Price pursuant to the terms of the Master Murabaha Agreement and relevant Murabaha Contract (if applicable to the relevant Series). Accordingly, any such restriction v

60 on the ability of KFH to perfect the sale of the Wakala Portfolio Assets to the Trustee is likely to be of limited consequence to the rights of the Certificateholders. Risks relating to the Murabaha Contracts Taxation risk If applicable to a Series of Certificates, pursuant to the terms of the Master Murabaha Agreement, the Trustee (as Seller) shall enter into a Commodity Murabaha Investment with KFH (as Buyer) using no more than 49 per cent. of the issue proceeds of the relevant Series. Upon the receipt of and pursuant to a purchase order from the Buyer, the Seller will purchase certain commodities from certain suppliers at the spot price and the Buyer will irrevocably undertake to purchase such commodities from the Seller in consideration for a Deferred Sale Price. Upon purchasing and prior to on-selling any commodities, the Buyer will for a limited period assume the legal and beneficial title to such commodities. It is possible that the acquisition of the commodities, or the disposal thereof, may be, or may by virtue of a change in law become, subject to increased taxation. To the extent that taxation costs arise in respect of the Buyer's acquisition, ownership or disposition of the commodities, there may be a material adverse effect on the Buyer's ability to perform its obligations (including payment obligations) under the Master Murabaha Agreement and, in turn, in respect of the Certificates. Price fluctuation risk The price at which a commodity changes hands is determined as a function of its market as a whole, and both under-supply and over-supply of a commodity can have significant implications for the price at which it is traded. If, after the Buyer has purchased any commodities, the market for the commodities becomes over-supplied or flooded, the price at which the commodities can be on-sold or traded subsequently may be adversely affected. Similarly, if after the Buyer has purchased the commodities, additional governmental or import or export licences become applicable to the market for the commodities, the price at which the commodities can be sold or traded subsequently may also be adversely affected. The effect of such price fluctuations may have a material adverse impact on the Buyer's ability to secure satisfactory on-sale prices for the commodities and, in turn, have a material adverse effect on the Buyer's ability to perform its obligations (including payment obligations) under the Master Murabaha Agreement and, in turn, in respect of the Certificates. Commodity risk Upon purchasing commodities from the Seller and prior to selling the commodities to an independent third party purchaser, the Buyer will for a limited period assume the operational risks associated with taking ownership of the commodities. These risks include, without limitation, that: the commodities may suffer damage of a nature that reduces their value whilst in storage or during transit; the Buyer's storage and/or transfer of the commodities may cause environmental damage, such as pollution, leakage or contamination, which may breach environmental laws or regulations making the Buyer susceptible to legal or financial recourse; the commodities may be liable to theft and or vandalism; and the commodities may be damaged by terrorist attacks, natural disasters, fire or other catastrophic events that are beyond the control of the Buyer. To the extent that these risks are not mitigated, or fully covered, by any insurance taken out in respect of the commodities, the occurrence of any of these events may have a material adverse effect on the value of the commodities and/or the Buyer's ability to on-sell the commodities which may, in turn, affect the Buyer's ability to perform its obligations (including payment obligations) under the Master Murabaha Agreement and, in turn, in respect of the Certificates v

61 Risks relating to Certificates denominated in Renminbi Certificates denominated in Renminbi ("RMB Certificates") may be issued under the Programme. RMB Certificates contain particular risks for potential investors, including: Renminbi is not freely convertible; there are significant restrictions on remittance of Renminbi into and out of the PRC which may adversely affect the liquidity of RMB Certificates Renminbi is not freely convertible at present. The government of the PRC (the "PRC Government") continues to regulate conversion between Renminbi and foreign currencies, including the Hong Kong dollar. However, there has been significant reduction in control by the PRC Government in recent years, particularly over trade transactions involving import and export of goods and services as well as other frequent routine foreign exchange transactions. These transactions are known as current account items. On the other hand, remittance of Renminbi into and out of the PRC for the settlement of capital account items, such as capital contributions, debt financing and securities investment, is generally only permitted upon obtaining specific approvals from, or completing specific registrations or filings with, the relevant authorities on a case-by-case basis and is subject to a strict monitoring system. Regulations in the PRC on the remittance of Renminbi into and out of the PRC for settlement of capital account items are being developed. Although from 1 October 2016, Renminbi has been added to the Special Drawing Rights basket created by the International Monetary Fund, there is no assurance that the PRC Government will continue to gradually liberalise control over cross-border remittance of Renminbi in the future, that the schemes for Renminbi cross-border utilisation will not be discontinued or that new regulations in the PRC will not be promulgated in the future which have the effect of restricting or eliminating the remittance of Renminbi into or out of the PRC. Despite the Renminbi internationalisation pilot programme and efforts in recent years to internationalise the currency, there can be no assurance that the PRC Government will not impose interim or long-term restrictions on the cross-border remittance of Renminbi. In the event that funds cannot be repatriated out of the PRC in Renminbi, this may affect the overall availability of Renminbi out of the PRC and the ability of the Trustee to source Renminbi to finance its obligations under RMB Certificates. There is only limited availability of Renminbi outside the PRC, which may affect the liquidity of RMB Certificates and the Trustee's ability to source Renminbi outside the PRC to service such RMB Certificates As a result of the restrictions by the PRC Government on cross-border Renminbi fund flows, the availability of Renminbi outside the PRC is limited. While the People's Bank of China ("PBOC") has entered into agreements (the "Settlement Arrangements") on the clearing of Renminbi business with financial institutions (the "RMB Clearing Banks") in a number of financial centres and cities, including but not limited to Hong Kong, has established the Cross-Border Inter-Bank Payments System (CIPS) to facilitate cross-border Renminbi settlement and is further in the process of establishing Renminbi clearing and settlement mechanisms in several other jurisdictions, the current size of Renminbi denominated financial assets outside the PRC is limited. There are restrictions imposed by PBOC on Renminbi business participating banks in respect of crossborder Renminbi settlement, such as those relating to direct transactions with PRC enterprises. Furthermore, Renminbi business participating banks do not have direct Renminbi liquidity support from PBOC, although PBOC has gradually allowed participating banks to access the PRC's onshore inter-bank market for the purchase and sale of Renminbi. The Renminbi Clearing Banks only have limited access to onshore liquidity support from PBOC for the purpose of squaring open positions of participating banks for limited types of transactions and are not obliged to square for participating banks any open positions resulting from other foreign exchange transactions or conversion services. In cases where the participating banks cannot source sufficient Renminbi through the above channels, they will need to source Renminbi from outside the PRC to square such open positions. Although it is expected that the offshore Renminbi market will continue to grow in depth and size, its growth is subject to many constraints as a result of PRC laws and regulations on foreign exchange. There is no assurance that new PRC regulations will not be promulgated or the settlement arrangements will not v

62 be terminated or amended in the future which will have the effect of restricting the availability of Renminbi outside the PRC. The limited availability of Renminbi outside the PRC may affect the liquidity of the RMB Certificates. To the extent the Trustee is required to source Renminbi in the offshore market to service the RMB Certificates, there is no assurance that the Trustee will be able to source such Renminbi on satisfactory terms, if at all. If Renminbi is not available in certain circumstances as described in the Conditions applicable to RMB Certificates, the Trustee can make payments in other currencies as set out in the Terms and Conditions of the Certificates. Investment in RMB Certificates is subject to exchange rate risks The value of Renminbi against other foreign currencies fluctuates from time to time and is affected by changes in the PRC and international political and economic conditions as well as many other factors. Recently, the PBOC implemented changes to the way it calculates the Renminbi's daily mid-point against the U.S. dollar to take into account market-maker quotes before announcing such daily mid-point. This change, and others that may be implemented, may increase the volatility in the value of the Renminbi against foreign currencies. All payments/repayments of profit and principal will be made in Renminbi with respect to RMB Certificates unless otherwise specified. As a result, the value of these Renminbi payments may vary with the changes in the prevailing exchange rates in the marketplace. If the value of Renminbi depreciates against another foreign currency, the value of the investment made by a holder of the Renminbi Certificates in that foreign currency will decline. Investment in the Renminbi Certificates is subject to currency risk If the Issuer is not able, or it is impracticable for it, to satisfy its obligation to pay profit and principal on the Renminbi Certificates as a result of Inconvertibility, Non-transferability or Illiquidity (each as defined in the Conditions), the Issuer shall be entitled, on giving not less than five or more than 30 calendar days' irrevocable notice to the investors prior to the due date for payment, to settle any such payment in U.S. dollars on the due date at the U.S. dollar Equivalent (as defined in the Conditions) of any such profit or principal, as the case may be. An investment in RMB Certificates is subject to interest/profit rate risk The PRC Government has gradually liberalised the regulation of interest/profit rates in recent years. Further liberalisation may increase interest/profit rate volatility. In addition, the interest/profit rates for Renminbi in markets outside the PRC may significantly deviate from the interest/profit rate for Renminbi in the PRC as a result of foreign exchange controls imposed by PRC laws and regulations and prevailing market conditions. The RMB Certificates may carry a fixed profit rate or a floating profit rate. Consequently, the trading price of such RMB Certificates will vary with fluctuations in interest/profit rates. If a holder of RMB Certificates tries to sell any RMB Certificates before their maturity, they may receive an offer that is less than the amount invested. Payments in respect of RMB Certificates will only be made to investors in the manner specified in the terms and conditions of the relevant Certificates All Renminbi payments to investors in respect of the RMB Certificates will be made solely: (i) for so long as the RMB Certificates are represented by a common depositary for Euroclear and Clearstream, Luxembourg, or with such other clearing system (or a depository, custodian or nominee thereof) specified in the applicable Final Terms, by transfer to a Renminbi bank account maintained in the Renminbi Settlement Centre(s) specified in the applicable Final Terms in accordance with prevailing rules and procedures of the relevant clearing system; or (ii) when the RMB Certificates are in definitive form, by transfer to a Renminbi bank account maintained in the Renminbi Settlement Centre(s) specified in the applicable Final Terms in accordance with prevailing rules and regulations. The Trustee cannot be required to make payment by any other means (including in any other currency or in bank notes, by cheque or draft or by transfer to a bank account in the PRC). Gains on the transfer of the Renminbi Certificates may become subject to income taxes under PRC tax laws Under the PRC enterprise income tax law, the PRC individual income tax law and the relevant implementing rules, as amended from time to time, any gain realised on the transfer of Renminbi v

63 Certificates by non-prc resident enterprise or individual holders may be subject to PRC enterprise income tax ("EIT") or PRC individual income tax ("IIT") if such gain is regarded as income derived from sources within the PRC. The PRC enterprise income tax law levies EIT at the rate of 20 per cent. of the gains derived by such non-prc resident enterprise from the transfer of Renminbi Certificates but its implementation rules have reduced the enterprise income tax rate to 10 per cent. The PRC individual income tax law levies IIT at a rate of 20 per cent. of the gains derived by such non-prc resident individual holder from the transfer of Renminbi Certificates. However, uncertainty remains as to whether the gain realised from the transfer of Renminbi Certificates by non-prc resident enterprise or individual holders would be treated as income derived from sources within the PRC and become subject to the EIT or IIT. This will depend on how the PRC tax authorities interpret, apply or enforce the PRC enterprise income tax law, the PRC individual income tax law and the relevant implementing rules. According to the arrangement between the PRC and Hong Kong, for avoidance of double taxation, holders who are residents of Hong Kong, including enterprise holders and individual holders, will not be subject to EIT or IIT on capital gains derived from a sale or exchange of the Certificates. Therefore, if non-prc enterprise or individual resident holders are required to pay PRC income tax on gains derived from the transfer of Renminbi Certificates, unless there is an applicable tax treaty between the PRC and the jurisdiction in which such non-prc enterprise or individual resident holders of Renminbi Certificates reside that reduces or exempts the relevant EIT or IIT, the value of their investment in Renminbi Certificates may be materially and adversely affected. Risks Relating to Enforcement The insolvency regime in Kuwait is relatively untested with limited guidance as to how the legislative framework will be applied in practice by the courts in Kuwait The Transaction Documents (excluding the Master Purchase Agreement and any Supplemental Purchase Agreement in respect of a Series (which are governed by Kuwaiti law)), are governed by English law. Notwithstanding this, in the event of KFH's insolvency, Kuwaiti bankruptcy law will apply and such law may adversely affect KFH's ability to perform its obligations under the Transaction Documents to which it is a party. Further, obtaining a final bankruptcy judgment in Kuwait may take several years. There is little precedent to predict how any claims on behalf of holders of the Certificates against KFH would be resolved in the event of KFH's insolvency and therefore there can be no assurance that holders of the Certificates will receive payment of their claims in full or at all in these circumstances. There is a risk that the Kuwaiti Courts will assume jurisdiction The Certificates and the Transaction Documents (excluding the Master Purchase Agreement and any Supplemental Purchase Agreement in respect of a Series (which are governed by Kuwaiti law)) each contain a provision to the effect that disputes arising under them will be referred to arbitration under the London Court of International Arbitration Rules (the "LCIA Rules"). Nevertheless, if a claim is brought before the courts of Kuwait (the "Kuwaiti Courts"), the Kuwaiti Courts may still accept jurisdiction in any suit, action or proceedings in the situations identified in Articles 23, 24 and 26 of Kuwait Law No. 38 of 1980 (the Code of Civil and Commercial Procedure), as amended (the "Kuwaiti Code of Civil and Commercial Procedure"). These situations include (a) where the defendant in the proceedings expressly or impliedly accepted the jurisdiction of the Kuwaiti Courts, (b) where the defendant is a Kuwaiti national or is resident, domiciled or has a place of business or a chosen domicile in Kuwait or (c) if such legal proceedings relate to property (movable or immovable) located in Kuwait, an obligation is created, executed or required to be performed in Kuwait or a bankruptcy is declared in Kuwait. There can therefore be no assurance that the Kuwaiti Courts will decline jurisdiction to adjudicate any dispute under the Certificates or the Transaction Documents, notwithstanding that the Certificates and the Transaction Documents (excluding the Master Purchase Agreement and any Supplemental Purchase Agreement in respect of a Series) provide that the relevant parties have agreed that any disputes arising thereunder shall be referred to arbitration under the LCIA Rules. The risk that the Kuwaiti Courts would assume jurisdiction on the proceedings is reduced, but not eliminated, in the event that, (a) the respondent to a claim raises procedural defences as regards the jurisdiction, and (b) the existence of previous or simultaneous proceedings in, or res judicata v

64 judgments from, a competent jurisdiction outside Kuwait, on the subject matter and involving the same disputing parties. Certificateholders will only be able to enforce their contractual rights under the Certificates through arbitration before the London Court of International Arbitration ("LCIA") and LCIA awards relating to disputes arising under the Certificates may not be enforceable in Kuwait The payments under the Certificates are dependent upon receipt by the Trustee of all amounts due from KFH under the relevant Transaction Documents and payment by the Trustee of all amounts due to investors in the manner contemplated under the Certificates and the relevant Transaction Documents. If the Trustee or, where applicable, KFH, fails to fulfil its obligations under the Certificates and/or the Transaction Documents to which it is a party, it may be necessary for the Delegate (or, in the limited circumstances described in Condition 13 (Realisation of Trust Assets)) to bring an action against the Trustee and/or KFH to enforce their respective obligations and/or to claim damages, as appropriate, which may be costly and time consuming. Disputes arising under the Certificates and/or the Transaction Documents will be referred to arbitration under the LCIA Rules. Certificateholders will therefore only have recourse to LCIA arbitration in order to enforce their contractual rights under the Certificates, and will not have the right to bring proceedings relating to the Certificates before the English courts. Kuwait is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). A foreign arbitral award will be recognised and enforced in Kuwait (without re-trial or examination of the merits of the case) in accordance with the Kuwaiti Code of Civil and Commercial Procedure. Article 200 of the Kuwaiti Code of Civil and Commercial Procedure provides that foreign arbitral awards are to be recognised and enforced under the same conditions (applied mutatis mutandis to foreign arbitral awards) as are applied in respect of the enforcement of foreign judgments under Article 199 of the Kuwaiti Code of Civil and Commercial Procedure save that, in addition, the subject matter of the award must be considered arbitrable under Kuwaiti law and the arbitral award must be enforceable in the jurisdiction in which it was rendered. Article 199 of the Kuwaiti Code of Civil and Commercial Procedure requires that: (a) the courts of the jurisdiction where the foreign judgment is rendered must afford reciprocal treatment to judgments rendered by the Kuwaiti Courts; (b) the foreign judgment must be rendered by a competent court in accordance with the applicable laws of the foreign jurisdiction; (c) the parties to the proceedings must have been duly summoned to appear and were duly represented; (d) the foreign judgment must be final and non-appealable (res judicata) according to the law of the jurisdiction where it was rendered; (e) the judgment must not contradict any prior judgment rendered by the Kuwaiti Courts; and, finally (f) the judgment must not contain anything in conflict with the general morals or public policy of Kuwait. The requirement to establish reciprocal enforcement under Article 199 of the Kuwaiti Code of Civil and Commercial Procedure with respect to the recognition and enforcement of arbitral awards issued in England is satisfied as England and Kuwait are both signatories to the New York Convention. Enforcement of a foreign arbitral award in Kuwait requires the filing of an enforcement action in the Kuwaiti Courts. Proceedings before the Kuwaiti Courts, including enforcement actions, can take a relatively long time before a final and non-appealable judgment is issued. There have not been many occasions in which the Kuwaiti Courts have been asked to consider the enforcement of foreign arbitral awards (notwithstanding that on those occasions when they have been asked to do so they have shown that they will follow the provisions of the Kuwaiti Code of Civil and Commercial Procedure and enforce an arbitral award) and so there is not a large body of decided cases in which the practical implications of complying with Article 199 of the Kuwaiti Code of Civil and Commercial Procedure have been analysed. Risks Relating to the DIFC The Trustee is incorporated in the DIFC and the legal framework applicable remains largely untested The legal and regulatory regimes applicable to the Trustee and other companies domiciled in the DIFC, including the relevant companies laws, remain largely untested. Consequently, it is not clear how some of these laws and regulations will be interpreted and implemented by the DIFC courts and bodies in practice. These uncertainties could affect the ability of the Delegate to enforce Certificateholders' rights or the v

65 Trustee's ability to defend itself against claims by others, including regulators, judicial authorities and third parties who may challenge the Trustee's compliance with applicable laws, decrees and regulations. Risks Relating to Tax Taxation risks on payments Payments made by KFH to the Trustee under the Transaction Documents to which it is a party or by the Trustee in respect of the Certificates could become subject to withholding or deduction for or on account of taxation. The Wakala Agreement, the Master Murabaha Agreement (if applicable to a Series), the Purchase Undertaking and the Sale and Substitution Undertaking each require KFH to pay additional amounts in the event that any withholding or deduction is required by applicable law to be made in respect of payments made by it to the Trustee under those documents which are intended to fund Periodic Distribution Amounts and Dissolution Amounts. Condition 10 (Taxation) provides that, subject to certain exceptions, the Trustee is required to pay additional amounts in respect of any such withholdings or deductions imposed by the UAE (including the DIFC) in certain circumstances. In the event that the Trustee fails to gross up for any such withholding or deduction on payments due in respect of the Certificates to Certificateholders, KFH has, pursuant to the Master Declaration of Trust, unconditionally and irrevocably undertaken (irrespective of the payment of any fee), as a continuing obligation, to pay to the Trustee (for the benefit of the Certificateholders) an amount equal to the liabilities of the Trustee in respect of any and all additional amounts required to be paid in respect of the Certificates pursuant to Condition 10 (Taxation) in respect of any withholding or deduction in respect of any tax as set out in that Condition. The circumstances described above may entitle KFH and the Trustee to redeem the Certificates pursuant to Condition 8.2 (Early Dissolution for Taxation Reasons). See "Risks Relating to the Structure of a Particular Series of Certificates The Certificates may be subject to early dissolution" for a description of the consequences thereof. Foreign Account Tax Compliance Act withholding may affect payments on the Certificates Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a "foreign financial institution" may be required to withhold on certain payments it makes ("foreign passthru payments") to persons that fail to meet certain certification, reporting, or related requirements. A number of jurisdictions (including the United Arab Emirates and the State of Kuwait) have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA ("IGAs"), which modify the way in which FATCA applies in their jurisdictions. Under the provisions of IGAs as currently in effect, a foreign financial institution in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA from payments that it makes. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as the Certificates, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Certificates, are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Certificates, such withholding would not apply prior to 1 January 2019 and Certificates treated as representing a beneficial interest in indebtedness which are issued on or prior to the date that is six months after the date on which final regulations defining "foreign passthru payments" are filed with the U.S. Federal Register generally would be "grandfathered" for purposes of FATCA withholding unless materially modified after such date. However, if additional Certificates (as described under Condition 20 (Further Issues)) that are not distinguishable from previously issued Certificates are issued after the expiration of the grandfathering period and are subject to withholding under FATCA, then withholding agents may treat all Certificates, including the Certificates offered prior to the expiration of the grandfathering period, as subject to withholding under FATCA. Certificateholders should consult their tax advisors regarding how these rules may apply to their investment in the Certificates. In the event any withholding would be required pursuant to FATCA or an IGA with respect to payments on the Certificates, no person will be required to pay, as a result of the withholding, additional amounts such as those described above under "Risks Relating to Tax Taxation risks on payments" v

66 STRUCTURE DIAGRAM AND CASH FLOWS Set out below is a simplified structure diagram and description of the principal cash flows relating to the Certificates. This does not purport to be complete and is qualified in its entirety by reference to, and must be read in conjunction with, the more detailed information appearing elsewhere in this Base Prospectus. Potential investors are referred to the Conditions and the detailed descriptions of the relevant Transaction Documents set out in the "Summary of the Principal Transaction Documents" for a fuller description of certain cash flows and for an explanation of the meaning of certain capitalised terms used below. Potential investors should read this entire Base Prospectus carefully, especially the risks of investing in Certificates issued under the Programme discussed under "Risk Factors". Wakala Agreement KFH as Wakeel Master Murabaha Agreement KFH as Purchaser 8. C ost Price (no gr eate r than 49% of Series Issuance) Broker 2 Commodity Sale Agreement 7. Commodities 12. Purchase Undertaking/ Sale Undertaking (sale of assets) 13. Exe rcise Price 10. Wakala Asset Revenues 3a. Supplemental Purchase Agreement 3. No less than 51% of Series Issuance used to purchase Tangible Assets/ KFH SUKUK COMPANY SPC LIMITED as Issuer and Trustee 9.Deferred Sale Price 6. Commodities under Murabaha Contract 4. Cost Price (no greater than 49% of Series Issuance) 5. Commodities Broker 1 Commodity Purchase Agreement 1. Certificates 2. S erie s Issuance Investors as Certificateholders 11. Periodic Distribution amounts 14. Dissolution Amount Master Declaration of Trust and Supplemental Trust Deed Asset movement Cash movement v

67 Payments by the Certificateholders and the Trustee On the issue date of a Tranche (the "Issue Date"), the Certificateholders will pay the issue price in respect of the Certificates (the "Issue Price") to the Trustee. The Trustee will use the Issue Price of each Series as follows: (a) (b) an amount (if any) as specified in the applicable Final Terms (the "Murabaha Investment Amount"), will be used to purchase certain Shari'a-compliant commodities (the "Commodities") through the Commodity Agent and the Trustee will sell such Commodities to KFH (in its capacity as buyer, the "Buyer") on a deferred payment basis for a sale price specified in a letter of offer and acceptance (the "Deferred Sale Price") pursuant to a murabaha contract (the "Murabaha Contract") (such sale of Shari'a-compliant commodities by the Trustee to KFH and all of the Trustee's rights and entitlements against KFH (in its capacity as buyer) in connection therewith being the "Commodity Murabaha Investment"); and the remaining portion of the Issue Price, as specified in the applicable Final Terms (the "Purchase Price"), will be used to purchase and accept the transfer and conveyance from KFH (in its capacity as seller, the "Seller") of the Seller's interests, rights, title, benefits and entitlements, present and future, in, to and under certain Eligible Wakala Assets specified in the relevant Supplemental Purchase Agreement (the "Initial Wakala Assets") provided that at least 51 per cent. of the Issue Price shall be used to acquire Tangible Assets. The following assets: (a) (b) Initial Wakala Assets (as may be substituted from time to time) and any additional Eligible Wakala Assets (including Additional Wakala Assets) acquired from time to time in accordance with the Transaction Documents, all revenues from which comprise amounts in the nature of sale, capital, investments or principal payments (including, without limitation, any total loss and expropriation related insurance (including Islamic insurance) proceeds and any indemnity payments) and any amounts in respect of an Impaired Wakala Asset Exercise Price (as defined in the Purchase Undertaking) (the "Principal Revenues") and any investment deposit made with any Shari'a-compliant financial institution (the "Shari'a-Compliant Investments") in accordance with the Wakala Agreement (together, the "Wakala Portfolio Assets"); and (if applicable to the relevant Series) the Commodity Murabaha Investment, shall together constitute the assets of the Certificates in respect of the relevant Series (the "Sukuk Assets"). The Trustee has, pursuant to the terms of the Wakala Agreement, appointed KFH as its agent (in such capacity the "Wakeel") to perform certain services set out in the Wakala Agreement (the "Wakala Services") in respect of the Wakala Portfolio Assets of each Series. Periodic Distribution Payments The Wakeel will record: (i) all Principal Revenues from the Wakala Portfolio Assets of each Series in a book-entry ledger account (the "Principal Collection Account"); and (ii) all Income Revenues from the Wakala Portfolio Assets of each Series in a book-entry ledger account (the "Income Collection Account"). On the business day prior to each Periodic Distribution Date, the Wakeel shall use amounts standing to the credit of the Income Collection Account to pay to the Transaction Account (having first (i) repaid or paid any amounts advanced to the Trustee by way of Liquidity Facility (as defined below) and (ii) paid any claims, losses, costs and expenses properly incurred or suffered by the Wakeel or other payments made by the Wakeel on behalf of the Trustee in providing the Wakala Services (the "Wakeel Liabilities Amount") for the relevant Return Accumulation Period) an amount which is intended to be sufficient to fund the Periodic Distribution Amount payable by the Trustee under the Certificates of the relevant Series on the Periodic Distribution Date falling one business day after such date (the "Required Amount") and any such amount paid into the Transaction Account shall be applied by the Trustee for that purpose. If on the business day prior to a Periodic Distribution Date the amounts standing to the credit of the Income Collection Account (having first (i) repaid or paid any Liquidity Facility (as defined below) and v

68 (ii) paid any Wakeel Liabilities Amount for the relevant Return Accumulation Period) are greater than the relevant Required Amount, such excess returns shall be credited by the Wakeel to a separate book-entry ledger account (such account, the "Reserve Account"). If on the business day prior to a Periodic Distribution Date the amounts standing to the credit of the Income Collection Account are less than the relevant Required Amount, the Wakeel shall deduct amounts standing to the credit of the Reserve Account towards funding such shortfall and, if such amounts standing to the credit of the Reserve Account are insufficient for such purpose, the Wakeel may provide to the Trustee, or procure from a third party, Shari'a-compliant funding in an amount equal to the remaining shortfall (a "Liquidity Facility"). Distribution Payments On the business day prior to the relevant Scheduled Dissolution Date in relation to each Series: (a) (b) if applicable to the relevant Series, the outstanding Deferred Sale Price shall be due and payable; and/or the Trustee will have the right under the Purchase Undertaking to require KFH to purchase all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio Assets in consideration for payment by KFH of the Exercise Price (as defined in the Purchase Undertaking). The outstanding Deferred Sale Price payable by KFH under the Master Murabaha Agreement (if applicable to the relevant Series) and/or the Exercise Price payable by KFH under the Purchase Undertaking, are intended to fund the Dissolution Distribution Amount payable by the Trustee under the Certificates. The Certificates in relation to any Series may be redeemed in whole prior to the relevant Scheduled Dissolution Date for the following reasons: (a) (b) redemption following a Dissolution Event; and an early redemption for taxation reasons. In each case, the amounts payable by the Trustee on the due date for dissolution will be funded in the same manner as for the payment of the Dissolution Distribution Amount on the Scheduled Dissolution Date. The Certificates in relation to any Series may also be redeemed in whole or in part prior to the relevant Scheduled Dissolution Date for the following reasons: (a) (b) if so specified in the applicable Final Terms, at the option of the Certificateholders; and if so specified in the applicable Final Terms, at the option of KFH. Upon the exercise of such right, the Trustee shall redeem the relevant Certificates for an amount equal to the sum of the face amounts of such Certificates and the Periodic Distribution Amounts on such Certificates (if any) accrued and unpaid to the date of redemption, together with any amounts specified in the applicable Final Terms. Such redemption of the Certificates will be funded in a similar manner to that described above for the payment of Periodic Distribution Amounts and the Dissolution Distribution Amount through: (i) if applicable to the relevant Series, a proportionate amount of the outstanding Deferred Sale Price becoming immediately due and payable; and/or (ii) the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under a proportionate amount of the Wakala Portfolio Assets being sold by the Trustee to KFH pursuant to the Purchase Undertaking or the Sale Undertaking at a purchase price such that the aggregate amounts received by the Trustee are sufficient to pay the amount payable in respect of the Certificates being redeemed. Following the redemption of the Certificates in full, the Wakeel shall be entitled to retain any amounts standing to the credit of the Reserve Account for its own account as an incentive payment for acting as Wakeel v

69 FORM OF THE CERTIFICATES The Certificates of each Series will be in registered form. The Certificates will be issued to persons that are not U.S. persons in reliance on the exemption from registration provided by Regulation S, and to QIBs that are also QPs in reliance on Rule 144A or otherwise in private transactions that are exempt from the registration requirements of the Securities Act. Global Certificates Form of Certificates The Certificates of each Series offered and sold in reliance on Regulation S, which will be sold to persons who are not U.S. persons, will initially be represented by beneficial interests in an Unrestricted Global Certificate. Prior to expiry of the distribution compliance period (as defined in Regulation S) applicable to each Series of Certificates, beneficial interests in a Unrestricted Global Certificate may not be offered or sold to, or for the account or benefit of, a U.S. person save as otherwise provided in Condition 3 (Form, Denomination, Title and Transfer) and may not be held otherwise than through Euroclear or Clearstream, Luxembourg and such Unrestricted Global Certificate will bear a legend regarding such restrictions on transfer. The Certificates of each Series offered and sold in the United States or to U.S. persons may only be offered and sold in private transactions to QIBs who are also QPs, in each case acting for their own account or for the account of one or more QIBs who are also QPs. The Certificates of each Series sold to QIBs who are also QPs in reliance on Rule 144A will initially be represented by a Restricted Global Certificate. By the acquisition of a beneficial interest in such certificate, the purchaser thereof will be deemed to represent, among other things, that it is a QIB and also a QP and that, if in the future it determines to transfer such beneficial interest, it will transfer such interest in accordance with the procedures and restrictions contained in the Restricted Global Certificate. No beneficial interest in an Unrestricted Global Certificate may be transferred to a person who takes delivery in the form of a beneficial interest in a Restricted Global Certificate unless: (i) the transfer is to a person that is both a QIB and a QP, (ii) such transfer is made in reliance on Rule 144A, and (iii) the transferor provides the Registrar with a written certification to the effect that the transferor reasonably believes that the transferee is a QIB that is also a QP, that the transfer is being made in a transaction meeting the requirements of Rule 144A and that such transaction is in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. No beneficial interest in the Restricted Global Certificates may be transferred to a person who takes delivery in the form of a beneficial interest in an Unrestricted Global Certificate unless the transfer is to a person who is not a U.S. person in an offshore transaction in reliance on Regulation S and the transferor provides the Registrar with a written certification to the effect that the transfer is being made to a person who is not a U.S. person in accordance with Regulation S. Global Certificates will either: (i) be deposited with a custodian for, and registered in the name of a nominee of, DTC; or (ii) be deposited with a common depositary for, and registered in the name of a common nominee of, Euroclear and Clearstream, Luxembourg, as specified in the applicable Final Terms. Persons holding beneficial interests in Global Certificates will be entitled or required, as the case may be, under the circumstances described below, to receive physical delivery of definitive Certificates in fully registered form. Payments Each payment in respect of the Global Certificates will be made to the person shown as the holder in the relevant Register at the close of business (in the relevant clearing system) on the Clearing System Business Day before the due date for such payment (the "Record Date") where "Clearing System Business Day" means a day on which each clearing system for which the Global Certificates are being held is open for business. None of the Trustee, KFH, the Delegate, the Principal Paying Agent, any Paying Agent or any Registrar will have any responsibility or liability for any aspect of the records relating to or payments or deliveries made on account of beneficial ownership interests in the Global Certificates or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests v

70 Exchange for Individual Certificates Interests in a Global Certificates will be exchangeable (free of charge), in whole but not in part, for definitive Certificates of a particular Series only upon the occurrence of an Exchange Event. For these purposes, "Exchange Event" means that: (i) a Dissolution Event (as defined in Condition 12 (Dissolutions Events)) has occurred and is continuing; (ii) in the case of Certificates registered in the name of a nominee for DTC, either DTC has notified the Trustee that it is unwilling or unable to continue to act as depository for the Certificates or DTC has ceased to constitute a clearing agency registered under the Exchange Act and, in either case, no alternative clearing system is available; (iii) in the case of Certificates registered in the name of a nominee for a common depositary for Euroclear and Clearstream, Luxembourg, the Trustee has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of fourteen (14) days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and, in any such case, no successor clearing system is available; or (iv) the Trustee has or will become subject to adverse tax consequences which would not be suffered were the Certificates represented by the Global Certificates in definitive form and a certificate to that effect signed by two Directors of the Trustee is given to the Delegate. The Trustee will promptly give notice to Certificateholders in accordance with Condition 18 (Notices) if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, DTC, Euroclear and/or Clearstream, Luxembourg or any person acting on their behalf (acting on the instructions of any holder of an interest in such Global Certificates) may give notice to the Registrar requesting exchange and, in the event of the occurrence of an Exchange Event as described in (ii) and (iii) above, the Trustee may also give notice to the Registrar requesting exchange. Any such exchange shall occur not later than ten (10) days after the date of receipt of the first relevant notice by the Registrar. Individual Certificates issued in exchange for a beneficial interest in the Restricted Global Certificate shall bear the legends applicable to transfers pursuant to Rule 144A, as set out under "Subscription and Sale and Transfer and Selling Restrictions Transfer Restrictions". Delivery Upon the transfer, exchange, or replacement of a definitive Certificate bearing the legend referred to under "Subscription and Sale and Transfer and Selling Restrictions Transfer Restrictions", or upon specific request for removal of the legend on a definitive Certificate, the Trustee will deliver only definitive Certificates that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Trustee and the Registrar such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Trustee, that neither the legend nor the restrictions on transfer set out therein are required to ensure compliance with the provisions of the Securities Act and the Investment Company Act. The same transfer restrictions outlined herein and in "Subscription and Sale and Transfer and Selling Restrictions Transfer Restrictions" are applicable to any definitive Certificates. Meetings The holder of Certificates represented by a Global Certificate shall (unless such Global Certificate represents only one Certificate) be treated as being two persons for the purposes of any quorum requirements of a meeting of Certificateholders. All Certificateholders are entitled to one vote in respect of each integral currency unit of the Specified Currency of the Certificates comprising such Certificateholder's holding, whether or not represented by a Global Certificate. Cancellation Cancellation of any Certificate represented by a Global Certificate that is required by the Conditions to be cancelled (other than upon its redemption) will be effected by reduction in the aggregate face amount of the relevant Global Certificate in the relevant register of the Certificateholders, whereupon the face amount thereof shall be reduced for all purposes by the amount so cancelled and endorsed. Certificateholder Put option If the Certificateholder Put Option is specified as applicable in the applicable Final Terms, the Certificateholder Put Option may be exercised by the holder of the Global Certificate giving notice to the relevant Registrar or the relevant Transfer Agent of the face amount of Certificates in respect of which the v

71 option is exercised and presenting the Global Certificate within the time limits specified in Condition 8.4 (Dissolution at the Option of the Certificateholders (Certificateholder Put Right)). Notices So long as any Certificates are represented by a Global Certificate and such Global Certificate is held on behalf of a clearing system, notices to the Certificateholders of that Series may be given by delivery of the relevant notice to that clearing system for communication by it to entitled accountholders in substitution for publication as required by the Conditions or by delivery of the relevant notice to the Certificateholders of that Series. Any such notice shall be deemed to have been given to the Certificateholders on the third day after the day on which such notice is delivered to the relevant clearing system as aforesaid. The Trustee shall also ensure that notices are duly published in a manner that complies with any relevant rules of any stock exchange or other relevant authority on which the Certificates are for the time being, or by which they have for the time being been, admitted to trading. Transfer of Interests Interests in a Global Certificates may, subject to compliance with all applicable restrictions, be transferred to a person who wishes to hold such interest in another Global Certificate. No beneficial owner of an interest in a Global Certificates will be able to transfer such interest, except in accordance with the applicable procedures of DTC and/or Euroclear and/or Clearstream, Luxembourg, in each case to the extent applicable. The Certificates are also subject to the restrictions on transfer set forth therein and will bear a legend regarding such restrictions, see "Subscription and Sale and Transfer and Selling Restrictions Transfer Restrictions". General Any reference herein to Euroclear and/or Clearstream, Luxembourg and/or DTC shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Final Terms or as may otherwise be approved by the Trustee, KFH and the Principal Paying Agent. No Certificateholder shall be entitled to proceed directly against, or provide instructions to the Delegate to proceed against the Trustee, KFH under any Transaction Document to which either of them is party unless the Delegate, having become bound so to proceed, fails so to do within a reasonable period and such failure is continuing. In addition, holders of interests in such Global Certificate credited to their accounts with DTC may require DTC to deliver definitive Certificate in registered form in exchange for their interest in such Global Certificate in accordance with DTC's standard operating procedures. Under no circumstances shall the Delegate or any Certificateholder have any right to cause the sale or other disposition of any of the Trust Assets and the sole right of the Delegate and the Certificateholders against the Trustee, KFH shall be to enforce their respective obligations under the Transaction Documents. The Trustee may agree with any Dealer that relevant Certificates may be issued in a form not contemplated by the Terms and Conditions of the Certificates in which event a new Base Prospectus or a supplement to the Base Prospectus, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Certificates v

72 FORM OF FINAL TERMS [MIFID II PRODUCT GOVERNANCE Solely for the purposes of [the/each] manufacturer's product approval process, the target market assessment in respect of the Trust Certificates has led to the conclusion that: (i) the target market for the Trust Certificates is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, "MiFID II"); and (ii) all channels for distribution of the Trust Certificates to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Trust Certificates (a distributor) should take into consideration the manufacturer['s/s'] target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Trust Certificates (by either adopting or refining the manufacturer['s/s'] target market assessment) and determining appropriate distribution channels.] PROHIBITION OF SALES TO EEA RETAIL INVESTORS The Certificates are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area ("EEA"). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; (ii) a customer within the meaning of Directive 2002/92/EC ("IMD"), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the "Prospectus Directive"). Consequently, no key information document required by Regulation (EU) No 1286/2014 (the "PRIIPs Regulation") for offering or selling the Certificates or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Certificates or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. Final Terms dated [ ] APPLICABLE FINAL TERMS KFH Sukuk Company SPC Limited Issue of [Aggregate face amount of Series] [Title of Certificates] under the U.S.$3,000,000,000 Trust Certificate Issuance Programme PART A CONTRACTUAL TERMS Terms used herein shall be deemed to be defined as such for the purposes of the Terms and Conditions of the Certificates set forth in the base prospectus dated 16 May 2018 (the "Base Prospectus") [and the supplement(s) to it dated [ ]] which [together] constitute[s] a base prospectus for the purposes of the Prospectus Directive (Directive 2003/71/EC), as amended (the "Prospectus Directive"). This document constitutes the Final Terms of the Certificates described herein [for the purposes of Article 5.4 of the Prospectus Directive] * and must be read in conjunction with such Base Prospectus [as so supplemented]. Full information on the Trustee, KFH and the offer of the Certificates is only available on the basis of the combination of these Final Terms and the Base Prospectus [as so supplemented]. The Base Prospectus [and the supplement(s) to it dated [ ]] [and these Final Terms] ** [is][are] available for viewing on the website of the Central Bank of Ireland ( and during normal business hours at the registered office of the Trustee at c/o Maples Fund Services (Middle East) Limited, Office 616, 6 th Floor, Liberty House, Dubai International Financial Centre, P.O. Box , Dubai, United Arab Emirates and copies may be obtained during normal business hours from the registered office of the Principal Paying Agent at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom. 1. Issuer, Trustee and Purchaser: KFH Sukuk Company SPC Limited 2. Seller, Obligor, Buyer and Kuwait Finance House K.S.C.P. ("KFH") * To be included only if the Certificates are to be admitted to listing on the official list, and to trading on the regulated market, of the Euronext Dublin or other regulated market for the purposes of the Prospectus Directive. ** To be included only if the Certificates are to be admitted to listing on the official list, and to trading on the regulated market, of the Euronext Dublin or other regulated market for the purposes of the Prospectus Directive v

73 Wakeel: 3. (a) Series Number: [ ] (b) Tranche Number: [ ]/[Not Applicable] (c) Date on which the Certificates will be consolidated and form a single Series: [The Certificates will be consolidated and form a single Series with [ ] on [the Issue Date]/[the date that is 40 days after the Issue Date]]/[Not Applicable] 4. Specified Currency or Currencies: [ ] 5. Aggregate Face Amount of: (a) Series: [ ] (b) Tranche: [ ]/[Not Applicable] 6. Issue Price: 100 per cent. of the Aggregate Face Amount 7. (a) Specified Denominations: [ ] (b) Calculation Amount: [ ] 8. (a) Issue Date: [ ] (b) Profit Commencement Date: [ ]/[Issue Date][specify other] 9. Scheduled Dissolution Date: [ ] 10. Periodic Distribution Amount Basis: a [[ ] per cent. Periodic Distribution Amount in accordance with applicable Condition 7.1 (Fixed Rate Certificates Provisions)] [[ ] +/- [ ] per cent. Periodic Distribution Amount in accordance with applicable Condition 7.2 (Floating Rate Certificates Provisions)] (further particulars specified below in paragraph 15/16) 11. Dissolution Basis: The Certificates will be redeemed at 100 per cent. of their aggregate face amount 12. Put/Call Options: [Not Applicable] [Certificateholder Put Right] [Optional Dissolution Right] [(further particulars specified below in paragraph 17/18)] 13. (a) Status: The Certificates are direct, unsecured and limited recourse obligations of the Trustee The payment obligations of KFH (in any capacity) under the Transaction Documents are direct, unsecured and unsubordinated obligations in the manner described in Condition 4 (Status and Limited Recourse) (b) Date of Trustee board approval for issuance of Certificates and entry into the related [ ] v

74 (c) Transaction Documents obtained: Date of KFH board approval for entry into the related Transaction Documents to which it is a party obtained: [ ] PROVISIONS RELATING TO PERIODIC DISTRIBUTIONS PAYABLE 14. Fixed Rate Certificate Provisions: [Applicable]/[Not Applicable] (a) Profit Rate[(s)]: [ ] per cent. per annum payable [annually]/[semiannually]/[quarterly]/[monthly]/[in arrear] (b) Periodic Distribution Date(s): [[ ] [and [ ]] in each year up to and including the Scheduled Dissolution Date]/[adjusted in accordance with the Modified Following Business Day Convention] (Insert modification wording for Renminbi denominated fixed rate Certificates, which are subject to the Modified Following Business Day Convention) (c) Fixed Amount(s): [[ ] per Calculation Amount] (Insert the following alternative wording if Certificates are issued in Renminbi) [Each Fixed Amount is calculated by multiplying the product of the Profit Rate and the Calculation Amount by the Day Count Fraction and rounding the resultant figure to the nearest CNY 0.01, with CNY being rounded upwards.] (d) Broken Amount(s): [[ ] per Calculation Amount, payable on the Periodic Distribution Date falling [in]/[on] [ ]]/[Not Applicable] (e) Day Count Fraction: [Actual/Actual (ICMA)] [Actual/Actual (ISDA)] [Actual/365 (Fixed)] [Actual/360] [30/360] [30E/360] [Eurobond Basis] [30E/360 (ISDA)] (Insert [Actual/365 (Fixed)] for Renminbi denominated fixed rate Certificates) (f) Profit Rate Determination Date(s): [[ ] in each year]/[not Applicable] 15. Floating Rate Certificate Provisions: [Applicable]/[Not Applicable] (a) Specified Period(s)/Specified Periodic Distribution Dates: [[ ] [, [ ] and [ ]] in each year up to and including the Scheduled Dissolution Date]/[,[in each case] subject to adjustment in accordance with the Business Day Convention set out in (c) below/, not subject to adjustment, as the Business Day Convention in (c) below is specified to be Not Applicable] v

75 (b) (c) (d) Business Day Convention: Additional Business Centre(s): Screen Rate Determination: [Following Business Day Convention]/[Modified Following Business Day Convention]/[Modified Business Day Convention]/[Preceding Business Day Convention]/[FRN Convention]/[Floating Rate Convention]/[Eurodollar Convention]/[Not Applicable] [Not Applicable]/[ ] [Applicable]/[Not Applicable] (i) (ii) (iii) Reference Rate: Profit Rate Determination Date(s): Relevant Screen Page: [ ] [currency][number] months(s) [LIBOR/LIBID/LIMEAN/EURIBOR/KIBOR/HIBOR/SIBOR /AUD LIBOR/JPY LIBOR/CNH HIBOR/GBP LIBOR/CHF LIBOR/CAD LIBOR/SAIBOR/EIBOR] [ ] [ ] (iv) Relevant Time: [ ] (e) ISDA Determination: [Applicable]/[Not Applicable] (i) (ii) Floating Rate Option: Designated Maturity: [ ] [ ] (iii) Reset Date: [ ] (f) Linear Interpolation: [Not Applicable]/[Applicable] [The Profit Rate for the [[long][short]][[first][last]] Return Accumulation Period shall be calculated using Linear Interpolation] (g) Margin(s): [ ] per cent. per annum (h) Minimum Profit Rate: [[ ] per cent. per annum]/[not Applicable] (i) Maximum Profit Rate: [[ ] per cent. per annum]/[not Applicable] (j) Day Count Fraction: [Actual/Actual (ICMA)] [Actual/Actual (ISDA)] [Actual/365 (Fixed)] [Actual/360] [30/360] [30E/360] [Eurobond Basis] [30E/360 (ISDA)] v

76 (k) Calculation Agent (party responsible for calculating the Profit Rate(s) and/or Periodic Distribution Amount(s)): [Principal Paying Agent]/[ ] PROVISIONS RELATING TO DISSOLUTION 16. Optional Dissolution Right: [Applicable]/[Not Applicable] (a) (b) (c) (d) Dissolution Distribution Amount(s) of each Certificate: Optional Dissolution Amount Percentage: Optional Dissolution Date(s): If redeemable in part: [Dissolution Distribution Amount][[ ] per Calculation Amount] [ ] per cent. [Any Periodic Distribution Date]/[ ] (i) (ii) Minimum Optional Dissolution Amount: Maximum Optional Dissolution Amount: [ ]/[Not Applicable] [ ]/[Not Applicable] 17. Certificateholder Put Right: [Applicable]/[Not Applicable] (a) (b) Certificateholder Put Right Date(s): Dissolution Distribution Amount(s) of each Certificate: [Any Periodic Distribution Date]/[ ] [Dissolution Distribution Amount][[ ] per Calculation Amount] 18. Dissolution following a Tax Event: (a) Dissolution Distribution Amount(s) of each Certificate: [Dissolution Distribution Amount][[ ] per Calculation Amount] 19. Dissolution Distribution Amount on Scheduled Dissolution Date or following the occurrence of a Dissolution Event: [Dissolution Distribution Amount][[ ] per Calculation Amount] v

77 GENERAL PROVISIONS APPLICABLE TO THE CERTIFICATES 20. Form of Certificates: Registered Form Certificates: [Unrestricted Global Certificate registered in the name of a nominee for [DTC]/[a common depositary for Euroclear and Clearstream, Luxembourg] and exchangeable for Certificates in definitive registered form in the limited circumstances specified in the Unrestricted Global Certificate] [Restricted Global Certificate registered in the name of a nominee for [DTC]/[a common depositary for Euroclear and Clearstream, Luxembourg] and exchangeable for Certificates in definitive registered form in the limited circumstances specified in the Restricted Global Certificate] [Reg S Compliance Category [2]]/[Rule 144A]; [TEFRA Not Applicable] 21. Additional Financial Centre(s) or other special provisions relating to payment dates: [Not Applicable]/[ ] PROVISIONS IN RESPECT OF THE TRUST ASSETS 22. Wakala Portfolio on the Issue Date: (a) (b) Tangible Asset Percentage: Intangible Asset Percentage: [ ] per cent. [ ] per cent. [Commodity Purchase Price under the relevant Murabaha Contract: [ ] /Not Applicable] 23. Initial Asset Portfolio on the Issue Date 24. (a) [Additional Exercise Price:] The Initial Asset Portfolio as scheduled to the Supplemental Purchase Agreement specified below. Purchase Price in respect of Initial Asset Portfolio: [ ] [[ ]/Not Applicable] (b) [Commodity Purchase Price:] [[ ]/Not Applicable] 25. Trust Assets: Condition 5.1 applies 26. Details of Transaction Account: Transaction Account No: [ ] with [bank] for Series No.: [1]/[2]/[3] 27. Other Transaction Document Information: (a) (b) Supplemental Declaration of Trust: Supplemental Purchase Agreement: Supplemental Declaration of Trust dated [ ] between the Trustee, KFH and the Delegate Supplemental Purchase Agreement dated [ ] between the Purchaser and KFH v

78 (c) (d) [Purchase Order and Letters of Offer and Acceptance: [Additional Sale Agreement: Purchase Order dated [ ] from KFH (as "Buyer") to [Trustee]. (as "Seller"), Letter of Offer dated [ ] from the Seller to the Buyer and Letter of Acceptance dated [ ] from the Buyer to the Seller] Additional Sale Agreement dated [ ] between the Trustee (as purchaser) and KFH (as seller)] SIGNED on behalf of KFH SUKUK COMPANY SPC LIMITED By:... (director/authorised signatory) By:... (director/authorised signatory) SIGNED on behalf of KUWAIT FINANCE HOUSE K.S.C.P. By:... By:... Duly authorised Duly authorised v

79 PART B OTHER INFORMATION 1. LISTING AND ADMISSION TO TRADING (a) Listing and admission to trading: [Application [has been/is expected to be] made by the Trustee (or on its behalf) for the Certificates to be admitted to trading on the Main Securities Market of Euronext Dublin with effect from [ ]]/[Not Applicable] (b) Estimate of total expenses related to admission to trading: [ ] /[Not Applicable] 2. RATINGS [Fitch: [ ]] [Moody's: [ ]] [Each of [ ] is established in the European Union and is registered under Regulation (EC) No. 1060/2009 (as amended).] [The Certificates to be issued are unrated.] 3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE [Save for any fees payable to the [Manager[s]]/[Dealer[s]], so far as the Trustee, KFH are aware, no person involved in the issue of the Certificates has an interest material to the offer. The [Manager[s]]/[Dealer[s]] and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform other services for the Trustee, KFH or their affiliates in the ordinary course of business for which they may receive fees.] 4. [PROFIT OR RETURN (only Certificates to which provisions of Condition 7.1 (Fixed Rate Certificates Provisions) apply)] Indication of profit or return: [[ ] per cent. per annum The profit or return is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future profit or return.]/[not Applicable]] 5. HISTORIC RATES Details of historic [LIBOR/LIBID/LIMEAN/EURIBOR/KIBOR/HIBOR/SIBOR/AUD LIBOR/JPY LIBOR/CNH HIBOR/GBP LIBOR/CHF LIBOR/CAD LIBOR/SAIBOR/EIBOR] rates can be obtained from [Reuters.]/[Not Applicable] 6. OPERATIONAL INFORMATION (a) ISIN: [ ] (b) Common Code: [ ] (c) Any clearing system(s) other than Euroclear Bank SA/NV and Clearstream Banking S.A. and the relevant identification number(s): [Not Applicable]/[ ] (d) Delivery: Delivery [against]/[free of] payment (e) Names and addresses of additional Paying Agent(s) (if any): [ ]/[Not Applicable] v

80 (f) Prohibition of Sales to EEA Retail Investors: [Applicable] /[Not Applicable] 7. THIRD PARTY INFORMATION [[ ] has been extracted from [ ]. The Trustee, KFH each confirm that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by [ ], no facts have been omitted which would render the reproduced information inaccurate or misleading.]/[not Applicable] v

81 TERMS AND CONDITIONS OF THE CERTIFICATES The following is the text of the terms and conditions that, subject to completion and as modified in accordance with the provisions of the applicable Final Terms, will apply to each Global Certificate and shall be applicable to the Certificates in definitive form (if any) issued in exchange for the Global Certificate(s) representing each Series. The applicable Final Terms will be endorsed upon, or attached to, each Global Certificate and each Certificate in definitive form (if any). 1. Introduction Programme: KFH Sukuk Company SPC Limited (in its capacities as issuer and as trustee, the "Trustee"), has established a trust certificate issuance programme (the "Programme") for the issuance of trust certificates (the "Certificates"), from time to time representing obligations of Kuwait Finance House K.S.C.P. ("KFH"), in a maximum aggregate face amount of U.S.$3,000,000,000 (or the equivalent in other currencies calculated as described in the programme agreement between the Trustee, KFH and the Dealers (as defined and named therein) dated 16 May 2018 (the "Programme Agreement")), or such other maximum aggregate face amount as may be increased in accordance with the terms of the Programme Agreement. As used herein, "Tranche" means Certificates which are identical in all respects (including as to listing and admission to trading) and "Series" means a Tranche of Certificates together with any further Tranche or Tranches of Certificates which: (a) are expressed to be consolidated and form a single series; and (b) have the same terms and conditions or terms and conditions which are the same in all respects save for the amount and date of the first payment of Periodic Distribution Amounts (as defined below) thereon and the date from which Periodic Distribution Amounts start to accrue. In these Conditions, references to "Certificates" shall be references to the Certificates (whether in global form as a Restricted Global Certificate (as defined herein) and/or an Unrestricted Global Certificate (as defined herein), as the context may require (each a "Global Certificate"), or in definitive form as definitive Certificates (each an "Individual Certificate")) which are the subject of the applicable Final Terms. 1.2 Final Terms: Certificates issued under the Programme are issued in Series. Each Series is the subject of final terms (the "Final Terms") which supplements these terms and conditions (the "Conditions"). Each Series may comprise one or more Tranches issued on different Issue Dates (as defined below). The terms and conditions applicable to any particular Series of Certificates are these Conditions as supplemented by the applicable Final Terms. 1.3 Declaration of Trust: The Certificates are constituted by a master declaration of trust dated 16 May 2018 between the Trustee, KFH and Citibank, N.A., London Branch in its capacity as donee of certain powers and as the Trustee's delegate (the "Delegate", which expression shall include all persons for the time being the delegate or delegates under such master declaration of trust) (the "Master Declaration of Trust") as supplemented by a supplemental declaration of trust entered into on the date of issue of the relevant Certificates (the "Issue Date") in respect of the relevant Series (the "Supplemental Declaration of Trust" and, together with the Master Declaration of Trust, the "Declaration of Trust"). 1.4 Agency Agreement: An agency agreement (as amended or supplemented as at the Issue Date, the "Agency Agreement") dated 16 May 2018 has been entered into in relation to the Programme between the Trustee, KFH, the Delegate, Citibank, N.A., London Branch as initial principal paying agent, paying agent, transfer agent and calculation agent, Citigroup Global Markets Deutschland AG as registrar and the other agents named in it. 1.5 Other Transaction Documents: These Conditions are subject to the detailed provisions of the Declaration of Trust, the Agency Agreement and the other Transaction Documents (as defined below). The Certificateholders (as defined below) are bound by, and are deemed to have notice of, all the provisions applicable to them in the Transaction Documents. Copies of the Transaction Documents are available for inspection, on prior notice, during normal business hours at the Specified Office of the Principal Paying Agent v

82 1.6 Authorisation: Each initial Certificateholder, by its acquisition and holding of its interest in a Certificate, shall be deemed to authorise and direct the Trustee, on behalf of the Certificateholders: (i) to apply the proceeds of the issue of the Certificates towards the purchase of Sukuk Assets (as defined below) in accordance with the provisions of the Transaction Documents; and (ii) to enter into each Transaction Document to which it is a party, subject to the terms and conditions of the Declaration of Trust and these Conditions. 2. Definitions and Interpretation 2.1 Definitions: Unless defined herein or the context otherwise requires, capitalised words and expressions used but not defined herein shall have the meaning given to them in the Declaration of Trust and the Agency Agreement. In addition, for the purposes of these Conditions, the following expressions have the following meanings: "Accounts" means, in the case of KFH, its then latest audited consolidated financial statements prepared in accordance with the Accounting Principles and, in the case of the relevant Subsidiary, its then latest audited consolidated (if available) or non-consolidated financial statements, provided that if audited financial statements for any Subsidiary have not been prepared in respect of any relevant period, Accounts shall, in relation to that Subsidiary, mean its management accounts for the relevant period; "Accounting Principles" means IFRS, as adopted by, and in accordance with, the CBK Regulations; "Additional Business Centre(s)" means the city or cities specified as such in the applicable Final Terms; "Additional Financial Centre(s)" means the city or cities specified as such in the applicable Final Terms; "Agents" means the Principal Paying Agent, the Calculation Agents, the Registrar and the Transfer Agents or any of them and shall include such Agent or Agents as may be appointed from time to time under the Agency Agreement; "Authorised Signatory" has the meaning given to it in the Master Declaration of Trust; "Broken Amount" has the meaning given in the applicable Final Terms; "Business Day" means: (a) (b) (c) in relation to any sum payable in Renminbi, any day (other than a Saturday, Sunday or public holiday) on which commercial banks and foreign exchange markets are open for business and settle Renminbi payments generally in the relevant Renminbi Settlement Centre and are not authorised or obligated by law or executive order to be closed; in relation to any sum payable in euro, a TARGET Settlement Day and a day on which commercial banks and foreign exchange markets settle payments generally in each (if any) Additional Business Centre; and in relation to any sum payable in a currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for business (including dealing in foreign exchange and foreign currency deposits) in London, in the Principal Financial Centre of the relevant currency and in each (if any) Additional Business Centre; "Business Day Convention" has the meaning given to it in Condition 7.7 (Business Day Convention); "Calculation Agent" means, in relation to any Series of Certificates, the institution appointed as calculation agent for the purposes of such Certificates and named as such in the applicable Final Terms, in the case of the Principal Paying Agent pursuant to the Agency Agreement, in the case of a Dealer, pursuant to the Programme Agreement; v

83 "Calculation Amount" has the meaning given to in the applicable Final Terms; "Cancellation Notice" means a cancellation notice given pursuant to the terms of the Sale and Substitution Undertaking; "CBK" means the Central Bank of Kuwait; "CBK Regulations" means the regulations of the Government of Kuwait for financial services institutions regulated by the CBK requiring adoption of all IFRS requirements except the IAS 39 "Financial Instruments: Recognition and Measurement" requirement for a collective provision, which has been replaced by the CBK's requirement for a minimum general provision as described under the accounting policy for impairment of financial assets; "Certificateholder" has the meaning given in Condition 3.2 (Title to Certificates); "Certificateholder Put Exercise Notice" has the meaning given to it in Condition 8.4 (Dissolution at the Option of Certificateholders (Certificateholder Put Right)); "Certificateholder Put Right" means the right specified in Condition 8.4 (Dissolution at the Option of Certificateholders (Certificateholder Put Right)); "Certificateholder Put Right Date" means, in relation to any exercise of the Certificateholder Put Right: (i) in the case of Fixed Rate Certificates, any date, or the date(s) specified as such in the applicable Final Terms; and (ii) in the case of Floating Rate Certificates, any Periodic Distribution Date, or the Periodic Distribution Dates specified as such in the applicable Final Term; "Clearstream, Luxembourg" means Clearstream Banking S.A.; "Commodities" means any of the commodities traded over the counter, which comprise any Shari'a compliant London Metal Exchange approved non-ferrous base metals, platinum group metals, or other Shari'a compliant commodities acceptable to KFH and the Trustee, which, in each case, must be kept in London Metal Exchange approved, non-united Kingdom bonded warehouses or secure vaults; "Commodity Agency Agreement" means the commodity agency agreement dated 16 May 2018 between the Trustee and Citi Islamic Investment Bank E.C., Bahrain; "Commodity Murabaha Investment" means, in relation to a Series, the sale of certain Commodities by the Trustee to KFH (in its capacity as the Buyer (as defined in the Master Murabaha Agreement)), which Commodities were initially purchased by the Trustee using a proportion of the proceeds of the issue of the Certificates, pursuant to the Master Murabaha Agreement and having the term set out in the relevant Murabaha Contract; "Commodity Purchase Agreement" means the commodity purchase agreement dated 16 May 2018 between Citi Islamic Investment Bank E.C. and DD&CO Limited; "Commodity Sale Agreement" means the commodity sale agreement dated 16 May 2018 between KFH and Condor Trade Limited; "Corporate Services Agreement" means the corporate services agreement dated 16 April 2018 between the Trustee and the Corporate Service Provider; "Corporate Service Provider" means Maples Fund Services (Middle East) Limited; "Day Count Fraction" means, in respect of the calculation of an amount of profit on any Certificates for any period of time (from and including the first day of such period to but excluding the last) (whether or not constituting a Return Accumulation Period, the "Calculation Period"), such day count fraction as specified in the applicable Final Terms and: v

84 (a) (i) (ii) (A) (B) if "Actual/Actual (ICMA)"is so specified, means: where the Calculation Period is equal to or shorter than the Determination Period during which it falls, the actual number of days in the Calculation Period divided by the product of: (1) the actual number of days in such Determination Period; and (2) the number of Determination Periods in any year; and where the Calculation Period is longer than one Determination Period, the sum of: the actual number of days in such Calculation Period falling in the Determination Period in which it begins divided by the product of: (1) the actual number of days in such Determination Period; and (2) the number of Determination Periods in any year; and the actual number of days in such Calculation Period falling in the next Determination Period divided by the product of: (1) the actual number of days in such Determination Period; and (2) the number of Determination Periods in any year, where: "Determination Period" means the period from and including a Determination Date in any year to but excluding the next Determination Date; and "Determination Date" means the date(s) specified as such in the applicable Final Terms or, if none is so specified, the Periodic Distribution Date(s); (b) (c) (d) (e) if "Actual/Actual (ISDA)" is so specified, means the actual number of days in the Calculation Period divided by 365 (or, if any portion of the Calculation Period falls in a leap year, the sum of: (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366; and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365); if "Actual/365 (Fixed)" is so specified, means the actual number of days in the Calculation Period divided by 365; if "Actual/360" is so specified, means the actual number of days in the Calculation Period divided by 360; if "30/360" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows: Day Count Fraction = [ 360 ( Y Y )] + [ 30 [( M M )] + ( D D )] where: "Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls; "Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; "M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls; "M2" is the calendar month, expressed as number, in which the day immediately following the last day included in the Calculation Period falls; "D1" is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case D 1 will be 30; and "D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31 and D 1 is greater than 29, in which case D 2 will be 30; v

85 (f) if "30E/360" or "Eurobond Basis" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows: Day Count Fraction = [ 360 ( Y Y )] + [ 30 [( M M )] + ( D D )] where: "Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls; "Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; "M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls; "M2" is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; "D1" is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case D1 will be 30; and "D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31, in which case D2 will be 30; and (g) if "30E/360 (ISDA)" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows: Day Count Fraction = where: [ 360 ( Y Y )] + [ 30 [( M M )] + ( D D )] 2 1 "Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls; 360 "Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; "M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls; "M2" is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; "D1" is the first calendar day, expressed as a number, of the Calculation Period, unless: (A) that day is the last day of February; or (B) such number would be 31, in which case D 1 will be 30; and "D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless: (A) that day is the last day of February but not the Scheduled Dissolution Date; or (B) such number would be 31, in which case D2 will be 30, provided, however, that in each such case the number of days in the Calculation Period is calculated from and including the first day of the Calculation Period to but excluding the last day of the Calculation Period; "Deferred Sale Price" means the deferred sale price payable by KFH to the Trustee in respect of the Commodity Murabaha Investment, if applicable to a Series, as further described in the Master Murabaha Agreement; "Delegation" has the meaning given to it in Condition 17.1 (Delegation of powers); v

86 "Designated Maturity" means the period of time specified as such in the applicable Final Terms; "Dissolution Date" means, in relation to a particular Series, as the case may be: (a) (b) (c) (d) (e) (f) the Scheduled Dissolution Date; any Early Tax Dissolution Date; any Optional Dissolution Date; any Certificateholder Put Right Date; any Dissolution Event Redemption Date; or such other date as specified in the applicable Final Terms for the redemption of Certificates and dissolution of the Trust in whole or in part prior to the Scheduled Dissolution Date; "Dissolution Distribution Amount" means, in relation to each Certificate to be redeemed on the relevant Dissolution Date: (a) (i) (ii) (b) the sum of: the outstanding face amount of such Certificate; and any accrued but unpaid Periodic Distribution Amounts for such Certificate; or such other amount specified in the applicable Final Terms as being payable upon any Dissolution Date; "Dissolution Event" means a Trustee Event or a KFH Event; "Dissolution Event Redemption Date" has the meaning given to it in Condition 12.1 (Dissolution Event); "Dissolution Notice" has the meaning given to it in Condition 12.1 (Dissolution Event); "DTC" means The Depository Trust Company; "Early Tax Dissolution Date" has the meaning given to it in Condition 8.2 (Early Dissolution for Taxation Reasons); "Eligible Wakala Assets" has the meaning given to it in the Master Purchase Agreement; "Euroclear" means Euroclear Bank SA/NV; "Exercise Notice" means an exercise notice given pursuant to the terms of the Purchase Undertaking or the Sale and Substitution Undertaking (as the case may be); "Expected Income Revenues Amount" has the meaning given to it in the Wakala Agreement; "Extraordinary Resolution" has the meaning given to it in the Declaration of Trust; "Financial Year" means the annual accounting period of the Group ending on 31 December in each year; "Fixed Amount" means the amount specified as such in the applicable Final Terms; "Fixed Rate Certificates" means a Series in respect of which "Fixed Rate Certificate Provisions" are specified as applicable in the applicable Final Terms; "Floating Rate Certificates" means a Series in respect of which "Floating Rate Certificate Provisions" are specified as applicable in the applicable Final Terms; v

87 "Global Certificate" means a certificate in global form representing Certificates of the same Series that are registered in the name of a nominee for a common depository for Euroclear and/or Clearstream, Luxembourg or deposited with a nominee for the DTC; "Group" means KFH and its consolidated subsidiaries taken as a whole; "Holder" has the meaning given in Condition 3.2 (Title to Certificates); "IFRS" means International Financial Reporting Standards issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (as amended, supplemented or re-issued from time to time); "Income Revenues" means, in relation to a series, all revenues in respect of the relevant Wakala Portfolio Assets other than Principal Revenues. "Indebtedness" shall be construed so as to include any obligation for the payment or repayment of money (including any financing arrangements issued (or intended to be issued) in compliance with the principles of Shari'a), whether present or future, actual or contingent, other than any such obligations, guarantees or indemnities owing or given by one member of the Group to another member of the Group; "Individual Certificate" means a certificate in definitive registered form issued by the Trustee in accordance with the provisions of the Master Declaration of Trust in exchange for a Global Certificate; "Intangible Assets" has the meaning given to it in the Master Purchase Agreement; "ISDA Definitions" means the 2006 ISDA Definitions (as amended and updated as at the date of issue of the Certificates of the relevant Series (as specified in the applicable Final Terms) as published by the International Swaps and Derivatives Association, Inc.) unless otherwise specified in the applicable Final Terms; "KFH Event" means, with respect to any Series, any of the following events: (a) (b) (c) (i) (ii) Non-Payment: KFH fails to pay any amount in the nature of principal (corresponding to the Dissolution Distribution Amount payable by the Trustee under the Certificates) or profit (corresponding to the Periodic Distribution Amounts payable by the Trustee under the Certificates) payable by it pursuant to any Transaction Document to which it is a party on the due date for payment thereof and such failure has continued for a period of seven business days in the case of principal or 14 business days in the case of payments in the nature of profit; or Breach of Other Obligations: KFH fails to perform, comply or observe any of its other obligations under the Transaction Documents to which it is a party and such default is not, in the opinion of the Delegate, remedied within 30 days after written notice of such default shall have been given to KFH by the Trustee (or the Delegate acting on behalf of the Trustee) requiring the same to be remedied; or Cross-Acceleration: any Indebtedness of KFH or any Principal Subsidiary for or in respect of moneys borrowed or raised is not paid when due or (as the case may be) within any originally applicable grace period; or any such Indebtedness becomes due and payable prior to its stated maturity by reason of default (however described), provided that the events mentioned in this paragraph (c) shall not constitute a KFH Event unless the aggregate amount of all such Indebtedness for or in respect of moneys borrowed or raised, either alone or when aggregated with all other such Indebtedness in respect of which such an event shall have occurred and be continuing, shall be more than: (x) in the case of any Principal Subsidiary, U.S.$50,000,000 or (y) in the case of KFH and its Principal Subsidiaries taken v

88 together on a consolidated basis, U.S.$100,000,000 (in each case on the basis of the middle spot rate for the relevant currency against the U.S. dollar as quoted by any leading bank on the day on which this paragraph operates); or (d) (i) (ii) (iii) (iv) (v) (e) (f) (g) Liquidation and Similar Events: any order is made by any competent court or resolution passed for the winding up or dissolution of KFH or any Principal Subsidiary, save in connection with a Permitted Reorganisation; or KFH or any Principal Subsidiary ceases or threatens to cease to carry on the whole or a substantial part of its business, save in connection with a Permitted Reorganisation, or KFH or any Principal Subsidiary stops or threatens to stop payment of, or is unable to, or admits inability to, pay, its debts (or any class of its debts) as they fall due, or is deemed unable to pay its debts pursuant to or for the purposes of any applicable law, or is adjudicated or found bankrupt or insolvent; or proceedings are initiated against KFH or any Principal Subsidiary under any applicable liquidation, insolvency, composition, reorganisation or other similar laws, or an application is made (or documents filed with a court) for the appointment of an administrative or other receiver, manager, administrator or other similar official (and such proceedings are not being actively contested in good faith by KFH or any Principal Subsidiary, as applicable) or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to KFH or any Principal Subsidiary or, as the case may be, in relation to the whole or a substantial part of the undertaking or assets of KFH or any Principal Subsidiary, or an encumbrancer takes possession of the whole or a substantial part of the undertaking or assets of KFH or any Principal Subsidiary, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or a substantial part of the undertaking or assets of KFH or any Principal Subsidiary; and in any case (other than the appointment of an administrator) is not discharged within 30 days; or KFH or any Principal Subsidiary initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, composition, reorganisation or other similar laws (including the obtaining of a moratorium) or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangement with, its creditors generally (or any class of its creditors) or, save in connection with a Permitted Reorganisation, any meeting is convened to consider a proposal for an arrangement or composition with its creditors generally (or any class of its creditors); or any event occurs which under the laws of the Dubai International Financial Centre, the United Arab Emirates or any Emirate therein, the State of Kuwait or any other jurisdiction in which KFH or any Principal Subsidiary operates, has an analogous effect to any of the events referred to in paragraphs (i) to (iv) above; or Authorisation and Consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done in order: (i) to enable KFH to lawfully enter into, exercise its rights and perform and comply with its obligations under the Transaction Documents to which it is a party; (ii) to ensure that those obligations are legally binding and enforceable; and (iii) to make the Certificates admissible in evidence in the courts of the State of Kuwait (the "Kuwaiti Courts"), is not taken, fulfilled or done; or Illegality: at any time it is or becomes unlawful for KFH to perform or comply with any one or more of its obligations under any of the Certificates or the Transaction Documents, or any of the material obligations of KFH thereunder are not, or cease to be, legal, valid, binding or enforceable; or Repudiation: KFH or any Principal Subsidiary repudiates or does or causes to be done any act or thing evidencing an intention to repudiate these Conditions or any (or any part of any) Transaction Document to which it is a party; "Liability" means any loss, damage, cost, charge, claim, demand, expense, fee, judgment, action, proceeding or other liability whatsoever (including, without limitation in respect of taxes) and v

89 including any value added tax or similar tax charged or chargeable in respect thereof and legal or other fees and expenses on a full indemnity basis and references to "Liabilities" shall mean all of these; "Linear Interpolation Designated Maturity" means the period of time designated in the relevant Reference Rate; "Margin" has the meaning given in the applicable Final Terms; "Master Murabaha Agreement" means the master murabaha agreement dated 16 May 2018 and made between the Trustee and KFH (as buyer); "Master Purchase Agreement" means the master purchase agreement dated 16 May 2018 between the Trustee (as purchaser) and KFH (as seller); "Maximum Optional Dissolution Amount" means the amount specified as such in the applicable Final Terms; "Minimum Optional Dissolution Amount" means the amount specified as such in the applicable Final Terms; "Non-recourse Project Financing" means any financing of all or part of the costs of the acquisition, construction or development of any project, provided that: (a) (b) (c) any Security Interest given by the Trustee or KFH in connection therewith is limited solely to the assets of the project; the persons providing such financing expressly agree to limit their recourse to the project financed and the revenues derived from such project as the sole source of payment for the moneys advanced; and there is no other recourse to the Trustee or KFH in respect of any default by any person under the financing; "Optional Dissolution Date" means, in relation to any exercise of the Optional Dissolution Right: (i) in the case of Fixed Rate Certificates, any date, or the date(s) specified as such in the applicable Final Terms; and (ii) in the case of Floating Rate Certificates, any Periodic Distribution Date, or the Periodic Distribution Dates specified as such in the applicable Final Terms; "Optional Dissolution Right" means the right specified in Condition 8.3 (Dissolution at the Option of KFH (Optional Dissolution Right)); "outstanding" shall have the meaning given to it in the Master Declaration of Trust; "Paying Agents" means the Principal Paying Agent and such further or other paying agent or agents as may be appointed from time to time under the Agency Agreement; "Payment Business Day" means: (a) (b) if the currency of payment is euro, any day which is: (i) a TARGET Settlement Day; and (ii) a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or if the currency of payment is not euro, any day which is a day on which dealings in foreign currencies (including, in the case of Certificates denominated in Renminbi, settlement of Renminbi payments) may be carried on in London, in the Principal Financial Centre of the currency of payment and in each (if any) Additional Financial Centre; "Periodic Distribution Amount" has the applicable meanings given to it in Condition 7 (Periodic Distribution Amounts); v

90 "Periodic Distribution Date" means the date or dates specified as such in the applicable Final Terms; "Permitted Reorganisation" means: (a) (b) (c) any disposal by KFH or any Subsidiary of KFH of the whole or a substantial part of its business, undertaking or assets to KFH or any other Subsidiary of KFH; any amalgamation, consolidation or merger of a Subsidiary of KFH with any other Subsidiary of KFH; or any amalgamation, consolidation, restructuring, merger or reorganization on terms previously approved by an Extraordinary Resolution; "Permitted Security Interest" means: (a) (b) (c) (d) (e) (f) (g) any Security Interest created or outstanding with the approval of an Extraordinary Resolution of the Certificateholders; any Security Interest existing on the date on which agreement is reached to issue the first Tranche of the Certificates; any Security Interest arising by operation of law; any Security Interest securing Relevant Indebtedness of a person existing at the time that such person is merged into, or consolidated with, or acquired by the Trustee or KFH, provided that such Security Interest was not created in contemplation of such merger, consolidation or acquisition; any Security Interest existing on any property or assets prior to the acquisition thereof by the Trustee or KFH and not created in contemplation of such acquisition; any Security Interest granted to secure a Non-recourse Project Financing or to secure any indebtedness incurred in connection with a Securitisation; and any renewal of or substitution for any Security Interest permitted by any of sub-paragraphs (i) to (vii) above (inclusive) so long as the Relevant Indebtedness secured by such Security Interest is for an amount not materially greater than the principal (and any capitalised interest and fees) of such Relevant Indebtedness and the Security Interest does not extend to any additional property or assets (other than the proceeds of such assets); "Person" means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality; "Principal Subsidiary" means a Subsidiary of KFH: (a) (b) whose total assets represent not less than 12 per cent. of the consolidated total assets of KFH and its Subsidiaries taken as a whole; or whose net operating income is more than 12 per cent. of the consolidated net operating income of KFH and its Subsidiaries taken as a whole, all as calculated by reference to the then latest audited consolidated accounts of KFH; or (c) to which is transferred all or substantially all of the business, undertaking or assets of a Subsidiary which immediately prior to such transfer is a Principal Subsidiary whereupon the transferor Subsidiary shall immediately cease to be a Principal Subsidiary and the transferee Subsidiary shall immediately become a Principal Subsidiary but shall cease to be a Principal Subsidiary under this sub-paragraph (c) (but without prejudice to the provisions of sub-paragraph (a) or (b) above) upon publication of its next audited accounts v

91 A report by the Chief Executive Officer or the Chief Financial Officer of KFH that in their opinion a Subsidiary of KFH is or was or was not at any particular time or throughout any specified period a Principal Subsidiary shall, in the absence of manifest error, be conclusive and binding on all parties (and, all such entities together, the "Principal Subsidiaries"); "Principal Financial Centre" means, in relation to any currency, the principal financial centre for that currency provided, however, that: (a) (b) (c) in relation to euro, it means the principal financial centre of such Member State of the European Communities as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent; in relation to Australian dollars, it means either Sydney or Melbourne and, in relation to New Zealand dollars, it means either Wellington or Auckland, in each case as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent; and in relation to Renminbi, it means the relevant Renminbi Settlement Centre; "Principal Paying Agent" means Citibank, N.A., London Branch or any successor appointed as principal paying agent under the Programme pursuant to the Agency Agreement in respect of each Series of Certificates in its capacities: as (i) principal paying agent for such Series; and (ii) as the account bank with which the Transaction Account for each such Series is established; "Profit Commencement Date" means the Issue Date or such other date as may be specified in the applicable Final Terms; "Profit Period Date" means each Periodic Distribution Date unless otherwise specified in the applicable Final Terms; "Profit Rate" means the profit rate payable from time to time in respect of the Certificates and that is either specified in the applicable Final Terms or calculated or determined in accordance with the provisions hereof; "Profit Rate Determination Date" means, with respect to a Profit Rate and Return Accumulation Period, the date specified as such in the applicable Final Terms or, if none is so specified: (i) the first day of such Return Accumulation Period if the Specified Currency is Sterling or Renminbi; or (ii) the day falling two Business Days in London for the Specified Currency prior to the first day of such Return Accumulation Period if the Specified Currency is neither Sterling nor euro; or (iii) the day falling two TARGET Business Days prior to the first day of such Return Accumulation Period if the Specified Currency is euro; "Purchase Undertaking" means the purchase undertaking dated 16 May 2018 and granted by KFH for the benefit of the Trustee and the Delegate; "Record Date" has the meaning given to it in Condition 9.4 (Record Date); "Reference Banks" has the meaning given in the applicable Final Terms or, if none, four major banks selected by the Calculation Agent in the market that is most closely connected with the Reference Rate; "Reference Price" has the meaning given in the applicable Final Terms; "Reference Rate" means one of the following benchmark rates (as specified in the applicable Final Terms) in respect of the currency and period specified in the applicable Final Terms: (a) (b) (c) (d) Euro-Zone interbank offered rate ("EURIBOR"); London interbank bid rate ("LIBID"); London interbank offered rate ("LIBOR"); London interbank mean rate ("LIMEAN"); v

92 (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) Hong Kong interbank offered rate ("HIBOR"); Singapore interbank offered rate ("SIBOR"); Australian dollar LIBOR ("AUD LIBOR") Japanese Yen LIBOR ("JPY LIBOR") CNH Hong Kong interbank offered rate ("CNH HIBOR"); Tokyo interbank offered rate ("TIBOR"); British pound sterling LIBOR ("GBP LIBOR"); Swiss franc LIBOR ("CHF LIBOR"); Canadian dollar LIBOR ("CAD LIBOR"); Saudi Arabia interbank offered rate ("SAIBOR"); and Emirates Interbank Offered Rate ("EIBOR"); "Register" has the meaning given to it in Condition 3.3 (Ownership); "Registered Office Agreement" means the registered office agreement dated 16 April 2018 between the Trustee and the Corporate Service Provider; "Registrar" means, in respect of the unrestricted and/or restricted Certificates of each Series, Citigroup Global Markets Deutschland AG or any successors thereto in each case as registrar under the Agency Agreement (or such other registrar as may be appointed from time to time either generally in relation to the Programme or in relation to a specific Series); "Relevant Date" means, in relation to any payment, whichever is the later of: (a) the date on which the payment in question first becomes due; and (b) if the full amount payable has not been received in the Principal Financial Centre of the currency of payment by the Principal Paying Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Certificateholders; "Relevant Indebtedness" means any indebtedness which is in the form of, or represented or evidenced by, bonds, notes, debentures, loan stock or other securities (including trust certificates) which for the time being are, or are intended to be, or are capable of being quoted, listed or dealt in or traded on any stock exchange or over-the-counter or other securities market; "Relevant Jurisdiction" means: (i) in the case of the Trustee, the United Arab Emirates (including the Dubai International Financial Centre (the "DIFC")) or any political subdivision or any authority thereof or therein having power to tax; or (ii) in the case of each of KFH, the State of Kuwait ("Kuwait") or any political subdivision or any authority thereof or therein having the power to tax; "Relevant Powers" has the meaning given to it in Condition 17.1 (Delegation of powers); "Relevant Screen Page" means the page, section or other part of a particular information service (including, without limitation, Reuters) specified as the Relevant Screen Page in the applicable Final Terms, or such other page, section or other part as may replace it on that information service or such other information service, in each case, as may be nominated by the Person providing or sponsoring the information appearing there for the purpose of displaying rates or prices comparable to the Reference Rate; "Relevant Time" has the meaning given in the applicable Final Terms; v

93 "Renminbi" means the lawful currency of the People's Republic of China (excluding the Hong Kong Special Administrative Region of the People's Republic of China, the Macau Special Administrative Region of the People's Republic of China and Taiwan); "Renminbi Settlement Centre" means, in relation to any sum payable in Renminbi, Hong Kong, Singapore and/or any other relevant financial centre, as specified in the applicable Final Terms; "Reserved Matter" has the meaning given to it in Condition 16.1 (Meetings of Certificateholders); "Restricted Global Certificate" means the Global Certificate in respect of each Series sold to QIBs who are also QPs in reliance on Rule 144A in registered form; "Return Accumulation Period" means the period beginning on (and including) the Profit Commencement Date and ending on (but excluding) the first Periodic Distribution Date and each successive period beginning on (and including) a Periodic Distribution Date and ending on (but excluding) the next succeeding Periodic Distribution Date; "Sale and Substitution Undertaking" means the sale and substitution undertaking dated 16 May 2018 and granted by the Trustee for the benefit of KFH; "Scheduled Dissolution Date" means the date specified as such in the applicable Final Terms; "Securitisation" means any securitisation of existing or future assets and/or revenues, provided that: (a) (b) (c) any Security Interest given by the Trustee or KFH in connection therewith is limited solely to the assets and/or revenues which are the subject of the securitisation; each person participating in such securitisation expressly agrees to limit its recourse to the assets and/or revenues so securitised as the sole source of payment for the money advanced or payment of any other liability; and there is no other recourse to the Trustee or KFH in respect of any default by any person under the securitisation; "Security Interest" has the meaning given to it in Condition 6.2 (Negative Pledge); "Settlement Deed" means the settlement deed dated 16 May 2018 between, amongst others, the Trustee, KFH, DD & Co Limited and Condor Trade Limited; "Specified Currency" means the currency specified as such in the applicable Final Terms or, if none is specified, the currency in which the Certificates are denominated; "Specified Denominations" means the amount(s) specified as such in the applicable Final Terms; "specified office" has the meaning given in the Agency Agreement; "Subsidiary" means any entity: (a) (b) (c) which is then directly or indirectly controlled by the Trustee or KFH; or more than 50 per cent. of whose issued equity share capital (or equivalent) is then beneficially owned by the Trustee or KFH; or whose financial statements at any time are required by law or in accordance with generally accepted accounting principles to be fully consolidated with those of the Trustee or KFH, for an entity to be "controlled" by the Trustee or KFH means that the Trustee or KFH (whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract, trust or otherwise) has the power to appoint and/or remove all or the majority of v

94 the members of the board of directors or other governing body of that entity or otherwise controls, or has the power to control, the affairs and policies of that entity; "Sukuk Assets" means the Tangible Assets, Intangible Assets and (if applicable) the Commodity Murabaha Investment of the relevant Series; "Supplemental Purchase Agreement" means the supplemental purchase agreement to be dated the Issue Date of the relevant Series between the Trustee and KFH for the purchase of certain Eligible Wakala Assets; "Tangible Assets" has the meaning given to it in the Master Purchase Agreement; "TARGET Business Day" means a day on which TARGET2 is operating; "TARGET Settlement Day" means any day on which TARGET2 is open for the settlement of payments in euro; "TARGET2" means the Trans-European Automated Real-Time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007 or any successor thereto; "Transaction Account" means, in relation to a particular Series, the non-interest bearing transaction account established by the Trustee and held with Citibank, N.A., London Branch denominated in the Specified Currency, details of which are set out in the applicable Final Terms into which, among other things, KFH will deposit all amounts due to the Trustee under the Transaction Documents; "Transaction Documents" means, in relation to each Series: (a) (b) (c) (d) (e) (f) (g) the Master Declaration of Trust as supplemented by the relevant Supplemental Declaration of Trust; the Agency Agreement; the Master Purchase Agreement as supplemented by the relevant Supplemental Purchase Agreement; the Sale and Substitution Undertaking (together with each relevant sale agreement executed upon exercise of the Sale and Substitution Undertaking); the Purchase Undertaking (together with each relevant sale agreement executed upon exercise of the Purchase Undertaking); the Wakala Agreement; if applicable to a Series, the Master Murabaha Agreement; (together with all offers, acceptances and confirmations delivered pursuant to any of the foregoing in connection with the relevant Series); (h) (i) (j) (k) if applicable to a Series, the Commodity Agency Agreement; if applicable to a Series, the Commodity Sale Agreement; if applicable to a Series, the Commodity Purchase Agreement; and if applicable to a Series, the Settlement Deed; "Transfer Agent" means, in respect of each Series of Certificates, Citibank, N.A., London Branch or any successors thereto in each case as transfer agent under the Agency Agreement (and such further or other transfer agents as may be appointed from time to time either generally in relation to the Programme or in relation to a specific Series); v

95 "Trust" means, in respect of a Series, the trust created by the Trustee over the Trust Assets pursuant to the Declaration of Trust; "Trust Assets" has the meaning given to it in Condition 5.1 (Trust Assets); "Trustee Event" means any of the following events: (a) (b) (c) (i) (ii) (iii) (iv) (v) (d) Non-payment: the Trustee fails to pay any Dissolution Distribution Amount, any Periodic Distribution Amount or any other amount (whether in the nature of principal or profit or otherwise) in respect of the Certificates on the due date for payment thereof and such failure has continued for a period of seven business days in the case of any Dissolution Distribution Amount or 14 business days in the case of any Periodic Distribution Amount; or Breach of other obligations: the Trustee does not perform, comply with or observe any one or more of its other duties, obligations or undertakings in respect of the Transaction Documents which default is, in the opinion of the Delegate, incapable of remedy, or, if in the opinion of the Delegate is capable of remedy is not remedied within the period of 30 days after written notice of such default shall have been given by the Delegate to the Trustee requiring the same to be remedied; or Liquidation and Similar Events: any order is made by any competent court or resolution passed for the winding up or dissolution of the Trustee, or the Trustee ceases or threatens to cease to carry on the whole or a substantial part of its business, save in connection with a Permitted Reorganisation, or the Trustee stops or threatens to stop payment of, or is unable to, or admits inability to, pay, its debts (or any class of its debts) as they fall due, or is deemed unable to pay its debts pursuant to or for the purposes of any applicable law, or is adjudicated or found bankrupt or insolvent; or proceedings are initiated against the Trustee under any applicable liquidation, insolvency, composition, reorganisation or other similar laws, or an application is made (or documents filed with a court) for the appointment of an administrative or other receiver, manager, administrator or other similar official (and such proceedings are not being actively contested in good faith by the Trustee), or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to the Trustee or, as the case may be, in relation to the whole or a substantial part of the undertaking or assets of it, or an encumbrancer takes possession of the whole or a substantial part of the undertaking or assets of the Trustee, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or a substantial part of the undertaking or assets of the Trustee; and in any case (other than the appointment of an administrator) is not discharged within 60 days; or the Trustee initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, composition, reorganisation or other similar laws (including the obtaining of a moratorium) or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangement with, its creditors generally (or any class of its creditors) or, save in connection with a Permitted Reorganisation, any meeting is convened to consider a proposal for an arrangement or composition with its creditors generally (or any class of its creditors); or any event occurs which under the laws of the Dubai International Financial Centre, the United Arab Emirates or any Emirate therein or any other jurisdiction in which the Trustee operates, has an analogous effect to any of the events referred to in paragraphs (i) to (iv) above; or Authorisation and Consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done in order: (i) to enable the Trustee to lawfully enter into, exercise its rights and perform and comply with its obligations under the Certificates; (ii) to ensure that those obligations are legally binding and enforceable; and (iii) to v

96 make the Certificates admissible in evidence in the courts of the Dubai International Financial Centre, the United Arab Emirates or any Emirate therein, is not taken, fulfilled or done; or (e) (f) Illegality: at any time it is or will become unlawful for the Trustee to perform or comply with any one or more of its respective obligations under any of the Certificates or the Transaction Documents, or any of the material obligations of the Trustee thereunder are not, or cease to be, legal, valid, binding or enforceable; or Repudiation: the Trustee repudiates or does or causes to be done any act or thing evidencing an intention to repudiate these Conditions or any (or any part of any) Transaction Document to which it is a party; "Unrestricted Global Certificate" means the Global Certificate in respect of each Series offered and sold in reliance on Regulation S, which will be sold to persons who are not U.S. persons outside the United States, in registered form; "Wakala Agreement" means the wakala agreement dated 16 May 2018 between the Trustee and the Wakeel; "Wakala Asset Obligor" has the meaning given to it in the Wakala Agreement; "Wakala Portfolio Assets" has the meaning given to it in the Master Purchase Agreement; "Wakeel" means KFH acting in its capacity as wakeel under the Wakala Agreement; and Interpretation In these Conditions: (a) (b) (c) (d) (e) (f) all references to "Euroclear" and/or "Clearstream, Luxembourg" and/or "DTC" shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in Part B of the applicable Final Terms; all references to the "face amount" of a Certificate shall be deemed to include the relevant Dissolution Distribution Amount, any additional amounts (other than relating to Periodic Distribution Amounts) which may be payable under Condition 10 (Taxation) and any other amount in the nature of face amounts payable pursuant to these Conditions; all references to "Periodic Distribution Amounts" shall be deemed to include any additional amounts in respect of profit distributions which may be payable under Condition 10 (Taxation) and any other amount in the nature of a profit distribution payable pursuant to these Conditions; all references to "ISDA" and related terms are only included for the purposes of benchmarking; if an expression is stated in Condition 2.1 (Definitions) to have the meaning given in the applicable Final Terms, but the applicable Final Terms gives no such meaning or specifies that such expression is "not applicable" then such expression is not applicable to the Certificates; and any reference to any "Transaction Document" shall be construed as a reference to such Transaction Document as amended and/or supplemented up to and including the Issue Date of the Certificates. 3. Form, Denomination, Title and Transfer 3.1 Certificates: The Certificates are issued in registered form in the Specified Denomination(s), which may include a minimum denomination specified in the applicable Final Terms and higher integral multiples of a smaller amount specified in the applicable Final Terms, and, in the case of Certificates in definitive form, are serially numbered. These Conditions are modified by certain provisions contained in the Global Certificate. Except in limited circumstances, owners of interests in the Global Certificate will not be entitled to receive definitive certificates representing their holdings of Certificates. In the case of Certificates in v

97 definitive form, an Individual Certificate will be issued to each Certificateholder in respect of its registered holding of Certificates. 3.2 Title to Certificates: Upon issue, the Certificates will be represented by a Global Certificate which will be deposited with, and registered in the name of a nominee for a common depository for Euroclear and Clearstream, Luxembourg in the case of the Unrestricted Global Certificate or DTC in the case of a Restricted Global Certificate, as the case may be. For so long as any of the Certificates are represented by a Global Certificate held on behalf of Euroclear, Clearstream, Luxembourg and/or DTC ownership interests in the Global Certificate will be shown on, and transfers thereof will only be effected through, records maintained by Euroclear, Clearstream, Luxembourg and/or DTC and their respective participants. Each person (other than the relevant clearing system) who is for the time being shown in such records as the holder of a particular face amount of Certificates (in which regard any certificate or other document issued by the relevant clearing system as to the face amount of such Certificates standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated as the holder of such face amount of such certificates for all purposes other than with respect to payment in respect of such Certificates, for which purpose the registered holder of the Global Certificate shall be treated as the holder of such face amount of such Certificates in accordance with and subject to the terms of the relevant Global Certificate and the expressions "Holder" and "Certificateholder" in relation to any Certificates and related expressions shall be construed accordingly. 3.3 Ownership: The Registrar will maintain a register of Certificateholders outside the United Kingdom in accordance with the provisions of the Agency Agreement (the "Register"). The Trustee, KFH, the Delegate and the Agents may (to the fullest extent permitted by applicable laws) deem and treat the person in whose name any outstanding Certificates are for the time being registered (as set out in the Register) as the Holder of such certificates or of a particular face amount of the Certificates for all purposes (whether or not such Certificates or face amount shall be overdue and notwithstanding any notice of ownership thereof or of trust or other interest with regard thereto, and any notice of loss or theft or any writing thereon), and the Trustee, KFH, the Delegate and the Agents shall not be affected by any notice to the contrary. All payments made to such registered Holder shall be valid and, to the extent of the sums so paid, effective to satisfy and discharge the liability for monies payable in respect of such Certificates or face amount. No person shall have any right to enforce any term or condition of any Certificates under the Contracts (Rights of Third Parties) Act The Holder of a Certificate will be recognised by the Trustee as entitled to his Certificate free from any equity, set-off or counterclaim on the part of the Trustee against the original or any intermediate holder of such Certificate. 3.4 Transfers of Certificates: Subject to Conditions 3.7 (Closed periods) and 3.8 (Regulations Concerning Transfers and Registration) below: (a) (b) Transfers of beneficial interests in the Global Certificate: Transfers of beneficial interests in the Global Certificate will be effected by Euroclear, Clearstream, Luxembourg and/or DTC (as applicable) and in turn by other participants and, if appropriate, indirect participants in such clearing systems acting on behalf of transferors and transferees of such interests. An interest in the Global Certificate will, subject to compliance with all applicable legal and regulatory restrictions, be transferable for Certificates in definitive form only in the Specified Denomination or integral multiples thereof and only in accordance with the rules and operating procedures for the time being of Euroclear, Clearstream, Luxembourg and/or DTC (as applicable) and in accordance with the terms and conditions specified in the Declaration of Trust and the Agency Agreement. Transfers of Certificates in definitive form: Upon the terms and subject to the conditions set forth in the Declaration of Trust and the Agency Agreement, a Certificate in definitive form may be transferred in whole or in part (in the Specified Denomination or an integral multiple thereof). In order to effect any such transfer the Holder or Holders must: (i) surrender the Individual Certificate for registration of the transfer thereof (or the relevant part thereof) at the Specified Office of the Registrar or any Transfer Agent, with the form of transfer thereon duly executed by the Holder or Holders thereof or his or their attorney or attorneys duly authorised in writing; and v

98 (ii) complete and deposit such other evidence to prove the title of the transferor and the authority of the individuals who have executed the form of transfer as may be reasonably required by the Registrar or (as the case may be) the relevant Transfer Agent. Any such transfer will be subject to such reasonable regulations as the Trustee, KFH, the Delegate and the Registrar may from time to time prescribe. Subject as provided above, the Registrar or (as the case may be) the relevant Transfer Agent will, as soon as reasonably practicable, and in any event within three business days (being for this purpose a day on which commercial banks are open for general business (including dealings in foreign currencies) in the city where the Registrar or (as the case may be) the relevant Transfer Agent has its Specified Office) of the request (or such longer period as may be required to comply with any applicable fiscal or other laws or regulations), and following receipt of a signed new Individual Certificate from the Trustee, deliver at its Specified Office to the transferee or (at the risk of the transferee) send by regular uninsured first class mail (airmail if overseas) to such address as the transferee may request a new Individual Certificate of a like aggregate face amount to the Certificates (or the relevant part of the Certificates) transferred. In the case of the transfer of part only of an Individual Certificate, a new Individual Certificate in respect of the balance of the Certificates not transferred will be so delivered or (at the risk of the transferor) sent to the transferor. 3.5 Exercise of Options or Partial Dissolution in Respect of Certificates: In the case of an exercise of the Trustee's, KFH's or a Certificateholder's option in respect of, or a partial redemption of, a holding of Certificates, the Registrar will update the entries on the Register accordingly and, in the case of Individual Certificates, new Individual Certificates shall be issued to the Holders to reflect the exercise of such option or in respect of the balance of the holding for which no payment was made. New Individual Certificates shall only be issued against surrender of the existing Individual Certificates to the Registrar or any Transfer Agent. 3.6 No Charge: The transfer of a Certificate, exercise of an option or partial dissolution will be effected without charge by or on behalf of the Trustee, KFH or the Registrar or any Transfer Agent but against such indemnity as the Registrar or (as the case may be) such Transfer Agent may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer. Certificateholders will not be required to bear the costs and expenses of effecting any registration of transfer as provided above, except for any costs or expenses of delivery other than by regular uninsured first class mail (airmail if overseas). 3.7 Closed Periods: Certificateholders may not require transfers to be registered: (a) (b) (c) during the period of 15 days ending on (and including) the due date for payment of any Dissolution Distribution Amount or Periodic Distribution Amount or any other date on which any payment of the face amount or payment of any profit in respect of the relevant Certificates falls due; during the period of 15 days ending on (and including) any date on which the relevant Certificates may be called for redemption by the Trustee or KFH at its option pursuant to Condition 8.2 (Early Dissolution for Taxation Reasons) or Condition 8.3 (Dissolution at the Option of KFH (Optional Dissolution Right)); or after a Certificateholder Put Exercise Notice has been delivered in respect of the relevant Certificate(s) in accordance with Condition 8.4 (Dissolution at the Option of Certificateholders (Certificateholder Put Right)). 3.8 Regulations Concerning Transfers and Registration: All transfers of Certificates and entries on the Register are subject to the detailed regulations concerning the transfer of Certificates scheduled to the Agency Agreement. The regulations may be changed by the Trustee, with the prior written approval of the Registrar and the Delegate or by the Registrar with the prior written approval of the Delegate, provided that any such change is not materially prejudicial to the interests of the Certificateholders. A copy of the current regulations will be mailed (free of charge to the Certificateholder by uninsured first class mail (airmail if overseas)) by the Registrar to any Certificateholder who requests in writing a copy of such regulations v

99 4. Status and Limited Recourse 4.1 Status The Certificates represent an undivided ownership interest in the relevant Trust Assets and are direct, unsubordinated, unsecured and limited recourse obligations of the Trustee. Each Certificate shall, save for such exceptions as may be provided by applicable legislation that is both mandatory and of general application, at all times rank pari passu and without any preference or priority with all other Certificates of the relevant Series. The payment obligations of KFH (in any capacity) under the Transaction Documents shall, save for such exceptions as may be provided for by applicable legislation and subject to the negative pledge provisions in Condition 6.2 (Negative Pledge), at all times rank at least equally with all other unsecured and unsubordinated obligations of KFH present and future. 4.2 Limited Recourse: Save as provided in this Condition 4.2, the Certificates do not represent an interest in or obligation of any of the Trustee, the Delegate, KFH (acting in any capacity), any of the Agents or any of their respective affiliates. The proceeds of the relevant Trust Assets are the sole source of payments on the Certificates of each Series. The net proceeds of the realisation of, or enforcement with respect to, the relevant Trust Assets may not be sufficient to make all payments due in respect of the relevant Series of Certificates. Subject to Condition 12 (Dissolution Events), Certificateholders, by subscribing for or acquiring the Certificates, acknowledge that notwithstanding anything to the contrary contained in these Conditions or any Transaction Document: (a) (b) (c) (d) (e) no payment of any amount whatsoever shall be made by the Trustee, KFH (acting in any capacity) or the Delegate or any directors, officers, employees or agents on their behalf except: (i) in the case of the Trustee, to the extent funds are available therefor from the relevant Trust Assets; or (ii) in the case of KFH (acting in any capacity), to the extent that it fulfils all of its obligations under the Transaction Documents. The Certificateholders further acknowledge and agree that no recourse shall be had for the payment of any amount due and payable hereunder or under any Transaction Document, whether for the payment of any fee, indemnity or other amount hereunder or any other obligation or claim arising out of or based upon the Transaction Documents, against the Trustee or the Delegate to the extent the relevant Trust Assets have been exhausted, following which all obligations of the Trustee and KFH shall be extinguished; the Trustee may not sell, transfer, assign or otherwise dispose of the Trust Assets or any part thereof (save as permitted pursuant to the Sale and Substitution Undertaking and the Purchase Undertaking) to a third party, and may only realise its interests, rights, title, benefits and entitlements, present and future, in, to and under the Trust Assets in the manner expressly provided in the Transaction Documents; if the proceeds of the Trust Assets are insufficient to make all payments due in respect of the Certificates, Certificateholders will have no recourse to any assets of the Trustee (other than the relevant Trust Assets), KFH (acting in any capacity) (to the extent it fulfils its obligations under the Transaction Documents to which it is a party) or the Delegate or the Agents or any of their respective directors, officers, employees, agents, shareholders or affiliates, in respect of any shortfall or otherwise and any unsatisfied claims of the Certificateholders shall be extinguished; no Certificateholders will be able to petition for, institute, or join with any other person in instituting proceedings for, the reorganisation, arrangement, liquidation, bankruptcy, winding-up or receivership or other proceedings under any bankruptcy or similar law against the Trustee, KFH (acting in any capacity) (to the extent it fulfils its obligations under the Transaction Documents to which it is a party), the Delegate, the Agents or any of their respective directors, officers, employees, agents, shareholders or affiliates as a consequence of such shortfall or otherwise; no recourse (whether by institution or enforcement of any legal proceedings or assessment or otherwise) in respect of any breaches of any duty, obligation or undertaking of the Trustee, KFH (acting in any capacity) (to the extent it fulfils its obligations under the Transaction Documents to which it is a party) or the Delegate arising under or in connection with the Transaction Documents by virtue of any customary law, statute or otherwise shall be had against any shareholder, officer, v

100 employee, agent, director or corporate services provider of the Trustee, KFH (acting in any capacity) (to the extent it fulfils its obligations under the Transaction Documents to which it is a party) or the Delegate in their capacity as such for any breaches by the Trustee, KFH (acting in any capacity) (to the extent it fulfils its obligations under the Transaction Documents to which it is a party) or the Delegate and any and all personal liability of every such shareholder, officer, employee, agent, director or corporate services provider in their capacity as such for any breaches by the Trustee, KFH (acting in any capacity) (to the extent it fulfils its obligations under the Transaction Documents to which it is a party) or the Delegate of any such duty, obligation or undertaking is expressly waived and excluded to the extent permitted by law. The obligations of the Trustee, KFH (acting in any capacity) and the Delegate under the Transaction Documents are corporate or limited liability obligations of the Trustee and KFH (acting in any capacity) and no personal liability shall attach to or be incurred by the shareholders, members, officers, employees, agents (excluding those appointed or employed pursuant to the Agency Agreement), directors or corporate services provider of the Trustee or KFH (acting in any capacity) save in the case of their wilful default or actual fraud (and in the case of the shareholders, members or officers of the Delegate or Agents appointed or employed pursuant to the Agency Agreement in any circumstance). Reference in this Condition 4.2 to wilful default, fraud or actual fraud (as applicable) means a finding to such effect by a court of competent jurisdiction in relation to the conduct of the relevant party; and (f) it shall not be entitled to claim or exercise any right of set-off, counterclaim, abatement or other similar remedy which it might otherwise have, under the laws of any jurisdiction, in respect of such Certificates. No collateral is or will be given for the payment obligations of the Trustee under the Certificates (without prejudice to the negative pledge provisions described in Condition 6.2 (Negative Pledge)). 5. The Trust 5.1 Trust Assets: Pursuant to the Master Declaration of Trust, the Trustee holds the Trust Assets for each Series upon trust absolutely for, and on behalf of, the Certificateholders of such Series pro rata according to the face amount of Certificates held by each holder. The term "Trust Assets" in respect of each Series means the following: (a) (b) (c) (d) (e) the cash proceeds of the issue of the Certificates, pending the application thereof in accordance with the terms of the Transaction Documents; the interests, rights, title, benefits and entitlements, present and future, of the Trustee in, to and under the Sukuk Assets from time to time (excluding any representations given by KFH to the Trustee and/or the Delegate under any documents constituting the Sukuk Assets from time to time); the interests, rights, title, benefits and entitlements, present and future, of the Trustee in, to and under the Transaction Documents (excluding any representations given by KFH to the Trustee and/or the Delegate pursuant to any of the Transaction Documents or the covenant given to the Trustee pursuant to Clause 3 of the Master Declaration of Trust); all moneys standing to the credit of the Transaction Account from time to time; and all proceeds of the foregoing. 5.2 Application of Proceeds from Trust Assets: On each Periodic Distribution Date and on any Dissolution Date, the Principal Paying Agent shall apply the monies standing to the credit of the relevant Transaction Account in the following order of priority (in each case only if and to the extent that payments of a higher priority have been made in full): (a) first, (to the extent not previously paid) to the Delegate in respect of all amounts payable to it under the Transaction Documents in its capacity as Delegate (including any amounts payable to the Delegate in respect of its Appointees (as defined in the Master Declaration of Trust)) and to any receiver, manager or administrative receiver or any other analogous officer appointed in respect of the Trust by the Delegate in accordance with the Master Declaration of Trust; v

101 (b) (c) (d) (e) second, only if such payment is due on a Periodic Distribution Date (to the extent not previously paid) to pay pro rata and pari passu: (i) the Trustee in respect of all properly incurred and documented amounts payable to it under the Transaction Documents in its capacity as Trustee; (ii) each Agent in respect of all amounts payable to such Agent on account of its fees, costs, indemnities, charges and expenses and the payment or satisfaction of any Liability incurred by such Agent pursuant to the Agency Agreement or the other Transaction Documents in its capacity as Agent; and (iii) the Corporate Service Provider in respect of all amounts payable to it on account of its fees, costs, charges and expenses and the payment or satisfaction of any Liability incurred by the Corporate Service Provider pursuant to the Corporate Services Agreement and the Registered Office Agreement; third, to the Principal Paying Agent for application in or towards payment pari passu and rateably of all Periodic Distribution Amounts due but unpaid; fourth, only if such payment is due on a Dissolution Date, to the Principal Paying Agent for application in or towards payment pari passu and rateably of the relevant Dissolution Distribution Amount; and fifth, only on the Scheduled Dissolution Date (or any earlier date on which the Certificates are redeemed in full) and provided that all amounts required to be paid on the Certificates hereunder have been discharged in full, in payment of any residual amount to KFH in its capacity as Wakeel as an incentive fee for its performance under the Wakala Agreement. 5.3 Transaction Account: The Trustee will establish a Transaction Account in respect of each Series prior to the relevant Issue Date. The Transaction Account shall be operated by the Principal Paying Agent on behalf of the Trustee for the benefit of Certificateholders into which KFH will deposit all amounts payable by it to the Trustee pursuant to the terms of the relevant Transaction Documents to which it is a party. 6. Covenants 6.1 Trustee Covenants: In addition to the Trustee's covenants contained in clause 12.3 (Trustee Covenants) of the Master Declaration of Trust, the Trustee covenants that for so long as any Certificates are outstanding, it shall not (without the prior written consent of the Delegate): (a) (b) (c) (d) (e) (f) (g) incur any Indebtedness in respect of financed, borrowed or raised money whatsoever (whether structured (or intended to be structured) in accordance with the principles of Shari'a or otherwise), or give any guarantee or indemnity in respect of any obligation of any person or issue any shares (or rights, warrants or options in respect of shares or securities convertible into or exchangeable for shares) except, in all cases, as contemplated in the Transaction Documents; secure any of its present or future Indebtedness by any lien, pledge, charge or other Security Interest upon any of its present or future assets, properties or revenues (other than those arising by operation of law (if any) and other than under or pursuant to any of the Transaction Documents); sell, lease, transfer, assign, participate, exchange or otherwise dispose of, or pledge, mortgage, hypothecate or otherwise encumber (by Security Interest, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever or otherwise) (or permit such to occur or suffer such to exist), any part of its interests in any of the Trust Assets except pursuant to any of the Transaction Documents; except as provided in Condition 16 (Meetings of Certificateholders, Modification and Waiver), amend or agree to any amendment of any Transaction Document to which it is a party (other than in accordance with the terms thereof) or its constitutional documents; except as provided in the Master Declaration of Trust, act as trustee in respect of any trust other than the Trust or in respect of any parties other than the Certificateholders; have any subsidiaries or employees; redeem or purchase any of its shares or pay any dividend or make any other distribution to its shareholders; v

102 (h) (i) (j) (i) (ii) (iii) use the proceeds of the issue of the Certificates for any purpose other than as stated in the Transaction Documents; put to its directors or shareholders any resolution for, or appoint any liquidator for, its winding-up or any resolution for the commencement of any other bankruptcy or insolvency proceeding with respect to it; or enter into any contract, transaction, amendment, obligation or liability other than the Transaction Documents to which it is a party or as expressly contemplated, permitted or required thereunder or engage in any business or activity other than: as contemplated, provided for or permitted in the Transaction Documents; the ownership, management and disposal of the Trust Assets as provided in the Transaction Documents; and such other matters which are incidental thereto. 6.2 Negative Pledge So long as any Certificate remains outstanding, KFH and the Trustee will not (and KFH will ensure that none of its Principal Subsidiaries will), create, or have outstanding, any mortgage, charge, lien, pledge or other security interest (each a "Security Interest"), other than a Permitted Security Interest, upon the whole or any part of its present or future undertaking, assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness, or any guarantee or indemnity in respect of any Relevant Indebtedness, without at the same time or prior thereto according to the Certificates the same Security Interest as is created or subsisting to secure any such Relevant Indebtedness, guarantee or indemnity or such other Security Interest as shall be approved by an Extraordinary Resolution (as defined in the Master Declaration of Trust) of the Certificateholders. 7. Periodic Distribution Amounts 7.1 Fixed Rate Certificates Provisions (a) (b) Application: This Condition 7.1 is applicable to the Certificates only if the Fixed Rate Certificates Provisions are specified in the applicable Final Terms as being applicable. Periodic Distribution Dates: Each Fixed Rate Certificate bears profit on its outstanding face amount from and including the Profit Commencement Date at the rate per annum (expressed as a percentage) equal to the Profit Rate, such profit being payable in arrear on each Periodic Distribution Date. The amount of profit payable shall be a Fixed Amount, a Broken Amount or an amount determined in accordance with Condition 7.3 (Calculation of Periodic Distribution Amount). Each such amount of profit is referred to in these Conditions as a "Periodic Distribution Amount". Periodic Distribution Amounts shall be distributed to Certificateholders by the Principal Paying Agent on behalf of the Trustee, pro rata to their respective holdings, out of amounts transferred to the Transaction Account and subject to Condition 5.2 (Application of Proceeds from Trust Assets) and Condition 9 (Payments). 7.2 Floating Rate Certificate Provisions (a) (b) Application: This Condition 7.2 is applicable to the Certificates only if the Floating Rate Certificates Provisions are specified in the applicable Final Terms as being applicable. Periodic Distribution Dates: Each Floating Rate Certificate bears profit on its outstanding face amount from and including the Profit Commencement Date at the rate per annum (expressed as a percentage) equal to the Profit Rate, such profit being payable in arrear on each Periodic Distribution Date. The amount of profit payable per Calculation Amount shall be an amount determined in accordance with Condition 7.3 (Calculation of Periodic Distribution Amount). Each such amount of profit is referred to in these Conditions as a "Periodic Distribution Amount". Such Periodic Distribution Date(s) is/are either shown in the applicable Final Terms as Specified v

103 Periodic Distribution Dates or, if no Specified Periodic Distribution Date(s) is/are shown in the applicable Final Terms, Periodic Distribution Date shall mean each date which falls the number of months or other period shown in the applicable Final Terms as the Specified Period after the preceding Periodic Distribution Date or, in the case of the first Periodic Distribution Date, after the Profit Commencement Date. Periodic Distribution Amounts shall be distributed to Certificateholders by the Principal Paying Agent on behalf of the Trustee, pro rata to their respective holdings, out of amounts transferred to the Transaction Account and subject to Condition 5.2 (Application of Proceeds from Trust Assets) and Condition 9 (Payments). (c) (d) (i) (ii) (iii) (A) (B) (iv) Profit Rate for Floating Rate Certificates: The Profit Rate in respect of Floating Rate Certificates for each Return Accumulation Period shall be determined by Screen Rate Determination in accordance with paragraph (c) or ISDA Determination in accordance with paragraph (d) (as specified in the applicable Final Terms, as the case may be). Screen Rate Determination: If Screen Rate Determination is specified in the applicable Final Terms as the manner in which the Profit Rate(s) is/are to be determined, the Profit Rate applicable to the Certificates for each Return Accumulation Period will be determined by the Calculation Agent on the following basis: if the Reference Rate is a composite quotation or customarily supplied by one entity, the Calculation Agent will determine the Reference Rate which appears on the Relevant Screen Page as of the Relevant Time on the relevant Profit Rate Determination Date; in any other case, the Calculation Agent will determine the arithmetic mean of the Reference Rates which appear on the Relevant Screen Page as of the Relevant Time on the relevant Profit Rate Determination Date; if, in the case of (i) above, such rate does not appear on that page or, in the case of (ii) above, fewer than two such rates appear on that page or if, in either case, the Relevant Screen Page is unavailable, the Calculation Agent will: request each of the Reference Banks to provide a quotation of the Reference Rate at approximately the Relevant Time on the Profit Rate Determination Date in an amount that is representative for a single transaction in that market at that time; and determine the arithmetic mean of such quotations; and if fewer than two such quotations are provided as requested, the Calculation Agent will determine the arithmetic mean of the rates (being the nearest to the Reference Rate, as determined by the Calculation Agent) quoted by major banks in the Principal Financial Centre of the Specified Currency selected by the Calculation Agent at approximately a.m. (local time in the Principal Financial Centre of the Specified Currency) on the first day of the relevant Return Accumulation Period for loans in the Specified Currency for a period equal to the relevant Return Accumulation Period and in an amount that is representative for a single transaction in that market at that time, and the Profit Rate for such Return Accumulation Period shall be the sum of the Margin and the rate or (as the case may be) the arithmetic mean so determined; provided, however, that if the Calculation Agent is unable to determine a rate or (as the case may be) an arithmetic mean in accordance with the above provisions in relation to any Return Accumulation Period, the Profit Rate applicable to the Certificates during such Return Accumulation Period will be the sum of the Margin and the rate or (as the case may be) the arithmetic mean last determined in relation to the Certificates in respect of a preceding Return Accumulation Period. (e) ISDA Determination: If ISDA Determination is specified in the applicable Final Terms as the manner in which the Profit Rate(s) is/are to be determined, the Profit Rate applicable to the Certificates for each Return Accumulation Period will be the sum of the Margin and the relevant ISDA Rate where "ISDA Rate" in relation to any Return Accumulation Period means a rate equal to the Floating Rate (as defined in the ISDA Definitions) that would be determined by the Calculation Agent under a Swap Transaction (as defined in the ISDA Definitions) if the v

104 Calculation Agent were acting as Calculation Agent for that Swap Transaction under the terms of an agreement incorporating the ISDA Definitions and under which: (i) (ii) (iii) (f) the Floating Rate Option (as defined in the ISDA Definitions) is as specified in the applicable Final Terms; the Designated Maturity (as defined in the ISDA Definitions) is a period specified in the applicable Final Terms; and the relevant Reset Date (as defined in the ISDA Definitions) is either: (A) if the relevant Floating Rate Option is based on: (w) the London inter-bank offered rate ("LIBOR"); or (x) the Eurozone inter-bank offered rate ("EURIBOR") for a currency, the first day of that Return Accumulation Period; or (B) in any other case, as specified in the applicable Final Terms. Maximum or Minimum Profit Rate: If any Maximum Profit Rate or Minimum Profit Rate is specified in the applicable Final Terms, then the Profit Rate shall in no event be greater than the maximum or be less than the minimum so specified. 7.3 Calculation of Periodic Distribution Amount: The Periodic Distribution Amount payable per Calculation Amount will be calculated by the Calculation Agent by applying the Profit Rate for such Return Accumulation Period to the Calculation Amount, multiplying the product by the relevant Day Count Fraction, rounding the resulting figure to the nearest sub-unit of the Specified Currency (half a sub-unit being rounded upwards). Where the Specified Denomination of an Individual Certificate is a multiple of the Calculation Amount, the Periodic Distribution Amount payable in respect of such Certificate shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding. For this purpose a "sub-unit" means, in the case of any currency other than euro and Renminbi, the lowest amount of such currency that is available as legal tender in the country of such currency and in the case of euro, means one cent. and, in the case of Renminbi, means CNY Determination and Publication of Profit Rates, Periodic Distribution Amounts and Dissolution Distribution Amounts: The Calculation Agent shall, as soon as practicable on or after each Profit Rate Determination Date, or such other time on such date as the Calculation Agent may be required to calculate any rate or amount, obtain any quotation or make any determination or calculation, determine such rate and calculate the Periodic Distribution Amounts for the relevant Return Accumulation Period, calculate the relevant Dissolution Distribution Amount, obtain such quotation or make such determination or calculation, as the case may be, and cause the Profit Rate and the Periodic Distribution Amounts for each Return Accumulation Period and the relevant Periodic Distribution Date and, if required to be calculated, the relevant Dissolution Distribution Amount to be notified to the Delegate, the Trustee, KFH, each of the Paying Agents, the Certificateholders, any other Calculation Agent appointed in respect of the Certificates that is to make a further calculation upon receipt of such information and, if the Certificates are listed on a stock exchange and the rules of such exchange or other relevant authority so require, such exchange or other relevant authority as soon as possible after their determination but in no event later than: (i) the commencement of the relevant Return Accumulation Period, if determined prior to such time, in the case of notification to such exchange of a Profit Rate and Periodic Distribution Amount; or (ii) in all other cases, the fourth Business Day after such determination. Where any Periodic Distribution Date or Profit Period Date is subject to adjustment pursuant to Condition 7.7 (Business Day Convention), the Periodic Distribution Amounts and the Periodic Distribution Date so published may subsequently be amended (or appropriate alternative arrangements made with the consent of the Delegate by way of adjustment) without notice in the event of an extension or shortening of the Return Accumulation Period. If the Certificates become due and payable under Condition 12 (Dissolution Events), the accrued profit and the Profit Rate payable in respect of the Certificates shall nevertheless continue to be calculated as previously in accordance with this Condition but no publication of the Profit Rate or the Periodic Distribution Amount so calculated need be made unless the Delegate otherwise requires. The determination of any rate or amount, the obtaining of each quotation and the making of each determination or calculation by the Calculation Agent(s) shall (in the absence of manifest error) be final and binding upon all parties v

105 7.5 Determination or Calculation by the Delegate: Subject to Condition 7.8 (Calculation Agent), if the Calculation Agent does not at any time for any reason determine or calculate the Profit Rate for a Return Accumulation Period or any Periodic Distribution Amount or Dissolution Distribution Amount, the Delegate shall (without liability to any person for so doing) do so or shall appoint an agent (on behalf of, and at the expense of, the Trustee) to do so and such determination or calculation shall be deemed to have been made by the Calculation Agent. In doing so, the Delegate or, as the case may be, such agent shall apply the foregoing provisions of this Condition, with any necessary consequential amendments, to the extent that, in its sole opinion, it can do so. 7.6 Cessation of Entitlement to Profit: Profit shall cease to accumulate in respect of each Certificate on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event profit shall, subject to the terms of the Transaction Documents, continue to accumulate (both before and after judgment) at the Profit Rate in the manner provided in this Condition 7 to the Relevant Date. 7.7 Business Day Convention: If any date referred to in these Conditions that is specified to be subject to adjustment in accordance with a Business Day Convention would otherwise fall on a day that is not a Business Day, then, if the Business Day Convention specified in the applicable Final Terms is: (a) (b) (c) (d) (i) (ii) (iii) (e) the "Following Business Day Convention", the relevant date shall be postponed to the first following day that is a Business Day; the "Modified Following Business Day Convention" or "Modified Business Day Convention", the relevant date shall be postponed to the first following day that is a Business Day unless that day falls in the next calendar month, in which case that date will be the first preceding day that is a Business Day; the "Preceding Business Day Convention", the relevant date shall be brought forward to the first preceding day that is a Business Day; the "FRN Convention", "Floating Rate Convention" or "Eurodollar Convention", each relevant date shall be the date which numerically corresponds to the preceding such date in the calendar month which is the number of months specified in the applicable Final Terms as the Return Accumulation Period after the calendar month in which the preceding such date occurred provided, however, that: if there is no such numerically corresponding day in the calendar month in which any such date should occur, then such date will be the last day which is a Business Day in that calendar month; if any such date would otherwise fall on a day which is not a Business Day, then such date will be the first following day which is a Business Day unless that day falls in the next calendar month, in which case it will be the first preceding day which is a Business Day; and if the preceding such date occurred on the last day in a calendar month which was a Business Day, then all subsequent such dates will be the last day which is a Business Day in the calendar month which is the specified number of months after the calendar month in which the preceding such date occurred; and "No Adjustment", the relevant date shall not be adjusted in accordance with any Business Day Convention. 7.8 Calculation Agent: The Trustee shall procure that there shall at all times be one or more Calculation Agents if provision is made for them in the applicable Final Terms and for so long as any Certificates are outstanding. Where more than one Calculation Agent is appointed in respect of the Certificates, references in these Conditions to the Calculation Agent shall be construed as each Calculation Agent performing its respective duties under the Conditions. If the Calculation Agent is unable or unwilling to act as such or if the Calculation Agent fails duly to establish the Profit Rate for a Return Accumulation Period or to calculate any Periodic Distribution Amount or any Dissolution Distribution Amount, as the case may be, or to comply with any other requirement, the Trustee shall (with the prior approval of the Delegate) appoint a leading bank or financial v

106 institution engaged in the interbank market (or, if appropriate, money, swap or over-the-counter index options market) that is most closely connected with the calculation or determination to be made by the Calculation Agent (acting through its principal London office or any other office actively involved in such market) to act as such in its place. The Calculation Agent may not resign its duties without a successor having been appointed as aforesaid. 7.9 Linear Interpolation: Where Linear Interpolation is specified as applicable in respect of a Return Accumulation Period in the applicable Final Terms, the Profit Rate for such Return Accumulation Period shall be calculated by the Calculation Agent by straight line linear interpolation by reference to two rates based on the relevant Reference Rate (where Screen Rate Determination is specified as applicable in the applicable Final Terms) or the relevant Floating Rate Option (where ISDA Determination is specified as applicable in the applicable Final Terms), one of which shall be determined as if the Linear Interpolation Designated Maturity were the period of time for which rates are available next shorter than the length of the relevant Return Accumulation Period and the other of which shall be determined as if the Linear Interpolation Designated Maturity were the period of time for which rates are available next longer than the length of the relevant Return Accumulation Period provided however that if there is no rate available for a period of time next shorter or, as the case may be, next longer, then the Calculation Agent shall determine such rate at such time and by reference to such sources as it determines appropriate. 8. Redemption and Dissolution of the Trust 8.1 Dissolution on the Scheduled Dissolution Date: Unless previously redeemed, purchased and cancelled, as provided below, each Certificate shall be finally redeemed at its Dissolution Distribution Amount on the Scheduled Dissolution Date specified in the applicable Final Terms and, following the payment of all such amounts in full and the execution of a sale agreement pursuant to the Purchase Undertaking, the Trust shall be dissolved by the Trustee, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 8.2 Early Dissolution for Taxation Reasons: The Certificates shall be redeemed by the Trustee in whole, but not in part, on any Periodic Distribution Date (if the Certificates are Floating Rate Certificates) or at any time (if the Certificates are Fixed Rate Certificates) (such dissolution date being an "Early Tax Dissolution Date"), on giving not less than 30 nor more than 60 days' notice to the Certificateholders (which notice shall be irrevocable) at their Dissolution Distribution Amount if the Trustee satisfies the Delegate immediately before the giving of such notice that: (a) the Trustee has or will become obliged to pay additional amounts as described under Condition 10 (Taxation) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the relevant Series, and such obligation cannot be avoided by the Trustee taking reasonable measures available to it; or (b) KFH has or will become obliged to pay additional amounts pursuant to the terms of any Transaction Document as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the relevant Series, and such obligation cannot be avoided by KFH taking reasonable measures available to it, (the events laid out in Condition 8.2(a) and (b) above each being a "Tax Event") provided, however, that no such notice of dissolution shall be given to Certificateholders: (A) unless a duly completed Exercise Notice has been received by the Trustee from KFH pursuant to the Sale and Substitution Undertaking; and v

107 (B) (C) where the Certificates may be redeemed at any time, earlier than 90 days prior to the earliest date on which the Trustee or KFH, as the case may be, would be obliged to pay such additional amounts were a payment in respect of the Certificates (in the case of the Trustee) or pursuant to any Transaction Document (in the case of KFH) then due; or where the Certificates may be redeemed only on a Periodic Distribution Date, earlier than 60 days prior to the earliest date on which the Trustee or KFH, as the case may be, would be obliged to pay such additional amounts were a payment in respect of the Certificates (in the case of the Trustee) or pursuant to any Transaction Document (in the case of KFH) then due. Prior to the publication of any notice of dissolution pursuant to this Condition 8.2, the Trustee shall deliver or procure that there is delivered to the Delegate: (1) a certificate signed by two directors of the Trustee (in the case of Condition 8.2(a)) or KFH (in the case of Condition 8.2(b)) stating that the Trustee is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Trustee so to redeem (as set out in Condition 8.2(a) and Condition 8.2(b), as the case may be) have occurred; and (2) an opinion of independent legal advisors or other professional advisors, in each case of recognised standing, to the effect that the Trustee or KFH, as the case may be, has or will become obliged to pay additional amounts as a result of such change or amendment, and the Delegate shall be entitled to accept such certificate and legal opinion as sufficient evidence of the satisfaction of the condition precedent set out in Condition 8.2(a) or, as the case may be, Condition 8.2(b) above, in which event it shall be conclusive and binding on Certificateholders. Upon expiry of any such notice given in accordance with this Condition 8.2, payment in full of the Dissolution Distribution Amount to Certificateholders and execution of a sale agreement pursuant to the Sale and Substitution Undertaking, the Trust shall be dissolved by the Trustee, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 8.3 Dissolution at the Option of KFH (Optional Dissolution Right): If the Optional Dissolution Right is specified in the applicable Final Terms, KFH may in its sole discretion deliver to the Trustee a duly completed Exercise Notice in accordance with the provisions of the Sale and Substitution Undertaking and, on receipt of such notice, the Trustee shall, on giving not less than 15 nor more than 30 days' irrevocable notice to the Certificateholders redeem all or, if so specified in the relevant Exercise Notice, some of the Certificates on any Optional Dissolution Date. Any such redemption of Certificates shall be at their Dissolution Distribution Amount. Any such redemption or exercise must relate to Certificates of a face amount at least equal to the Minimum Optional Dissolution Amount to be redeemed and no greater than the Maximum Optional Dissolution Amount to be redeemed. All Certificates in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition 8.3. If all (and not some only) of the Certificates are to be redeemed on any Optional Dissolution Date in accordance with this Condition 8.3, upon payment in full of the Dissolution Distribution Amount to all Certificateholders and execution of a sale agreement pursuant to the Sale and Substitution Undertaking, the Trust shall be dissolved by the Trustee, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. In the case of a partial redemption, the notice to Certificateholders shall also specify the face amount of Certificates drawn and the holder(s) of such Certificates to be redeemed, which shall have been drawn in such place and in such manner as may be fair and reasonable in the circumstances, taking account of prevailing market practices, subject to compliance with any applicable laws and stock exchange or other relevant authority requirements v

108 If the Certificates are to be redeemed in part only on any date in accordance with this Condition 8.3, each Certificate shall be redeemed in part in the proportion which the aggregate principal amount of the outstanding Certificates to be redeemed on the relevant Optional Dissolution Date bears to the aggregate principal amount of outstanding Certificates on such date. For Shari'a reasons, the Optional Dissolution Right and the Certificateholder Put Right cannot both be specified as applicable in the applicable Final Terms in respect of any single Series. 8.4 Dissolution at the Option of Certificateholders (Certificateholder Put Right): If the Certificateholder Put Right is specified in the applicable Final Terms, the Trustee shall, at the option of the Holder of any Certificates, upon the Holder of such Certificates giving not less than 15 nor more than 30 days' notice to the Trustee, redeem such Certificates on the Certificateholder Put Right Date at its Dissolution Distribution Amount. For the purposes thereof, the Trustee shall deliver to KFH a duly completed Exercise Notice in accordance with the provisions of the Purchase Undertaking. If all (and not some only) of the Certificates are to be redeemed on any Certificateholder Put Right Date in accordance with this Condition 8.4, upon payment in full of the Dissolution Distribution Amount to the Certificateholders and execution of a sale agreement pursuant to the Purchase Undertaking, the Trust shall be dissolved by the Trustee, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. To exercise the option in this Condition 8.4 the relevant Holder must, within the relevant notice period, give notice to the Principal Paying Agent of such exercise (a "Certificateholder Put Exercise Notice") in accordance with the standard procedures of Euroclear, Clearstream, Luxembourg and/or DTC in a form acceptable to the relevant clearing system from time to time (which shall, if acceptable to the relevant clearing system, be in the form of a duly completed Certificateholder Put Exercise Notice in the form set out in the Agency Agreement and obtainable from any Paying Agent, the Registrar or any Transfer Agent). Any Certificateholder Put Exercise Notice or other notice given in accordance with the standard procedures of Euroclear, Clearstream, Luxembourg and/or DTC by a Holder of any Certificates pursuant to this Condition 8.4 shall be irrevocable except where, prior to the due date for redemption in accordance with this Condition 8.4, a Dissolution Event has occurred and the Delegate has declared the Certificates due and payable pursuant to Condition 12 (Dissolution Events), in which event such Certificateholder Put Exercise Notice shall be deemed void. For Shari'a reasons, the Optional Dissolution Right and the Certificateholder Put Right cannot both be specified as applicable in the applicable Final Terms in respect of any single Series. 8.5 Dissolution following a Dissolution Event: Upon the occurrence of a Dissolution Event, the Certificates may be redeemed at the Dissolution Distribution Amount on the Dissolution Event Redemption Date as more particularly described in Condition 12 (Dissolution Events). 8.6 Purchases: KFH and any Subsidiary may at any time purchase Certificates in the open market or otherwise and at any price and such Certificates may be held, resold or, at the option of KFH, surrendered to the Registrar for cancellation. 8.7 Cancellation: Subject to and in accordance with the standard procedures of Euroclear, Clearstream, Luxembourg and/or DTC, all Certificates which are redeemed will forthwith be cancelled. All Certificates purchased and surrendered for cancellation by or on behalf of KFH or any Subsidiary of KFH shall be cancelled by surrendering the Global Certificate or Individual Certificates representing such Certificates to the Registrar and by KFH delivering to the Trustee a duly completed Cancellation Notice in accordance with the terms of the Sale and Substitution Undertaking. If all (and not some only) of the Certificates are cancelled in accordance with this Condition 8.7, and upon execution of a sale agreement pursuant to the Sale and Substitution Undertaking, the Trust shall be dissolved by the Trustee, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. All Certificates v

109 cancelled pursuant to this Condition 8.7 shall be forwarded to the Registrar and cannot be reissued or resold. 8.8 No other Dissolution: The Trustee shall not be entitled to redeem the Certificates or dissolve the Trust other than as provided in this Condition 8 and Condition 12 (Dissolution Events). Upon payment in full of all amounts due in respect of the Certificates of any Series and the subsequent dissolution of the Trust as provided in this Condition 8 and/or Condition 12 (Dissolution Events) (as the case may be), the Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 9. Payments 9.1 Method of Payment: Payments of any Dissolution Distribution Amount will only be made against surrender of the relevant Certificates at the specified office of any of the Paying Agents. Each Dissolution Distribution Amount and each Periodic Distribution Amount will be paid to the Holder shown on the Register at the close of business on the relevant Record Date: (a) (b) in the case of Certificates denominated in a currency other than Renminbi, upon application by the Holder of such Certificates to the Specified Office of the Registrar, the other Transfer Agents or any Paying Agent before the Record Date, by transfer to an account denominated in that currency (or, if that currency is euro, any other account to which euro may be credited or transferred) and maintained by the payee with, a bank in the Principal Financial Centre of that currency; and in the case of Certificates denominated in Renminbi, by transfer to an account denominated in that currency and maintained by the payee with a bank in the Principal Financial Centre of that currency. 9.2 Payments on Business Days: Where payment is to be made by transfer to an account, payment instructions (for value the due date, or, if the due date is not Payment Business Day, for value the next succeeding Payment Business Day) will be initiated: (a) (b) (in the case of payments of any Dissolution Distribution Amount and Periodic Distribution Amounts payable on a Dissolution Date) on the later of the due date for payment and the day on which the relevant Certificate is surrendered (or, in the case of part payment only, presented and endorsed) at the Specified Office of a Paying Agent; and (in the case of payments of Periodic Distribution Amounts payable other than on a Dissolution Date) on the due date for payment. A Holder of Certificates shall not be entitled to any additional distributions or other payment in respect of any delay in payment resulting from the due date for a payment not being a Payment Business Day. 9.3 Partial Payments: If the amount of any Dissolution Distribution Amount or Periodic Distribution Amount is not paid in full when due, the Registrar will annotate the Register with a record of the amount in fact paid. 9.4 Record Date: Each payment in respect of Certificates will be made: (a) (b) where the Certificate is represented by a Global Certificate, to the person shown as the Holder in the Register at the close of business (in the relevant clearing system) on the Clearing System Business Day before the due date for such payment, where "Clearing System Business Day" means a day on which each clearing system for which the Global Certificate is being held is open for business; or where the Certificate is in definitive form, to the person shown as the Holder in the Register at the close of business in the place of the Registrar's Specified Office (in the case of Certificates denominated in a Specified Currency other than Renminbi) on the fifteenth day before the due date for such payment or (in the case of Certificates denominated in Renminbi) on the fifth day before v

110 the due date for such payment (such day described in, as the case may be, Condition 9.4(a) above and in this Condition 9.4(b), the "Record Date"). 9.5 Payments Subject to Laws: All payments are subject in all cases to any applicable fiscal or other laws, regulations and directives in the place of payment, but without prejudice to the provisions of this Condition 9 and Condition 10 (Taxation). No commission or expenses shall be charged to the Certificateholders in respect of such payments. 9.6 Payment of U.S. Dollar Equivalent: Notwithstanding anything in these Conditions, if by reason of Inconvertibility, Non-transferability or Illiquidity, the Trustee is not able to satisfy payments of any Dissolution Distribution Amount, any Periodic Distribution Amount or any other amount (whether in the nature of principal or otherwise) in respect of the Certificates when due in Renminbi in the relevant Renminbi Settlement Centre, the Trustee may, on giving not less than five nor more than 30 calendar days' irrevocable notice to the Certificateholders prior to the due date for payment, settle any such payment in U.S. dollars on the due date at the U.S. Dollar Equivalent of any such Renminbi- denominated amount. In such event, payments of the U.S. Dollar Equivalent of the relevant Dissolution Distribution Amount, any Periodic Distribution Amount or any other amount (whether in the nature of principal or otherwise) in respect of the Certificates shall be made upon application by the holder of the Certificates to the Specified Office of the Registrar or any Transfer Agent before the Record Date, by transfer to a U.S. dollar denominated account maintained by the payee with a bank in New York City. In this Condition 9.6: "Determination Business Day" means a day (other than a Saturday or Sunday) on which commercial banks are open for general business (including dealings in foreign exchange) in the relevant Renminbi Settlement Centre, London and in New York City; "Determination Date" means the day which is two Determination Business Days before the due date for any payment of the relevant amount under these Conditions; "Governmental Authority" means any de facto or de jure government (or any agency or instrumentality thereof), court, tribunal, administrative or other governmental authority or any other entity (private or public) charged with the regulation of the financial markets (including the central bank) of the relevant Renminbi Settlement Centre; "Illiquidity" means where the general Renminbi exchange market in the relevant Renminbi Settlement Centre becomes illiquid and, as a result of which the Trustee cannot obtain sufficient Renminbi in order to satisfy its obligation to pay any Dissolution Distribution Amount, any Periodic Distribution Amount or any other amount (whether in the nature of principal or otherwise) (in whole or in part) in respect of the Certificates as determined by the Trustee in good faith and in a commercially reasonable manner following consultation (if practicable) with two Renminbi Dealers; "Inconvertibility" means the occurrence of any event that makes it impossible for the Trustee to convert any amount due in respect of the Certificates in the general Renminbi exchange market in the relevant Renminbi Settlement Centre, other than where such impossibility is due solely to the failure of the Trustee to comply with any law, rule or regulation enacted by any Governmental Authority (unless such law, rule or regulation is enacted after the pricing date of the relevant Series of Certificates and it is impossible for the Trustee, due to an event beyond its control, to comply with such law, rule or regulation); "Non-transferability" means the occurrence of any event that makes it impossible for the Trustee to transfer Renminbi between accounts inside the relevant Renminbi Settlement Centre or from an account inside the relevant Renminbi Settlement Centre to an account outside the relevant Renminbi Settlement Centre or from an account outside the relevant Renminbi Settlement Centre to an account inside the relevant Renminbi Settlement Centre, other than where such impossibility is due solely to the failure of the Trustee to comply with any law, rule or regulation enacted by any Governmental Authority (unless such law, rule or regulation is enacted after the pricing date for v

111 the relevant Series of Certificates and it is impossible for the Trustee, due to an event beyond its control, to comply with such law, rule or regulation); "Renminbi Dealer" means an independent foreign exchange dealer of international repute active in the Renminbi exchange market in the relevant Renminbi Settlement Centre; "Spot Rate" means the spot CNY/U.S. dollar exchange rate for the purchase of U.S. dollars with Renminbi in the over-the-counter Renminbi exchange market in the relevant Renminbi Settlement Centre for settlement in two Determination Business Days, as determined by the Calculation Agent at or around a.m. (Hong Kong time) on the Determination Date, on a deliverable basis by reference to Reuters Screen Page TRADCNY3, or if no such rate is available, on a nondeliverable basis by reference to Reuters Screen Page TRADNDF. If neither rate is available, the Calculation Agent will determine the Spot Rate at or around a.m. (Hong Kong time) on the Determination Date as the most recently available CNY/U.S. dollar official fixing rate for settlement in two Determination Business Days reported by The State Administration of Foreign Exchange of the PRC, which is reported on the Reuters Screen Page CNY=SAEC. Reference to a page on the Reuters Screen means the display page so designated on the Reuters Monitor Money Rates Service (or any successor service) or such other page as may replace that page for the purpose of displaying a comparable currency exchange rate. All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 9.6 by the Calculation Agent, will (in the absence of wilful default, gross negligence or fraud) be binding on the Trustee, KFH, the Paying Agents and all Certificateholders; and "U.S. Dollar Equivalent" means the Renminbi amount converted into U.S. dollars using the Spot Rate for the relevant Determination Date. 10. Taxation All payments in respect of the Certificates by or on behalf of the Trustee shall be made free and clear of, and without withholding, retention or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Relevant Jurisdiction, unless such withholding or deduction is required by law or by the Relevant Jurisdiction's interpretation or administration thereof. In that event, the Trustee shall pay such additional amounts as shall result in receipt by the Certificateholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Certificate(s): (a) (b) (c) (d) (e) (f) presented for payment in a Relevant Jurisdiction; held by or on behalf of a Holder or beneficial owner which is liable to such taxes, duties, assessments or governmental charges in respect of such Certificates by reason of its having some connection with the jurisdiction by which such taxes, duties, assessments or charges have been imposed, levied, collected, withheld or assessed other than the mere holding of the Certificates; or where the relevant Certificates is presented or surrendered for payment more than 30 days after the Relevant Date except to the extent that the Holder of such Certificates would have been entitled to such additional amounts on presenting or surrendering such Certificates for payment on the last day of such period of 30 days. where such taxes or duties would not have been so withheld or deducted but for the failure by the Holder or the beneficial owner of the Certificate to make a declaration of non-residence, provided that at least 90 days prior to the first payment date with respect to which the Trustee applies this clause (d) the Trustee has notified the Paying Agent in writing that the holders of Certificates will be required to provide such declaration of non-residence; in respect of any estate, inheritance, gift, value added, sales, use, excise, transfer, personal property or similar taxes, duties, assessments or other governmental charges; where such taxes or duties are not payable by way of withholding, retention or deduction; or v

112 (g) in respect of any payment to a holder of a Certificate that is a fiduciary or partnership or any Person other than the sole beneficial owner of such payment or Certificate, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such partnership or the beneficial owner of such payment or Certificate would not have been entitled to the additional amounts. If the Trustee becomes subject at any time to any taxing jurisdiction other than or in addition to the United Arab Emirates (including the DIFC), references in these Conditions to the United Arab Emirates (including the DIFC) shall be construed as references to the United Arab Emirates (including the DIFC) and/or such other jurisdiction. Notwithstanding anything to the contrary in these Conditions, the Trustee, KFH, a paying agent or any other person shall be permitted to withhold or deduct any amounts required by Sections 1471 to 1474 of the U.S. Internal Revenue Code of 1986, as amended ("FATCA"), any treaty, law, regulation or other official guidance implementing FATCA, or any agreement (or related guidance) between the Trustee, KFH, a paying agent or any other person and the United States, any other jurisdiction, or any authority of any of the foregoing implementing FATCA or any intergovernmental agreement to implement FATCA and none of the Trustee, any paying agent or any other person shall be required to pay any additional amounts with respect to any such withholding or deduction imposed on or with respect to any Certificate. The Transaction Documents each provide that payments thereunder by KFH shall be made free and clear of, and without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the Relevant Jurisdictions or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law and, in such case, provide for the payment by KFH of additional amounts so that the full amount which would otherwise have been due and payable is received by the Trustee. Further, KFH has undertaken in the Master Declaration of Trust to pay such additional amounts as may be necessary pursuant to this Condition 10 so that the full amount due and payable by the Trustee in respect of the Certificates to the Certificateholders is received by the Trustee for the purposes of payment to the Certificateholders in accordance with and subject to the provisions of this Condition Prescription Claims against the Trustee for payment in respect of the Certificates shall be prescribed and become void unless made within 10 years (in the case of the Dissolution Distribution Amount) or five years (in the case of Periodic Distribution Amounts) from the appropriate Relevant Date in respect of them. 12. Dissolution Events 12.1 Dissolution Event: Upon the occurrence of a Dissolution Event: (a) (b) the Delegate, upon receiving written notice thereof under the Master Declaration of Trust, shall (subject to it being indemnified and/or secured and/or pre-funded to its satisfaction) promptly give notice of the occurrence of the Dissolution Event to the Certificateholders in accordance with Condition 18 (Notices) with a request to Certificateholders to indicate to the Trustee and the Delegate if they wish the Certificates to be redeemed and the Trust to be dissolved; and the Delegate in its sole discretion may, and shall if so requested in writing by the holders of at least 25 per cent. of the then aggregate face amount of the Series of Certificates outstanding or if so directed by an Extraordinary Resolution, subject in each case to being indemnified and/or secured and/or pre-funded to its satisfaction, give notice (a "Dissolution Notice") to the Trustee, KFH and the Certificateholders in accordance with Condition 18 (Notices) that the Certificates are immediately due and payable at the Dissolution Distribution Amount. A Dissolution Notice may be given pursuant to this Condition 12.1(b) whether or not notice has been given to Certificateholders as provided in Condition 12.1(a) v

113 Upon receipt of such Dissolution Notice, the Trustee shall: (x) deliver an Exercise Notice to KFH under the Purchase Undertaking and thereafter execute the relevant sale agreement for purchase of the Wakala Portfolio Assets; and, if applicable to a Series, (y) notify KFH that the outstanding Deferred Sale Price is immediately due and payable under the terms of the Master Murabaha Agreement. The Trustee (failing which the Delegate) shall use the proceeds thereof to redeem the Certificates at the Dissolution Distribution Amount on the date specified in the relevant Dissolution Notice, which may be the date of such notice (the relevant "Dissolution Event Redemption Date") and the Trust shall be dissolved by the Trustee, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof Enforcement and Exercise of Rights: Upon the occurrence of a Dissolution Event, to the extent that any amount payable in respect of the Certificates of the relevant Series has not been paid in full on the Dissolution Event Redemption Date, the Delegate may (acting for the benefit of the Certificateholders), and shall if so requested in writing by the holders of at least 25 per cent. of the then outstanding aggregate face amount of the Series of Certificates or if so directed by an Extraordinary Resolution, take one or more of the following steps: (a) (b) (c) enforce the provisions of the Purchase Undertaking and, if applicable to a Series, the Master Murabaha Agreement against KFH; and/or start or join in legal proceedings against KFH, to recover from KFH any amounts owed to the Trustee; and/or start or join in any other legal proceedings or take such other steps as the Trustee or the Delegate may consider necessary. 13. Realisation of Trust Assets 13.1 Neither the Delegate nor the Trustee shall be bound in any circumstances to take any action to enforce or to realise the relevant Trust Assets or take any action or steps or proceedings against (as applicable) the Trustee and/or KFH under any Transaction Document to which either of the Trustee and/or KFH is a party unless directed or requested to do so: (i) by an Extraordinary Resolution; or (ii) in writing by the holders of at least 25 per cent. of the then outstanding aggregate face amount of the Series of Certificates and, in either case, only if it is indemnified and/or secured and/or pre-funded to its satisfaction against all Liabilities to which it may, in its opinion, thereby render itself liable or which it may, in its opinion, incur by so doing No Certificateholder shall be entitled to proceed directly against the Trustee, or through the Trustee and/or KFH under any Transaction Document to which either of them is a party unless the Delegate, having become bound so to proceed, fails to do so within a reasonable period and such failure is continuing. Under no circumstances shall the Delegate or any Certificateholder have any right to cause the sale or other disposition of any of the relevant Trust Assets (other than as expressly contemplated in the Transaction Documents) and the sole right of the Delegate and the Certificateholders against KFH shall be to enforce its obligations under the Transaction Documents to which it is a party Conditions 12.2 (Enforcement and Exercise of Rights), 13.1 and 13.2 are subject to this Condition After enforcing or realising the Trust Assets in respect of the Certificates of the relevant Series and distributing the net proceeds of the Trust Assets in accordance with Condition 5.2 (Application of Proceeds from Trust Assets) and the Declaration of Trust, the obligations of the Trustee in respect of the Certificates of the relevant Series shall be satisfied and the Trustee shall not be liable for any further sums in respect of such Series and, accordingly, no Certificateholder may take any further steps against the Trustee (to the extent that the Trust Assets have been exhausted) (or any steps against the Delegate) or any other person (including KFH (to the extent that it fulfils all of its obligations under the Transaction Documents)) to recover any further sums in respect of the Certificates of the relevant Series and the right to receive from the Trustee or the Delegate any such sums remaining unpaid shall be extinguished. In particular, no Certificateholder shall be entitled in respect thereof to petition or to take any other steps for the winding-up of the Trustee v

114 14. Replacement of Certificates 15. Agents If any Global Certificate or Individual Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Registrar (and, if the Certificates are then admitted to listing, trading and/or quotation by any competent authority, stock exchange and/or quotation system which requires the appointment of a Paying Agent or Transfer Agent in any particular place, the Principal Paying Agent or Transfer Agent having its Specified Office in the place required by such competent authority, stock exchange and/or quotation system), subject to all applicable laws and competent authority, stock exchange and/or quotation system requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Trustee may reasonably require. A mutilated or defaced Global Certificate or Individual Certificate must be surrendered before replacements will be issued. In acting under the Agency Agreement and in connection with the Certificates, the Agents act solely as agents of the Trustee (and solely to the extent set out in the Agency Agreement, the Delegate) and do not assume any obligations towards or relationship of agency or trust for or with any of the Certificateholders. The Agents and their Specified Offices are set out in the Agency Agreement. In respect of each Series of Certificates, the relevant Agents are specified in the applicable Final Terms. The Trustee reserves the right at any time with the prior written approval of the Delegate to terminate the appointment of any Agent and to appoint additional or successor Agents; provided, however, that: (a) (b) (c) the Trustee shall at all times maintain a principal agent, a registrar and a transfer agent; if a Calculation Agent is specified in the applicable Final Terms, the Trustee shall at all times maintain a Calculation Agent; and if and for so long as the Certificates are admitted to listing, trading and/or quotation by any competent authority, stock exchange and/or quotation system which requires the appointment of a Paying Agent and/or a Transfer Agent in any particular place, the Trustee shall maintain a Paying Agent and/or a Transfer Agent having its Specified Office in the place required by such competent authority, stock exchange and/or quotation system. Notice of any change in any of the Agents or in their Specified Offices shall promptly be given to the Certificateholders. 16. Meetings of Certificateholders, Modification and Waiver 16.1 Meetings of Certificateholders: The Master Declaration of Trust contains provisions for convening meetings of Certificateholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of any of these Conditions or any provisions of the Master Declaration of Trust. Such a meeting may be convened by the Trustee, KFH or the Delegate, and shall be convened by the Trustee, or, subject to it being indemnified and/or secured and/or pre-funded to its satisfaction, the Delegate, if the Trustee or the Delegate (as the case may be) receives a request in writing from Certificateholders holding not less than 10 per cent. in aggregate face amount of the Certificates of any Series for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution (except in the case of a Reserved Matter) shall be one or more persons holding or representing more than a clear majority in aggregate face amount of the Certificates for the time being outstanding, or at any adjourned meeting one or more persons being or representing Certificateholders whatever the aggregate face amount of the Certificates held or represented. If the business of such meeting includes consideration of proposals to (each a "Reserved Matter"): (a) (b) amend any Dissolution Date in respect of the Certificates or any date for payment of Periodic Distribution Amounts on the Certificates; reduce or cancel the face amount of, or any premium payable on redemption of, the Certificates; v

115 (c) (d) (e) (f) (g) (h) (i) (j) (k) to reduce the rate or rates of profit in respect of the Certificates or to vary the method or basis of calculating the rate or rates or amount of profit or the basis for calculating any Periodic Distribution Amount in respect of the Certificates (other than any change arising from the discontinuation of any interest rate benchmark used to determine the amount of any payment in respect of the Certificates); if a Minimum Profit Rate and/or a Maximum Profit Rate is shown in the applicable Final Terms, to reduce any such Minimum Profit Rate and/or Maximum Profit Rate; vary any method of, or basis for, calculating the Dissolution Distribution Amount; vary the currency of payment or denomination of the Certificates; modify the provisions concerning the quorum required at any meeting of Certificateholders or the majority required to pass an Extraordinary Resolution; modify or cancel the payment obligations of KFH (in any capacity) and/or the Trustee under the Transaction Documents and/or the Certificates (as the case may be); amend any of KFH's covenants included in the Conditions or in any of the Transaction Documents; amend the order of application of monies set out in Condition 5.2 (Application of Proceeds from Trust Assets); or amend this definition, then: (i) the necessary quorum shall be one or more persons holding or representing not less than three quarters, or at any adjourned meeting not less than one quarter, in aggregate face amount of the Certificates for the time being outstanding; and (ii) such meeting may only be convened if following written consent from KFH to convene such meeting. For the avoidance of doubt, in the event of any inconsistency between paragraph 2.3 of Schedule 3 (Provisions for meetings of Certificateholders) of the Master Declaration of Trust, paragraph 2.3 Schedule 3 (Provisions for meetings of Certificateholders) of the Master Declaration of Trust shall prevail. Any Extraordinary Resolution duly passed shall be binding on all Certificateholders (whether or not they voted on the resolution). The Master Declaration of Trust provides that a resolution in writing signed by or on behalf of the holders of not less than 90 per cent. in aggregate face amount of the Certificates outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Certificateholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Certificateholders Modification: The Delegate may (but shall not be obliged to), without the consent of the Certificateholders: (i) agree to any modification of any of the provisions of the Master Declaration of Trust or the Transaction Documents that is, in the sole opinion of the Delegate, (i) of a formal, minor or technical nature or (ii) is made to correct a manifest error or (iii) is not materially prejudicial to the interests of the outstanding Certificateholders provided that such modification is, in the case of (iii), other than in respect of a Reserved Matter; or (ii): (A) agree to any waiver or authorisation of any breach or proposed breach, of any of the provisions of the Master Declaration of Trust or the Transaction Documents; or (B) determine that any Dissolution Event shall not be treated as such, provided that such waiver, authorisation or determination is in the sole opinion of the Delegate not materially prejudicial to the interests of the outstanding Certificateholders and is other than in respect of a Reserved Matter and not in contravention of any express direction by Extraordinary Resolution or request in writing by the holders of at least 25 per cent. of the outstanding aggregate face amount of that Series. Any such modification, authorisation, determination or waiver shall be binding on all Certificateholders and, unless the Delegate agrees otherwise, such modification, waiver, authorisation or determination shall be notified by the Trustee (or KFH on its behalf) to the Certificateholders in accordance with Condition 18 (Notices) as soon as practicable v

116 16.3 Entitlement of the Delegate: In connection with the exercise of its powers, authorities and discretions (including but not limited to those referred to in this Condition 16.3) the Delegate shall have regard to the general interests of the Certificateholders as a class and shall not have regard to the consequences of such exercise for individual Certificateholders and the Delegate shall not be entitled to require, nor shall any Certificateholder be entitled to claim, from the Trustee, KFH or the Delegate any indemnification or payment in respect of any tax consequence of any such exercise upon individual Certificateholders. 17. Delegate 17.1 Delegation of powers: The Trustee will in the Master Declaration of Trust irrevocably and unconditionally appoint the Delegate to be its attorney and in its name, on its behalf and as its act and deeds, to execute, deliver and perfect all documents, and to exercise all of the present and future duties, powers (including the power to sub-delegate), rights, authorities (including, but not limited to, the authority to request directions from any Certificateholders and the power to make any determinations to be made under the Transaction Documents) and discretions vested in the Trustee by the Master Declaration of Trust, that the Delegate may consider to be necessary or desirable in order to, upon the occurrence of a Dissolution Event, and subject to its being indemnified and/or secured and/or pre-funded to its satisfaction, exercise all of the rights of the Trustee under the Transaction Documents, take such other steps as the Trustee or the Delegate may consider necessary to recover amounts due to the Certificateholders and make such distributions from the relevant Trust Assets as the Trustee is bound to make in accordance with the Master Declaration of Trust (together the "Delegation" of the "Relevant Powers"), provided that no obligations, duties, liabilities or covenants of the Trustee pursuant to the Master Declaration of Trust or any other Transaction Document shall be imposed on the Delegate by virtue of this Delegation and provided further that in no circumstances will such Delegation result in the Delegate holding on trust the relevant Trust Assets and provided further that such Delegation and the Relevant Powers shall not include any duty, power, trust, authority, rights or discretion to dissolve any of the trusts constituted by the Master Declaration of Trust following the occurrence of a Dissolution Event or to determine the remuneration of the Delegate. The Trustee shall ratify and confirm all things done and all documents executed by the Delegate in the exercise of all or any of the Relevant Powers. In addition to the Delegation of the Relevant Powers under the Master Declaration of Trust, the Delegate also has certain powers which are vested solely in it from the date of the Master Declaration of Trust. The appointment of a delegate by the Trustee is intended to be in the interests of the Certificateholders and does not affect the Trustee's continuing role and obligations as sole trustee Indemnification: The Master Declaration of Trust contains provisions for the indemnification of the Delegate in certain circumstances and for its relief from responsibility, including provisions relieving it from taking action unless indemnified and/or secured and/or pre-funded to its satisfaction. In particular, but without limitation, in connection with the exercise of any of its rights in respect of the relevant Trust Assets or any other right it may have pursuant to the Master Declaration of Trust or the other Transaction Documents, the Delegate shall in no circumstances be bound to take any action unless directed to do so in accordance with Condition 12 (Dissolution Events) or 13 (Realisation of Trust Assets), and then only if it shall also have been indemnified and/or secured and/or pre-funded to its satisfaction No liability: The Delegate makes no representation and assumes no responsibility for the validity, sufficiency or enforceability of the obligations of KFH or the Trustee under the Transaction Documents to which it is a party and shall not under any circumstances have any liability or be obliged to account to Certificateholders in respect of any payments which should have been paid by KFH but are not so paid and shall not in any circumstances have any liability arising from the relevant Trust Assets other than as expressly provided in these Conditions or in the Master Declaration of Trust Reliance on certificates and/or reports: The Delegate may rely, without liability to any Certificateholder or any other person, on any certificate or report of the auditors or insolvency officials (as applicable) of the Trustee, KFH or any other person called for by or provided to the v

117 Delegate (whether or not addressed to the Delegate) in accordance with or for the purposes of the Master Declaration of Trust or the other Transaction Documents and such certificate or report may be relied upon by the Delegate as sufficient evidence of the facts stated therein notwithstanding that such certificate or report and/or any engagement letter or other document entered into by the Delegate in connection therewith contains a monetary or other limit on the liability of the auditors of the Trustee, KFH or such other person in respect thereof and notwithstanding that the scope and/or basis of such certificate or report may be limited by an engagement or similar letter or by the terms of the certificate or report itself and the Delegate shall not be bound in any such case to call for further evidence or be responsible for any liability or inconvenience that may be occasioned by its failure to do so Proper performance of duties: Nothing shall, in any case in which the Trustee or the Delegate has failed to show the degree of care and diligence required of it as trustee or delegate, in the case of the Trustee (having regard to the provisions of the Master Declaration of Trust conferring on it any trusts, powers, authorities or discretions) or as donee and delegate, in the case of the Delegate (having regard to the powers, authorities and discretions conferred on it by the Master Declaration of Trust and to the Relevant Powers delegated to it), respectively exempt the Trustee or the Delegate from or indemnify either of them against any Liability for gross negligence, wilful default or fraud of which either of them may be guilty in relation to their duties under the Master Declaration of Trust Notice of events: The Delegate shall not be responsible for monitoring or ascertaining whether or not a Dissolution Event has occurred or exists and, unless and until it shall have received express written notice to the contrary, it will be entitled to assume that no such event or circumstance exists or has occurred (without any liability to Certificateholders or any other person for so doing). 18. Notices 18.1 Notices to the Holders: Notices to the Holders of Certificates shall be sent to them by uninsured first class mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the Register. Any such notice shall be deemed to have been given on the fourth day (being a day other than a Saturday or a Sunday) after the date of mailing Listing authorities and clearing systems: The Trustee shall also ensure that notices are duly given in a manner which complies with the rules and regulations of any listing authority, stock exchange and/or quotation system on which the Certificates are for the time being listed. So long as the Certificates are held by Euroclear, Clearstream, Luxembourg and/or DTC, notices to the Holders of Trust Certificates of that Series may be given by delivery of the relevant notice to that clearing system for communication by it to entitled accountholders in substitution for mailing or publication as required by the Conditions. 19. Rounding For the purposes of any calculations referred to in these Conditions (unless otherwise specified in these Conditions or the applicable Final Terms): (a) all percentages resulting from such calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with per cent. being rounded up to per cent.); (b) all United States dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one half cent being rounded up); (c) all Japanese Yen amounts used in or resulting from such calculations will be rounded downwards to the next lower whole Japanese Yen amount; and (d) all amounts denominated in any other currency used in or resulting from such calculations will be rounded to the nearest two decimal places in such currency, with being rounded upwards. 20. Further Issues The Trustee shall be at liberty from time to time without the consent of the Certificateholders to create and issue additional trust certificates having terms and conditions the same as the Certificates or the same in all respects (or in all respects save for the date and amount of the first payment of the Periodic Distribution Amount and the date from which Periodic Distribution Amounts start to accrue) and so that the same shall be consolidated and form a single Series with v

118 the outstanding Certificates. Any additional trust certificates which are to form a single Series with the outstanding Certificates previously constituted by the Master Declaration of Trust shall be constituted by a deed supplemental to the Master Declaration of Trust. 21. Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Certificates under the Contracts (Rights of Third Parties) Act Shari'a Compliance Each Transaction Document provides that each of Kuwait Finance House K.S.C.P. (to the extent it is a party to the relevant Transaction Document) and KFH Sukuk Company SPC Limited (to the extent it is a party to the relevant Transaction Document), as the case may be, agrees that it has accepted the Shari'a compliant nature of the Transaction Documents to which it is a party and further agrees that: (a) (b) (c) it shall not claim that any of its obligations under the Transaction Documents to which it is a party (or any provision thereof) is ultra vires or not compliant with the principles of Shari'a; it shall not take any steps or bring any proceedings in any forum to challenge the Shari'a compliance of the Transaction Documents to which it is a party; and to the extent permitted by law, none of its obligations under the Transaction Documents to which it is a party shall in any way be diminished, abrogated, impaired, invalidated or otherwise adversely affected by any finding, declaration, pronouncement, order or judgment of any court, tribunal or other body that the Transaction Documents to which it is a party are not compliant with the principles of Shari'a. 23. Governing Law and Jurisdiction 23.1 Governing law: The Master Declaration of Trust, the Agency Agreement and the Certificates (including these Conditions) and any non-contractual obligations arising out of or in connection with the same are governed by, and shall be construed in accordance with, English law Arbitration: Any dispute, claim, difference or controversy arising out of, relating to or having any connection with the Master Declaration of Trust, the Agency Agreement and the Certificates (including any dispute as to their existence, validity, interpretation, performance, breach or termination or the consequences of their nullity and any dispute relating to any non-contractual obligations arising out of or in connection with them) (a "Dispute") shall be referred to and finally resolved by arbitration under the Arbitration Rules of the London Court of International Arbitration (the "LCIA") (the "Rules"), which Rules (as amended from time to time) are incorporated by reference into this Condition For these purposes: (a) (b) (c) the seat of arbitration shall be London, England; there shall be three arbitrators, each of whom shall be disinterested in the arbitration, shall have no connection with any party thereto and shall be an attorney experienced in international securities transactions. The parties to the Dispute shall each nominate one arbitrator and both arbitrators in turn shall appoint a further arbitrator who shall be the chairman of the tribunal. In cases where there are multiple claimants and/or multiple respondents, the class of claimants jointly, and the class of respondents jointly shall each nominate one arbitrator. In the event that one party or both fails to nominate an arbitrator within the time limits specified by the Rules, such arbitrator(s) shall be appointed by the LCIA. In the event that the party nominated arbitrators fail to nominate the third arbitrator within 15 days of the appointment of the second arbitrator, such arbitrator shall be appointed by the LCIA; and the language of the arbitration shall be English Process agent: The Trustee and KFH irrevocably appoint TMF Global Services (UK) Ltd at its registered office at 5th Floor, 6 St Andrew Street, London EC4A 3AE, United Kingdom ("TMF") as its agent for service of process, and undertake that, in the event of TMF ceasing so to act or v

119 ceasing to be registered in England, it will appoint another person as its agent for service of process in England in respect of any Disputes and shall immediately notify Certificateholders of such appointment. Such service shall be deemed completed on delivery to such process agent (whether or not, it is forwarded to and received by the Trustee or each of KFH). Nothing herein shall affect the right to serve proceedings in any other manner permitted by law. This Condition 23.3 applies to proceedings in any other manner permitted by law Enforcement: Each of the parties agrees that an arbitral award in connection with a Dispute arising out of or in connection with these Conditions, shall be binding on it and may be enforced against it in the courts of any competent jurisdiction. For the purposes of the foregoing, in respect of any proceedings arising out of or connected with the enforcement and/or execution of any arbitral award made against the Trustee or KFH ("Enforcement Proceedings"), each of the Trustee and KFH hereby expressly submits to the jurisdiction of any court in which any such Enforcement Proceedings are brought Other documents: The Trustee and KFH have in the relevant Transaction Documents to which each is a party made provision for arbitration and appointed an agent for service of process in terms substantially similar to those set out above Judgement interest: If any Enforcement Proceedings are brought by or on behalf of any party under any of the Transaction Documents, each party agrees it will: (a) (b) not claim judgment interest under, or in connection with, such Enforcement Proceedings; and to the fullest extent permitted by law, waive all and any entitlement it may have to judgment interest awarded in its favour by any court as a result of such Enforcement Proceedings v

120 USE OF PROCEEDS The net proceeds of each Tranche issued will be paid: (i) by the Trustee to KFH for the purchase from KFH of all of its rights, title, interests, benefits and entitlements in, to and under the relevant Initial Wakala Assets (in the case of the first Tranche of Certificates issued under a Series) or the relevant Additional Wakala Assets (in the case of each subsequent Tranche of Certificates under a Series); and (ii) if applicable, by the Trustee, acting on behalf of the Certificateholders, towards the purchase of the Commodities in connection with the relevant Commodity Murabaha Investment v

121 DESCRIPTION OF THE TRUSTEE General The Trustee was incorporated in the DIFC on 7 September 2017 as a special purpose company under the Companies Law, DIFC Law No. 3 of 2006 and the Special Purpose Company Regulations and with registered number Registered Office The Trustee's registered office is c/o Maples Fund Services (Middle East) Limited, Office 616, 6 th Floor, Liberty House, Dubai International Financial Centre, P.O. Box , Dubai, United Arab Emirates, and its telephone number is Business of the Trustee The primary purpose of the Trustee is to issue the Certificates and to undertake any ancillary activities. The Trustee is a newly formed DIFC entity and, as at the date of the Base Prospectus, has not commenced business and does not have any substantial assets or liabilities save for rights under the Transaction Documents. Administration Maples Fund Services (Middle East) Limited acts as the corporate service provider of the Trustee (in such capacity, the "Corporate Service Provider"). The office of the Corporate Service Provider serves as the general business office of the Trustee. Through the office, and pursuant to the terms of a corporate services agreement dated 16 April 2018 entered into between the Trustee and the Corporate Service Provider (the "Corporate Services Agreement"), the Corporate Service Provider has agreed to perform in the UAE and/or such other jurisdiction as may be agreed by the parties from time to time various management functions on behalf of the Trustee and the provision of certain clerical, administrative and other services until termination of the Corporate Services Agreement. The Trustee and the Corporate Service Provider have also entered into a registered office agreement (the "Registered Office Agreement") for the provision of registered office facilities to the Trustee. In consideration of the foregoing, the Corporate Service Provider will receive various fees payable by the Trustee at rates agreed upon from time to time, plus expenses. The terms of the Corporate Services Agreement and Registered Office Agreement provide that either the Trustee or the Corporate Service Provider may terminate such agreements upon the occurrence of certain stated events, including any breach by the other party of its obligations under such agreements. In addition, the Corporate Services Agreement and the Registered Office Agreement provide that either party shall be entitled to terminate such agreements by giving at least one month's notice in writing to the other party with a copy to the DIFC Registrar of Companies. Furthermore, the Corporate Service Provider has the right to terminate such agreements in the event that there is a change in the shareholding of the Trustee or the Trustee has breached, or is unable to satisfy, any of its obligations under the Certificates or the relevant Transaction Documents to which it is a party. The Corporate Service Provider will be subject to the overview of the Trustee's Board of Directors. The Corporate Service Provider's principal office is Office 616, 6 th Floor, Liberty House, Dubai International Financial Centre, P.O. Box , Dubai, United Arab Emirates. The directors of the Trustee are employees and/or officers of the Corporate Service Provider. The Trustee has no employees and is not expected to have any employees in the future. Directors The directors of the Trustee are: Name... Principal Occupation... Michael Byrne Assistant Vice President, MaplesFS Amelia Pascual Assistant Vice President, MaplesFS No director of the Trustee has any actual or potential conflicts of interest between the director's private interests and the director's duties to the Trustee v

122 The directors of the Trustee do not hold any direct, indirect, beneficial or economic interest in any of the shares of the Trustee. As a matter of DIFC law, each director of the Trustee is under a duty to act honestly and in good faith with a view to the best interests of the Trustee, regardless of any other interests the director may have. The business address of the directors of the Trustee is c/o Maples Fund Services (Middle East) Limited, Office 616, 6 th Floor, Liberty House, Dubai International Financial Centre, P.O. Box , Dubai, United Arab Emirates. Secretary Maples Fund Services (Middle East) Limited see address above. Share Capital The Trustee has an authorised share capital of U.S.$100 consisting of 100 shares of U.S.$1 nominal value each, of which all 100 shares have been issued and fully paid up as at the date of this Base Prospectus. All of the issued shares are fully-paid and are held by MaplesFS Limited as share trustee under the terms of a declaration of trust (the "Share Declaration of Trust") dated 16 April 2018 under which the Share Trustee holds the Shares in trust until the termination of the period commencing on the date of the Share Declaration of Trust and ending one hundred and forty-nine years from such date or such earlier date as the trustees of the Share Declaration of Trust may determine (the "Termination Date"). Prior to the Termination Date, the trust is an accumulation trust, but the Share Trustee has the power to benefit Qualified Charities (as defined in the Share Declaration of Trust). It is not anticipated that any distribution will be made whilst any Certificate is outstanding. Following the Termination Date, the Share Trustee will wind up the trust and make a final distribution to charity. The Share Trustee has no beneficial interest in, and derives no benefit (other than its fee for acting as Share Trustee) from, its holding of the shares v

123 SELECTED FINANCIAL INFORMATION The following information has been extracted from, should be read in conjunction with and is qualified in its entirety by reference to the Financial Statements (including the related notes thereto) and the other information contained in this Base Prospectus. In particular, in relation to the presentation of certain financial information, see "Presentation of Financial and Other Information Presentation of Financial Information Certain Restatements and Reclassifications". The Financial Statements have been prepared in accordance with IFRS, as adopted for use by the State of Kuwait for financial services institutions regulated by the CBK, and have been jointly audited by EY and Deloitte, in accordance with International Standards of Auditing as stated in their audit reports included elsewhere in this Base Prospectus. Consolidated Statement of Income Year ended 31 December (*) (KD thousands) Financing income , , ,080 Financing cost and distribution to depositors... (295,662) (282,931) (263,399) Net finance income , , ,681 Investment income ,571 78, ,259 Fees and commissions income... 96,896 88,649 81,886 Net gain from foreign currencies... 17,325 23,181 25,424 Other income... 47,641 33,980 55,693 Total operating income , , ,943 Staff costs... (187,523) (173,663) (171,966) General and administrative expenses... (82,824) (84,457) (80,525) Depreciation and amortisation... (34,671) (36,834) (77,977) Total operating expenses... (305,018) (294,954) (330,468) Net operating income , , ,475 Provisions and impairment... (163,411) (157,198) (183,561) (Loss)/profit for the year from discontinued operation... (228) (21,594) 22,657 Profit before taxation and proposed directors' fees , , ,571 Taxation (1)... (29,590) (23,193) (21,191) Proposed directors' fees... (878) (772) (610) Profit for the year , , ,770 Attributable to: Shareholders of Bank , , ,841 Non-controlling interests... 30,000 (3,289) 43,929 (1) Comprises contribution to Kuwait Foundation for the Advancement of Sciences, national labour support tax, zakat and taxation related to subsidiaries. (*) Please refer to page x of this Base Prospectus which summarises the key reclassifications v

124 Consolidated Statement of Financial Position As at 31 December (*) (KD thousands) Cash and balances with banks and financial institutions... 1,262,456 1,494,657 1,599,712 Short-term murabaha... 2,925,329 2,877,241 3,193,930 Financing receivables... 9,216,475 8,175,789 8,095,492 Investment in sukuk... 1,428,655 1,099,603 Trading properties , , ,362 Investments , ,521 1,314,756 Investment in associates and joint ventures , , ,856 Investment properties , , ,499 Other assets , , ,309 Intangible assets and goodwill... 38,659 39,175 47,960 Property and equipment , , ,181 Leasehold rights ,627 Assets classified as held for sale , ,893 Total assets... 17,357,981 16,499,353 16,494,684 Due to banks and financial institutions... 2,239,923 2,398,590 3,052,947 Sukuk payables , ,061 Depositors' accounts... 11,596,733 10,716,734 10,709,386 Other liabilities , , ,862 Liabilities directly associated with assets classified as held for sale , ,492 Total liabilities... 15,241,859 14,460,528 14,439,195 Share capital , , ,504 Share premium , , ,333 Proposed issue of bonus shares... 57,657 52,415 47,650 Treasury shares... (45,063) (48,824) (50,173) Reserves , , ,067 1,775,597 1,722,730 1,699,381 Proposed cash dividend... 96,645 87,755 79,755 Total equity attributable to the shareholders of the Bank.. 1,872,242 1,810,485 1,779,136 Non-controlling interests , , ,353 Total equity... 2,116,122 2,038,825 2,055,489 Total liabilities and equity... 17,357,981 16,499,353 16,494,684 (*) Please refer to page x of this Base Prospectus which summarises the key reclassifications v

125 Selected Ratios As at and for year ended 31 December (%) Performance measures: Return on average assets (1) Return on average equity (2) Cost to income ratio (3) Financial ratios: Net profit margin (4) Asset quality: Impaired ratio (5) Provision coverage ratio (6) Liquidity coverage ratio for banking group only (7) Loans to total deposits ratio (8) Other ratios: CET 1 capital adequacy ratio (9)(10) Tier 1 capital adequacy ratio (9)(11) Total capital adequacy ratio (9)(12) Leverage ratio (13) (1) Profit for the year divided by average assets for the year, with average assets calculated as the sum of assets at the beginning of the year and at the end of each quarter divided by five. (2) Profit for the year attributable to shareholders of KFH divided by average shareholders' equity for the year, with average shareholders' equity calculated as the sum of shareholders' equity at the beginning of the year and at the end of each quarter divided by five. (3) Total operating expenses for the year divided by the total operating income for the year. (4) Profit for the year attributable to shareholders of KFH divided by total operating income for the year. (5) Non-performing financing (net of deferred and suspended profit) divided by financing receivables (net of deferred and suspended profit). (6) Impairment for financing receivables divided by non-performing cash finance facilities before impairment (net of deferred and suspended profit). (7) Calculated and disclosed as daily averages of the ratio components for the corresponding quarter-end in accordance with the requirements of CBK Circular number 2/BS/345/2014 dated 23 December (8) Total financing receivables divided by total depositors' accounts. (9) Calculated in accordance with the requirements of the CBK and the capital adequacy regulations issued by the CBK as stipulated in CBK Circular number 2/RB, RBA/A336/2014 dated 24 June (10) CET 1 capital divided by risk-weighted assets at a given date. (11) Tier 1 capital resources divided by risk-weighted assets at a given date. (12) Total capital resources divided by risk-weighted assets at a given date. (13) "Capital" measure (being Tier 1 capital) divided by the "exposure" measure (being the sum of on-balance sheet assets, derivative exposures and off-balance sheet exposures). Calculated in accordance with the requirements of CBK Circular number 2/BS/342/2014 dated 21 October v

126 FINANCIAL REVIEW OF KUWAIT FINANCE HOUSE K.S.C.P. The following information should be read in conjunction with and is qualified in its entirety by reference to the Financial Statements (including the related notes thereto) and the other information contained in this Base Prospectus. In particular, in relation to the presentation of certain financial information, see "Presentation of Financial and Other Information Presentation of Financial Information Certain Restatements and Reclassifications". The Financial Statements have been prepared in accordance with IFRS, as adopted for use by the State of Kuwait for financial services institutions regulated by the CBK, and have been jointly audited by EY and Deloitte, in accordance with International Standards of Auditing as stated in their audit reports included elsewhere in this Base Prospectus. Overview KFH was established by virtue of Kuwaiti Decree Law No. 72 of 1977 concerning the Licensing of a Kuwaiti Shareholding Company under the name of Kuwait Finance House and was incorporated on 23 March 1977 pursuant to the then applicable Law No. 15 of 1960 concerning the Commercial Companies Law (which has been replaced by Law No. 1 of 2016 (as amended) concerning the Companies Law). KFH was the first Islamic bank established in Kuwait. KFH was listed on the Boursa Kuwait in KFH is registered with the Kuwaiti Ministry of Commerce, with commercial registration number 26066, is licensed to conduct banking activities and is regulated by the CBK. KFH's registered office is at Abdullah Al-Mubarak Street Murqab, State of Kuwait with telephone number KFH is primarily engaged in the provision of banking, investment, real estate, trading and leasing activities in accordance with Shari'a principles. KFH principally operates through the following segments: Treasury: Comprising liquidity management, murabaha investments, investments in sukuks, exchange of deposits with banks and financial institutions and international banking relationships ("Treasury"). Retail and Private Banking: Comprising of retail consumer banking, providing a diversified range of products and services to individuals and, additionally, private banking, providing a comprehensive range of customised and innovative banking services to high net worth individuals (together, "Retail and Private Banking"). Corporate Banking: Providing a range of banking services and investment products to corporate customers, including providing commodity and real estate murabaha finance, local leasing, wakala and istisna'a facilities to such customers ("Corporate Banking"). Investment: Managing direct equity and real estate investments, non-banking Group entities, associates and joint ventures. KFH's Retail and Private Banking and Corporate Banking operations comprise its primary revenue earning activity. For the year ended 31 December 2017, the operating income generated by the Retail and Private Banking and Corporate Banking segment was 74.4 per cent. of the Group's total operating income (compared to 70.9 per cent. for the year ended 31 December 2016). KFH operates through its head office in Kuwait and, as at the date of this Base Prospectus, around 484 other branches worldwide, including in the Republic of Turkey, the Kingdom of Bahrain and the Federation of Malaysia v

127 As at 31 December 2017, the Group had total assets of KD 17,357.9 million (including financing receivables of KD 9,216.5 million) and depositors' accounts of KD 11,596.7 million. For the year ended 31 December 2017, the Group had a net operating income of KD million and net profit attributable to shareholders of KFH of KD million. Significant Factors Affecting Results of Operations The Group's results of operations are affected by a number of factors, including the factors set out below. Impairment of financing receivables Impairment of financing receivables is a subjective area due to the level of judgment applied by KFH's management in determining, amongst other provisions: the method for identification of impairment events, which differs based upon the type of financing product and customer and accordingly requires judgment on whether a loss has been incurred; and appropriate parameters and assumptions for calculating impairment such as the credit assessment of customers that may default, the valuation of collateral for secured financing and the future cash flows of financing receivables granted. Due to the significance of financing receivables (which represented 53.1 per cent. of the Group's total assets as at 31 December 2017) and the related estimation uncertainty, any inaccuracy in the judgment of KFH's management when determining relevant factors may have a significant impact on the Group's results of operations. For further details, please see Note 2 (Significant Accounting Policies) and Note 10 (Financing Receivables) to the 2017 Consolidated Financial Statements. Impairment of investments in associates and joint ventures The Group's investments in associates and joint ventures are accounted for under the equity method of accounting and considered for impairment in case of any indication of impairment. In order to make such determination, KFH's management uses its judgment and estimates to assess impairment. Due to the Group's share of results in the associates and joint ventures and the carrying value of those associates and joint ventures, any inaccuracy in the judgment of KFH's management when determining relevant factors may have a significant impact on the Group's results of operations. For further details, please see Note 2 (Significant Accounting Policies), Note 12 (Investment in Associates) and Note 13 (Investment in Joint Ventures) to the 2017 Consolidated Financial Statements as well as Note 2 (Significant Accounting Policies), Note 12 (Investment in Associates) and Note 13 (Investment in Joint Ventures) to the 2016 Consolidated Financial Statements. Valuation of Islamic derivative financial instruments The Group has significant Islamic derivative financial instruments, the valuation of which is determined through the application of valuation techniques, which often involve the exercise of judgment and the use of assumptions and estimates. Due to the significance of Islamic derivative financial instruments and the related estimation and uncertainty, there is a risk that the related financial assets and liabilities are misstated. For further details, please see Note 2 (Significant Accounting Policies) and Note 25 (Currency Swaps, Profit Rate Swaps, Forward Foreign Exchange and Forward Commodity Contracts) to the 2017 Consolidated Financial Statements as well as Note 2 (Significant Accounting Policies) and Note 27 (Currency Swaps, Profit Rate Swaps, Forward Foreign Exchange and Forward Commodity Contracts) to the 2016 Consolidated Financial Statements. Valuation of trading properties and investment properties for assessment of impairment Valuation of real estate properties is complex and requires judgment. Furthermore, there is an increased risk of impairment due to deteriorated market outlook in various geographical areas in which the Group operates. For further details, please see Note 2 (Significant Accounting Policies) and Note 14 (Investment Properties) to the 2017 Consolidated Financial Statements as well as Note 2 (Significant Accounting Policies) and Note 14 (Investment Properties) to the 2016 Consolidated Financial Statements. Other significant accounting policies and judgments v

128 Please see Note 2 (Significant Accounting Policies) to the 2017 Consolidated Financial Statements as well as Note 2 (Significant Accounting Policies) to the 2016 Consolidated Financial Statements for a discussion of other significant accounting policies, judgments and estimation uncertainty which may have a significant impact on the Group's results of operations. Results of Operations Financing income The Group's financing income increased by KD 22.6 million, or 3.2 per cent., from KD million for the year ended 31 December 2016 to KD million for the year ended 31 December This increase was primarily attributable to an increase in gross yield as well as growth in financing receivables. By way of comparison, previously the Group's financing income increased by KD 22.8 million, or 3.3 per cent., from KD million for the year ended 31 December 2015 to KD million for the year ended 31 December This increase was primarily attributable to an increase in gross yield as well as growth in financing receivables. Total operating income The Group's total operating income increased by KD 53.6 million, or 8.1 per cent., from KD million for the year ended 31 December 2016 to KD million for the year ended 31 December The increase was primarily attributable to the increase of net financing income, investment income (mainly due to divestments during the year), fees and commission income and net increase in other income. The Group's total operating income decreased by KD 43.3 million, or 6.2 per cent., from KD million for the year ended 31 December 2015 to KD million for the year ended 31 December This decrease was primarily attributable to the decrease in real estate income because of recognition of one-off income on certain real estate investments during the year ended 31 December 2015 (although this was partially offset by an increase in the Group's share of results of associates and joint ventures primarily because of the recognition of the share of results of Aviation Lease and Finance Company K.S.C.P., which was previously classified as a subsidiary (see Note 12 (Investment in Associates) to the 2016 Consolidated Financial Statements)) for the year as well as a general decrease in other income. The Group's investment income for the years ended 31 December 2017, 2016 and 2015 is set out below. Year ended 31 December (KD thousands) Gain on real estate investments... 12,809 12,209 73,669 Rental income from investment properties... 14,328 13,338 11,690 Dividend income... 5,345 5,681 5,632 Gain on sale of investments... 47,159 6,656 3,561 Share of results of associates and joint ventures... 13,203 10,934 (975) Other investment income... 13,727 30,067 14, ,571 78, ,259 The Group's other income for the years ended 31 December 2017, 2016 and 2015 is set out below. Year ended 31 December (KD thousands) v

129 Income from sale of property and equipment... 3,193 4,274 9,147 Real estate development and construction income... 8,061 3,240 5,133 Income from maintenance, services and consultancy... 12,198 13,606 21,460 Rental income from operating lease... 7,647 7,958 10,741 Other income... 16,542 4,902 9,212 47,641 33,980 55,693 Total operating expenses The Group's total operating expenses increased by KD 10.1 million, or 3.4 per cent., from KD million for the year ended 31 December 2016 to KD million for the year ended 31 December The increase was primarily attributable to increase in staff cost because of the amendment in Kuwait Labor Law No. 6 of 2010 concerning labor in private sector (the "Kuwait Labor Law") which resulted in additional liability for employees' short term end of service benefits amounting to KD 17.6 million recorded under staff costs (see Note 20 (Other Liabilities) to the 2017 Consolidated Financial Statements). This increase was partially offset by a decrease in other staff costs, general and administrative expenses and depreciation and amortization. Previously, the Group's total operating expenses decreased by KD 35.5 million, or 10.7 per cent., from KD million for the year ended 31 December 2015 to KD million for the year ended 31 December This previous decrease was primarily attributable to a decrease in the Group's depreciation and amortisation as a result of the deconsolidation of Aviation Lease and Finance Company K.S.C.P., which was previously classified as a subsidiary (see Note 12 (Investment in Associates) to the 2016 Consolidated Financial Statements). This decrease at the time was partially offset by slight increases in the Group's staff costs and general administration expenses because of costs associated with the increase in the Group's branches. Provisions and impairment The Group's provisions and impairments increased by KD 6.2 million, or 4 per cent., from KD million for the year ended 31 December 2016 to KD million for the year ended 31 December The increase was primarily attributable to a decrease in recoveries, an increase in impairment loss on investment properties which was partially offset with a decrease in impairment on financing receivables and net decrease in other impairments. The Group's provisions and impairments decreased by KD 26.4 million, or 14.4 per cent., from KD million for the year ended 31 December 2015 to KD million for the year ended 31 December This decrease was primarily attributable to a lower impairment loss being incurred on financing receivables during the year ended 31 December The Group's provisions and impairments for the years ended 31 December 2017, 2016 and 2015 are set out below. Year ended 31 December (KD thousands) Impairment on financing receivables... 90, , ,880 Recovery of written-off debt... (22,735) (73,180) (81,213) Impairment of financial assets available for sale... 16,768 26,927 16,320 Impairment of associates and joint ventures... 1,407 3,157 13,889 Impairment of investment properties... 15,160 3,425 12,677 Impairment of property and equipment... 14,268 14,481 Impairment of intangible assets and goodwill ,202 12,894 Impairment/(reversal of impairment) of non-cash facilities... 15,183 12,435 (10,593) Impairment of trading properties... 2,581 5,955 9,445 Impairment of other assets and other provisions... 44,064 47,672 27, , , ,561 Taxation v

130 The Group's taxation increased by KD 6.4 million, or 27.6 per cent., from KD 23.2 million for the year ended 31 December 2016 to KD 29.6 million for the year ended 31 December This increase was primarily attributable to an increase in taxation for the Group's non-kuwait subsidiaries which, in turn, was attributable to an increase in such subsidiaries' taxable profits. The Group's taxation previously increased by KD 2.8 million, or 13.5 per cent., from KD 20.4 million for the year ended 31 December 2015 to KD 23.2 million for the year ended 31 December Similarly, that increase was also attributable mainly to an increase in the taxation for the Group's non-kuwait subsidiaries which, in turn, was attributable to the increase in such subsidiaries' taxable profits. The Group's taxation for the years ended 31 December 2017, 2016 and 2015 is set out below. Year ended 31 December (KD thousands) Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS)... 1,774 1,731 1,519 National Labour Support Tax... 4,008 3,624 2,688 Zakat (based on Zakat law No.46/2006)... 1,950 1,762 1,296 Taxation related to subsidiaries... 21,858 16,076 14,930 29,590 23,193 20,433 Discontinued operations On 30 June 2016, the Board of Directors of KFH approved to sell the full Group's interest in its subsidiary Aref Investment Group ("AIG"). As a result, the consolidated statement of financial position as at 31 December 2017 presents the assets and liabilities of AIG as assets classified as held for sale in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". The major classes of assets of AIG comprised leasehold rights, investments in equities and real estate, and liabilities comprised due to banks and financial institutions and other liabilities. The Group has presented AIG assets classified as held for sale amounting to KD million and liabilities directly associated with the AIG assets classified as held for sale amounting to KD million in the consolidated statement of financial position as at 31 December On 20 December 2017, the Board of Directors of KFH Private Equity Ltd., a wholly-owned subsidiary of KFH, registered in the Cayman Islands and conducting global private equity investments, approved to sell the company's interest in its subsidiary New Technology Bottling Company K.S.C (Closed) ("NTBC"). As a result, the consolidated statement of financial position of the Group as at 31 December 2017 presented the assets and liabilities of NTBC amounting to KD 16.3 million and KD 2.6 million, respectively, as classified as held for sale in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". During the year ended 31 December 2017, the Group has sold its entire 80 per cent. holding in Public Services Company K.S.C. (Closed) ("Public Services Company") and also certain subsidiaries of KFH which were originally established in 2016 for syndication purposes and classified as held for sale (see Note 17 (Discontinued operation) to the 2017 Consolidated Financial Statements). As a result, the consolidated statement of financial position as at 31 December 2016 presents the Public Service Company as assets classified as held for sale in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". As at 31 December 2016, the assets classified as held for sale corresponding to the Public Service Company amounted to KD 7.9 million while the liabilities directly associated with assets classified as held for sale corresponding to the Public Service Company amounted to KD 3.1 million. Profit for the year For the reasons set out above, the Group's profit for the year increased by KD 52.2 million, or 32.2 per cent., from KD million for the year ended 31 December 2016 to KD million for the year ended 31 December v

131 The Group's profit for the year attributable to shareholders increased by KD 19 million, or 11.5 per cent., from KD million for the year ended 31 December 2016 to KD million for the year ended 31 December For the reasons set out above, the Group's profit for the year decreased by KD 27.8 million, or 14.7 per cent., from KD million for the year ended 31 December 2015 to KD million for the year ended 31 December The Group's profit for the year attributable to shareholders increased by KD 19.4 million, or 13.3 per cent., from KD million for the year ended 31 December 2015 to KD million for the year ended 31 December Financial Condition Financing receivables The Group's financing receivables principally comprise murabaha, wakala, leased assets and istisna'a balances (stated net of impairment). The Group's financing receivables increased by KD 1,040.7 million, or 12.7 per cent., from KD 8,175.8 million as at 31 December 2016 to KD 9,216.5 million as at 31 December This was primarily attributable to the increase in murabaha and wakala and leased assets financing in KFH and Kuveyt Türk. The Group's financing receivables increased by KD 80.3 million, or 1.0 per cent., from KD 8,095.5 million as at 31 December 2015 to KD 8,175.8 million as at 31 December This was primarily attributable to the devaluation of the Turkish lira. The Group's financing receivables comprised 53.1 per cent., 49.6 per cent. and 49.1 per cent., respectively, of the Group's total assets as at 31 December 2017, 2016 and The Group's financing receivables for the years ended 31 December 2017, 2016 and 2015 are set out below. Year ended 31 December (KD thousands) Murabaha and wakala... 8,999,840 8,048,825 7,846,032 Leased assets... 1,847,974 1,675,957 1,752,062 Istisna'a and other receivables , , ,280 10,950,501 9,828,968 9,707,374 Less: deferred and suspended profit... (1,289,618) (1,127,413) (1,139,659) Net receivables... 9,660,883 8,701,555 8,567,715 Less: impairment... (444,408) (525,766) (472,223) 9,216,475 8,175,789 8,095,492 Total assets The Group's total assets increased by KD million, or 5.2 per cent., from KD 16,499.4 million as at 31 December 2016 to KD 17,358 million as at 31 December This was primarily attributable to an increase in financing receivables as stated above and was partly offset by a net decrease in other assets. The Group's total assets were relatively stable during 2015 to 2016, slightly increasing by KD 4.7 million, or 0.03 per cent., from KD 16,494.7 million as at 31 December 2015 to KD 16,499.4 million as at 31 December v

132 Depositors' accounts The Group's depositors' accounts comprise non-investment deposits in the form of current accounts and investment deposits in the form of investment savings accounts. Non-investment deposits/current accounts are not entitled to receive any profit and do not bear any risk of loss since the Group guarantees the payment of related balances on demand. Accordingly, from a Shari'a perspective, these deposits are considered qard hassan from depositors to the Group. On the other hand, investment deposits/investment savings accounts have fixed maturities specified in the contractual terms and are automatically renewable for the same term (unless the depositor notifies the Group to the contrary). Unless such termination notification is received from the depositor, such investment deposits/investment savings accounts are valid for an unlimited period. In all cases, such investment deposits/investment savings accounts receive a proportion of the Group's profit or bear a share of the Group's loss (as determined by KFH's board of directors). The fair values of depositors' accounts do not differ from their carrying book values. The Group's depositors' accounts increased by KD million, or 8.2 per cent., from KD 10,716.7 million as at 31 December 2016 to KD 11,596.7 million as at 31 December This increase was primarily attributable to an increase in the Group's depositors' accounts in KFH and Kuveyt Türk. The Group's depositors' accounts were relatively stable during 2015 to 2016, slightly increasing by KD 7.3 million, or 0.07 per cent., from KD 10,709.4 million as at 31 December 2015 to KD 10,716.7 million as at 31 December The Group's depositors' accounts comprised 76.1 per cent., 74.1 per cent. and 74.2 per cent., respectively, of the Group's total liabilities as at 31 December 2017, 2016 and Total liabilities The Group's total liabilities increased by KD million, or 5.4 per cent., from KD 14,460.5 million as at 31 December 2016 to KD 15,241.9 million as at 31 December This was primarily attributable to an increase in depositors' account and sukuk payables which, in turn, were partly offset with decreases in due to banks and net other liabilities. The Group's total liabilities were relatively stable during 2015 to 2016, increasing slightly by KD 21.3 million, or 0.1 per cent., from KD 14,439.2 million as at 31 December 2015 to KD 14,460.5 million as at 31 December Segmental Analysis KFH principally operates through four business segments: Treasury, Retail and Private Banking, Corporate Banking and Investment. A segmental analysis of certain key income statement and financial position statement line items is set out below. As at and for the year ended 31 December 2017 Treasury Retail and Private Banking Corporate Banking Investment Total (KD thousands) Total assets... 4,322,393 5,602,145 5,017,819 2,415,624 17,357,981 Total liabilities... 3,182,227 9,193,523 2,128, ,222 15,241,859 Operating income... 28, , , , ,280 Provisions and impairment... (4,649) (15,954) (82,205) (60,603) (163,411) Profit/(loss) for the year... 12, ,394 80,231 11, , v

133 As at and for the year ended 31 December 2016 Treasury Retail and Private Banking Corporate Banking Investment Total (KD thousands) Total assets... 4,481,909 5,093,962 4,204,922 2,718,560 16,499,353 Total liabilities... 3,143,975 8,706,278 1,871, ,128 14,460,528 Operating income... 49, , , , ,650 Provisions and impairment... (88) (11,182) (60,935) (84,993) (157,198) Profit/(loss) for the year... 38, ,405 57,868 (39,695) 161,939 As at and for the year ended 31 December 2015 Treasury Investment Banking Other Total (KD thousands) Total assets... 5,524,693 2,067,541 8,116, ,583 16,494,684 Total liabilities... 3,031, ,566 10,833, ,995 14,439,195 Operating income... 11, , , , ,943 Provisions and impairment... (466) (56,598) (75,609) (50,888) (183,561) Profit/(loss) for the year... 6,901 29, ,484 (121,164) 189,770 For a geographical analysis of certain key income statement and financial position statement line items of the Group, please see Note 27 (Segmental Analysis) to the 2017 Consolidated Financial Statements as well as Note 29 (Segmental Analysis) to the 2016 Consolidated Financial Statements. The key items of segmental geographical analysis can be summarised as follows: Year ended 31 December Assets (KD thousands) Middle East... 11,622,596 11,101,762 10,761,616 Europe... 4,591,288 4,220,156 4,241,242 Other... 1,144,097 1,177,435 1,491,826 17,357,981 16,499,353 16,494,684 Local International Total (KD thousands) (KD thousands) (KD thousands) Operating Income 316, , , , , , , , ,943 Profit for the year 83,177 63,497 90, ,978 98,442 98, , , ,770 Liquidity and Funding The table below sets out the principal sources of the Group's liquidity and funding as at 31 December 2017, 2016 and v

134 Year ended 31 December (KD thousands) Cash and cash equivalents... 1,366,890 2,092,111 2,572,884 Short-term murabaha... 2,925,329 2,877,241 3,193,930 Due to banks and financial institutions... 2,239,923 2,398,590 3,052,947 Depositors' accounts... 11,596,733 10,716,734 10,709,386 Total equity attributable to shareholders of the bank... 1,872,242 1,810,485 1,779,136 20,001,117 19,895,161 21,308,283 Cash and cash equivalents The table below sets out the Group's cash and cash equivalents as at 31 December 2017, 2016 and Year ended 31 December (KD thousands) Cash , , ,715 Balances with Central Banks , , ,592 Balances with banks and financial institutions current accounts , , ,405 Cash and balances with banks and financial institutions... 1,262,456 1,494,657 1,599,712 Short-term murabaha maturing within 3 months of contract date ,930 1,129,812 1,487,068 Tawarruq balances with Central Bank of Kuwait maturing within 3 months of contract date... 95,024 Cash with banks attributable to discontinued operations... 14,606 32,152 Less: statutory deposits with Central Banks (1)... (716,102) (564,510) (608,920) Cash and cash equivalents... 1,366,890 2,092,111 2,572,884 (1) Represent balances that are not available for use in the Group's day-to-day operations. The fair values of cash and balances with banks and financial institutions do not differ from their respective book values. Short-term murabahas The Group enters into short-term murabahas with other financial institutions as well as the CBK, with deferred payment due to the Group from the relevant financial institution or, as the case may be, from the CBK. The maturity of these short-term murabahas ranges from four days to one year while the profit rate payable by the Group on these short-term murabahas ranges from 0.02 per cent. per annum to 3.48 per cent. per annum. Due to banks and financial institutions The table below sets out the breakdown of the Group's due to banks and financial institutions as at 31 December 2017, 2016 and Year ended 31 December (KD thousands) Current accounts... 26,123 5,664 5,387 Murabaha payable... 2,213,800 2,392,926 2,725,094 Sukuk payable ,466 2,239,923 2,398,590 3,052,9, v

135 As at 31 December 2017, due to banks and financial institutions amounting to KD 2,009.4 million had a maturity of less than one year while due to banks and financial institutions amounting to KD million had a maturity of more than one year. As at 31 December 2016, due to banks and financial institutions amounting to KD 2,041.9 million had a maturity of less than one year while due to banks and financial institutions amounting to KD million had a maturity of more than one year. As at 31 December 2015, due to banks and financial institutions amounting to KD 2,661.8 million had a maturity of less than one year while due to banks and financial institutions amounting to KD million had a maturity of more than one year. The fair values of balances due to banks and financial institutions do not materially differ from their respective carrying values. Sukuk payable Sukuk payable comprises trust certificates issued by Kuveyt Türk. These trust certificates are denominated in U.S. dollars, Turkish lira and Malaysian ringgit and the profit rate payable by Kuveyt Türk on these trust certificates ranges from 5.08 per cent. per annum to per cent. per annum. There is no direct recourse to KFH under these trust certificates. Depositors' accounts The Group's funding base principally consists of depositors' accounts. As at 31 December 2017, KFH's depositors' accounts (on an unconsolidated basis for KFH only) were 19.1 per cent. of the total deposits in local banks (in both KD and foreign currency) in Kuwait (compared to 18.9 per cent. as at 31 December 2016) (see "Banking Industry and Regulation in Kuwait Banking System"). A significant proportion of the Group's customer deposits are from its major corporate customers and have maturities of less than three months. Although short-term in theory, in practice these deposits have tended to be stable. As at 31 December 2017 (on an unconsolidated basis for KFH only) the 20 largest depositors of KFH accounted for 23 per cent. of the depositors' accounts at that date (compared to 21 per cent. at 31 December 2016 and 21 per cent. at 31 December 2015). Total equity attributable to shareholders The Group's total equity attributable to shareholders comprises the share capital, share premium, bonus shares, treasury shares, reserves and any proposed cash dividends. As at 31 December 2017, the Group's total equity attributable to shareholders amounted to KD 1,872.2 million (compared to KD 1,810.5 million at 31 December 2016 and KD 1,779.1 million as at 31 December 2015). Kuwait legislation as well as KFH's articles of association require the transfer of 10.0 per cent. of the Group's profit for the year attributable to the shareholders before taxation into a non-distributable statutory reserve until such reserve equals 50.0 per cent. of KFH's issued share capital (see Note 21 (Reserves) to the 2017 Consolidated Financial Statements). Other potential funding sources KFH may also access the international debt capital markets, including through the issuance of Certificates under the Programme. Capital adequacy The Group manages its regulatory capital and capital adequacy ratios in accordance with the CBK's requirements (see "Banking Industry and Regulation in Kuwait Soundness of the Banking System Capital Adequacy") and in order to cover risks inherent in the Group's business. The Group's capital management is aimed at maintaining an optimum level of capital to enable it to pursue strategies that build long-term shareholder value whilst maintaining credit ratings and always meeting minimum regulatory capital adequacy ratio requirements v

136 The table below sets out the Group's risk-weighted assets and capital base after considering the impact of dividends distribution as at 31 December 2017, 2016 and Year ended 31 December (KD thousands) Risk weighted assets... 12,073,649 11,408,921 11,765,998 Capital required... 1,811,047 1,711,338 1,529,580 Capital available: Tier 1 capital... 1,932,356 1,853,574 1,809,616 Tier 2 capital , , ,343 Total capital... 2,144,693 2,040,366 1,960,959 Year ended 31 December Tier 1 capital adequacy ratio % 16.25% 15.38% Total capital adequacy ratio % 17.88% 16.67% Contingencies and Capital Commitments Credit-related commitments include standby letters of credit and guarantees which are off-balance sheet exposures and are designed to meet the requirements of the Group's customers. Letters of credit, guarantees and acceptances commit the Group to make payments on behalf of customers in the event of a specific act, such as the export or import of goods, or contingent upon the failure of the customer to perform under the terms of a contract. Commitments generally have fixed expiry dates or other termination clauses. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. The table below sets out the Group's contingent and commitment liabilities as at 31 December 2017, 2016 and Year ended 31 December (KD thousands) Acceptances and letters of credit , , ,603 Letters of guarantees... 1,897,510 1,675,716 1,513,029 Contingent liabilities... 2,087,030 1,821,871 1,656,632 Capital commitments , , ,775 Related Party Transactions Certain related parties are depositors and financing facilities customers of the Group in the ordinary course of business. The transactions with these parties are made at arm's length and on substantially the same terms, including profit rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties. For further details of such transactions, please see Note 26 (Related Party Transactions) to the 2017 Consolidated Financial Statements v

137 Recent Developments The following information has been extracted without material adjustment from 2018 Interim Financial Statements, which alongside the review report in respect thereof, are set out in full between F-2 and F-27 (inclusive). The statements have been presented in KD: Condensed Statement of Financial Position 31 March 2018 (Unaudited) 31 December March 2017 KD 000's (Unaudited) ASSETS Cash and balances with banks and financial institutions... 1,230,624 1,262,456 1,351,898 Short-term murabaha... 3,006,342 2,925,329 2,751,098 Financing receivables... 9,497,347 9,216,475 8,461,277 Investment in Sukuk... 1,394,635 1,428,655 1,214,214 Trading properties , , ,945 Investments , , ,472 Investment in associates and joint ventures , , ,512 Investment properties , , ,473 Other assets , , ,965 Intangible assets and goodwill... 38,115 38,659 40,024 Property and equipment , , ,646 Assets classified as held for sale... 16, , ,071 TOTAL ASSETS... 17,370,898 17,357,981 16,444,595 LIABILITIES Due to banks and financial institutions... 2,295,865 2,239,923 2,195,335 Sukuk payables , , ,034 Depositors' accounts... 11,764,009 11,596,733 10,978,459 Other liabilities , , ,425 Liabilities directly associated with the assets classified as held for sale... 2, , ,358 TOTAL LIABILITIES... 15,391,257 15,241,859 14,465,611 EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE BANK Share capital , , ,569 Share premium , , ,333 Proposed issue of bonus shares ,657 - Treasury shares... (44,921) (45,063) (46,489) Reserves , , ,789 1,778,259 1,775,597 1,751,202 Proposed cash dividends ,645 - TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE BANK... 1,778,259 1,872,242 1,751,202 Non-controlling interests , , ,782 TOTAL EQUITY... 1,979,641 2,116,122 1,978,984 TOTAL LIABILITIES AND EQUITY... 17,370,898 17,357,981 16,444, v

138 Interim Condensed Consolidated Statement of Income Three months ended 31 March March 2017 (Unaudited) KD 000's (Unaudited) INCOME Financing income , ,018 Finance cost and estimated distribution to depositors... (70,243) (66,918) Net finance income , ,100 Investment income... 11,301 27,207 Fees and commission income... 22,818 25,810 Net gain from foreign currencies... 6,936 4,468 Other operating income... 9,683 11,029 TOTAL OPERATING INCOME , ,614 OPERATING EXPENSES Staff costs... (49,363) (41,203) General and administrative expenses... (21,535) (20,458) Depreciation and amortization... (7,914) (8,232) TOTAL OPERATING EXPENSES... (78,812) (69,893) NET OPERATING INCOME ,302 98,721 Provisions and impairment... (47,572) (43,380) Loss for the period from discontinuing operations... (4,304) (4,060) PROFIT FOR THE PERIOD BEFORE TAXATION... 58,426 51,281 Taxation... (7,041) (8,267) PROFIT FOR THE PERIOD... 51,385 43,014 Attributable to: Shareholders of the Bank... 43,965 38,588 Non-controlling interests... 7,420 4,426 51,385 43,014 BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO THE SHAREHOLDERS OF THE BANK fils 6.17 fils The following is the summary of the results of operations for the three months ended 31 March 2018: Operating Income Total operating income for the three months ended 31 March 2018 grew by 12.2 per cent. when compared to three months ended 31 March In addition, net operating income grew by 11.7 per cent. during the three months ended 31 March 2018 to KD million as compared to the three months period ended 31 March 2017, reflecting higher income growth when compared to the growth in operating costs. Finance income Net finance income increased by 38.2 per cent. for the three months ended 31 March 2018 to KD million as compared to the three months ended 31 March 2017 due to increase in yield and growth in financing portfolio. Investment income Investment income decreased by 58.5 per cent. for the three months ended 31 March 2018 to KD 11.3 million as compared to the three months ended 31 March 2017 mainly due to decline in gain on sale of investments as more divestments were made in the comparative period v

139 Fees and commissions income Fees and commissions income decreased by 11.6 per cent. for the three months ended 31 March 2018 to KD 22.8 million as compared to the three months ended 31 March 2017 due to decline in advisory fee income during the three months period ended 31 March Gain from foreign currencies Net gain from foreign currencies increased by 55.2 per cent. for the three months ended 31 March 2018 to KD 6.9 million as compared to the three months ended 31 March 2017 due to increase in transaction volume and movement in forex rates during the three months period ended 31 March Other operating income Other operating income decreased by 12.2 per cent. for the three months ended 31 March 2018 to KD 9.7 million as compared to the three months ended 31 March Operating expenses Operating expenses amounted to KD 78.8 million, representing a 12.8 per cent. increase for the three months ended 31 March 2018 as compared to the three months ended 31 March This is largely due to an increase in staff cost during the three months period ended 31 March Profit for the period Profit for the period for the three months ended 31 March 2018 grew by 19.5 per cent. as compared to the three months ended 31 March The increase was primarily due to KFH's income growth during the three months ended 31 March Provisions and impairment Provisions and impairment for the three months ended 31 March 2018 increased to KD 47.6 million, representing a 9.7 per cent. increase as compared to the three months ended 31 March This increase is primarily due to an increase in impairment on investments during the three months period ended 31 March Discontinued Operations KFH has lost the control over AIG, through loss of its substantive rights as a result of recent settlement of a portion of the facilities formerly provided to AIG by KFH, bringing KFH's credit exposure to AIG below fifty percent of AIG s loans and financing payables. In view of these developments, the management of KFH has re-assessed its control over AIG and concluded that it is no longer able to exercise such control. Accordingly, KFH has re-classified AIG from a Subsidiary classified as an asset held for sale, and recognised its interest ownership in AIG as an investment in an associate. Capital adequacy and ratios Prior to accounting for the interim profit of KD 44 million attributable to the shareholders of the bank for the period, the KFH's total capital adequacy as at 31 March 2018 stood at per cent. This continues to be in excess of CBK's minimum regulatory requirement of 15.0 per cent. In addition, KFH's: CET1 capital adequacy ratio increased to per cent. as at 31 March 2018 when compared to per cent. as at 31 December 2017; Tier 1 capital adequacy ratio decreased to per cent. as at 31 March 2018 when compared to 16.0 per cent. as at 31 December 2017; and Total capital adequacy ratio decreased to per cent. as at 31 March 2018 when compared to per cent. as at 31 December v

140 Rating Agencies On 9 May 2018, KFH announced in a notice to Boursa Kuwait that it has decided to terminate the contractual relationship with Standard and Poor's Global Rating Agency effective on 8 May KFH continues its contractual relationships with both Moody's and Fitch. In the same notice, KFH confirmed that there is no effect on the KFH Group consolidated financial statements as a result of that termination v

141 DESCRIPTION OF KUWAIT FINANCE HOUSE K.S.C.P. Overview KFH was established by virtue of Kuwaiti Decree Law No. 72 of 1977 concerning the Licensing of a Kuwaiti Shareholding Company under the name of Kuwait Finance House and was incorporated on 23 March 1977 pursuant to the then applicable Law No. 15 of 1960 concerning the Commercial Companies Law (which has been replaced by Law No. 1 of 2016 (as amended) concerning the Companies Law). KFH was the first Islamic Bank established in Kuwait. KFH was listed on the Boursa Kuwait in KFH is registered with the Kuwaiti Ministry of Commerce, with commercial registration number 26066, is licensed to conduct banking activities and is regulated by the CBK. KFH's registered office is at Abdullah Al-Mubarak Street Murqab, State of Kuwait with telephone number KFH is primarily engaged in the provision of banking, investment, real estate, trading and leasing activities in accordance with Shari'a principles. KFH principally operates through the following segments: Treasury: Comprising liquidity management, murabaha investments, investments in sukuks, exchange of deposits with banks and financial institutions and international banking relationships. Retail and Private Banking: Comprising of retail consumer banking providing a diversified range of products and services to individuals and additionally, private banking providing a comprehensive range of customised and innovative banking services to high net worth individuals. Corporate Banking: Providing a range of banking services and investment products to corporate customers, including providing commodity and real estate murabaha finance, local leasing, wakala and istisna'a facilities to such customers. Investment: Managing direct equity and real estate investments, non-banking Group entities, associates and joint ventures. KFH's Retail and Private Banking and Corporate Banking operations comprise its primary revenue earning activity. For the year ended 31 December 2017, the operating income generated by these segments was 74.4 per cent. of the Group's total operating income (compared to 70.9 per cent. for the year ended 31 December 2016). The operating income generated by the Investment segment was 21.6 per cent. of the Group's total operating income and Treasury segment was 3.9 per cent. of the Group's total operating income for the year ended 31 December 2017 (as compared to 21.6 per cent. and 7.5 per cent. respectively for the year ended 31 December 2016). KFH operates through its head office in Kuwait and, as at the date of this Base Prospectus, around 484 other branches worldwide, including in the Republic of Turkey, the Kingdom of Bahrain and the Federation of Malaysia. As at 31 December 2017, the Group had total assets of KD 17,359 million (including financing receivables of KD 9,216.5 million) and depositors' accounts of KD 11,596.7 million. For the year ended 31 December 2017, the Group had a net operating income of KD million and net profit attributable to shareholders of KFH of KD million v

142 History Key milestones in the Group's history are set out below. Month and Year Milestone March 1977 KFH established pursuant to Amiri Law Decree No. 72 of 1977 August 1978 KFH commenced banking activities September 1984 March 1989 March 1999 January 2002 May 2004 May 2005 January 2010 July 2015 KFH listed on the Boursa Kuwait KFH established Kuveyt Türk (as a subsidiary) KFH established KFH Capital (as a subsidiary) KFH established Kuwait Finance House B.S.C. (as a subsidiary) KFH registered as an Islamic bank with the CBK KFH established Kuwait Finance House (Malaysia) Berhad (as a subsidiary) KFH established Saudi Kuwait Finance House S.S.C. (as a subsidiary) KFH established KT Bank AG. as its first branch in Europe (in Manheim city, Germany). Capital Structure and Shareholders KFH has been listed on the Boursa Kuwait since 29 September As at 31 December 2017, KFH had the following shareholders which had direct and indirect holdings in excess of 5.0 per cent. of its issued share capital: Name Ownership Form Country Ownership Ratio Kuwait Investment Authority... Direct Kuwait % Public Authority for Minors' Affairs... Direct Kuwait % Kuwait Public Awqaf Foundation... Direct Kuwait 7.296% Public Institution for Social Securities (1)... Indirect Kuwait 6.19% (1) Held through a number of entities. KFH's total market capitalisation as at 31 December 2017 was KD 3.3 billion while, as at the same date, its authorised share capital comprised 5,765,693,556 ordinary shares of KD (100 fils) each, giving it an authorised share capital of KD million. The annual general assembly meeting of KFH's shareholders held on 20 March 2017 approved an increase of KD 52.4 million in KFH's issued and fully paid share capital by issuing 524,153,959 bonus shares. As at 31 December 2017, the Group had a total capital adequacy ratio of per cent., and a Tier 1 capital adequacy ratio of per cent., calculated in accordance with Basel III methodology as adopted by CBK. As at 31 December 2017, the Group had a leverage ratio of 9.99 per cent. calculated in accordance with CBK regulations. Strategy The Group's strategy covers both its domestic market in Kuwait as well as its global presence and its international expansion plans. Domestically, KFH is one of the leading banks in Kuwait, including the second largest bank by total assets (see "Description of Kuwait Finance House K.S.C.P. Competition and Competitive Strengths"). In the domestic market, one of KFH's primary objectives is to maintain its leading position in the Kuwait market. Globally, KFH is focused on developing its market presence and becoming a leading Islamic financial institution globally. In particular, KFH focuses on its strategic expansion through its subsidiaries in v

143 Turkey, Bahrain and Malaysia, and looking to establish itself as a leading global bank for Islamic Banking, offering a full portfolio of Shari'a compliant banking, financing and investment services across numerous jurisdictions. From late 2014, KFH has embarked on a revision of its strategy which is now aimed at refocusing the Group on core banking businesses and divesting non-core equity and real estate investments. The Group has substantially delivered on this strategy and has managed to reduce its exposure to non-core investments. Strategy Plan KFH defines its strategic objectives within a three-year rolling period, and is currently in the development cycle for (inclusive). This allows it to refine its long-term strategy and develop short-term specific strategic and business goals. KFH has built its strategy for the years (inclusive) on three broad strategic themes comprising of: growing its customer base; innovation and operational excellence: growing customer base through upselling and cross-selling: KFH is the second largest bank in Kuwait in terms of total assets, customer deposits and customer financings, according to the publicly available financial statements of KFH's main domestic competitors (see: Competition and Competitive Strengths). Furthermore, KFH, through its local subsidiary operation, is currently the largest Islamic bank in Turkey. As at and for the financial years ended 31 December 2017, 2016 and 2015, as a result of its expanding international footprint, the Group has strong market penetration across a number of geographies in the consumer, private and corporate banking segments. Given this significant advantage of geographic diversification, KFH seeks to grow its existing customer base by leveraging its existing sectoral and geographic experience as well as through upselling (offering customers upgraded features to help them better select higher-end products and increasing their portfolio held with KFH) and crossproduct integration across its customer base. One such example is the ability of KFH to support its corporate customers' international operations and transactions through its branches across the world; technology-driven innovation: KFH believes that keeping pace with technological developments is crucial for the Group's business and, through prudent investments in technological systems, KFH will be able to simplify, automate and expedite processes which, in turn, would result in decreased costs of operation and increased employee performance and assist in increasing the levels of security and ability to managing risks, including cyber attacks. At the same time, technological innovation on the customer side could help augment the Group's customer experience, as retail, corporate and institutional customers are expecting more technology-driven tools and features by their banking provider. The digitalization of bank products, services and processes with a heavy investment into IT growth and partnership are a key driver for KFH growth over the next three years. The Group is aware of the growing multitude of financial technology ("fintech") companies emerging to meet such customer demands and, rather than perceiving this trend as a threat, KFH seeks to be a key partner and a platform for fintech in the region, building new products and services on top of the latest generation IT infrastructure to support its clients' needs. KFH is looking to work with local companies to offer a cutting-edge customer experience to expand its market presence. In 2017, KFH launched KFH Wallet (a contactless payment service that enables customers to use their Android mobile devices to pay for in-store purchases) and a strategic project to build a data centre that would allow KFH to access and utilise cloud-based technologies; and operational excellence: A positive customer experience is at the core of the Group's strategic decision-making process. In order to enhance customer satisfaction, the Group seeks to set the benchmark for banking service providers in each market of its operation. KFH recognises that its employees are the key points of interaction with KFH's customers and KFH continues to invest in its employees by providing resources to its staff to develop further their technical and commercial skills (see further "Management and Employees Employees"). KFH is committed to developing its customer relationship management system being a technology to manage all of KFH's relationships and interactions with customers and potential customers helping KFH stay connected to customers, streamlining processes and improving profitability. KFH is also v

144 committed to developing its employee performance metrics in order to provide real-time understanding by the Group of customer needs while enabling and encouraging its employees to meet those needs. KFH's strategy is approved, monitored and reviewed by its Board and Executive Management on the basis of: the business model canvas approach: this is a strategic management template which describes KFH's or a key business segment's value proposition, infrastructure, customers and finances. This template enables the Board and Executive Management to understand the value creation strengths and opportunities of the current business models and can, therefore, be used to develop short-term, mid-term and long-term strategic goals for KFH's business and/or key business segments. In recent years, KFH has successfully developed a customer-centric culture throughout the organisation through this approach; and the balanced scorecard approach: this is a strategy performance management tool which allows the Board and Executive Management to identify goals, manage and measure performance and track the implementation of strategic priorities across the Group at various corporate levels (including at a business segment level, department level and individual level). The Group seeks to implement quantitative performance measures wherever feasible. The Group tracks qualitative indicators of performance as well as part of this approach. Proactive Management of the Strategy KFH utilises a combination of the above approaches by developing high-level strategic goals for the Group and key business segments. These high-level strategic goals are then translated into strategic plans at department level and, at times, at individual level, with implementation being monitored through continuous evaluation of the performance of the relevant department and/or individual. Retail Banking KFH seeks to be the leader in customer service and technology innovation for Islamic retail banking via its focus on certain key sub segments (such as the youth segment) as well as its focus on improving its general experience. The retail banking segment's strategic priorities over the next three years are: to expand its customer base through advanced customer analytics and market segmentation and thereby delivering a fully integrated financial solution to meet changing customer needs; to fully digitise its front office functionality and general touch points (by unifying customer service standards and experiences through integration of all communication channels of KFH) accompanied by the automation of back-end processes for faster turnaround times; to re-design its physical branches and processes in order to improve customer experiences while optimising costs; and to continue offering market-leading payment, financing and savings products in order to grow current and new customers and financial portfolios. Private Banking KFH aims to leverage its strong private banking offering in Kuwait to reach and attract new markets in the GCC region and internationally. Simultaneously, KFH (together with KFH Capital) will continue to provide a value offering to its high net worth customers. The private banking segment's strategic priorities over the next three years are: to expand the number of branches and refine service quality by leveraging KFH's existing branch network to acquire new high net worth customers and retain existing high net worth customers; to better utilise the Group's international operations to ease cross-border transactions and improve service level quality for customers while sharing best practices across the Group; and v

145 to increase cross-selling opportunities across the Group, thereby increasing the number of offerings to high net worth customers under the KFH brand. Corporate Banking Through better co-ordination across its international operations, the Group seeks to become a key financial partner for its leading corporate customers by offering a broad range of products and facilitating and providing banking services to support the Group's local and international growth. The corporate banking segment's strategic priorities over the next three years are: to promote a "one-stop shop" solution for corporate customers where dedicated staff are on hand to cater to KFH's corporate customer requirements. As a result of the customer service value offering as well as through close and periodic interaction with customers, the Group seeks to be the banking choice for corporate customers; to continue to explore and expand cross-selling opportunities to corporate customers across the Group's different business lines across its global network; and to attract new corporate customers while increasing the total deposited amount via a diversified and improved product base. Competition and Competitive Strengths KFH is the second largest bank in Kuwait in terms of total assets, customer deposits and customer financings and advances according to the publicly available financial statements of KFH's main domestic competitors as at and for the financial years ended 31 December 2017, 2016 and The Kuwaiti banking sector and KFH's competitors comprise five indigenous conventional commercial banks (Al Ahli Bank of Kuwait, Burgan Bank, Commercial Bank of Kuwait, Gulf Bank and National Bank of Kuwait) and branches of 12 other non-kuwaiti conventional banks. In addition, a specialised bank (Industrial Bank of Kuwait) and five banks operating according to the provisions of Islamic Shari'a (including KFH) are also licensed to operate in Kuwait and are KFH's competitors. The tables below show rankings for the five largest Kuwaiti banks by total assets, by customer deposits and by customer financings and advances as at 31 December 2017, 2016 and Year ended 31 December (KD millions) Ranking by total assets (1) : National Bank of Kuwait... 26,035 24,239 23,598 KFH... 17,358 16,499 16,495 Burgan Bank... 7,415 7,269 6,825 Gulf Bank... 5,683 5,467 5,438 Al Ahli Bank of Kuwait... 4,362 4,285 4,359 Source: 31 December 2017, 2016 and 2015 annual financial statements for each bank. (1) Total assets are based on consolidated figures and include international assets v

146 Year ended 31 December (KD millions) Ranking by customer deposits for conventional banks / depositors' accounts for Islamic Banks (1) : National Bank of Kuwait... 13,780 12,608 12,059 KFH... 11,597 10,717 10,709 Burgan Bank... 4,154 3,737 3,874 Gulf Bank... 3,490 3,395 3,837 Al Ahli Bank of Kuwait... 2,984 2,943 2,496 Source: 31 December 2017 and 2016 annual financial statements for each bank. (1) Customer deposits are based on consolidated figures and include international customer deposits. Year ended 31 December (KD millions) Ranking by customer loans and advances for conventional banks / financing receivable for Islamic Banks (1) : National Bank of Kuwait... 14,503 13,611 13,551 KFH... 9,216 8,176 8,095 Burgan Bank... 4,408 4,276 4,012 Gulf Bank... 3,809 3,446 3,634 Al Ahli Bank of Kuwait... 3,075 3,029 3,047 Source: 31 December 2017, 2016 and 2015 annual financial statements for each bank. (1) Customer loans and advances are based on consolidated figures and include international customer loans and advances. The Islamic banking sector in Kuwait is attracting a growing customer base, particularly among local cooperative and other similar bodies. A general prohibition on Kuwaiti banks offering mortgages to finance private residences in Kuwait was introduced in However, in 2011 an exception was created in respect of Islamic banks only, allowing them to finance purchases of residential properties using a mortgage over the property as security. Accordingly, the principal competitive advantage enjoyed by Islamic banks including KFH is their ability to offer residential mortgage financing, which conventional banks are not permitted to do. Regulatory restrictions relating to profit rates and ratios for retail lending typically favour Islamic banks over conventional banks. In particular, whereas the profit rates that can be charged by conventional banks are capped, given there is no concept of interest in Islamic banking, by Islamic banks in Kuwait are able to earn better margins than conventional banks on their financing portfolios. In addition to the above, KFH benefits from the following competitive strengths: strong brand position: KFH is recognised regionally and globally for its close adherence to Islamic values and high-level of transparency regarding Shari'a-compliance of its products and services. KFH is also reputed for developing several innovative products and services. For instance, KFH is the first and, as at the date of this Base Prospectus, the only bank in Kuwait with female-only branches. The strength of KFH's brand is demonstrated by its continuously growing deposit portfolio. Between 2011 to 2016, the Group's total deposits had a compound annual growth rate of 3.83 per cent.; established track record: as the first Islamic bank established in Kuwait, KFH has a track record of over 40 years in the Kuwaiti Islamic banking industry. KFH is the second largest bank in Kuwait in terms of total assets, customer deposits and customer financings and advances according to the publicly available financial statements of KFH's main domestic competitors as at and for the financial years ended 31 December 2017, 2016 and According to KFH's estimates, as at 31 December 2017, KFH's corporate and retail banking customers comprised approximately around a fifth of the aggregate retail customer base in Kuwait v

147 In recognition of this strong presence and market leading position, KFH was awarded a number of prizes and recognitions, including the below: In 2017: In 2016: "Islamic Bank of the Year 2017 Kuwait" by The Banker Magazine; "Islamic Bank of the Year 2017 Middle East" by The Banker Magazine Islamic; "Bank of the Year 2017 Global" by The Banker Magazine; "Best Islamic Project Finance Provider (Global) 2017" by Global Finance Magazine; "Best Bank for High Net Worth Clients 2018" by Euromoney Magazine; and "Best Bank for Research & Asset Allocation Advice 2018" by Euromoney Magazine. "Best Islamic Financial Institution in the Gulf" and "Best Islamic Project Finance Provider" by the Global Finance Magazine; "Best Islamic Bank in Kuwait" and "Best Global Islamic Bank" by Islamic Finance News at the Global Islamic Finance Awards; "Best SME Customer Service Award" by Banker Middle East, and large and diverse lending portfolio: KFH's lending base comprises of a large and diverse portfolio of retail and corporate customers which illustrates its market penetration and has a number of advantages for KFH's business (including reduced credit risk and increased crossselling opportunities). For instance, KFH's corporate customer base comprises a diversified mix of primary growth industries (such as oil and gas, power, petrochemicals, construction, food, cooperative societies and real estate). Similarly, KFH's retail banking products include financing new and existing cars, fleet services, construction works and materials financing, furniture and house appliances financing and medical care financing; extensive accessibility options: KFH has a very wide distribution network comprising branches (including female only branches), automated teller machines/cash deposit machines ("ATMs") and extreme teller machines (which provide cash deposit facilities and video links to tellers) ("XTMs"), each of which is supported by comprehensive internet and mobile banking options. In addition, KFH has a strong relationship management team with extensive experience through which KFH is able to provide consistent and reliable services to its customers across the retail, private and corporate banking segments (see further "Description of Kuwait Finance House K.S.C.P Branches and Other Distribution Channels"); strong credit position: KFH has a long-term foreign currency issuer default rating of A+ with stable outlook from Fitch and a long-term bank deposits rating of A1 with stable outlook from Moody's. These credit ratings demonstrate KFH's robust capitalisation metrics as well as its healthy funding and liquidity profile (see further "Selected Financial Information Selected Ratio" and "Financial Review of Kuwait Finance House K.S.C.P Liquidity and Funding"); strong risk management approach: risk management is an integral part of the decision-making processes for KFH and, in recent years, KFH has often met and exceeded the expectations of its stakeholders, regulators and rating agencies in this regard by having strong risk management processes and procedures. This, in turn, has resulted in improved asset quality indicators and credit ratings (see further "Selected Financial Information Selected Ratio" and "Description of Kuwait Finance House Risk Management"); v

148 international reach: with key subsidiaries and significant operations (see further: "Description of Kuwait Finance House K.S.C.P Subsidiaries, Associates and Joint Ventures") across Kuwait, Republic of Turkey, the Kingdom of Bahrain and the Federation of Malaysia, KFH is able to offer international Islamic banking opportunities and financial services to new and existing customers base. Kuveyt Türk is one example of a very successful subsidiary for KFH operating outside the domestic Kuwait market. Among its key strengths, the Kuveyt Türk has a competitive advantage among all the participating banks in Turkey given its existing presence in Turkey and has available to it certain retail and private banking channels and products, including some various first to market product launches like gold bullion accounts, syndication murabaha, sukuk or XTMs as compared to its competitors. That capacity to innovate allows Kuveyt Türk to position itself among the top 10 banks in service quality in Turkey. innovation-based culture: one of KFH's key competitive strengths is its focus on delivering innovative and customised financial and investment products to fit the changing needs of its customer base. For instance, KFH was one of the first banks in the region to adopt digital banking allowing banking transactions to be performed online with no need to visit a physical branch. KFH has also invested significantly in establishing an advanced analytics centre which enables it to match internal offerings with its customers' needs and expectations while improving cost efficiencies in retail branches. KFH also actively seeks to partner with other companies in order to accelerate its technology adoption and innovation initiatives. Key Business Activities The Group's principal activities are focused around the following business segments: (a) Treasury; (b) Retail and Private Banking; (c) Corporate Banking; (d) Investments. In addition to the above business segments, KFH is involved in certain other financial and investment activities (such as Islamic money markets, sukuk issuances and real estate investments). A description of KFH's key business activities is set out below. Treasury Treasury manages the Group's assets and liabilities and liquidity requirements. In particular, the responsibility to monitor and maintain a positive spread between the Group's assets and liabilities rests with Treasury. It is also responsible for ensuring sufficient liquidity in order to meet the Group's business growth needs while complying with CBK's liquidity ratios. In order to achieve this, Treasury also has some oversight over cross-selling and multichannel distributions to customers in order to diversify long term stable funding and widen KFH's depositor base. In addition, Treasury: manages the Group's money market books and money market funding positions for the Group's own account, manages the Group's foreign exchange business (own account as well on behalf of the Group's customer base); and maintains a portfolio of sukuk in order to manage the Group's liquidity position. Retail and Private Banking The Banking segment comprises the Group's primary revenue earning activity. This segment offers a full range of Shari'a-compliant banking services to customers through the following sub-segments. Retail Banking Retail banking offers a wide range of consumer banking products and related services through its integrated distribution network and various Group subsidiaries (including Kuveyt Türk, Kuwait Finance House B.S.C. and Kuwait Finance House (Malaysia) Berhad). KFH's retail banking products include savings, current and time-deposit accounts, personal financing solutions and long-term investment products. Customers can also invest for their future education, marriage or retirement needs through a v

149 number of investment deposits and have the option to lock their savings in gold (buying and selling through KFH). For a description of retail distribution channels, see "Description of Kuwait Finance House K.S.C.P Branches and Other Distribution Channels". Private Banking Private banking targets high net worth customers, catering to their specific investment and financial needs. With a strong brand presence in markets of growing investor interest (such as Malaysia and the Republic of Turkey) and supported by extensive in-house expertise in a number of key sectors (in particular, real estate), KFH offers high net worth customers a range of portfolio management services as well as finance and investment products. KFH's private banking services include a wide range of Shari'a compliant investment products to suit its customers' investing requirements across various asset classes, including cash, commodities, fixed income securities and equities. Along with structures developed in-house, KFH also partners with leading investment houses to provide a range of investment choices to its private banking customers (for instance, with varied currencies and maturities, exposures to different markets and capital protection options). Corporate Banking KFH offers its corporate customers (including SMEs) a range of banking products and services, including project financings, working capital financings and trade financings. The corporate banking segment also supports its customers' import and export activities by providing letters of credit (by sight as well as on acceptance basis and including murabaha letters of credit and export letters of credit) and letters of guarantee. KFH's corporate banking customers comprise multinationals, local corporate entities, banks and other financial institutions, as well as governmental and quasi-governmental organisations and entities. As at 31 December 2017, KFH had over 2,400 corporate banking customers within and outside Kuwait and these corporate banking relationships were instrumental in leveraging cross-selling opportunities across other business segments. Investment KFH Capital manages the Group's investment portfolio comprising direct equity and real estate investments, investments in subsidiaries and associates, international leasing and dealing in securities (including sukuk) in accordance with the principles of Shari'a. In addition, KFH Capital also offers a range of investment banking services to customers (such as sukuk and equity capital markets, mergers and acquisitions and corporate restructuring advice). KFH Capital also offers bespoke brokerage and trading services through its brokerage division (see "Description of Kuwait Finance House K.S.C.P Subsidiaries, Associates and Joint Ventures KFH Capital"). Branches and Other Distribution Channels As at the date of this Base Prospectus, KFH has a global network of around 484 branches (not including its head office in Kuwait). Of these, around 61 branches were in Kuwait, with the remaining branches being in the Republic of Turkey, the Federation of Malaysia, the Kingdom of Bahrain and Germany. A typical KFH branch is headed by a branch manager, staffed by around eight employees and aims to service the needs of KFH's customer base at the relevant location. Moreover, as at the date of this Base Prospectus, KFH has a global network of approximately 1,479 ATMs and its customers had access to a total shared network of approximately 385 ATMs in Kuwait. KFH also has a wide range of distribution channels apart from branches and ATMs including phone banking, internet banking, and mobile banking. While Phone banking allows customers to access certain account-linked functions (such as checking account balances and transferring funds between certain accounts) via phone and without such customer having to visit a branch. The internet banking platform allows customers to access their accounts securely and reliably, open new accounts, transfer funds between certain accounts, pay utility and credit card bills, request transfer of funds and request a demand draft, manager's cheque and telegraphic transfers. KFH also launched a mobile application ("app") in 2011 which allows customers to effect a number of transactions including opening a gold account, requesting statements of account and transferring amounts to other KFH accounts. In 2016, KFH v

150 launched a new e-service which allows customers subscribed to KFH's text message notification service to receive PUSH message-type notifications (in addition the regular SMS notification) on their smartphones. A PUSH message is a notification from an app that displays on the smartphone even if the relevant app is not in active use at that time. KFH also operates a call centre on a 24x7 basis which can be accessed by customers to conduct a variety of transactions, including reporting lost or stolen cards, performing account transfers and bill payments and making enquiries and complaints. In 2017, this call centre handled approximately two million calls, with over 90.0 per cent. calls being answered within 30 seconds. KFH also operates XTMs on a 24x7 basis which comprise a XTM digital device (that resembles an ATM) with the capability of connecting to XTM call centre operators. XTMs allow customers to conclude a number of transactions that would otherwise be conducted at a branch (such as money transfers and purchase/sale of foreign currency). As at 31 December 2017, KFH had a global network of approximately 33 XTMs (including two XTMs in Kuwait). In addition to the above, KFH has a direct sales force in Kuwait located at key locations such as car dealerships, Government ministries as well as KFH branches. In 2016, KFH's board of directors approved an expansion of the direct sales force and, accordingly, KFH is in the process of implementing a recruitment programme. KFH also has a strong relationship management team with extensive experience through which KFH is able to provide consistent and reliable services to its customers across the retail, private and corporate banking segments. Subsidiaries, Associates and Joint Ventures As at 31 December 2017, KFH had 19 principal wholly- owned or majority-owned operating subsidiaries (including one direct subsidiary and one indirect subsidiary (not included in list) classified as asset held for sale) (see also Note 17 (Discontinued Operations) and Note 18 (Subsidiaries) to the 2017 Consolidated Financial Statements). In addition, as at 31 December 2017, KFH had three key associates and three key joint ventures (see also Note 12 (Investment in Associates) and Note 13 (Investment in Joint Ventures) to the 2017 Consolidated Financial Statements). Of these, KFH considers the following to be its most important subsidiaries, associates and/or joint ventures (as applicable) in terms of their strategic importance, revenues and future growth potential. Kuveyt Türk Katilim Bankasi A.Ş. Overview Kuveyt Türk Katilim Bankasi Anonim Șirketi (which translates to Kuveyt Türk Participation Bank Inc.) is a full service bank operating primarily in the Republic of Turkey ("Turkey") and is a subsidiary of KFH. As at 31 December 2017, KFH held a 62 per cent. stake in Kuveyt Türk. Kuveyt Türk was incorporated in the Republic of Turkey in 1989 under the name Kuveyt Türk Participation Bank and was subsequently renamed Kuveyt Türk Katilim Bankasi A.Ş. in It is licensed by the Central Bank of Turkey to operate as a special finance institution. Kuveyt Türk offers a full range of Shari'a-compliant banking products to its customers as part of its consumer banking, corporate and investment banking and wealth management services. Kuveyt Türk's business is undertaken in compliance with the principles of interest-free banking, known as participation banking in Turkey. Kuveyt Türk's commercial registration number is / Its registered address is Büyükdere Cad. No. 129, Esentepe-Sisli, Istanbul and its telephone number is As at the date of this Prospectus, Kuveyt Türk is regulated by the BRSA and in accordance with Turkish Banking Law No. 5411, dated 1 November 2005 ("Banking Law"). Kuveyt Türk's core business segments are: Retail Banking: which focuses on deposit taking (current and participation (interest-free) accounts), the granting of financings, credit card facilities and fund transfer facilities to all individual customers; SME Banking: which focuses on deposit taking (current and participation accounts), the granting of financings, credit facilities and current, saving and investment accounts for SMEs provided v

151 that (i) the relevant small business has an annual turnover of less than TRY5 million and that the level of credit provided to such SME is below TRY7.5 million ("Small Business") or (ii) the relevant medium business has an annual turnover between TRY5 million and TRY40 million and that the level of credit provided to such SME is over TRY10 million ("Medium Sized Business"); Commercial Banking: which focuses on granting of financings, other credit facilities and banking services to institutional customers provided that the annual turnover of the business is between TRY40 million and TRY150 million; Corporate Banking: which focuses on financings and other credit facilities and current, saving and investment accounts for all corporate customers comprising businesses that have an annual turnover in excess of TRY150 million; and Treasury, International and Investment Banking: which focuses on: (i) international banking services to Kuveyt Türk's retail and corporate customers such as international trade finance; (ii) international expansion in order to expand Kuveyt Türk's international network; (iii) investment banking; and (iv) treasury services which are responsible for managing Kuveyt Türk's liquidity and market risks. As at 31 December 2017, Kuveyt Türk had approximately 1,489,395 individual customers, 4,103 private customers, 188,358 micro business customers, 77,533 small business banking clients (comprising both Small Business and Medium Sized Business), 14,152 commercial clients and 757 corporate clients, over 96 per cent. of which originated from Turkey, to which it provided retail, small business, commercial, corporate and international banking services. Kuveyt Türk expanded its branch network in Turkey by opening 40 new branches in 2014, 52 new branches in 2015, 27 new branches in 2016 and 13 new branches in 2017, bringing the total number of branches in Turkey to 399 as at 31 December More than 40 per cent. of Kuveyt Türk's branches are in Istanbul, with the rest spread across Turkey. In addition to its head office in İstanbul and its branches spread across Turkey, Kuveyt Türk provides banking services to international customers through its wholesale banking branch in Bahrain, its subsidiary headquartered in Frankfurt, Germany, with 4 branches. Segmental Analysis Segmental analysis of Kuveyt Türk (after adjustments and eliminations) based on the Group's accounting records: As at and for the year ended 31 December 2017 Treasury Retail and Private Banking Corporate Banking Investment Total (KD thousands) Total assets... 1,408, ,607 2,541,757 80,284 4,508,074 Total liabilities ,321 2,086,925 1,078,505 66,493 3,882,244 Operating income... (11,680) 82, ,082 2, ,610 Provisions and impairment ,214 52,262-54,476 Profit/(loss) for the year... (12,971) 41,528 54,292 (19,101) 63, v

152 As at and for the year ended 31 December 2016 Treasury Retail and Private Banking Corporate Banking Investment Total (KD thousands) Total assets... 1,514, ,735 2,156,921 86,560 4,208,550 Total liabilities ,080 1,877, ,160 80,296 3,585,911 Operating income... 23,237 69, , ,719 Provisions and impairment... (4) 2,396 41,948 3,552 47,892 Profit/(loss) for the year... 19,447 27,177 34,160 (14,844) 65,941 As at and for the year ended 31 December 2015 Treasury Investment Banking Other Total (KD thousands) Total assets... 1,103,229 10,691 3,072, ,172 4,365,588 Total liabilities ,487-3,016,974-3,761,461 Operating income... 41, ,650 8, ,338 Provisions and impairment ,192-31,192 Profit/(loss) for the year... (2,953) - 82,859 (17,877) 62,029 Strategy Kuveyt Türk's primary objectives are to establish itself as the leading participation bank within Turkey and to become one of the top 10 banks in terms of return on average equity in Turkey. Kuveyt Türk's strategy to achieve its objectives can be summarised by these headline items: achieving sustainable growth and profitability to meet the expectations of its shareholders; increasing customer retention and satisfaction by providing innovative products, high-quality service and improved UX (User Experience) in digital channels; improving the IT (Information Technology) infrastructure, centralizing operational processes, developing automated decision support systems to meet the expectations of our customers and partners; and increasing employee satisfaction and attaining the optimal organizational structure with competent workforce. Kuveyt Türk also aims to increase net profit through increased operational efficiency and cost control initiatives. It endeavours to increase its operating efficiency by developing its alternative distribution channels and outsourcing. In line with this strategy, Kuveyt Türk has initiated a number of cost optimisation projects. Kuveyt Türk aims to extend its geographical coverage in the participation banking sector. In addition to physical branches, Kuveyt Türk is also focusing on efficient portfolio management and enhancing Alternative Distribution Channels ("ADC") coverage and usage. The ADC Marketing Department, which was created in 2015 under the Retail Banking Department, primarily aims to decrease the operational expenses of the branches and to apply new marketing trends. The bank targets to increase efficiency in its existing branches and its newly launched branches. Kuveyt Türk targets to increase both the functionality of ADCs as well as focus on ADC marketing. The bank aims at increasing the total number of digital banking customers to 1,500,000 in Kuveyt Türk also focuses on the SME segment due to strong growth potential and high potential for cross selling. Kuveyt Türk additionally focuses on profitable products such as project financing, leasing and foreign trade financing in order to be a participation banking sector leader in these strategic products v

153 Competition Although the banking industry in Turkey is highly competitive, Kuveyt Türk is well positioned to compete in this environment due to its expanding branch network, international network and strong customer deposit base and an overall growth in demand for interest-free products and banking services. Competitive Strengths Kuveyt Türk enjoys a number of key competitive advantages, including the following: Committed and strong majority shareholder support: Kuveyt Türk's majority shareholder, KFH, is one of the world's largest Islamic banks in terms of assets. KFH has over 35 years of experience in providing Sharia compliant banking services and Kuveyt Türk has been able to leverage this experience when developing and introducing new products to the Turkish market, as well as in adopting best practices within its operations, including practices relating to reporting and risk management systems. Growing and attractive interest-free banking market: Market data indicates that the participation bank segment of the Turkish banking sector is growing at a faster rate than conventional banks in terms of assets, and Kuveyt Türk believes that the participation banking sector has significant growth potential given its current low share of total banking assets in Turkey. Strong balance sheet and extensive customer deposit base with well-functioning and diversified funding base: Through the expansion of its branch network, senior management believe that Kuveyt Türk has a strong and diversified deposit base. Kuveyt Türk also has a track record of increasing customer deposits and reducing the costs of deposits and actively endeavours to diversify its funding base through the establishment of international branches. A strong track record in innovation of interest-free products and services: Kuveyt Türk provides a wide range of innovative and tailor-made products for both Retail Banking, SME Banking, Commercial Banking, Corporate Banking, Treasury, International and Investment Banking customers allowing it to best meet the developing needs of its diverse client base. Well established strategy for improving service quality and customer oriented business: Kuveyt Türk continues to emphasise the importance of high quality service and customer satisfaction in all its operations and at all levels in its organisation. Flexibility of Kuveyt Türk's operating model: As a participation bank, Kuveyt Türk benefits from certain advantages with respect to risk management and access to funds not generally available in conventional banks. Experienced management team with a proven track record: Kuveyt Türk has a highly experienced management team with a clearly defined, long term focus on developing Kuveyt Türk's operations and a proven track record in growing Kuveyt Türk's operations and profitably in a competitive Turkish banking market. As at 31 December 2017, Kuveyt Türk's total assets were TRY 57,019.5 million (compared to TRY 48,175.3 million as at 31 December 2016 and TRY 41,583.5 million as at31 December 2015). For the year ended 31 December 2017, Kuveyt Türk's profit after taxation was TRY million (compared to TRY million for the year ended 31 December 2016 and TRY million for the year ended 31 December 2015). As at 31 December 2017 (after inter-group adjustments and eliminations), Kuveyt Türk contributed 26 per cent. to the Group's total assets (compared to 25.5 per cent. as at 31 December 2016 and 26.5 per cent. as at 31 December 2015). For the year ended 31 December 2017, Kuveyt Türk contributed 22.7 per cent. to the Group's profit to shareholders after taxation (compared to 21.8 per cent. for the year ended 31 December 2016 and 24.9 per cent. for the year ended 31 December 2015). The financial information above related to Kuveyt Türk has been extracted from Group's accounting records (after adjustments and eliminations). Aviation Lease and Finance Company K.S.C.P v

154 As at 31 December 2017, KFH held a per cent. stake in Aviation Lease and Finance Company K.S.C.P. ("Aviation Lease"). Aviation Lease was incorporated in Bermuda in 1992 by Kuwait Airways Corporation. KFH first acquired a stake in Aviation Lease in In 2000, Aviation Lease was moved and re-incorporated in Kuwait. Aviation Lease is a Shari'a-compliant aircraft leasing company and its primary operations comprise aircraft operating leases, sale and leaseback of aircraft and aircraft lease management. As at 31 December 2017, Aviation Lease contributed 0.8 per cent. to the Group's total assets (compared to 0.7 per cent. as at 31 December 2016 and 0.6 per cent. as at 31 December 2015). For the year ended 31 December 2017, Aviation Lease contributed 8.1 per cent. to the Group's profit to shareholders after taxation (compared to 4.0 per cent. for the year ended 31 December 2016 and 6.9 per cent. for the year ended 31 December 2015). KFH Capital As at 31 December 2017, KFH Capital's total assets were KD million (compared to KD million as at 31 December 2016 and KD million as at 31 December 2015). For the year ended 31 December 2017, KFH Capital's loss after taxation was KD 9.2 million (compared to loss after taxation of KD 1.9 million for the year ended31 December 2016 and loss after taxation of KD 7.7million for the year ended 31 December 2015). Kuwait Finance House B.S.C. As at 31 December 2017, Kuwait Finance House B.S.C. ("KFH Bahrain") was a wholly-owned subsidiary of KFH. KFH Bahrain was incorporated in the Kingdom of Bahrain in 2002 as a closed joint stock company. KFH Bahrain offers a full range of Shari'a-compliant banking products and services to its customers. KFH Bahrain is regulated and supervised by the Central Bank of Bahrain and has an Islamic retail banking license. As at 31 December 2017, KFH Bahrain's total assets were Bahraini dinar 1,087.8 million (compared to Bahraini dinar 1,572.4 million as at 31 December 2016 and Bahraini dinar 1,390.7 million as at 31 December 2015). For the year ended 31 December 2017, KFH Bahrain's profit after taxation was Bahraini dinar 30.7 million (compared to Bahraini dinar11.0 million for the year ended 31 December 2016 and Bahraini dinar 31.0 million for the year ended 31 December 2015). As at 31 December 2017 (after inter-group adjustments and eliminations), KFH Bahrain contributed 5 per cent. to the Group's total assets (compared to 7.8 per cent. as at 31 December 2016 and 6.8 per cent. as at 31 December 2015). For the year ended 31 December 2017, KFH Bahrain contributed 13.5 per cent. to the Group's profit to shareholders after taxation (compared to 2.4 per cent. for the year ended 31 December 2016 and 13.8 per cent. for the year ended 31 December 2015). Kuwait Finance House (Malaysia) Berhad As at 31 December 2017, Kuwait Finance House (Malaysia) Berhad ("KFH Malaysia") was a whollyowned subsidiary of KFH. KFH Malaysia was incorporated in Malaysia in 2005 and was the first foreign Islamic bank that was granted a licence under the Malaysian Islamic Banking Act of KFH Malaysia offers a full range of Shari'a-compliant banking products to its customers as part of its retail and consumer banking, corporate and investment banking, commercial, treasury and international business services. As at 31 December 2017, KFH Malaysia's total assets were Malaysian Ringgit 9,042.2 million (compared to Malaysian Ringgit 10,657.1 million as at 31 December 2016 and Malaysian Ringgit 10,493.0 million as at 31 December 2015). For the year ended 31 December 2017, KFH Malaysia's profit after taxation was Malaysian Ringgit 50.4 million (compared to profit after taxation of Malaysian Ringgit 12.6 million for the year ended 31 December 2016 and loss after taxation of Malaysian Ringgit 45.9 million for the year ended 31 December 2015). As at 31 December 2017 (after inter-group adjustments and eliminations), KFH Malaysia contributed 3.9 per cent. to the Group's total assets (compared to 4.4 per cent. as at 31 December 2016 and 4.5 per cent. as at 31 December 2015). For the year ended 31 December 2017, KFH Malaysia contributed 1.9 per cent. to the Group's profit to shareholders after taxation (compared to 0.2 per cent. for the year ended v

155 December 2016 and a loss to shareholders after taxation of 2.9 per cent. for the year ended 31 December 2015). Risk Management Risk management is an integral part of the decision-making processes for KFH. This is implemented through a governance process that emphasises independent risk assessment, control and monitoring and is directly overseen by the Board and the Executive Management. KFH operates a "three lines of defence" system for managing risk: the first line of defence recognises that risks are raised by the business units and within their business. In KFH all employees (credit officers, dealers, operations, etc.) are required to ensure the effective management of risks within their organisational responsibilities; the second line of defence comprises KFH's Risk Management Department ("GRM"), which is responsible for ensuring that the Group's risks are managed in accordance within the stated risk parameters; and the third line of defence is the independent assurance provided by the KFH's internal audit function. Risk Governance Structure The Board is ultimately responsible for oversight of risk management and control in KFH and sets the Group's risk parameters. The Board discharges its risk management function with the assistance of the Board's Risk Committee and Audit and Compliance Committee. At the senior management level, risk management is headed by the GRM and the Internal Audit Department ("Internal Audit"). GRM plays a vital role in evaluating risk exposures on an enterprisewide basis by, for instance, conducting stress tests, monitoring the Group's risk profile and assisting with strategic initiatives to support capital optimisation. Internal Audit, on the other hand, conducts internal audits to test and monitor if the overall system of control effectiveness is working as required within the risk management framework. All Internal Audit findings are reported to the relevant management and governance bodies within the Group. KFH has also appointed an independent Chief Risk Officer and an independent Internal Audit Manager who have direct access to the Risk Committee and Audit and Compliance Committee, respectively. On a day-to-day basis, the Risk Committee is organised in the following functional lines (with relevant management executives being responsible for the relevant functions): operational risk management, market and liquidity risk management, investment risk management, technology risk management, antimoney laundering and countering financing of terrorism ("AML/CFT"), and regulatory compliance and reporting. The AML/CFT and regulatory compliance functions report directly to the Audit and Compliance Committee. The risk management functions described above operate independently from the business units and the investment risk management function provide rigorous review and challenge for all investment and financing proposals as well as strategic initiatives (such as new products and markets). Market and liquidity risk management also promote better balance sheet management through capital optimisation and work closely with Treasury to mitigate funding and liquidity related risks in respect of the currencies to which the Group has exposure. A description of the key risks facing KFH is set out below and the relevant applicable risk governance. For further details, see Note 28 (Risk Management), Note 29 (Credit Risk), Note 30 (Liquidity Risk), Note 31 (Market Risk) and Note 32 (Capital Management) to the 2017 Consolidated Financial Statements. Group Internal Audit Department The Group Internal Audit Department is headed by the Group Chief Internal Auditor, who reports functionally to the Board's Audit and Compliance Committee and has unrestricted access to the Chairman of the Board v

156 The Bank has not assigned executive responsibilities to its internal auditors and the Group Internal Audit Department performs its duties and prepares its report independently. The Group Internal Audit Department assesses whether the Bank's network of risk management, control and governance processes, as designed and represented by management, is adequate and functioning. The Group Internal Audit Department applies a risk based audit approach whereby the frequency of the audit is linked with the risk categorisation of the audit entities. A three-year strategic internal audit plan and the annual internal audit plan are reviewed and approved by the Board's Audit and Compliance Committee. The internal control systems within the Group Internal Audit Department are subject to annual review by an external audit firm; additionally, the Group Internal Audit Department generally conforms with the international internal audit standards of the Institute of Internal Auditors ("IIA") based on the result of quality assurance review performed by an external audit firm. The Group Internal Audit Department is responsible for following-up corrective actions being taken to resolve all observations raised by the Group Internal Audit Department and the external auditors on the internal control systems. The results of the Group Internal Audit Department along with the follow up progress are reported quarterly to the Board's Audit and Compliance Committee. As per the requirements of the CBK, the Bank appoints annually an external audit firm to assess the accounting and other records and internal control systems. The external auditor's opinion is disclosed in the bank's annual report. Credit Risk As part of its banking operations, KFH provides financing to retail and corporate customers via a number of products (including tawarruq, murabaha, istisna'a and ijara financings). Accordingly, KFH is exposed to credit risk arising from customers' inability or unwillingness to perform their payment obligations towards KFH. Such credit risk may arise from various factors such as the nature of customer activity, changes in market trends or internal failure in following the procedures/policies for granting finance to customers. Default may be complete or partial. Furthermore, default may also result from non-cash financing products such as a letter of credit (when a customer defaults in paying relevant amounts to the beneficiary which results in KFH having to pay the relevant amounts on such customer's behalf) or a letter of guarantee (when the customer defaults in delivering relevant services to the contract counterparty which results in KFH having to reimburse the contract counterparty for contract costs and any damages). In cases of letters of credit and letters of guarantee issued at the request of its clients, KFH protects itself against calls on such instruments by ordinarily obtaining more than 100 per cent. cash collateral, including the principal amount and certain cash margins to be blocked as against the contingent liabilities under such issued letters of credit or letters of guarantee. When financing specific projects, KFH ordinarily obtains a security interest by way of an authenticated assignment of rights over the project s proceeds to cover the financed amount of such letters of credit or letters of guarantee. Credit risk may be exacerbated due to large exposures to a small number of individuals or groups or due to concentrations of financing in any particular sector which is (or may become) subject to financial stress. Credit risk mitigation strategy Portfolio diversification is the cornerstone of the Group's credit risk mitigation strategy, which is implemented through customer, industry and geographical exposure limit structures. In accordance with CBK regulations, the Group limits its credit concentration per group of related entities to 15.0 per cent. of its regulatory capital. This does not apply to government and quasi-government entities, agencies and departments in the GCC countries that do not work on a commercial basis or to banks. The Group also measures its concentration levels across sectors, geographies and products to ensure and enhance its portfolio oversight and diversification v

157 Credit risk mitigants, such as collateral and guarantees from third parties, are effective mitigating factors within the Group's portfolio and collateral quality is continuously monitored and assessed. Additional practices used to manage the Group's credit exposures include risk transfer in the form of syndications or risk participation arrangements with other banks. The main types of collateral accepted by the Group are: cash collateral; quoted shares and units in collective investment schemes; bank guarantees; commercial and residential real estate; and eligible debt instruments. In accordance with the Group's credit policies, banks and creditworthy companies and individuals with a high net worth are accepted as guarantor counterparties, subject to credit risk assessment. Furthermore, in accordance with the CBK Basel III framework, only cash collateral, quoted shares, eligible debt instruments and units in collective investment schemes are recognised as risk mitigants for capital adequacy purposes. The eligibility of commercial real estate for capital adequacy purposes is being gradually phased-out as part of the CBK Basel III framework. The custody and daily mark-to-market of financial collateral are performed independently of the business units. Except for private residences, real estate collateral is valued on an annual basis. For each of the previous three financial years ended 31 December 2017, 31 December 2016 and 31 December 2015, a significant portion of the Group's financings, advances and Islamic financing to customers was secured by collateral, primarily comprising of cash, shares and real estate collateral. The Group is authorised to liquidate the portfolio of collateral at its discretion in the event of any default in the payment of the secured financing. The most liquid collateral (such as cash and listed shares) can then be liquidated within a matter of days and the proceeds applied to discharge the amounts outstanding on the relevant financing. The collateral enforcement process in Kuwait in respect of real estate involves a number of steps. Given the fact that the relevant debtor and/or guarantor may raise objections at each stage, if enforcement is contested the typical time taken to finalise enforcement proceedings in relation to real estate is between 36 and 48 months and, in difficult cases, up to 60 months. Consumer financings are generally not secured. However, before granting consumer financings, the Group requires that the customer's employer makes the customer's salary payments directly to the customer's account held with the Group. Credit Risk Governance KFH's credit risk governance aims at establishing and maintaining a performing financing portfolio that minimises the incidence of customer default. The process of risk management begins with the relationship manager who is responsible for developing an understanding of the customer's financing needs and financial position with a view to ensuring that the customer is not exposed to excessive leverage in its financing activities. In KFH, credit decisions based on an assessment of the customer's ability to service debt. Precautions, such as collateral, are taken as security to mitigate loss in the event of a default by the customer. In order to avoid excessive risk concentrations, KFH's policies and procedures include specific guidelines for maintaining diversified financial portfolios, thus establishing control over certain credit risk concentrations. With the exception of financing to retail banking customers, applications for new or renewed financing are reviewed independently of the Credit Committee before being submitted to the GRM for assessment and recommendation. KFH's credit committee (the "Credit Committee") reviews all applications and v

158 approves or denies those that fall within its delegated authority. The Chief Risk Officer is a non-voting member in the Credit Committee and provides an independent recommendation. The Chief Risk Officer has the authority to escalate a proposal to the Board if he disagrees with the decision of the Credit Committee. The Board decides on proposals that are not included within the Credit Committee's delegated authorities (or if any proposal is escalated to the Board by the Chief Risk Officer). In addition, a special purpose committee meets on a monthly basis to review the corporate banking customer portfolios and analyse the performance of such portfolios. This committee also reviews customers in default, their collateral coverage ratios, exceptions granted, limits expiry and other similar provisions. KFH also uses credit mitigation techniques to manage risk concentrations at the relationship and industry levels. For instance, credit facilities are classified as "past due" when a payment has not been received on its contractual payment date or if the facility is in excess of pre-approved limits. A credit facility is considered as "past due and impaired" if the profit or a principal instalment is past due for more than 90 days and if the carrying amount of the facility is greater than its estimated recoverable value. "Past due" and "past due and impaired" facilities are managed and monitored as "irregular facilities" and are classified into the following four categories which are then used to guide the provisioning process: Category Watchlist Substandard Doubtful Bad Criteria Irregular for a period up to 90 days (inclusive) Irregular for a period between 91 and 180 days (inclusive) Irregular for a period between 181 days and 365 days (inclusive) Irregular for a period exceeding 365 days KFH may also include a credit facility in one of the above categories based on management's judgement of a customer's financial and/or non-financial circumstances. Further, KFH ensures the diversification of exposures according to standard portfolios, business sectors and geographical distributions borders in addition to continuous evaluation of risk mitigation methods against finance obligations and credit limits of the customer as per KFH's analysis of the customer's financial position. Eligible collaterals and guarantees are calculated as per the CBK's instructions. Netting is applied for exchange of deposits with banks and financial institutions. Standard supervisory haircuts are applied on the eligible collaterals according to the CBK's regulations. Market Risk Market risk is the risk that the value of an asset or liability will fluctuate as a result of changes in market prices or as a result of fluctuations in the prices of commodities, sukuk, share and/or real estate. KFH's market risk exposure arises from fluctuations in foreign exchange rates which affect its banking and investment portfolio. The profit rate risks that KFH is exposed to are limited as all Islamic financing and investment transactions are interest free and all Islamic finance contracts (comprising mudaraba and musharaka transactions) are based on profit and loss sharing. Moreover, other Islamic finance transactions are related to real economic transactions such as purchase and sale of merchandise through murabaha, istisna'a, ijara or salaam transactions. Market Risk Governance Treasury manages foreign exchange risk and commodity risk arising from its activities. Treasury also manages sukuk exposure risk. Equity price risk is managed through KFH Capital. The quantum of the exposures is measured and monitored by GRM and overseen by KFH's assets and liabilities management committee ("ALCO"). ALCO functions under the supervision of the Risk Committee of the Board. Real estate price risk arising from collateral pledged for financing facilities is managed by active monitoring of collateral values and topping up the collateral where the coverage of the debt is no longer acceptable. Liquidity Risk v

159 Liquidity risk is the risk arising from KFH's inability to meet its obligations when due as a result of unavailability of funds at an economically viable price. Liquidity risk may arise from unexpected withdrawals of deposits or an inability to sell assets in the market due to absence of buyers. Liquidity Risk Governance KFH has a liquidity risk management framework which sets out specific responsibilities of internal departments (such as Treasury and GRM) in relation to measuring, monitoring and assessing KFH's funding requirements in the short-term and medium-term under normal operating and stressed conditions in order to ensure the availability of sufficient liquidity to meet its commitments (both expected and unexpected). Furthermore, KFH is in compliance with the Basel III regulatory requirements as implemented by the CBK. KFH also has a contingency funding plan in case of indications of a future liquidity shortfall (based on triggers specified in the liquidity risk management framework). KFH's liquidity risk management framework is monitored, maintained and updated by the ALCO (overseen by the Risk Committee of the Board). Operational Risk Sources of Risk KFH is exposed to the risk of loss as a result of inadequate or failed internal processes, people and systems or from external events, including legal risk. Operational risk could be broken down as follows: Operational Risk: Risk of losses resulting from execution, delivery and process management, damage to physical assets, violation of employment practices and workplace safety regulations and products or business practices. Legal and Compliance Risk: Risk of incurring losses due to violations of or ambiguous practices regarding laws, rules, regulations, policies procedures, contractual obligations or ethical standards or failures in regulatory compliance leading to fines or intensive scrutiny. Technology Risk: Risk of losses or service disruptions arising from the failure of Information Technology e.g. system defects, faults, or incompleteness in computer operations, in addition to illegal or unauthorized use of computer systems that may lead to an adverse impact on the confidentiality, availability and integrity of the systems and data. Theft and Fraud Risk: Risk of losses due to theft or internal fraud, e.g. fraud by employees and external fraud, e.g. third-party theft and forgery. Shari'a risk: Risk of losses resulting from failure to comply with Shari'a requirements. Governance and Organization Since operational risks arise from a multitude of factors, the Group's primary focus of operational risk management is on developing awareness of internal control weaknesses, strengthening such controls and installing additional risk mitigation where required. Operational risk management is primarily the responsibility of all employees and business management. Each department head has responsibility for maintaining oversight over operational risk and internal control, covering all processes for which they are responsible. Other committees and departments in the organization which are responsible for the governance of operational risk management are as follows: Board Risk Committee: The Committee is ultimately responsible for ensuring effective operational risk management. It sets the operational risk appetite for the bank and approves the major policies for managing operational risk. The Board also oversees the risk profile of the bank v

160 Risk Management Department: The Operational Risk Management department of the new risk organization primarily assists the management in discharging its responsibility to oversee operational risk within their departments. It is also responsible for maintaining the operational risk management framework, monitoring the level of operational losses and the effectiveness of the control environment. It is also responsible for operational risk reporting. Internal Audit: The department provides the board and senior management with an independent assurance process for operational risk controls across the organization. Methods and Processes The objective of the Group's operational risk management framework is to manage and control operational risks in a cost-effective manner within targeted levels of operational risk consistent with the approved risk appetite. KFH is implementing the Risk Control Self-Assessment "RCSA" process which entails defining business objectives and the respective key risks, mapping control activities to the risks, assigning control activities to employees, owners, assessing the effectiveness of controls and the residual risks and developing risk mitigation action plans intended to reduce risks. RCSAs has been conducted and completed for business units that is according to Operational Risk Management s Plan. The bank has also defined a number of operational key risk indicators which are currently being measured and monitored for Key Business Activities (see " Key Business Activities"). The bank also systematically captures risk event data from the businesses and functional departments through the loss data management system and collection workflow. In terms of business continuity management, the bank has in place a committee monitoring the implementation of the business continuity plan. To date, a complete business impact analysis has been developed and signed off. KFH has adopted the basic indicator approach to measuring the capital required for operational risk under Pillar 1, as detailed in "Banking Industry and Regulations in Kuwait Soundness of the Banking System Capital Adequacy". In addition, the bank simulated under Pillar 2, as detailed in "Banking Industry and Regulations in Kuwait Soundness of the Banking System Capital Adequacy" the expected losses from 7 different operational loss events: internal fraud, external fraud, employment practices and workplace safety, clients, products, and business practices, damage to physical assets, business disruption and system failures, and execution, delivery and process management. Residual risks resulting from operational risks are covered by the capital requirements estimated as part of the Monte Carlo simulations conducted under Pillar 2 to test the mitigates of operational risk. KFH also calculates capital required to cover losses from legal risk under Pillar 2. Reputation Risk KFH defines reputation risk as risks arising from negative perception of KFH or any member of the Group by customers or other parties, such as shareholders, investors, employees or regulators that could adversely affect KFH's ability to maintain current relationships or establish new relationships. In addition, given the Islamic nature of KFH's activities, KFH is also exposed to the risk of reputation arising from non-adherence to Shari'a, which may lead to loss of customers. Reputation risk may arise from a failure on the part of KFH to perform as expected by its relevant stakeholders. As such this risk is mitigated through monitoring and managing KFH's primary operational processes. For instance, the Governance Committee of KFH's board of directors is as at the date of this Base Prospectus considering the proposed work plan to implement CBK's instructions concerning Shari'a governance at Islamic banks. Strategic Risk KFH defines strategic risks as risks arising from changes in market conditions and the results of decisions of business units and strategies of competitors or inappropriate responses to market developments, which may lead to KFH losing out on profitable investment opportunities. In addition, strategic risks also arise from failure to properly implement KFH's strategic plan or from incorrect execution of the plan's objectives. KFH's strategic plan was put in place with the full involvement of KFH's board of directors v

161 and senior management and is managed pro-actively. Any deviations from this plan are raised with senior management in order to take the necessary actions to achieve the stated objectives. Information Technology and Data Security KFH's existing technology set-up is based upon the ETHIX core banking solution system which is integrated with a number of specific customised banking systems. This solution system is used with a view to ensuring availability and reliability of business services to customers, as well as internally to staff, and also to allow KFH to utilise an enhanced Islamic financing system. KFH recognises the importance of information technology ("IT") in assisting it in reaching its objectives of growth, expansion and competitive market positioning. KFH views its IT systems as enablers of its customer-centric service proposition and the Group has therefore invested in developing and upgrading its IT infrastructure in order to provide digital services such as KFH Wallet (a contactless payment service that enables customers to use their Android mobile devices to pay for in-store purchases) (see: " Strategy Plan Technology driven innovation" above) and a number of calculation tools that allow customers to determine investment-related metrics (such as the finance calculator, the jameati calculator, the currency converter, the gold calculator and the zakat calculator). KFH is also committed to using IT advancements as a means of contributing to inter-group synergies through a variety of initiatives that allow KFH to standardise applications, optimise costs and achieve high levels of data quality, speed and security. For instance, in 2016, KFH introduced an automated treasury system at the group level for managing its treasury and liquidity monitoring functions as well as an integrated automated system at the group level for managing customer relations by streamlining data and information management between the Group. In 2016, KFH also launched a strategic project to build a data centre that would allow KFH to access and utilise Cloud-based technologies. KFH has an offsite IT operations centre and a disaster recovery site located at Baitak Tower in Kuwait City, Kuwait that can be activated when required. This is to ensure that all critical systems are fully operational at all times in order to provide essential services to its customers. KFH carries out periodic data back-ups which are stored in the main data centre and replicated online (in real time) to the disaster recovery centre. Additionally, KFH provides real time back-ups of all critical systems and data to an international location (which is in London) in compliance with CBK instructions. KFH also carries out various security assessments using external agencies and has adopted the latest technologies to assist in mitigating cyber threats. Insurance KFH maintains various insurance policies and coverage. These include standard property insurance coverage for its assets (premises and contents) within and outside Kuwait, staff private medical insurance coverage and professional indemnity insurance coverage. KFH also maintains a banker's blanket insurance policy. The Group's assets are generally insured on a reinstatement cost basis. KFH's aim is to maintain market standard insurance coverage. Litigation Litigation commenced against banks is a reasonably common occurrence in the banking industry due to the nature of the business undertaken. KFH has formal controls and policies for managing legal claims. Advice is obtained from KFH's internal legal team as well as external legal counsel in the relevant jurisdiction and an early case assessment is completed. This assessment includes a reasonable estimate of the potential amount of loss (if any) and KFH makes adjustments to account for any adverse effects which the claims may have on its financial standing. There are, and have been, no other governmental, legal or arbitration proceedings (including any such proceedings that are pending or threatened of which KFH is aware) during the twelve months preceding the date of this Base Prospectus that may have, or have had, significant effects on the Group's financial position or profitability v

162 Corporate Governance Framework MANAGEMENT AND EMPLOYEES KFH has developed a corporate governance framework which is based on international best practice and the CBK's "Rules and Standards of Corporate Governance in Kuwaiti Banks" which were issued during June The board of directors of KFH (the "Board") has the overall responsibility for adequate corporate governance across KFH and ensuring that governance policies and mechanisms appropriate to the structure, business and risks of KFH are in place. To assist with its supervision of KFH's corporate governance framework, the Board has also established the Governance Committee (see further "Management and Employees Board Committees Governance Committee"). The Board, together with the Governance Committee, evaluates such policies annually in order to align these with the growth, complexity and geographic expansion of KFH. KFH's corporate governance framework is documented in a corporate governance manual maintained by the Governance Committee. The corporate governance manual is included in KFH's annual reports. Whilst the Board takes responsibility for providing the requisite guidance and leadership to KFH, the executive management of KFH (the "Executive Management") is responsible for preparing and implementing the strategies and policies approved by the Board. The Executive Management therefore ensures that the corporate governance framework is implemented through appropriate procedures. In addition, KFH also has a Fatwa and Shari'a Supervisory Board to ensure that KFH's operations are in compliance with Shari'a rules and regulations. Organisation Structure The following chart summarises the principal features of the organisational structure within KFH: v

163 General Assembly Board of Directors Board Remuneration and Nomination Committee Board Investment Committee Board Governance Committee Board Executive Committee Chairman of Board of Directors Board Secretary Board Risk Committee Board Audit and Compliance Committee Fatwa and Shari'a Supervisory Board Group Chief Executive Officer Group Legal Group Financial Control Group Treasury Group Strategy and Corporate Affairs Group Retail and Private Banking Group Corporate Banking Group Operations Group Human Resources Group Information Technology Group Risk Management Group Internal Audit Group Shari'a Control and Advisory v

164 Board KFH operates under the direction of the Board, which is the principal decision-making forum with overall responsibility for the development of KFH's strategic goals, risk strategy and sound governance principles and for monitoring performance of KFH's businesses and the Executive Management. As at the date of this Base Prospectus, the Board comprises 10 members. Each member of the Board is elected at a shareholders' general assembly meeting for a period of three years. All elected directors seeking to serve an additional term are required to seek re-election by the shareholders every three years. In line with CBK requirements, the Board convenes at least once each quarter. The Board convened 16 times in The table below shows the names of the members of the Board as at the date of this Base Prospectus. Name Position Year of Appointment Mr. Hamad Abdul Mohsen Al Marzouq Chairman March 2014 Mr. Abdul Aziz Yaaqub Al Nafisi Vice-Chairman March 2014 Mr. Fahd Ali Al Ghanim Board Member March 2014 Mr. Muad Saud Al Osaimi Board Member March 2014 Mr. Khaled Salem Al Nisf Board Member March 2014 Mr. Noorur Rahman Abid Board Member March 2014 Mr. Barrak Ali Alsheatan Board Member March 2015 Mr. Ra'ed Khaled Al Kharafi Board Member July 2015 Mr. Waleed Abdullah Al Rawdhan Board Member March 2017 Mr. Mutlaaq Yaqoub Al Sanie Board Member March 2017 The business address of each member of the Board is Kuwait Finance House K.S.C.P., P.O. Box 24989, Safat 13110, State of Kuwait. Brief Biographies Detailed below is brief biographical information about each member of the Board as at the date of this Base Prospectus. Mr. Hamad Abdul Mohsen Al Marzouq Chairman Mr. Al Marzouq has been a member of the Board since March 2014 and was appointed as Chairman of the Board in March He is also the Chairman of the Executive Committee (see "Management and Employees Board Committees Executive Committee"). Mr. Al Marzouq has over 30 years' experience in banking and financing within and outside Kuwait. Mr. Al Marzouq has been a board member of the Kuwaiti Banks Association since 2002 (where he was also the Chairman from 2010 to 2016). Previously, he was the Chairman of Ahli United Bank Kuwait (where he was also the Vice-Chairman for a number of regions from 1998 to 2014), Vice-Chairman of Middle East Financial Investment Company (2002 until 2010) and Iraqi Commercial Bank (2006 until 2014), Deputy Chairman of Ahli Bank Qatar (2004 until 2013), a board member of the Kuwait Institute of Banking Studies, the Public Authority for Applied Education and Training (2007 until 2016) and Kuwait and Middle East Company for Finance and Investment (where he also served as the Vice-Chairman and Chairman from 2002 to 2010), a member of the board of trustees of the Arab Academy for Financial and Banking Sciences (2004 until 2009) and a member of the Union of Arab Banks (2003 until 2010). Mr. Al Marzouq has also previously held key positions at the CBK (including as the Director of the Financial Control Department from 1996 to 1998). Mr. Al Marzouq holds a Master's Degree in International Finance and Business Management from Claremont Graduate University, United States (1987) and a Bachelor's Degree in Industrial Systems Engineering from University of Southern California, United States (1985) v

165 Mr. Abdul Aziz Yaaqub Al Nafisi Vice-Chairman Mr. Al Nafisi has been a member of the Board since March 2014 and was appointed as Vice-Chairman of the Board in March He is also the Chairman of the Nominations and Remuneration Committee (see "Management and Employees Board Committees Nominations and Remuneration Committee"). Mr. Al Nafisi has considerable experience within and outside Kuwait in the real estate sector and the telecommunication sector and has held prominent leadership positions in financial institutions and investment companies. Mr. Al Nafisi has been a board member of Zain since 2005 (where he was also the Vice-Chairman for a number of years until 2013) and is also the General Director of Abdul Aziz Al Nafisi General Trading Company. Previously, he was the Chairman of Mada Communication Company (2001 until 2011), Al Madar Finance and Investment Company (1998 until 2004) and KFIC Financial Brokerage Company (where he was also the Managing Director from 1989 to 1990), a board member of Withaq Takaful Insurance Company (2000 until 2004) and Kuwait Investment Projects Company (1993 until 1996), the General Director of Al Nafisi National Real Estate Group (1996 until 2010) and the Deputy General Director of Yaqoub Al Nafisi General Trading and Contracting Establishment (1984 until 1990). Mr. Al Nafisi holds a Bachelor's Degree in Economics from Whittier College, United States (1977). Mr. Fahd Ali Al Ghanim Board Member Mr. Al Ghanim has been a member of the Board since March He is also the Chairman of the Investment Committee (see "Management and Employees Board Committees Investment Committee"). Mr. Al Ghanim is the Chairman of Aayan Ijara and Investment Company (where he was also the Chairman of the Restructuring Committee from 2010 to 2011), the Vice-Chairman of Al Ahlia Heavy Vehicles Selling and Import Company (where he was also the Chairman and the Chief Executive Officer from 2005 to 2011), a board member and trustee of the Kuwait Sports Club (since 2007) and the Chief Executive Officer of Al Ghanim and Sons Group of Companies for Cars. Previously, he was the Chairman of Kuwait Industrial Company for Construction, a board member of International Company for Electronic Payment and First Slaughterhouse Company (2003 until 2005), and the Chief Executive Officer of Al Ghanim and Sons Group of Companies (2002 until 2005). Mr. Al Ghanim holds a Bachelor's Degree in Civil Engineering from Kuwait University, Kuwait (2002). Mr. Muad Saud Al Osaimi Board Member Mr. Al Osaimi has been a member of the Board since March Mr. Al Osaimi is the Deputy General Manager of Global Retail Company (since 2003). Previously, he was a board member of Kuwait Gate Holding Company (2004 until 2014), Kuwait Financial Center Company (2008 until 2011) and Al Raya Holding Company. Mr. Al Osaimi holds a Bachelor's Degree in Finance from George Mason University, United States (2001). Mr. Khaled Salem Al Nisf Board Member Mr. Al Nisf has been a member of the Board since March Mr. Al Nisf is the Vice-Chairman of Kuwaiti Digital Computer Company (where he has been a board member from 2001), a board member of Al-Shamiya Holding Company (since 2016) and Al Tadamon Holding Company (since 2016) and the Chief Executive Officer of Mohamed Bin Yusuf Al Nisf Company (1997 until 2008), Al Tadamon Company and Trading and Industrial Equipment Company (since 2008). Previously, he was the Chairman of the Executive Board of Al Nisf Company (where he was also the Managing Director from 1995 to 2007). Mr. Al Nisf holds a Bachelor's Degree in Finance from Kuwait University, Kuwait (1995) v

166 Mr. Noorur Rahman Abid Board Member Mr. Abid has been a member of the Board since March He is also the Chairman of the Audit and Compliance Committee (see "Management and Employees Board Committees Audit and Compliance Committee"). With nearly 40 years of experience in banking and finance, Mr. Abid is a board member of Meezan Bank, Arcapita Company (where he is also the Chairman of the Audit Committee) and Dr. Soliman Fakeeh Hospital (where he is also the Chairman of the Audit Committee) as well as a member of the board of trustees of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) (where he was also the Chairman of the Accounting Standards Committee and Vice-Chairman of the Accounting and Auditing Standards Board for a number of years previously). Previously, he was the Assurance Leader for Ernst & Young Middle East and North Africa. In 2012, Mr. Abid received the World Islamic Banking Conference Industry Leadership Award in recognition of his contribution to the Islamic banking industry. Mr. Abid is a Fellow Chartered Accountant from the Institute of Chartered Accountants in England and Wales (since 1976). Mr. Barrak Ali Alsheatan Board Member Mr. Alsheatan has been a member of the Board since March 2015 as a representative of the Kuwait Public Authority for Minors' Affairs (which is one of the largest shareholders of KFH, see further "Description of Kuwait Finance House Capital Structure and Shareholders"). Mr. Alsheatan is the General Manager of the Kuwait Public Authority for Minors' Affairs (since 2015), a board member of the Kuwait Zakat House (since 2015), a member of the board of trustees of the Martyr's Office (since 2015), Chairman of National Offset Company ( ) and Vice-Chairman of Amlak Real Estate Company. Previously, he was a board member of the CBK (as a representative of the Kuwait Ministry of Finance), Kuwait Investment Company and the Public Authority for Direct Investment. He has also held several executive positions at the Kuwait Ministry of Finance ((2007 until 2015) including the Assistant Undersecretary of General Accounting Affairs (2007 until 2015). Mr. Alsheatan holds a Bachelor's Degree in Accounting from Kuwait University, Kuwait (1990). Mr. Ra'ed Khaled Al Kharafi Board Member Mr. Al Kharafi has been a member of the Board since July 2015 as a representative of the Kuwait Public Awqaf Foundation (which is one of the largest shareholders of KFH, see further "Description of Kuwait Finance House Capital Structure and Shareholders"). Mr. Al Kharafi is the Deputy Secretary General for Developing Resources and Investment at the Kuwait Public Awqaf Foundation (since 2015), a member of the Fact Finding Committee affiliated to the Kuwait Ministry of Justice (since 2015), a board member of Real-Estate Assets Management Company ((2015 until 2016) as a representative of Kuwait Public Awqaf Foundation), acting board member of the Kuwait Zakat House ((2015 until 2016) as a representative of Kuwait Public Awqaf Foundation) and a member of the supervising committee of the Awqaf Properties Investment Fund of The Islamic Development Bank ((since 2016) as a representative of Kuwait Public Awqaf Foundation). Previously, he held several executive positions at the Kuwait Fund for Arab Economic Development ((1993 to 2015) including the Deputy Manager of Administrative Affairs). Mr. Al Kharafi holds a Bachelor of Science in Management (Business Administration) from Cairo University, Egypt (2007) and a Diploma in Management from College of Business Studies (affiliated to the Public Authority for Applied Education and Training), Kuwait (1993). Mr. Waleed Abdullah Al Rawdhan Board Member Mr. Al Rawdhan has been a member of the Board since March 2017 as a representative of the Kuwait Investment Authority (which is one of the largest shareholders of KFH, see further "Description of Kuwait Finance House Capital Structure and Shareholders") v

167 Mr. Al Rawdhan is employed in the Kuwait Investment Authority's Public Reserves Sector. As a representative of the Kuwait Investment Authority, he holds a number of chairmanships and board positions in various companies. He is the Chairman of Ajyal Holding Company (since 2014) and a board member of Zain (2011 until 2017). He is also a member of the Kuwait High Summit for Public and Private Sectors K.A.B.B. (since 2014) and a member of Kuwait High Summit for B.O.T. Projects (since 2008). Previously, he was the Chairman of Equity Investment Holding Company (from 2011 to 2015) and a board member of Kuwait Tunisia Holding Group (from 1994 to 2002), Industrial Bank of Kuwait (from 1998 to 2005), Kuwait Real Estate Investment Group (from 2004 to 2007), Wataniya Telecom Company (from 2005 to 2011) and Kuwait Investment Company (from 2006 to 2009). Mr. Al Rawdhan was instrumental in transforming certain public companies into privately held companies (including the privatisation of Kuwait Airways Corporation, where he was nominated by the Council of Ministers to represent the Kuwait Investment Authority). Mr. Al Rawdhan holds a Bachelor's Degree in Economics from Kuwait University, Kuwait (1986). Mr. Mutlaaq Yaqoub Al Sanie Board Member Mr. Al Sanie has been a member of the Board since March 2017 as a representative of the Kuwait Investment Authority (which is one of the largest shareholders of KFH, see further "Description of Kuwait Finance House Capital Structure and Shareholders"). Previously, Mr. Al Sanie was the Chairman of Tunisian Kuwaiti Bank (from 2001 to 2011) and Kuwaiti Company for Small Enterprises (from 2005 to 2011). He was also previously the Chairman and Managing Director of the Kuwaiti Tunisian Group for Development and a board member of Kuwaiti United Company in Syria, Arab Authority for Investment and Agricultural Development in Sudan (from 2001 to 2008), Kuwait Economic Society (from 2006 to 2014), Arab Investment Company in the Kingdom of Saudi Arabia (from 2008 to 2015), Kuwait Airways Company (2011), Bank of Bahrain and Kuwait (from 2011 to 2017) and Tri International Consulting Group (from 2014 to 2016). Mr. Al Sanie led the privatisation committee of Kuwait Airways Corporation in 2010 and headed the founding committee of Warba Bank. He was also a member of the privatisation committee of the Kuwait Stock Exchange in 2011 and a member of the founding committee of Media City Co. in Mr. Al Sanie holds a Bachelor's Degree in Economics from Kuwait University, Kuwait (1983). Conflicts of Interest Certain related parties (members of the Board and the Executive Management, officers of KFH, their families, associated companies and companies of which they are the principal owners) are depositors and financing facility customers of KFH in the ordinary course of business. The transactions with these parties are made at arm's length and on substantially the same terms, including profit rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties (see further, Note 26 (Related Party Transactions) to the 2017 Consolidated Financial Statements). Further, each member of the Board has outside interests in entities other than KFH, including employment and/or directorships with third parties (as set out in their respective biographies). Given the wide scope of KFH's operations, such entities have banking and/or other commercial relationships with KFH. Some Board members also have personal banking relationships with KFH. As the directors are involved in KFH's decision-making process and have knowledge of KFH's products and services, including the commercial terms thereof, a potential conflict of interest may arise. KFH is committed to managing all related party transactions and potential conflicts of interest which may arise and has adopted written policies concerning related parties (including the rules and procedures regulating operations with related parties) as well a "Conflict of Interests Policy" in line with IAS 24 and related CBK instructions. These policies provide the processes for dealing with any such potential conflict, including related party transactions being approved by the shareholders' general assembly and/or relevant director being excluded from voting at board meetings on issues which relate to the relevant director's (and/or other connected entity's) dealings with KFH. Subject to the preceding paragraphs, no member of the Board has any actual or potential conflict of interest between his duties to KFH and his private interests and/or other duties v

168 Board Committees The Board has established the six Board committees which are described below. The roles and authorities of each Board committee are defined and delegated by the Board. Audit and Compliance Committee The key role of the Audit and Compliance Committee is to assist the Board with fulfilling and complying with its supervisory responsibilities vis-à-vis KFH's accounting operations, financial control systems, internal audit controls, compliance and risk management systems as well as with the management of financial reports in co-operation with internal and external auditors to ensure compliance with applicable regulatory requirements. The Audit and Compliance Committee comprises three Board members with at least two of the members required to have knowledge in financial matters in order to perform their duties as members of the Audit and Compliance Committee. As at the date of this Base Prospectus, the members of the Audit and Compliance Committee are: Mr. Noorur Rahman Abid (Chairman), Mr. Fahd Ali Al Ghanim and Mr. Waleed Abdullah Al Rawdhan. The Audit and Compliance Committee is required to convene at least once every three months and provide regular reports to the Board. In 2017, the Audit and Compliance Committee convened five times. Nominations and Remuneration Committee The key role of the Nomination and Remuneration Committee is to assist the Board with selecting qualified individuals for the Board and Executive Management and assessing the performance of the Board and its committees. In addition, the Nomination and Remuneration Committee also assists the Board in supervising short- term and long-term remuneration systems. The Nomination and Remuneration Committee comprises at least three Board members. As at the date of this Base Prospectus, the members of the Nomination and Remuneration Committee are: Mr. Abdul Aziz Yaaqub Al Nafisi (Chairman), Mr. Noorur Rahman Abid, Mr. Barrak Ali Alsheatan and Mr. Mutlaaq Yaqoub Al Sanie. The Nomination and Remuneration Committee is required to convene at least bi-annually and provide regular reports to the Board. In 2017, the Nomination and Remuneration Committee convened eight times. Risk Committee The key role of the Risk Committee is to assist the Board with supervision of KFH's risk conditions, risk strategy and appetite towards credit, banking, real estate and investment activities risks as well as all related policies and procedures (see "Description of Kuwait Finance House Risk Management"). The Risk Committee comprises at least three Board members. As at the date of this Base Prospectus, the members of the Risk Committee are: Mr. Khaled Salem Al Nisf (Chairman), Mr. Muad Saud Al Osaimi, Mr. Mutlaaq Yaqoub Al Sanie and Mr. Ra'ed Khaled Al Kharafi. The Risk Committee is required to convene at least four times each year and provide regular reports to the Board. In 2017, the Risk Committee convened eight times. Governance Committee The key role of the Governance Committee is to assist the Board with supervising the corporate governance framework as well as developing and assessing governance policies and procedures (including KFH's professional code of ethics and code of conduct). The Governance Committee comprises three Board members. As at the date of this Base Prospectus, the members of the Governance Committee are: Mr. Ra'ed Khaled Al Kharafi (Chairman), Mr. Hamad Abdul Mohsen Al Marzouq and Mr. Barrak Ali Alsheatan v

169 The Governance Committee is required to convene at least bi-annually and provide regular reports to the Board. In 2017, the Governance Committee convened three times. Executive Committee The key role of the Executive Committee is to assist the Board with supervision of KFH's investment and banking activities by, amongst other things, supervising the implementation of KFH's strategy, monitoring performance efficiency, reviewing investment offers, approving suggestions related to finance, liquidity and/or market risks, reviewing proposed provisioning and management plans for retrieval of bad debts (if any) and reviewing the diversity and credibility of KFH's finance portfolio. The Executive Committee comprises at least five Board members. As at the date of this Base Prospectus, the members of the Executive Committee are: Mr. Hamad Abdul Mohsen Al Marzouq (Chairman), Mr. Abdul Aziz Yaaqub Al Nafisi, Mr. Fahd Ali Al Ghanim, Mr. Muad Saud Al Osaimi, Mr. Khaled Salem Al Nisf and Mr. Mutlaaq Yaqoub Al Sanie. The Executive Committee is required to convene at least four times each year and provide regular reports to the Board. In 2017, the Executive Committee convened twelve times. Investment Committee The Investment Committee was established in 2016 to assist the Board with establishing a framework for, and supervising, KFH's investment activities in compliance with KFH's strategic investment objectives. The Investment Committee comprises at least three Board members. As at the date of this Base Prospectus, the members of the Investment Committee are: Mr. Fahd Ali Al Ghanim (Chairman), Mr. Muad Saud Al Osaimi, Mr. Khaled Salem Al Nisf and Mr. Waleed Abdullah Al Rawdhan. The Investment Committee is required to convene at least four times each year and provide regular reports to the Board. In 2017, the Investment Committee convened six times. Executive Management The Executive Management is responsible for day-to-day supervision and control of KFH's business, particularly with respect to ensuring compliance, risk control, independence of functions and segregation of duties. Under the direction of the Board, the Executive Management ensures that KFH's activities are consistent with the business strategy, risk appetite and policies approved by the Board. The table below shows the names of the members of the Executive Management as at the date of this Base Prospectus. Name Mr. Mazin Saad Al-Nahedh Mr. Shadi Ahmad Zahran Mr. Fahad Khaled Al-Mukhaizeem Mr. Gehad Albendari Mr. Abdulwahab Essa Al-Rushood Mr. Srood Ahmed Sherif Mr. Ahmed Soud AlKharji Mr. Waleed Khaled Mandani Mr. Abdullah Mohammed Abu Al-Hous Mr. Frederick J Carstens Mr. Khaled Mohammed Al Jumaa Position Group Chief Executive Officer Group Chief Financial Officer Group Chief Strategy Officer Group Chief Risk Officer and Group General Manager of Risk Management, serving the duties of CRO in the interim 1 Group Chief Treasury Officer Group Chief Information Officer Group Chief Corporate Banking Officer Group Chief Retail and Private Banking Officer Group Chief Operations Officer Group Chief Human Resources Officer Group General Manager of Legal 1 The former Group Chief Risk Officer, Mr. Leslie J. Rice, has retired from banking and Mr. Gehad Albendari is acting as at the date of this Base Prospectus as temporary Group Chief Risk Officer for the Group pending election of the new Group Chief Risk Officer v

170 Name Mr. Abdul-Rasheed Mohammed Ibrahim Mr. Fadi Ilyas Chalouhi Mr. Abdullah Abdulmuhsen Al-Mejhem Mr. Ahmed Al Sumait Position General Manager of Corporate Banking (Kuwait) Group General Manager of Retail Banking General Manager of Private Banking (Kuwait) General Manager of Treasury (Kuwait) Biography of the Group Chief Executive Officer Detailed below is brief biographical information about the Group Chief Executive Officer as at the date of this Base Prospectus. Mr. Mazin Saad Al-Nahedh Group Chief Executive Officer Mr. Al-Nahedh has been the Group Chief Executive Officer since March With over 23 years of experience in banking, he has previously held a number of executive positions at the National Bank of Kuwait (including member of the management executive committee, Group General Manager of Retail Banking and Group General Manager of Corporate Banking). Mr. Al-Nahedh holds a Bachelor's Degree in Finance from California State University Sacramento, United States. Conflicts of Interest No member of the Executive Management has any actual or potential conflict of interest between his duties to KFH and his private interests and/or other duties. Fatwa and Shari'a Supervisory Board KFH's Fatwa and Shari'a Supervisory Board has the primary responsibility for reviewing and endorsing KFH's policies, products, services and activities as Shari'a-compliant. The Fatwa and Shari'a Supervisory Board is appointed at a shareholders' general assembly meeting and its activities include presenting an annual report at the general meeting on conformity of KFH's activities with Shari'a rules, supervising KFH's Shari'a Control and Advisory Department (which, in turn, supervises the execution of the resolutions and recommendations of the Fatwa and Shari'a Supervisory Board) and supervising training programmes for KFH's employees to enable them to perform their duties in compliance with Shari'a rules. The Fatwa and Shari'a Supervisory Board convened 42 times in The Fatwa and Shari'a Supervisory Board comprises scholars of high repute with extensive experience of and exposure to law, economics and banking systems in various jurisdictions. The table below shows the names of the members of the Fatwa and Shari'a Supervisory Board as at the date of this Base Prospectus. Name Sheikh Dr. Sayyid Mohammad Al-Sayyid Abdul Razzaq Al-Tabtaba'e Sheikh Dr. Mubarak Jaza Al-Harbi Sheikh Dr. Anwar Shuaib Abdulsalam Sheikh Dr. Khaled Shuja' Al-Otaibi Sheikh Dr. Esam Abdul-Raheem Ghareeb Position Chairman Member Member Member Member Brief Biographies Detailed below is brief biographical information about each member of the Fatwa and Shari'a Supervisory Board as at the date of this Base Prospectus. Sheikh Dr. Sayyid Mohammad Al-Sayyid Abdul Razzaq Al-Tabtaba'e Chairman Sheikh Dr. Sayyid Mohammad Al-Sayyid Abdul Razzaq Al-Tabtaba'e is the Head of the Advisory Committee for implementation of Shari'a rules and regulations in Kuwait and the Head of the Personal Status Advisory Committee of Kuwait. He is also a member of the board of trustees of AAOIFI and a v

171 member of the teaching staff of the Faculty of Shari'a and Islamic Studies at Kuwait University, Kuwait (where he was previously the Dean). He holds a PhD in Islamic Jurisprudence from the Supreme Institute of Justice at Al-Imam Muhammad Ibn Saud Islamic University, the Kingdom of Saudi Arabia. Sheikh Dr. Mubarak Jaza Al-Harbi Member Sheikh Dr. Mubarak Jaza Al-Harbi is the former Head of the Department of Comparative Islamic Jurisprudence and Shari'a Governance at the Faculty of Shari'a and Islamic Studies at Kuwait University, Kuwait. He is also a member of the Fatwa Board at the Kuwait Ministry of Awqaf and Islamic Affairs and a member of fatwa and Shari'a supervisory boards at various Islamic financial institutions and organisations within and outside Kuwait. He holds a PhD from the Faculty of Darul-Ulum at Cairo University, Egypt. Sheikh Dr. Anwar Shuaib Abdulsalam Member Sheikh Dr. Anwar Shuaib Abdulsalam is the former Head of the Department of Islamic Jurisprudence and Usul Al-Fiqh at the Faculty of Shari'a and Islamic Studies at Kuwait University, Kuwait. He is also a member of fatwa and Shari'a supervisory boards at various Islamic financial institutions and organisations within and outside Kuwait. He holds a PhD in Islamic Jurisprudence from Al-Azhar University, Egypt. Sheikh Dr. Khaled Shuja' Al-Otaibi Member Sheikh Dr. Khaled Shuja' Al-Otaibi is a member of the teaching staff at the Department of Islamic Jurisprudence and Usul Al-Fiqh at the Faculty of Shari'a and Islamic Studies at Kuwait University, Kuwait. He is also the Head of the Shari'a Supervisory Board of the Kuwait Zakat House, a general advisor for the Kuwait Hajj Delegation and an Imam and orator at the Kuwait Ministry of Endowments and Islamic Affairs. He is also a member of fatwa and Shari'a supervisory boards at various Islamic financial institutions and organisations within and outside Kuwait. He holds a PhD from the Faculty of Shari'a and Islamic Studies at the Islamic University of Madinah, the Kingdom of Saudi Arabia. Sheikh Dr. Esam Abdul-Raheem Ghareeb Member Sheikh Dr. Esam Abdul-Raheem Ghareeb is a lecturer at the Department of Islamic Jurisprudence and Usul Al-Fiqh at the Faculty of Shari'a and Islamic Studies at Kuwait University, Kuwait. He is also a member of the teaching staff at the Faculty of Shari'a and Law at Kuwait University, Kuwait (where he was previously the Assistant Dean). He holds a PhD from the University of Birmingham, United Kingdom. Employees As at each of 31 December 2017, KFH had 2,545 employees (compared to 2,554 employees as at 31 December 2016 and 2,554 employees as at 31 December 2015). KFH believes in creating a working environment such that its employees are fully engaged with its values and strategic goals. For instance, KFH launched an innovation centre in 2016 to encourage employee participation in developing KFH's products, operations and processes. KFH also provides regular training to its employees in a wide range of core work-related disciplines as well as in "soft skills" (such as leadership courses). KFH is committed to identifying, attracting and developing Kuwaiti nationals in its workforce. The Government's recommended policy is that 64.0 per cent. of a Bank's total personnel should consist of Kuwaiti nationals. As at 31 December 2017, KFH had a Kuwaitisation level of 66 per cent. The Kuwaitisation levels in 2016 and 2015 remained at a consistent level of 65 per cent v

172 Central Bank of Kuwait BANKING INDUSTRY AND REGULATION IN KUWAIT Kuwait's monetary, banking and financial system is regulated and supervised by the CBK, which was formed by Law No. 32 of 1968 (as amended) (the "CBK Law"). The CBK commenced operations on 1 April Since 2003, the CBK has retained supervision over Islamic banks by virtue of Law No. 30 of 2003 (the "Islamic Banking Law") which amends the CBK Law to include rules and regulations governing Islamic banks. According to Article 15 of the CBK Law, its objectives are to: issue currency on behalf of Kuwait; secure the stability of the Kuwaiti dinar and its free convertibility into other currencies; direct credit policy in order to contribute to Kuwait's social and economic progress and the growth of national income; supervise the banking system in Kuwait; serve as the Government's bank; and render financial advice to the Government. The CBK is largely independent of Kuwait's executive and legislative branches and is managed by a board of directors, consisting of the Governor of the CBK, who also acts as the Chairman, the Deputy Governor of the CBK, a representative from each of the Kuwait Ministry of Finance and the Kuwait Ministry of Commerce and Industry ("MOCI") and four additional members, each of whom must be a Kuwaiti national and must be nominated by the Minister of Finance (after obtaining the approval of the Council of Ministers). The four additional board members are drawn from expert practitioners in the fields of economics, finance or banking and are appointed by an Emiri Decree for a three-year renewable term. The Governor and the Deputy Governor of the CBK are each appointed by an Emiri Decree for a five-year renewable term, pursuant to a recommendation from the Minister of Finance (which is conditional on them having experience in the banking sector). The CBK's total assets as at 31 December 2017 were KD 9.6 billion, an increase of 5.6 per cent. as compared to KD 9.1 billion as at December This increase was primarily a result of an increase in foreign assets held by the CBK. Total foreign assets as at 31 December 2017 were KD 9.5 billion, an increase of 7.0 per cent. as compared to KD 8.9 billion as at December Bank Regulation and Supervision All banks operating within Kuwait are subject to the supervision of the CBK, which is the primary regulator of banks and financial institutions in Kuwait whilst the CMA exercises supervisory authority over all Kuwaiti entities (including banks and financial institutions) which are listed on the Boursa Kuwait or engage in securities activities as discussed further below. Apart from instructions issued to both Islamic and conventional banks, the CBK also issues specific instructions for Islamic banks. Off-site and On-site Supervision Department The CBK's off-site supervision department receives periodic financial reports from institutions under its supervision, issues supervisory regulations, resolutions and instructions to such institutions, examines ongoing banking and financial trends and monitors their impact on the soundness and stability of these institutions. The department also conducts studies to assess applications to establish new banking and financial institutions or for new branches, articles of association, banking services and by-laws and organises and maintains registers of the institutions subject to CBK supervision. The off-site supervision department also prepares CBK recommendations on issues concerning banking and supervisory conditions, and develops a dialogue with worldwide supervisory bodies and concerned international institutions, to stay informed and updated on the latest global trends and developments in the area of supervision of banking and financial activities. The CBK also has an on-site supervision department that is responsible for monitoring the activities of institutions under its supervision to ensure their compliance with the provisions of relevant laws and v

173 supervisory regulations and instructions. In addition, the on-site supervision department is responsible for the combat of money laundering and financing of terrorism (through an anti-money laundering section within the on-site supervision department), following up on complaints and appeals submitted to CBK by those dealing with CBK-regulated entities, and proposing related supervisory regulations and instructions. Financial Stability Office The CBK has also established a Financial Stability Office (the "FSO"), which aims to contribute to a sound financial system in Kuwait capable of withstanding financial and economic shocks by identifying key vulnerabilities in the financial system and suggesting appropriate corrective measures. The FSO annually publishes its flagship Financial Stability Report (the "FSR"), covering key developments in the banking sector (making an assessment of financial intermediation, analysing key risks in the banking sector and examining the trends in banks' profitability, solvency and resilience against major shocks), domestic markets (money, foreign exchange, equity and real estate markets) and the payment and settlement systems. The aim of publishing the annual FSR is to identify risks to the stability of the financial system and to promote transparency and encourage informed public discourse on various developments in the financial system. The FSO also prepares other analytical reports, for internal use on major developments and key risks in the banking sector and financial markets, making use of appropriate tools and techniques, such as stress testing, in early identification of vulnerabilities in the financial system. New Regulations Over the past few years, the CBK has refined its existing regulations to reflect global best practices. The CBK has already implemented the full set of Basel III regulations, covering capital adequacy, leverage, and liquidity. The CBK has enhanced its capital adequacy regime by setting out higher and better quality capital for Kuwaiti banks to further strengthen their loss absorbing capacity. The CBK has also put up additional capital requirements for systemically important banks and introduced the leverage ratio (which is defined as the "capital" measure (made up of Tier 1 capital) divided by the "exposure" measure (being the sum of on-balance sheet assets, derivative exposures and off-balance sheet exposures)) as a supplementary measure to ensure that Kuwaiti banks do not become overly leveraged. The CBK has also introduced, in 2014, the LCR and, later in 2015, the NSFR guidelines, which are aimed to improve banks' capacity to withstand liquidity stress and to make their funding structure stable. See "Banking Industry and Regulation in Kuwait Soundness of the Banking System Capital Adequacy" and "Banking Industry and Regulation in Kuwait Soundness of the Banking System Liquidity". In addition, the CBK has also issued comprehensive guidelines around strong internal controls, prudent risk management and meticulous compliance to make Kuwaiti banks' corporate governance more robust. Moreover, the Board has resolved, in its session held on 20 December 2016, to issue instructions on "Shari'a Supervisory Governance for Kuwaiti Islamic Banks". The issuance of these instructions is in line with the continuing CBK efforts to promote Islamic banking activities in Kuwait and, accordingly, to develop Shari'a supervisory regulations for Islamic banks as per applicable best practices. Liquidity Regulations Islamic Banking regulation allows the CBK to introduce Islamic instruments to support Islamic banks in liquidity management. Kuwaiti banks are restricted by the CBK from providing financing more than a prescribed percentage of qualifying deposits. Effective 1 October 2016, the allowed percentage is 90 per cent., irrespective of the maturity profile of such deposits. The CBK requires conventional banks to maintain 18.0 per cent. of their KD customer deposits in the form of balances with the CBK and Government treasury bonds. Similarly, the CBK requires Islamic banks to maintain 18.0 per cent. of their KD customer deposits in the form of balances with the CBK and, due to the Shari'a-compliant nature of Islamic banks, also maintain: (a) financing sukuk issued by the IDB or governments of the GCC member countries (provided existence of underlying liquidity and no less than investment grade "BBB"); or (b) financing sukuk issued by the IILM. Banking liquidity in Kuwait is monitored using the maturity ladder approach under which future cash inflows are compared with future cash outflows. The resulting liquidity mismatches are then examined in v

174 time bands against approved limits for each band. Specific guidelines relevant to liquidity management establish elements that are to be included when calculating assets and liabilities for this purpose. Credit Risk Regulations Credit facility classifications: The CBK requires banks operating in Kuwait to evaluate and classify their credit facilities into two categories (regular and irregular) on a periodic basis. The relevant CBK instructions specify the cases when a credit facility must be classified as 'irregular' and include where payment of an instalment is not made, profit or interest (as the case may be) is not paid on the maturity date or the debit balance exceeds the drawing limits determined for the customer. Consumer and instalment financings: The CBK's circular on Buy Out and Top Up issued in July 2015 provides that consumer and instalment financings granted to a bank's customers can be utilised for the purpose of paying an existing consumer or instalment financing with another bank in Kuwait. In general, the maximum limit on consumer financing is 15 times the net monthly salary (or continuous monthly income) of the consumer, subject to a maximum of KD 15,000 and the maximum tenor for consumer financing is five years. A "personal instalment financing" is a long-term personal financing intended for non-commercial purposes, in particular for repair or purchase of a private residence. The maximum limit on personal instalment financings is KD 70,000 (which is inclusive of the maximum limit on any "consumer" financings advanced to the same customer). The maximum tenor for personal instalment financings is 15 years. A customer's total consumer and personal instalment financings must not exceed 40.0 per cent. of that customer's net annual salary. Extension of facilities for non-residents: Local banks are permitted to extend credit facilities in KD to non-residents without the need for prior consent from the CBK only in connection with financing contracts awarded by government bodies in Kuwait whose value does not exceed KD 40 million and where the financing does not exceed 70.0 per cent. of the total value of the contract. In all other cases, CBK consent is required for financings to non-residents. Concentration Risk Regulations Investment limits: The total ratio of the securities portfolio held by a Kuwaiti bank should not exceed 50.0 per cent. of the bank's capital in its comprehensive concept, as defined under the CBK's instructions to the local banks in respect of capital adequacy ratio ("CAR") and CBK instructions with regard to credit concentration limits. Further, the ratio of the investment in the securities of any one issuer should be the lower of 10.0 per cent. of the bank's capital in its comprehensive concept or 10.0 per cent. of the issuer's capital. Maximum limit for credit concentration: Subject to certain exceptions or where prior CBK approval has been obtained, the total credit liabilities of any single customer (including its legally or economically associated entities) to a bank may not exceed 15.0 per cent. of the bank's regulatory capital. Clustering limit total limit for large concentrations: The aggregate of large credit concentrations (being concentrations which exceed 10.0 per cent. of a bank's regulatory capital), including any exceptions approved by the CBK, may not exceed four times a bank's regulatory capital. Corporate Governance During June 2012, the CBK issued the "Rules and Standards of Corporate Governance in Kuwaiti Banks" (the "Corporate Governance Rules") which apply to all banks in Kuwait and were required to be implemented by 1 July The Corporate Governance Rules provide principles that should be applied by Kuwaiti banks in order to ensure proper governance. These include, amongst other things, the independence of the board of directors, risk management controls, disclosure and transparency, remuneration policies and systems and overall protection of shareholder and stakeholder's rights. The Corporate Governance Rules require each bank to adopt a corporate governance manual and establish a corporate governance committee, tasked with devising an overall framework for the adherence to the governance manual v

175 The Corporate Governance Rules define the role of a bank's board of directors and executive management (including the chief executive officer and other members of senior management), the executive committee (which is to include the chief executive officer), the risk committee, the internal and external audit committee and any other committees that have an active role in the business of the bank. KFH has developed a corporate governance framework which is based on international best practice and adheres to the CBK's requirements under the Corporate Governance Rules. See "Management and Employees Corporate Governance Framework" for further detail. Shari'a Supervisory Board Islamic banks in Kuwait must have a Shari'a supervisory board, which must have a minimum of three members. The Shari'a supervisory board is responsible for determining the Shari'a compliance of bank products and transactions. The board of directors of an Islamic bank must implement the directives of the Shari'a supervisory board regarding Shari'a compliance. Application of CBK Regulations to KFH KFH is incorporated as a public shareholding company in Kuwait. KFH is licensed by the CBK to conduct Shari'a-compliant banking activities and operates under its supervision. KFH is also listed on the Boursa Kuwait. As a company incorporated in Kuwait under the applicable companies' laws, for KFH to perform any commercial activities, it must have a valid commercial license issued by the MOCI. The MOCI issued commercial license is renewable every four years. KFH has a valid commercial license which expires on 9 November KFH has no reason to believe that its commercial licence will not be renewed by the MOCI. The CBK is tasked with maintaining the stability of Kuwait's banking system. As an entity subject to the CBK's oversight, KFH is required to submit various periodic and one-off reports to the CBK. The CBK also conducts inspections of banking and financial institutions (banks, investment companies and money exchange companies) which are subject to its supervision in order to ascertain their financial sustainability and their adherence to their constitutive documents. These inspections may be in the form of a specific inspection or a full audit of all activities. The CBK routinely and periodically inspects all entities subject to its oversight. Alongside the CBK, KFH is also regulated by the CMA due to it being a publicly traded company with shares listed on the Boursa Kuwait and conducts some of the "Securities Activities" listed in Module 5 article 1-2 of the CMA Bylaws. Banking System Kuwait has a well-developed financial sector, which is predominantly bank-centric. The CBK supervises a whole network of banking and financial institutions that, as at the date of this Base Prospectus, are comprised of 11 Kuwaiti banks, branches of 12 foreign banks, 70 investment companies (with regards to their financing portfolio), 42 exchange companies and one financing company. The following table sets forth the developments in the local bank structure as at 31 December 2016, 2015, 2014 and 2013, respectively. As at 31 December Number of head offices Number of local branches Number of external branches Number of representative offices Total branches/representative offices Source: CBK. As at 31 December 2017, there were 11 Kuwaiti banks of which there were: 5 Islamic banks (Kuwait Finance House, Boubyan Bank, Kuwait International Bank, Ahli United Bank and Warba Bank); v

176 5 conventional banks (National Bank of Kuwait, Burgan Bank, Gulf Bank, Commercial Bank of Kuwait and Al Ahli Bank of Kuwait); and 1 specialised bank (Industrial Bank of Kuwait), which was established by the Government with an emphasis on financing and enhancing industrial development in Kuwait. In addition, 12 foreign bank branches (together with the 11 Kuwaiti banks, the "local banks") also operate in Kuwait. These are the Bank of Bahrain and Kuwait, BNP Paribas, HSBC, First Abu Dhabi Bank, Citibank, Qatar National Bank, Doha Bank, Mashreq Bank, Al-Rajhi Bank, Bank Muscat, Union National Bank and Industrial and Commercial Bank of China Limited. Additionally, several local banks have sizeable presence in numerous other countries and, as at 31 December 2016, their total foreign assets accounted for 21.0 per cent. of the local banks' total assets as at that date. The following table sets forth the aggregate balance sheet of the local banks as at 31 December 2017, 2016, 2015, 2014 and 2013, respectively. As at 31 December (KD millions) Assets: Cash Sight deposits with CBK Time deposits with CBK and related tawarruq (including returns on tawarruq)... 1, ,217 3,432 2,916 CBK bonds and related tawarruq (1) (including returns on tawarruq)... 2,893 3,041 1,875 1,925 1,900 Claims on Government (2)(3)... 5,059 3,286 1,579 1,562 1,502 Claims on private sector (4)(5)... 37,225 36,201 35,302 32,705 31,099 Foreign assets... 12,771 12,667 12,551 11,680 10,202 Local interbank deposits... 1,255 1,456 2,600 1,782 1,263 Other assets... 2,137 1,909 1,582 1,587 1,763 Total assets... 63,468 60,442 58,611 55,452 51,484 Liabilities: Private sector deposits (4)... 35,401 33,967 33,044 32,480 31,385 Government deposits (2)... 6,737 6,679 5,879 5,286 5,056 Foreign liabilities... 5,596 4,364 4,692 4,297 3,044 Own funds... 8,340 7,954 7,793 7,525 7,180 Local interbank deposits... 1,231 1,421 2,417 1,804 1,258 Other liabilities... 6,162 6,056 4,785 4,058 3,560 Total liabilities... 63,468 60,442 58,611 55,452 51,484 Source: CBK. (1) Includes the balance of CBK bonds (of three or six months) and the balance of tawarruq operations against CBK bonds (of three, six and 12 months or above). (2) Government means Kuwaiti ministries, governmental departments and public institutions with attached budgets (including the Kuwait Credit Bank). (3) Claims on Government include public debt instruments of local banks. (4) Private sector means individuals, institutions and companies belonging to private, joint or public sectors, including public institutions with independent budgets (excluding the Kuwait Credit Bank). (5) Claims on private sector include credit facilities extended by local banks to the private sector, domestic investments by local banks and certificates of deposit issued by other non-bank private sector units and held by local banks. Soundness of the Banking System Despite the low oil price environment since mid-2014, the Kuwaiti banking system has remained stable. Results from the CBK's quarterly stress testing exercise have revealed that Kuwaiti banks, individually and collectively, have been able to broadly withstand various shocks in credit, market and liquidity simulated under a wide range of micro and macroeconomic scenarios, in part due to the CBK's conservative policies. See "Banking Industry and Regulation in Kuwait Soundness of the Banking System Capital Adequacy", "Banking Industry and Regulation in Kuwait Soundness of the Banking v

177 System Asset Quality" and "Banking Industry and Regulation in Kuwait Soundness of the Banking System Liquidity". The following table sets forth certain key financial soundness indicators as at 31 December 2016, 2015, 2014, 2013 and 2012, respectively. As at 31 December (%) Capital adequacy ratio (1) Tier 1 capital to capital base (2) Shareholder equity to total assets Gross NPFs to total loans Net NPFs to total loans NPFs coverage ratio (3) Net interest margin (4) Ratio of core income to operating income (5) Average interest earning assets to average assets (6) Net profit margin (7) Return on average equity (8) Return on average assets (9) Operating expense ratio to gross income (10) Non-interest expenses to average assets (11) Regulatory liquidity ratio (12) Source: CBK. (1) Ratio of capital base to risk-weighted assets (based on Basel III for 2014 onwards and on Basel II for all the previous years). (2) Ratio of tier 1 capital to capital base (based on Basel III for 2014 onwards and on Basel II for all the previous years). (3) Ratio of all available provisions (general and specific) to gross NPFs. (4) Ratio of net interest income to average interest earning assets. Average interest earning assets are defined as time deposits with the CBK, deposits with other banks, deposits with other financial institutions, investments in Government and fixed income securities and net loans. (5) Ratio of core income (net interest income and net fees income) to operating income (net interest income and non-interest income). (6) Ratio of average interest earning assets (as defined above) to average assets. (7) Ratio of net income to net interest income and non-interest income. (8) Ratio of net income to average shareholders' equity. (9) Ratio of net income to average assets. (10) Ratio of operating expenses (interest expenses and non-interest expenses) to gross income (interest income and non-interest income). (11) Ratio of non-interest expenses to average assets. (12) Ratio of: (a) balances with the CBK (current and deposits), Government treasury bills and bonds or any other financial instruments issued by the CBK; to (b) customers' KD deposits. Capital Adequacy Kuwaiti banks maintain high capital levels, given the CBK's strong focus on ensuring a stable financial system where a robust capital adequacy plays a critical role. In June 2014, the CBK issued directives on the adoption of capital adequacy standards under the Basel III framework applicable to licensed banks in Kuwait, effectively replacing and superseding the earlier Basel II requirements. The Basel III reforms strengthen the quality of capital and introduce several buffer requirements in line with proposals made by the Basel Committee. The CBK Basel III framework consists of three Pillars: v

178 Pillar 1 provides a framework for measuring capital requirements for credit, operational and market risks under the "Standardised Approach"; Pillar 2 relates to the supervisory review process and emphasises the importance of the Internal Capital Adequacy Assessment Process (ICAAP) performed by banks; and Pillar 3 aims to complement the above capital adequacy requirements under Pillar 1 and Pillar 2 by requiring banks to provide a consistent and understandable disclosure framework which facilitates comparison, thus enhancing the safety and soundness of the banking industry in Kuwait. The Basel III framework raised both the quality and quantity of the capital base and increased capital requirements for certain positions. The minimum requirements for capital are underpinned by a leverage ratio that serves as a backstop to the risk-based capital measures. There are also buffer requirements in the form of a capital conservation buffer, a countercyclical capital buffer and an additional surcharge for banks designated as domestic systemically important. As at 31 December 2016, local banks' CAR on a consolidated basis improved from 17.5 per cent. as at 31 December 2015 to 18.6 per cent. Despite experiencing a decline in CAR in 2014 due to the implementation of Basel III capital adequacy standards, banks were able to expand their capital base in 2015 and 2016, even in a challenging economic environment. At 18.6 per cent. as at 31 December 2016, local banks' CAR stood at a high level and above the CBK's requirement of 13.0 per cent., applicable with effect from 31 December Local banks' strong CAR levels, which are driven largely by high quality Tier 1 capital, underscore the strength of the Kuwaiti banking system in weathering major stress scenarios. Asset Quality The gross NPF to total financings ratio of local banks has continued its steady decline over the last seven years to reach 2.2 per cent. by 31 December 2016, a historically low level. At the same time, the NPFs coverage ratio has climbed to a record high of per cent., substantially greater than the pre-2008 financial crisis ratio of 87.0 per cent. that was observed in Liquidity In line with CBK policy to implement the full package of Basel III reforms, the CBK issued its LCR regulations in 2014 and the CBK board of directors approved, in its session held on 25 October 2015, the NSFR guidelines for both Islamic and conventional banks, including the branches of foreign banks operating in Kuwait. The CBK has introduced LCR in a phased manner, setting a benchmark of 70.0 per cent. in 2016 which will later reach per cent. by Banks are required to submit, along with existing liquidity reports, their LCR reports on a daily and monthly basis for monitoring purposes as well as LCRs by major currency. The minimum required NSFR is calculated as a percentage of available stable funding to required stable funding that should not be less than per cent. This requirement is effective from the beginning of Banks have been required, since January 2016, to start reporting their NSFR to the CBK. However, until the official implementation of NSFR in 2018, banks will have sufficient time to upgrade their systems, revise their methodologies of asset/liability management and make relevant changes to their sources and uses of fund structures in accordance with the new guidelines. Financial Stability Law and Deposit Guarantee Law In response to the global financial crisis in 2008, the Government took a number of measures, including the passing of Decree No. 2 of 2009 (the "Financial Stability Law"). The Financial Stability Law sought to stabilise the financial sector in Kuwait and other economic sectors so as to encourage the financing of such sectors by local banks. The Financial Stability Law applies only to specific classes of economic ventures which had been entered into as at 31 December v

179 As a further measure, the Government passed Law No. 30 of 2008 regarding the guarantee of deposits held with local banks (the "Deposit Guarantee Law"). Under the Deposit Guarantee Law, the Government has undertaken to guarantee the principal (but not profit or interest (as the case may be)) of all deposits held with local banks in Kuwait, including savings accounts and current accounts v

180 OVERVIEW OF KUWAIT Unless indicated otherwise, information in this section has been derived from Kuwaiti government publications. Overview Kuwait is located in the north-east of the Arabian Peninsula in Western Asia. It is bordered by the Kingdom of Saudi Arabia to the south at Khafji and the Republic of Iraq to the north at Basra. To the east, Kuwait has approximately 499 kilometres of coastline on the Arabian Gulf. Kuwait covers an area of approximately 17,818 square kilometres, which is divided into six Governorates (Al-Ahmadi, Al-'Asimah (the capital), Al-Farwaniyah, Al-Jahra', Hawalli and Mubarak Al-Kabir). Each Governorate is headed by a governor, a representative of the Emir, who is supported by a council. Governors are usually members of the ruling family or close allies. Membership of the Governorate councils is by appointment. Each Governorate is divided into districts or areas and each district is headed by a mayor or chief (Mukhtar) who reports to the Kuwait Ministry of Interior. The capital and administrative centre of Kuwait is Kuwait City, where the Government and most of the other state institutions are located. The official language in Kuwait is Arabic, but the use of English is widespread, especially in business transactions. Kuwait's economy benefits from some of the largest oil reserves in the world as well as very low relative oil production costs. According to OPEC's 2017 Annual Statistical Bulletin (the "OPEC 2017 Bulletin"), Kuwait has the fifth largest oil reserves in the world estimated at around billion barrels (accounting for 6.8 per cent. of the world's total oil reserves). According to the OPEC 2017 Bulletin, Kuwait was the world's eighth largest oil producer (accounting for 3.9 per cent. of the world's total oil production) and the world's sixth largest oil exporter (accounting for 4.8 per cent. of the world's total oil exports) for the year ended 31 December According to the same source, Kuwait's production levels were 3.0 million barrels per day on average for the year ended 31 December As a founding member of OPEC, Kuwait's oil production is subject to any agreements that are reached by OPEC to limit oil production. Population The latest official Kuwait census for which data has been published was conducted in April Accordingly, all population figures for subsequent years are estimates based on historic data. The most recent estimate of the population in Kuwait was published by the Public Authority for Civil Information as at 31 December The population was estimated to be approximately 4.5 million, of which approximately 1.4 million were Kuwaiti nationals (31.1 per cent.) and approximately 3.1 million were non-kuwaiti nationals (68.9 per cent.). As at 31 December 2017, 98.6 per cent. of the Kuwaiti population lived in cities with more than 10,000 inhabitants. Based on data from the Public Authority for Civil Information, Kuwait's estimated population increased each year since 2011, growing year-on-year by 3.2 per cent. in 2011, 3.4 per cent. in 2012, 3.3 per cent. in 2013, 3.6 per cent. in 2014, 3.6 per cent. in 2015 and 4.1 per cent. in Growth in the number of non- Kuwaiti nationals exceeded growth in the population of Kuwaiti nationals during these years, a fact reflected in the rise in their share of Kuwait's total estimated population, which has increased each year, from 68.0 per cent. as at 31 December 2011, to 68.3 per cent. as at 31 December 2012, to 68.7 per cent. as at 31 December 2013, to 68.8 per cent. as at 31 December 2014, to 69.2 per cent. as at 31 December 2015, to 69.7 per cent. as at 31 December 2016 and to 68.9 per cent. as at 31 December Economic Overview Since oil was discovered in Kuwait in 1937, Kuwait's economy has grown significantly, principally due to the revenues generated from the export of crude oil and related products. Kuwait's major industries include petroleum, petrochemicals, cement, shipbuilding and repair, water desalination, food processing and construction. According to provisional figures for the year ended 31 December 2016 prepared by the Statistics Bureau, Kuwait's GDP grew by 3.5 percent, 0.6 per cent., 0.5 per cent., 1.1 per cent., 6.6 per cent. and 9.6 per cent. in real terms (at constant 2010 prices) for the years ended 2016, 2015, 2014, 2013, 2012 and 2011, respectively, to reach KD billion (U.S.$ billion, assuming a KD to U.S. dollar exchange rate v

181 of U.S.$3.277). There are currently no official Government statistics available on Kuwait's GDP for the year ended 31 December 2016 or However, according to the 2017 IMF Article IV Report, the IMF has projected that real GDP grew by 2.2 per cent. for the year ended 31 December Based on provisional figures from the Statistics Bureau, while the contribution of the oil sector to Kuwait's nominal GDP decreased to KD billion, or per cent. of nominal GDP, for the year ended 31 December 2016, which was a decrease of per cent. from KD 15.7 billion, or per cent. of nominal GDP for the year ended 31 December 2015, the contribution of the non-oil sector demonstrated growth and increased as a percentage of total nominal GDP. The contribution of the non-oil sector to Kuwait's nominal GDP was KD 24.5 billion, or per cent. of total nominal GDP for the year ended 31 December 2016, as compared to KD 23.9 billion, or 60.3 per cent. of nominal GDP, KD 23.2 billion, or 44.2 per cent. of nominal GDP, KD 22.4 billion, or 40.7 per cent. of nominal GDP and KD 21.4 billion, or 39.2 per cent. of nominal GDP for the years ended 31 December 2015,2014, 2013, and 2012 respectively. According to the Statistics Bureau, for the year ended 31 December 2016, community, social and personal services activity was the largest contributor to non-oil nominal GDP at per cent., followed by financial intermediation and insurance activity at per cent. and real estate, renting and business services activity at per cent. Construction and agriculture and fishing grew the most at 4.08 per cent. and 2.61 per cent., respectively, for the year ended 31 December 2016 as compared to 31 December 2015, while the activity of extraction of crude petroleum and natural gas and services activities incidental to oil and gas decreased the most at per cent. for the year ended 31 December 2016 as compared to 31 December According to the Statistics Bureau, oil revenues comprised 68.1 per cent. of total Government current revenues for the fiscal year ended 31 March Kuwait's economy has generally benefitted from healthy fiscal and current account surpluses, although lower oil prices since mid-2014 meant that Kuwait realised a net budget deficit (after transfers to the Future Generations Fund ("FGF")) for the fiscal years ended 31 March 2016 and The monthly average OPEC Reference Basket price per barrel in June 2014 was U.S.$107.90, which dropped to a monthly average price of U.S.$50.32 in March The price per barrel of Kuwait Export Crude Oil (which is produced by Kuwait and constitutes part of the OPEC Reference Basket) has also moved in line with these trends. While the oil industry has historically dominated, and continues to be the largest part of, Kuwait's economy, for the past several years Kuwait has been concentrating on the diversification of its economy by encouraging private sector participation and promoting foreign investment in non-oil sectors as articulated in the "New Kuwait 2035" plan. These efforts have gained special importance in light of the onset in mid-2014 of the current low oil price environment. Based on provisional figures from the Statistics Bureau, the non-oil sector of the economy contributed per cent. of Kuwait's real GDP in the year ended 31 December 2016 and grew by 2 per cent. in real terms in the same time period. For the year ended 31 December 2016, community, social and personal services activity was the largest contributor to non-oil real GDP at 34.2 per cent., followed by financial intermediation and insurance activity at 15.4 per cent. and real estate, renting and business services activity at per cent. The activities of real estate. Renting and business services and agriculture and fishing grew the most in real terms at 3.98 per cent. and 3.6 per cent., respectively, for the year ended 31 December 2016 as compared to 31 December 2015, while the activity of manufacturing decreased the most in real terms at 5.03 per cent. for the year ended 31 December 2016 as compared to 31 December Kuwait's public finances benefit from Kuwait's General Reserve Fund ("GRF") and its FGF managed by the Kuwait Investment Authority. On an annual basis, by law, a minimum of 10.0 per cent. of all Government revenues are transferred to the FGF. The GRF is available to fund budget deficits in Kuwait and Kuwait has never drawn down on the funds in the FGF since the FGF's inception in v

182 Inflation The following table sets forth the consumer price index and annual inflation rate in Kuwait for the years ended 31 December 2017, 2016, 2015 and 2014, respectively. Average for the year ended 31 December Consumer Price Index (base year 2013=100) Inflation (percentage change, year on year) Source: Statistics Bureau. For the year ended 31 December 2017, average annual inflation, as measured by the consumer price index, was 1.5 per cent. The only category with a significant increase in inflation was the transport category that recorded an inflation of 10.2 per cent. for the year ended 31 December The housing services category which was recording year on year increase over the past several years declined by 0.4 per cent. for the year ended 31 December This was on account of subdued activity in the investment and commercial sectors of the wider real estate sector in Kuwait. The rise in the inflation rate for transport can be primarily attributed to cuts to fuel subsidies that were introduced in September Government, Political and Legal System Kuwait is a constitutional monarchy with a parliamentary system of government. Under its Constitution, which entered into force in 1963, the head of the State is the Emir, who is chosen from among the members of the ruling Al-Sabah family and confirmed by the National Assembly. The current Emir is His Highness Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, who acceded to the throne in January The Emir has, among other powers, the power to appoint the Prime Minister, dissolve the National Assembly, suspend certain parts of the Constitution and refer bills to the National Assembly for consideration. The Emir has the right to propose legislation as well as the right to promulgate and sanction laws. The Emir's half-brother, His Highness Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, is the current Crown Prince. Historically, the Emir has been selected by family consensus although the Emir Succession Law provides for National Assembly input under certain circumstances. Kuwait was the first member of the GCC to establish a directly elected National Assembly in The National Assembly comprises 50 directly elected members who serve four-year terms. The National Assembly has the power to question and dismiss ministers through a vote of no-confidence, including the Prime Minister, and to propose, enact or block enactment of legislation introduced by the Government. The current National Assembly was elected in November 2016 with a heavy concentration of opposition members which could potentially have a disruptive effect on future deliberations regarding various reforms being put into place due to the low oil price environment, such as the National Program for Fiscal and Economic Sustainability. The next National Assembly election is scheduled for 2021, although the Emir retains the power to dissolve the National Assembly before that time if the current arrangement ultimately proves to be ineffective. The Council of Ministers forms the executive level of government and advises and assists the Prime Minister, who is appointed by the Emir. The current Prime Minister is His Highness Sheikh Jaber Al- Mubarak Al-Hamad Al-Sabah who was appointed in The Council of Ministers is composed of all Ministers who comprise 22 ministerial functions. Kuwait's legal system is primarily modelled on the French civil law system, Egyptian civil code and elements of Islamic Shari'a law. Although Kuwait is a democratic nation where sovereignty rests with the people, its system is based on the principles of justice, liberty and equality and governed by a Constitution of delegated powers to the legislative, the executive and the judicial authorities. In descending order of importance, the Constitution is followed by laws and their implementing instruments such as regulations and ministerial resolutions. Development Strategy of Kuwait In 2010, the Government announced its new overall strategy for Kuwait's future development through the year 2035 (known as "Kuwait Vision 2035") which is based on three main themes: v

183 recovering the pioneering regional role of Kuwait and transforming it into a financial and trade centre, attractive to investors, where the private sector plays the lead role in economic activity creating competition and promoting efficiency (with supportive national governmental institutions providing the adequate infrastructure, appropriate legislative framework and an inspiring business environment); providing a climate for balanced human development, safeguarding social values and national identity and preserving the community's values; and strengthening the democratic system, respect for the Constitution, and the promotion of justice, political participation and freedom. The New Kuwait Plan On 30 January 2017, the Government updated its long-term development strategy under the slogan "New Kuwait 2035". The New Kuwait Plan is based on the following seven thematic pillars and objectives: public administration: reform administrative and bureaucratic practices to reinforce transparency, accountability and efficiency in the Government; economy: develop a prosperous and diversified economy to reduce Kuwait's dependency on oil revenues; infrastructure: develop and modernise the national infrastructure to improve the quality of life for Kuwait's citizens; living environment: ensure the availability of accommodation through environmentally sound resources and tactics; healthcare: improve service quality and develop national capabilities in the public healthcare system; human capital: reform the education system to better prepare Kuwait's youth to become competitive, productive and competent members of the workforce; and global position: enhance Kuwait's regional and global presence in spheres such as diplomacy, trade, culture and philanthropy. Foreign Relations and International Organisations Kuwait's foreign policy is governed by its belief in mutual respect, equality and non-interference in the internal affairs of other nations. Kuwait is a strong advocate of resolving international disputes amicably by peaceful means and in compliance with principles enshrined in international treaties and laws. Kuwait strongly believes in maintaining the independence and sovereignty of its lands, wealth and its people and accords the same respect to other sovereign nations. Kuwait maintains strong bilateral relations with the United States, the People's Republic of China, the Republic of India, the EU and its member states, including among others, the United Kingdom of Great Britain and Northern Ireland, the Federal Republic of Germany, the Italian Republic and the French Republic. Kuwait is a member of the United Nations and some of its specialised and related agencies, including the World Bank, the IMF and the WTO. Regionally, Kuwait is a member of the GCC, the League of Arab States, the Organisation of Islamic Cooperation and OPEC v

184 SUMMARY OF THE PRINCIPAL TRANSACTION DOCUMENTS The following is a summary of certain provisions of the principal Transaction Documents and is qualified in its entirety by reference to the detailed provisions of the principal Transaction Documents. Copies of the Transaction Documents will be available for inspection at the offices of the Principal Paying Agent. Defined terms used below have the meaning given to them in the Conditions. Master Purchase Agreement The Master Purchase Agreement was entered into on 16 May 2018 between the Trustee (in its capacity as "Purchaser") and KFH (in its capacity as "Seller") and is governed by English law. A Supplemental Purchase Agreement between the same parties will be entered into on the Issue Date of each Series and will also be governed by English law. Pursuant to the Master Purchase Agreement, the Seller may, from time to time, agree to sell, transfer and convey to the Purchaser, and the Purchaser may, from time to time, agree to purchase and accept the transfer and conveyance from the Seller of all of the Seller's interests, rights, title, benefits and entitlements, present and future, in, to and under certain Eligible Wakala Assets for the Purchase Price specified in the applicable Final Terms, which will be payable on the Issue Date of the relevant Series. The Purchaser will use no less than 51 per cent. of the proceeds of issue of a Series to purchase Initial Wakala Assets that are Tangible Assets pursuant to the Master Purchase Agreement and the relevant Supplemental Purchase Agreement. The relevant Initial Wakala Assets will be set out in the schedule to the relevant Supplemental Purchase Agreement. The proportion of the Purchase Price payable in respect of each Initial Wakala Asset shall be an amount equal to the Value of that Initial Wakala Asset. Wakala Agreement The Wakala Agreement was entered into on 16 May 2018 between the Trustee and KFH (in its capacity as Wakeel) and is governed by English law. Pursuant to the Wakala Agreement, the Trustee appointed the Wakeel to manage the Wakala Portfolio Assets relating to each Series. In particular, the Wakeel, in relation to each Series: (a) (b) (c) (d) shall complete the Wakala Investment Plan on the Issue Date for the Series; if the Trustee issues additional Certificates in respect of an existing Series, it shall as soon as practicable after such issuance amend the Wakala Investment Plan for that Series to take into account the issuance of such additional Certificates; shall manage the relevant Wakala Portfolio Assets in accordance with the Wakala Investment Plan and the terms of the Wakala Agreement; shall use reasonable endeavours to ensure that: (i) (ii) on the Issue Date of the Series (but not necessarily thereafter), the Value of the Wakala Portfolio Assets that are Tangible Assets shall be equal to no less than 51 per cent. of the face amount of the Certificates for that Series; at all times after the Issue Date of the Series, the Value of the Wakala Portfolio Assets that are Tangible Assets shall be equal to no less than 33 per cent. of the Value of the Sukuk Portfolio Value for that Series (the "Tangible Ratio Requirement"). In the event that, at any time, the aggregate Value of the Wakala Portfolio Assets that are Tangible Assets should fall below 33 per cent. of the Value of the Sukuk Portfolio Value, the Wakeel shall notify the Trustee of such event and use reasonable endeavours to acquire as soon as reasonably practicable thereafter sufficient Tangible Assets to raise such percentage to a level that is equal to or greater than 33 per cent. of the Value of the Sukuk Portfolio Value at such time (whether through the substitution, or procuring the substitution by KFH pursuant to the Sale and Substitution Undertaking, of Tangible Assets or Intangible Assets or the acquisition for and on behalf of the Trustee, pursuant to clause of the Wakala Agreement of further Tangible Assets through the v

185 reinvestment of Principal Revenues). For the avoidance of doubt, a breach of this provision shall not constitute a KFH Event; (e) (f) shall at no time substitute any Asset(s) for any Asset(s) of a Value less than the Value of the Asset(s) so substituted; shall use its reasonable endeavours, in the event that there are Principal Revenues standing to the credit of the Principal Collection Account: (i) to the extent that KFH has Eligible Wakala Assets available for sale to the Trustee to notify the Trustee of: (A) (B) the amount standing to the credit of the Principal Collection Account which can be used for the purposes of purchasing the Eligible Wakala Assets (which amount shall not be greater than the Value of such Eligible Wakala Assets); and the details and Value of such proposed Eligible Wakala Assets, to allow the Trustee to have sufficient information to enable it to exercise the Purchase Undertaking; and (ii) provided that, to the extent that KFH does not have any Eligible Wakala Assets available for sale to the Trustee, the Wakeel may invest such Principal Revenues in Shari'a- Compliant Investments provided that such Shari'a-Compliant investments are liquidated as soon as reasonably practicable if: (i) the Tangible Ratio Requirement is not being complied with; and (ii) Eligible Wakala Assets become available for purchase; (g) (h) (i) (j) (k) (l) (m) (n) shall do all acts and things (including execution of such documents, issue of notices and commencement of any proceedings) in accordance with its usual practices that it considers reasonably necessary to ensure the assumption of, and compliance by each Wakala Asset Obligor with its covenants, undertakings or other obligations under the relevant Wakala Portfolio Asset in accordance with applicable law and the terms of the Wakala Portfolio Asset; shall discharge or procure the discharge of all obligations to be discharged by the Trustee in respect of any of the Wakala Portfolio Assets, it being acknowledged that the Wakeel may appoint one or more agents to discharge these obligations on its behalf; shall pay on behalf of the Trustee any actual costs, expenses, losses and Taxes which would otherwise be payable by the Trustee as a result of the Trustee's ownership of the Wakala Portfolio Assets; shall use its reasonable endeavours to ensure the timely receipt of all Wakala Asset Revenues (free and clear of, and without withholding or deduction for, Taxes), investigate non-payment of Wakala Asset Revenues and generally make all efforts to collect or enforce the collection of such Wakala Asset Revenues under all Wakala Portfolio Assets as and when the same shall become due; shall ensure that each Wakala Asset Obligor is in compliance with their obligations in respect of the Wakala Portfolio Assets (including those of maintenance and insurance (including Islamic insurance) in the case of the Ijara Assets and other Tangible Assets); shall use its reasonable endeavours to ensure that the Income Revenues are at least equal to the Expected Income Revenues Amount; shall maintain the Collection Accounts and the Reserve Account, in each case in accordance with clause 5 (Accounts) of the Wakala Agreement; if, following payment to the Transaction Account of amounts standing to the credit of the Reserve Account as described in clause 5.4 of the Wakala Agreement, a Shortfall Amount remains on any Wakala Distribution Determination Date, (A) it may provide Shari'a-compliant funding to the Trustee on a qard-hasan basis or (B) procure third party Shari'a compliant funding on commercially acceptable terms to the extent necessary to ensure that the Trustee receives on v

186 each Wakala Distribution Determination Date the Required Amount payable by it in accordance with the Conditions of the relevant Series on the immediately following Periodic Distribution Date, by payment of the same into the Transaction Account and on terms that such funding is repayable (i) in accordance with the provisions of clause of the Wakala Agreement or (ii) on the relevant Dissolution Date (such funding in relation to a Series, a "Liquidity Facility"); (o) (p) shall notify the Trustee promptly if in respect of any Wakala Portfolio Asset any of the representations and warranties contained in clause 5.2 of the Master Purchase Agreement cease to be true and correct, (the occurrence of such event or circumstance being an "Impaired Wakala Asset Event"); and it shall, together with any notice delivered in accordance with clause of the Wakala Agreement, notify the Trustee of the availability (if any), together with all necessary details, of any Eligible Wakala Assets for the purposes of substituting the Wakala Portfolio Asset in respect of which an Impaired Wakala Asset Event has occurred in accordance with the terms of the Purchase Undertaking. The Wakeel shall provide the Services in relation to the Wakala Portfolio Assets in accordance with all applicable laws and regulations, with the degree of skill and care that it would exercise in respect of its own assets and in accordance with Shari'a principles laid down by its Fatwa and Shari'a supervisory board. KFH is entitled to receive a fee for acting as Wakeel which comprises a fixed fee of U.S.$100 (the receipt and adequacy of which is acknowledged by the Wakeel under the Wakala Agreement) and may also receive incentive payments as described below. In relation to each Series, the Wakeel will maintain three book-entry ledger accounts (referred to as the "Principal Collection Account", the "Income Collection Account" and the "Reserve Account"). All Wakala Asset Revenues relating to a Series will be recorded as follows: (a) (b) if any such amounts comprise Income Revenues, in the Income Collection Account; and if any such amounts comprise Principal Revenues, in the Principal Collection Account. The Wakeel will be entitled to deduct amounts standing to the credit of the Income Collection Account of each Series at any time during the relevant Wakala Ownership Period and to use such amounts for its own account, provided that any Income Revenues so deducted are re-credited to the Income Collection Account on or prior to each relevant Wakala Distribution Determination Date for the purposes of application by the Wakeel pursuant to the paragraph below. In relation to each Series, amounts standing to the credit of the Income Collection Account will be applied by the Wakeel on each Wakala Distribution Determination Date in the following order of priority: (a) (b) (c) (d) first, in repayment or payment of any amounts advanced to the Trustee by way of a Liquidity Facility; second, in payment to the Wakeel on behalf of the Trustee of any Wakeel Liabilities Amounts for the Wakala Distribution Period ending on the immediately following Wakala Distribution Date and (if applicable) any Wakeel Liabilities Amounts for any previous Wakala Distribution Period that remain unpaid; third, in payment into the Transaction Account an amount equal to the Required Amount payable on the Periodic Distribution Date falling one (1) Business Day after such Wakala Distribution Determination Date; fourth, to the Reserve Account. Amounts standing to the credit of the Reserve Account of each Series shall be applied by the Wakeel as follows: v

187 (a) (b) (c) if there will be a shortfall on a Wakala Distribution Determination Date (after payment into the Transaction Account of the relevant amount in accordance with clause of the Wakala Agreement) between (A) the amount standing to the credit of the Transaction Account and (B) the Required Amount payable on the Periodic Distribution Date falling one (1) Business Day after such Wakala Distribution Determination Date (the difference between such amounts being referred to as a "Shortfall Amount"), by paying into the Transaction Account on that Wakala Distribution Determination Date from the amounts standing to the credit of the Reserve Account (if any) an amount equal to the Shortfall Amount (or such lesser amount as is then standing to the credit of the Reserve Account); the Wakeel will be entitled to deduct amounts standing to the credit of the Reserve Account at any time during the Wakala Ownership Period and use such amounts for its own account, provided that such amounts shall be immediately repaid by it if so required to fund a Shortfall Amount in accordance with paragraph (a) above; and following payment of all amounts due and payable under the Certificates of a Series, the Wakeel shall be entitled to retain any amounts that remain standing to the credit of the Reserve Account of that Series for its own account as an incentive payment for acting as Wakeel (in relation to each Series, an "Incentive Payment"). The Wakeel has agreed in the Wakala Agreement (and except as provided herein) that all payments by it under the Wakala Agreement will be made without any deduction or withholding for or on account of any present or future Taxes imposed by the Relevant Jurisdictions unless required by law and without set-off or counterclaim of any kind and, if there is any deduction or withholding, the Wakeel shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no deduction or withholding had been made. In addition, if additional amounts are payable by the Trustee in respect of the Certificates in accordance with Condition 10 (Taxation), the Wakeel will agree in the Wakala Agreement to pay to the Trustee an amount equal to such additional amounts by payment to the Transaction Account by wire transfer for same day value so that the full amount which would otherwise have been due and payable under the Certificates is received by the Trustee. The payment obligations of the Wakeel under the Wakala Agreement will be direct, unsubordinated and unsecured obligations of the Wakeel and shall, save for such exceptions as may be provided by applicable legislation and subject to the negative pledge provisions described in Condition 6.2 (Negative Pledge), at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Wakeel, present and future. Purchase Undertaking The Purchase Undertaking was executed as a deed dated 16 May 2018 by KFH as obligor in favour of the Trustee and the Delegate and is governed by English law. KFH will, in relation to each Series, irrevocably undertake in favour of the Trustee and the Delegate to purchase and accept the transfer and conveyance of all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio Assets on the Scheduled Dissolution Date or any earlier due date for dissolution following the occurrence of a Dissolution Event, as the case may be, at the Exercise Price by entering into a sale agreement. If the Delegate exercises its option prior to the Scheduled Dissolution Date of the relevant Series, an Exercise Notice will be required to be delivered by the Delegate under the Purchase Undertaking. In relation to each Series, the Trustee will also be entitled to exercise the Purchase Undertaking following any exercise by the Certificateholders of their right to require the Trustee to redeem their Certificates on a Certificateholder Put Right Date, in which case KFH will be required to purchase and accept the transfer and conveyance of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under a proportion of the Wakala Portfolio Assets not exceeding such proportion as is determined by dividing (i) the aggregate outstanding face amount of Certificates to be redeemed pursuant to the exercise of the Certificateholder Put Right by (ii) the aggregate outstanding face amount of the Certificates of the relevant Series, at the Certificateholder Put Right Exercise Price. In relation to each Series, the Trustee will also be entitled to exercise the Purchase Undertaking if the Trustee has received notice, or otherwise become aware, of the occurrence of an Impaired Wakala Asset v

188 Event, in which case KFH shall purchase and accept the transfer and conveyance from the Trustee on the relevant Impaired Wakala Asset Exercise Date all of the Trustee's interests, rights, benefits and entitlements, present and future, in, to and under the relevant Impaired Wakala Assets: (a) (b) against the transfer and conveyance to the Trustee of all of the KFH's interests, rights, title, benefits and entitlements, present and future, in, to and under certain New Assets; or in the event that KFH does not have New Assets available for such purpose, payment of the Impaired Wakala Asset Exercise Price. In relation to each Series, the Trustee will also be entitled to exercise the Purchase Undertaking following the occurrence of an Additional Wakala Asset Event, in which case KFH shall sell, transfer and convey to the Trustee on the relevant Additional Wakala Asset Date all of its interests, rights, benefits and entitlements, present and future, in, to and under certain New Assets against the payment by the Trustee of an amount equal to the Additional Wakala Asset Purchase Price. KFH has agreed in the Purchase Undertaking that all payments by it under the Purchase Undertaking will be made without any deduction or withholding for or on account of any present or future Taxes imposed by the Relevant Jurisdictions tax unless required by law and without set-off or counterclaim of any kind and, in the event that there is any deduction or withholding, KFH shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no deduction or withholding had been made. In addition, if additional amounts are payable by the Trustee in respect of the Certificates in accordance with Condition 10 (Taxation), KFH will agree in the Purchase Undertaking to pay to the Trustee an amount equal to such additional amounts by payment to the Transaction Account by wire transfer for same day value so that the full amount which would otherwise have been due and payable under the Certificates is received by the Trustee. The payment obligations of KFH under the Purchase Undertaking will be direct, unsubordinated and unsecured obligations of KFH and shall, save for such exceptions as may be provided by applicable legislation and subject to the negative pledge provisions described in Condition 6.2 (Negative Pledge), at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of KFH, present and future. In the Purchase Undertaking, KFH has undertaken to comply with all provisions of the Conditions and the Transaction Documents to which it is a party and which are expressed to be applicable to it including, without limitation the negative pledge provisions described in Condition 6.2 (Negative Pledge) and the use of proceeds provisions described in the "Use of Proceeds" section of this Base Prospectus. KFH has acknowledged and agreed that, where the proportion of a Wakala Portfolio Asset as described above is less than the whole of that Wakala Portfolio Asset, and without affecting the amount of the Exercise Price or the Certificateholder Put Right Exercise Price payable (as applicable), a sale agreement shall not be entered into in respect of part of that Wakala Portfolio Asset and the possible sale, transfer and conveyance to KFH of such proportion of that Wakala Portfolio Asset shall be deferred until the next Dissolution Date for the relevant Series provided that such proportion can be sold, transferred and conveyed as part of the relevant portfolio of Wakala Portfolio Assets being sold, transferred and conveyed on that Dissolution Date. Sale and Substitution Undertaking The Sale and Substitution Undertaking was executed as a deed dated 16 May 2018 by the Trustee in favour of KFH and is governed by English law. Pursuant to the Sale and Substitution Undertaking, the Trustee irrevocably granted to KFH the right: (a) (b) on the conditions described in Condition 8.2 (Early Dissolution for Taxation Reasons), to require the Trustee to sell, transfer and convey to KFH on the Early Tax Dissolution Date all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio Assets at the Exercise Price by executing a sale agreement; if and to the extent that any Certificates have been purchased and are to be cancelled pursuant to Condition 8.6 (Purchases) and 8.7 (Cancellation), to require the Trustee to sell, transfer and convey to KFH all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under a proportion of the Wakala Portfolio Assets not exceeding such proportion as is determined by dividing (i) the aggregate outstanding face amount of Certificates v

189 to be cancelled pursuant to Condition 8.6 (Purchases) and Condition 8.7 (Cancellation) by (ii) the aggregate outstanding face amount of the Certificates of the relevant Series by executing a sale agreement; (c) (d) provided that an Optional Dissolution Right is specified as applicable in the applicable Final Terms, to require the Trustee, at any time prior to the Optional Dissolution Date, to sell, transfer and convey to KFH all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under a proportion of the Wakala Portfolio Assets not exceeding such proportion as is determined by dividing (i) the aggregate outstanding face amount of Certificates to be redeemed pursuant to the exercise of the Optional Dissolution Right by (ii) the aggregate outstanding face amount of the Certificates of the relevant Series, at the Optional Dissolution Exercise Price by executing a sale agreement; to require, from time to time at KFH's sole discretion, the Trustee to sell, transfer and convey all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under any or all of the Wakala Portfolio Assets (the "Substituted Assets") to it in exchange for New Assets of a Value which is equal to or greater than the Value of the Substituted Assets (as certified by KFH in the relevant Substitution Notice), and provided that the New Assets are Eligible Wakala Assets. The substitution of the Substituted Assets with the New Assets will become effective on the date specified in the substitution notice to be delivered by KFH, by the Trustee and KFH entering into a sale agreement. The New Assets and any Wakala Portfolio Assets not replaced on the Substitution Date will constitute the Wakala Portfolio Assets for the relevant Series for the purposes of the Wakala Agreement. KFH acknowledged and agreed that, where the proportion of a Wakala Portfolio Asset as described above is less than the whole of that Wakala Portfolio Asset, and without affecting the amount of the Exercise Price or Optional Dissolution Exercise Price payable (as applicable), a sale agreement shall not be entered into in respect of part of that Wakala Portfolio Asset and the possible sale, transfer and conveyance to KFH of such proportion of that Wakala Portfolio Asset shall be deferred until the next Dissolution Date for the relevant Series provided that such proportion can be sold, transferred and conveyed as part of the relevant portfolio of Wakala Portfolio Assets being sold, transferred and conveyed on that Dissolution Date. Upon exercise of the rights granted to KFH under the Sale and Substitution Undertaking and outlined in paragraphs (a) and (c) above, KFH will agree in the relevant Exercise Notice that it will make payment of the Exercise Price or Optional Dissolution Exercise Price (as applicable) in full made without any deduction or withholding for or on account of present or future Taxes imposed by the Relevant Jurisdictions unless required by law and without set-off (except for an amount which represents Wakeel Liabilities Amounts and the Outstanding Liquidity Amount component of the Exercise Price or Optional Dissolution Exercise Price (as applicable) which shall be set off against the Wakeel Liabilities Amounts and Outstanding Liquidity Amounts payable to the Wakeel under the Wakala Agreement) or counterclaim of any kind and, in the event that there is any deduction or withholding, KFH shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no deduction or withholding had been made. "Outstanding Liquidity Amount" means, in relation to each Series of Certificates, the amount (if any) of funding provided under a liquidity facility pursuant to the terms of the Wakala Agreement for the relevant Series and which has not been repaid in accordance with the provisions of the Wakala Agreement Master Murabaha Agreement In connection with each Series of Certificates, the Trustee may desire to enter into a Commodity Murabaha Investment with KFH (in its capacity as buyer, the "Buyer") using a portion of the issue proceeds of the Series as specified in the applicable Final Terms. Pursuant to the Master Murabaha Agreement, the Trustee has undertaken that, on receipt of a Notice of Request to Purchase from the Buyer, the Trustee (acting through the Commodity Agent) shall purchase the relevant Commodities no later than 3 p.m. London time (or such other time as may be agreed between the Buyer and the Trustee) on the date falling two Business Days prior to the Issue Date from a Commodity Supplier on a spot basis at the Commodity Purchase Price v

190 Following the purchase of the Commodities by the Trustee (acting through the Commodity Agent) provided that the Trustee has acquired title to, and (actual or constructive) possession of, the Commodities, the Trustee shall deliver no later than 5.00 p.m. London time (or such other time as may be agreed between the Buyer and the Trustee) on the date falling one Business Day prior to the Issue Date an Offer Notice to the Buyer (with a copy to the Commodity Agent) indicating the Trustee's acceptance of the terms of the Notice of Request to Purchase made by the Buyer and detailing the terms of the offer for the sale of the Commodities to the Buyer from the Trustee. Pursuant to the Master Murabaha Agreement, the Buyer has irrevocably and unconditionally undertaken to accept the terms of, countersign and deliver to the Trustee (with a copy to the Commodity Agent) any Offer Notice delivered to it in accordance with the Master Murabaha Agreement and (as a result of the Trustee having acted on the request of the Buyer set out in the Notice of Request to Purchase) purchase the Commodities acquired by the Trustee (acting through the Commodity Agent), in each case no later than 10 a.m. London time (or such other time as may be agreed between the Buyer and the Trustee) on the Issue Date. As soon as the Buyer has countersigned the Offer Notice, a Murabaha Contract shall be created between the Trustee and the Buyer upon the terms of the Offer Notice and incorporating the terms and conditions set out in the Master Murabaha Agreement, the Trustee shall sell and the Buyer shall buy the Commodities and ownership of and all risks in and to the relevant Commodities shall immediately pass to and be vested in the Buyer, together with all rights and obligations relating thereto. The Buyer may following the purchase of the Commodities by the Buyer from the Trustee, and provided that the Buyer has acquired title to, and possession of, the Commodities, sell those Commodities to a third party. In connection with each Murabaha Contract, the Buyer has irrevocably and unconditionally undertaken in the Master Murabaha Agreement to pay the outstanding Deferred Sale Price in full to the Trustee on the Business Day falling immediately prior to the Scheduled Dissolution Date or on the Dissolution Event Redemption Date or on the Business Day prior to the Early Tax Dissolution Date, in each case, by crediting such amount to the Transaction Account no later than am (London time) on such dates. The Buyer has agreed in the Master Murabaha Agreement that all payments by it under the Master Murabaha Agreement will be made without any deduction or withholding for or on account of any present or future Taxes imposed by the Relevant Jurisdictions unless required by law and without set-off or counterclaim of any kind and, in the event that there is any deduction or withholding, the Buyer shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no deduction or withholding had been made. In addition, if additional amounts are payable by the Trustee in respect of the Certificates in accordance with Condition 10 (Taxation), the Buyer has agreed in the Master Murabaha Agreement to pay to the Trustee an amount equal to such additional amounts by payment to the Transaction Account by wire transfer for same day value so that the full amount which would otherwise have been due and payable under the Certificates is received by the Trustee. The payment obligations of the Buyer under the Master Murabaha Agreement and each Murabaha Contract will be direct, unsubordinated and unsecured obligations of the Buyer and shall, save for such exceptions as may be provided by applicable legislation and subject to the negative pledge provisions described in Condition 6.2 (Negative Pledge), at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Buyer, present and future. The Optional Dissolution Proportion or Certificateholder Put Right Proportion of the outstanding Deferred Sale Price shall be paid by the Buyer on the Business Day prior to an Optional Dissolution Date or on the Business Day prior to any relevant Certificateholder Put Right Date (as applicable) by crediting such amounts to the Transaction Account no later than am (London time) on such dates. The Master Declaration of Trust, as supplemented by each Supplemental Declaration of Trust The Master Declaration of Trust will be entered into on 16 May 2018 between the Trustee, KFH and the Delegate and will be governed by English law. A Supplemental Declaration of Trust between the same parties will be entered into on the Issue Date of each Series of Certificates and will also be governed by English law v

191 Upon issue of the Global Certificate(s) initially representing the Certificates of any Series, the Master Declaration of Trust and the relevant Supplemental Declaration of Trust shall together constitute the trust over the relevant Trust Assets declared by the Trustee in relation to such Series. The Trust Assets in respect of each Series of Certificates comprise (unless otherwise specified in the relevant Supplemental Declaration of Trust): (i) the cash proceeds of the issue of the Certificates, pending the application thereof in accordance with the terms of the Transaction Documents; (ii) the interests, rights, title, benefits and entitlements, present and future, of the Trustee in, to and under the Sukuk Assets from time to time (excluding any representations given by KFH to the Trustee and/or the Delegate under any documents constituting the Sukuk Assets from time to time); (iii) the interests, rights, title, benefits and entitlements, present and future, of the Trustee in, to and under the Transaction Documents (excluding any representations given by KFH to the Trustee and/or the Delegate pursuant to any of the Transaction Documents or the covenant given to the Trustee pursuant to Clause 3 of the Master Declaration of Trust) (iv) all moneys standing to the credit of the Transaction Account from time to time, as more particularly described in Condition 5.1 (Trust Assets). Pursuant to the Master Declaration of Trust as supplemented by the relevant Supplemental Declaration of Trust, the Trustee will, in relation to each Series of Certificates, inter alia: (a) (b) hold the relevant Trust Assets on trust absolutely for the holders of the Certificates as beneficiaries in respect of that Series only; and act as trustee in respect of the Trust Assets, distribute the income from the Trust Assets and perform its duties in accordance with the provisions of the Master Declaration of Trust as supplemented by the relevant Supplemental Declaration of Trust. The Trustee irrevocably and unconditionally appointed the Delegate to be its attorney and to execute, deliver and perfect all documents, and to exercise all of the present and future duties, powers (including the power to sub-delegate), rights, authorities and discretions vested in the Trustee by the Master Declaration of Trust that the Delegate may consider to be necessary or desirable in order, upon the occurrence of a Dissolution Event, and subject to its being indemnified and/or secured and/or pre-funded to its satisfaction, to: (i) exercise all of the rights of the Trustee under the Purchase Undertaking, the Master Murabaha Agreement and any of the other Transaction Documents to which the Trustee is a party; and (ii) make such distributions from the Trust Assets as the Trustee is bound to make in accordance with the Master Declaration of Trust as supplemented by the relevant Supplemental Declaration of Trust. The appointment of such delegate is intended to be in the interests of the Certificateholders and does not affect the Trustee's continuing role and obligations as sole trustee. The Master Declaration of Trust specifies that the rights of recourse in respect of Certificates shall be limited to the amounts from time to time available and comprising the relevant Trust Assets of that Series. The Certificateholders have no claim or recourse against the Trustee to the extent the Trust Assets have been exhausted following which all obligations of the Trustee shall be extinguished. A non-interest bearing Transaction Account will be established in respect of each Series of Certificates. Monies received in the Transaction Account in respect of each Series will, inter alia, comprise revenues from the Wakala Portfolio Assets other than in the nature of sale, capital or principal payments, and, if applicable to a Series, amounts of the Deferred Sale Price paid by KFH pursuant to a Commodity Murabaha Investment (see "Summary of the Principal Transaction Documents Wakala Agreement" and "Summary of the Principal Transaction Documents Master Murabaha Agreement"). The Master Declaration of Trust provides that all monies credited to the Transaction Account in respect of each Series will be applied in the order of priority set out in Condition 5.2 (Application of Proceeds from Trust Assets). Agency Agreement Pursuant to an agency agreement (the "Agency Agreement") entered into on or about the date of this Base Prospectus between, amongst others, the Trustee, KFH and the Principal Paying Agent, provision will be made for, inter alia, payment of all sums due in respect of the Certificates v

192 BOOK-ENTRY CLEARANCE SYSTEMS The information set out below is subject to any change in or reinterpretation of the rules, regulations and procedures of DTC, Clearstream, Luxembourg or Euroclear (together, the "Clearing Systems") currently in effect. Investors wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the rules, regulations and procedures of the relevant Clearing System. None of the Trustee, KFH nor any other party to the Agency Agreement will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Certificates held through the facilities of any Clearing System or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Book-Entry Systems DTC DTC has advised the Trustee that it is a limited purpose trust company organised under the New York Banking Law, a member of the Federal Reserve System, a "banking organisation" within the meaning of the New York Banking Law, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC holds securities that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerised book-entry changes in Direct Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organisations. DTC is a wholly-owned subsidiary of The Depository Trust and Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants" and, together with Direct Participants, "Participants"). More information about DTC can be found at and Under the rules, regulations and procedures creating and affecting DTC and its operations (the "DTC Rules"), DTC makes book-entry transfers of Certificates among Direct Participants on whose behalf it acts with respect to Certificates accepted into DTC's book-entry settlement system ("DTC Certificates") as described below and receives and transmits distributions of principal and interest on DTC Certificates. The DTC Rules are on file with the Securities and Exchange Commission. Direct Participants and Indirect Participants with which beneficial owners of DTC Certificates ("Owners") have accounts with respect to the DTC Certificates similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective Owners. Accordingly, although Owners who hold DTC Certificates through Direct Participants or Indirect Participants will not possess Certificates, the DTC Rules, by virtue of the requirements described above, provide a mechanism by which Direct Participants will receive payments and will be able to transfer their interest in respect of the DTC Certificates. Purchases of DTC Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the DTC Certificates on DTC's records. The ownership interest of each actual purchaser of each DTC Certificate ("Beneficial Owner") is in turn to be recorded on the Direct Participant's and Indirect Participant's records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the DTC Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in DTC Certificates, except in the event that use of the book-entry system for the DTC Certificates is discontinued. To facilitate subsequent transfers, all DTC Certificates deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorised representative of DTC. The deposit of DTC Certificates with DTC and their registration in the v

193 name of Cede & Co. or such other DTC nominee effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the DTC Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such DTC Certificates are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the DTC Certificates within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to DTC Certificates unless authorised by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the DTC Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and profit payments on the DTC Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorised representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Trustee or the relevant agent (or such other nominee as may be requested by an authorised representative of DTC), on the relevant payment date in accordance with their respective holdings shown in DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such Participant and not of DTC or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and profit to DTC is the responsibility of the Trustee, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct Participants and Indirect Participants. Under certain circumstances, including if there is a Dissolution Event under the Certificates, DTC will exchange the DTC Certificates for definitive Certificates, which it will distribute to its Participants in accordance with their proportionate entitlements and which, if representing interests in a Restricted Global Certificate, will be legended as set forth under "Subscription and Sale and Transfer and Selling Restrictions". A Beneficial Owner shall give notice to elect to have its DTC Certificates purchased or tendered, through its Participant, to the relevant agent, and shall effect delivery of such DTC Certificates by causing the Direct Participant to transfer the Participant's interest in the DTC Certificates, on DTC's records, to the relevant agent. The requirement for physical delivery of DTC Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the DTC Certificates are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered DTC Certificates to the relevant agent's DTC account. DTC may discontinue providing its services as depository with respect to the DTC Certificates at any time by giving reasonable notice to the Trustee or the relevant agent. Under such circumstances, in the event that a successor depository is not obtained, DTC Certificates are required to be printed and delivered. The Trustee may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, DTC Certificates will be printed and delivered to DTC. Since DTC may only act on behalf of Direct Participants, who in turn act on behalf of Indirect Participants, any Owner desiring to pledge DTC Certificates to persons or entities that do not participate in DTC, or otherwise take actions with respect to such DTC Certificates, will be required to withdraw its Certificates from DTC as described below v

194 Euroclear and Clearstream, Luxembourg Euroclear and Clearstream, Luxembourg each holds securities for its customers and facilitates the clearance and settlement of securities transactions by electronic book-entry transfer between their respective accountholders. Euroclear and Clearstream, Luxembourg provide various services, including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective participants may settle trades with each other. Euroclear and Clearstream, Luxembourg customers are world-wide financial institutions, including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions that clear through or maintain a custodial relationship with an accountholder of either system. Book-Entry Ownership and Payment in Respect of DTC Certificates The Trustee may apply to DTC in order to have any Tranche of Certificates represented by a Global Certificate accepted in its book-entry settlement system. Upon the issue of any such Global Certificate, DTC or its custodian will credit, on its internal book-entry system, the respective face amounts of the individual beneficial interests represented by such Global Certificate to the accounts of persons who have accounts with DTC. Such accounts initially will be designated by or on behalf of the relevant Dealer. Ownership of beneficial interests in such a Global Certificate will be limited to Direct Participants or Indirect Participants, including, in the case of any Unrestricted Global Certificate (as defined herein), the respective depositaries of Euroclear and Clearstream, Luxembourg. Ownership of beneficial interests in a Global Certificate accepted by DTC will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to the interests of Direct Participants) and the records of Direct Participants (with respect to interests of Indirect Participants). Payments in U.S. dollars of principal and profit in respect of a Global Certificate accepted by DTC will be made to the order of DTC or its nominee as the registered holder of such Certificate. In the case of any payment in a currency other than U.S. dollars, payment will be made to the Exchange Agent on behalf of DTC or its nominee and the Exchange Agent will (in accordance with instructions received by it) remit all or a portion of such payment for credit directly to the beneficial holders of interests in the Global Certificate in the currency in which such payment was made and/or cause all or a portion of such payment to be converted into U.S. dollars and credited to the applicable Participants' account. The Trustee expects DTC to credit accounts of Direct Participants on the applicable payment date in accordance with their respective holdings as shown in the records of DTC unless DTC has reason to believe that it will not receive payment on such payment date. The Trustee also expects that payments by Participants to beneficial owners of Certificates will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers, and will be the responsibility of such Participant and not the responsibility of DTC, the Delegate, the Principal Paying Agent, the Registrar or the Trustee. Payment of principal, premium, if any, and profit, if any, on Certificates to DTC is the responsibility of the Trustee. Transfers of Certificates Represented by Global Certificates Transfers of any interests in Certificates represented by a Global Certificate within DTC, Euroclear and Clearstream, Luxembourg will be effected in accordance with the customary rules and operating procedures of the relevant clearing system. The laws in some States within the United States require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer Certificates represented by a Global Certificate to such persons may depend upon the ability to exchange such Certificates for Certificates in definitive form. Similarly, because DTC can only act on behalf of Direct Participants in the DTC system who in turn act on behalf of Indirect Participants, the ability of a person having an interest in Certificates represented by a Global Certificate accepted by DTC to pledge such Certificates to persons or entities that do not participate in the DTC system or otherwise to take action in respect of such Certificates may depend upon the ability to exchange such Certificates for Certificates in definitive form. The ability of any holder of Certificates represented by a Global Certificate accepted by DTC to resell, pledge or otherwise transfer such Certificates may be impaired if v

195 the proposed transferee of such Certificates is not eligible to hold such Certificates through a Direct Participant or Indirect Participant in the DTC system. Subject to compliance with the transfer restrictions applicable to the Certificates described under "Subscription and Sale and Transfer and Selling Restrictions", cross-market transfers between DTC, on the one hand, and directly or indirectly through Clearstream, Luxembourg or Euroclear accountholders, on the other hand, will be effected by the relevant clearing system in accordance with its rules and through action taken by the Registrar, the Delegate, the Principal Paying Agent and any custodian ("Custodian") with whom the relevant Global Certificates have been deposited. On or after the Issue Date for any Series, transfers of Certificates of such Series between accountholders in Clearstream, Luxembourg and Euroclear and transfers of Certificates of such Series between participants in DTC will generally have a settlement date three business days after the trade date (T+3). The customary arrangements for delivery versus payment will apply to such transfers. Cross-market transfers between accountholders in Clearstream, Luxembourg or Euroclear and DTC participants will need to have an agreed settlement date between the parties to such transfer. Because there is no direct link between DTC, on the one hand, and Clearstream, Luxembourg and Euroclear, on the other, transfers of interests in the relevant Global Certificates will be effected through the Registrar, the Delegate, the Principal Paying Agent and the Custodian receiving instructions (and, where appropriate, certification) from the transferor and arranging for delivery of the interests being transferred to the credit of the designated account for the transferee. In the case of cross-market transfers, settlement between Clearstream, Luxembourg or Euroclear accountholders and DTC participants cannot be made on a delivery versus payment basis. The securities will be delivered on a free delivery basis and arrangements for payment must be made separately. DTC, Clearstream, Luxembourg and Euroclear have each published rules and operating procedures designed to facilitate transfers of beneficial interests in Global Certificates among participants and accountholders of DTC, Clearstream, Luxembourg and Euroclear. However, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued or changed at any time. None of the Trustee, KFH, the Delegate, the Agents or the Arrangers or any Dealer will be responsible for any performance by DTC, Clearstream, Luxembourg or Euroclear or their respective direct or indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations and none of them will have any liability for any aspect of the records relating to or payments made on account of beneficial interests in the Certificates represented by Global Certificates or for maintaining, supervising or reviewing any records relating to such beneficial interests. Pre-issue Trade Settlement It is expected that delivery of the Certificates will be made against therefor on the Issue Date thereof, which could be more than two business days following the date of pricing of the Certificates. Under Rule 15c6-1 under the Exchange Act, trades in the secondary market are required to settle in two business days (T+2), unless the parties to any trade expressly agree otherwise. Accordingly, purchasers who wish to trade Certificates prior to the delivery of the Certificates will be required, by virtue of the fact that the Certificates initially will settle in T+2, to specify an alternative settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of the Certificates who wish to trade the Certificates prior to their date of delivery should consult their advisers v

196 TAXATION General The following summary of certain Kuwait, United Arab Emirates, Dubai International Financial Centre, United States and European Union tax consequences relating to the Certificates is based upon laws, regulations, decrees, rulings, income tax conventions, administrative practice and judicial decisions in effect at the date of this Base Prospectus. Legislative, judicial or administrative changes or interpretations may, however, be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may be retroactive and/or have retrospective effect, and could affect the tax consequences for holders of the Certificates. This summary does not purport to be a legal opinion or to address all tax aspects that may be relevant to a holder of Certificates. Each prospective holder is urged to consult its own tax advisor as to the particular tax consequences to such holder of acquiring, holding and disposing of Certificates, including the applicability and effect of any other tax laws or tax treaties, and of pending or proposed changes in applicable tax laws as of the date of this Base Prospectus, and of any actual changes in applicable tax laws after such date. Kuwait This summary of taxation in Kuwait is based on the Kuwait Income Tax Decree No. 3 of 1955 (the "Decree"), as amended by Law No. 2 of 2008 "Amending Certain Provisions of Kuwait Income Tax Decree No. 3 of 1955" (the "Amendment"), the Executive Bylaws of the Amendment (the "Regulations"), and various ministerial resolutions and circulars relating thereto issued by the Kuwait Ministry of Finance (the "MOF") (together, the "Taxation Laws") as interpreted and implemented by the MOF's Department of Income Tax (the "DIT") as at the date of this Base Prospectus. Any subsequent changes in either the Taxation Laws or the interpretation or implementation of the same by the DIT may alter and affect this summary. Income tax Under the Taxation Laws, income tax (at a flat rate of 15 per cent.) is levied on, inter alia, the net income and capital gains realised by any corporate entity (interpreted by the DIT to mean any form of company or partnership), wherever incorporated, that conducts business in Kuwait. However, the DIT to date has granted a concession to such corporate entities incorporated in Kuwait or in any other GCC country (being referred to in this Base Prospectus as "GCC corporate entities") and has only imposed income tax on corporate entities which are not GCC corporate entities (being referred to in this Base Prospectus as non-gcc corporate entities) which, for the avoidance of doubt, include shareholders of GCC corporate entities which are themselves non-gcc corporate entities, in each case, conducting business in Kuwait. Pursuant to the Regulations, income generated from the lending of funds inside Kuwait or resulting from leasing of any property, including movable and immovable property used in Kuwait, is considered to be income realised from the conducting of business in Kuwait, and is therefore subject to income tax. Pursuant to Law No. 22 of 2015 amending Law No. 7 of 2010 Concerning the Establishment of the Capital Markets Authority and the Regulating of Securities Activities (the "CMA Law Amendment"), yields of securities, bonds, finance sukuk and all other similar securities regardless of the issuer thereof shall be exempted from taxation. The CMA Law Amendment was acknowledged by the Ministry of Finance Administrative Resolution No of 2015 (the Administrative Resolution). However, see "Risk Factors The application and enforcement of the Kuwaiti income tax regime is uncertain, and holders of the Certificates which are "non GCC corporate entities" may become subject to the Kuwaiti income tax regime in certain limited circumstances". Individuals are not subject to any Kuwaiti income tax on their income or capital gains. Retention Under the Regulations, a Kuwaiti-based party making a payment (being referred to in this section as the payer) to any other party (being referred to in this section as the payee), wherever incorporated, is obliged to deduct five per cent. of the amount of each such payment until such time as the DIT issues a tax clearance certificate approving the release of such amount. Unlike with withholding tax, the payer is not required to transfer directly the deducted amount to the DIT immediately, but instead retains such amount and releases it either (i) to the payee upon presentation to the payer by such payee of a tax clearance certificate from the DIT confirming that the payee is not subject to or is exempt from income tax, or has v

197 realised a loss, or has paid or guaranteed the payment of its income tax; or (ii) in the absence of such a tax clearance certificate, to the DIT, on demand. According to a literal interpretation of the Regulations, payments which are subject to a deduction as described above would include principal and profit payments. Given that neither the CMA Law Amendment nor the Administrative Resolution address the issue of whether or not there remains an obligation, as described above, to make a deduction, a payer (such as KFH) could be required to deduct five per cent. from every payment made by it to a payee (such as the Trustee and, where applicable, the holders of the Certificates), which amount would be released by the payer upon presentation to it by payee of a tax clearance certificate from the DIT. In the event of any such deduction, the terms and conditions of the Certificates, subject to specific circumstances, provide that the Trustee and/or KFH, as the case may be, will pay such additional amounts in order that the net amounts received by the Certificateholders shall equal the amount which would have been receivable in the absence of such deduction. Other taxes Save as described above, all payments in respect of the Certificates may be made without withholding, deduction or retention for, or on account of, present taxes, duties, assessments or governmental charges of whatsoever nature imposed or levied by or on behalf of Kuwait. No stamp, registration or similar duties or taxes will be payable in Kuwait by holders of Certificates in connection with the issue or any transfer of the Certificates. The Proposed Financial Transactions Tax On 14 February 2013, the European Commission published a proposal (the "Commission's Proposal") for a directive for common financial transaction tax ("FTT") in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the "participating Member States"). However, Estonia has since stated that it will not participate. The Commission's Proposal has very broad scope and could, if introduced, apply to certain dealings in Certificates (including secondary market transactions) in certain circumstances. The issuance and subscription of Certificates should, however, be exempt. Under the Commission's Proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in Certificates where at least one party is a financial institution and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, "established" in a participating Member State in a broad range of circumstances, including: (i) by transacting with a person established in a participating Member State; or (ii) where the financial instrument which is subject to the dealings is issued in a participating Member State. However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Certificates are advised to seek their own professional advice in relation to the FTT. U.S. Federal Income Taxation Certain U.S. Federal Income Tax Considerations The following summary of certain U.S. federal income tax considerations of the purchase, ownership and disposition of the Certificates by a U.S. Holder (as defined below) is based upon the U.S. Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and proposed Treasury regulations issued thereunder, and published judicial and administrative interpretations thereof, each as of the date hereof, and all of which are subject to change, possibly with retroactive effect. No ruling will be sought from the U.S. Internal Revenue Service (the "IRS") with respect to any statement or conclusion in this discussion, and there can be no assurance that the IRS will not challenge such statement or conclusion in the following discussion or, if challenged, a court would uphold such statement or conclusion v

198 This summary does not purport to be a complete analysis of all potential tax consequences, and it does not address U.S. taxes other than federal income taxes. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to an investor in light of such investor's particular circumstances or to investors subject to special treatment under U.S. federal income tax laws, such as financial institutions, certain U.S. expatriates, insurance companies, retirement plans, dealers in securities or foreign currencies, traders in securities that elect mark-to-market tax accounting, U.S. Holders whose functional currency is not the U.S. dollar, partnerships, tax-exempt organisations, regulated investment companies, real estate investment trusts, persons subject to alternative minimum tax or the medicare unearned income tax or surtax, and persons holding the Certificates as part of a "straddle," "hedge," "conversion transaction" or other integrated transaction. In addition, this discussion is limited to persons that purchase the Certificates for cash at original issue and the offer price of the Certificates and that hold the Certificates as capital assets for U.S. federal income tax purposes. For purposes of this discussion, the term "U.S. Holder" means a beneficial owner of a Certificate that is, for U.S. federal income tax purposes, (i) an individual that is a citizen or resident of the United States, (ii) a corporation created or organised in, or under the laws of, the United States, any state therein or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust primarily supervised by a U.S. court and controlled by U.S. persons. If an entity or arrangement classified as a partnership for U.S. federal income tax purposes invests in Certificates, the U.S. federal income tax treatment of a partner in such partnership will generally depend upon the status of such partner and the activities of the partnership. Prospective investors that are partnerships, and partners in such partnerships, should consult their own tax advisors to determine the U.S. federal income tax consequences to them of the purchase, ownership and disposition of the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors concerning the tax consequences of investing in Certificates in light of their particular circumstances, including the application of the U.S. federal income tax considerations discussed below, as well as the application of state, local, non-u.s., non-income and other tax laws. This summary assumes that the Certificates are not characterized as contingent payment debt instruments for U.S. federal income tax purposes. To the extent that Certificates are treated as contingent payment debt instruments for U.S. federal income tax purposes, the U.S. federal income tax consequences of holding such Certificates will be discussed in the applicable prospectus supplement. This summary does not discuss Certificates with a maturity of greater than 30 years, the impact of redenomination of a Certificate, or Certificates that by their terms may be retired for an amount less than their principal amount. This summary should be read in conjunction with any discussion of U.S. federal income tax consequences in the applicable prospectus supplement. To the extent there is any inconsistency in the discussion of U.S. tax consequences to holders between this Base Prospectus and the applicable prospectus supplement, holders should rely on the tax consequences described in the applicable prospectus supplement instead of this Base Prospectus. Classification of the Certificates The Issuer and the Trustee intend to treat the Certificates as representing a beneficial interest in indebtedness for U.S. federal income tax purposes and each holder and beneficial owner of a Certificate, by acceptance of such Certificate or a beneficial interest therein, will likewise agree to treat the Certificates as representing a beneficial interest in indebtedness for such purposes. This treatment is not binding on the IRS and no ruling will be sought from the IRS regarding this or any other aspect of the tax treatment of the Certificates. It is possible that the IRS could successfully argue that the Certificates should be treated as equity interests in the Issuer. If the Certificates were treated as equity interests in the Issuer, U.S. Holders likely would be treated as owning interests in a passive foreign investment company (or "PFIC"), which could have materially adverse tax consequences for such U.S. Holders. Prospective investors should seek advice from their own tax advisors as to the consequences to them of alternative characterisations of the Certificates, the possibility that the Certificates might be classified as equity interests in a PFIC and the consequences of owning an equity interest in a PFIC. The remainder of this discussion assumes that the Certificates represent a beneficial interest in indebtedness for U.S. federal income tax purposes v

199 Payments of Periodic Distribution Amounts Except as discussed below under "Original Issue Discount," payments of Periodic Distribution Amounts on the Certificates (including any additional amounts payable pursuant to the Conditions) will be treated as payments of interest for U.S. federal income tax purposes and generally will be taxable to a U.S. Holder as ordinary income at the time that such payments are received or accrued, in accordance with such U.S. Holder's usual method of accounting for U.S. federal income tax purposes. A U.S. Holder may, subject to certain limitations, be eligible to claim a credit or deduction in respect of any non-u.s. taxes that are withheld from payments on the Certificates for purposes of computing its U.S. federal income tax liability. Periodic Distribution Amounts and original issue discount ("OID"), if any, received or accrued on the Certificates and additional amounts payable pursuant to the Conditions generally will constitute foreign source income to U.S. Holders for U.S. federal income tax purposes and generally will be considered "passive" income for purposes of the rules related to calculating foreign tax credits. The rules relating to foreign tax credits are complex and U.S. Holders should consult their own tax advisors with regard to the availability and calculation of foreign tax credits and the application of the foreign tax credit rules to their particular situation. Special rules governing the treatment of Periodic Distribution Amounts paid with respect to original issue discount Certificates and foreign currency Certificates (each as defined below) are described under " Original Issue Discount" and " Foreign Currency Certificates." Original Issue Discount A Certificate that has an "issue price" (as defined above) that is less than its "stated redemption price at maturity" will be considered to have been issued with OID for U.S. federal income tax purposes (an "original issue discount Certificate") unless the Certificate satisfies a de minimis threshold (as described below). The "stated redemption price at maturity" of a Certificate generally will equal the sum of all payments required to be made under the Certificate other than payments of "qualified stated interest". Qualified stated interest is profit unconditionally payable (other than in debt instruments of the Issuer) at least annually during the entire term of the Certificate at a single fixed rate, at a single qualified floating rate or at a rate that is determined at a single fixed formula that is based on objective financial or economic information. A rate is a qualified floating rate if variations in the rate can reasonably be expected to measure contemporaneous fluctuations in the cost of newly borrowed funds in the currency in which the Certificate is denominated. If the difference between a Certificate's stated redemption price at maturity and its issue price is less than a de minimis amount, i.e., 0.25 per cent. of the stated redemption price at maturity multiplied by the number of complete years to maturity (or weighted average maturity if any amount included in the stated redemption price at maturity is payable before maturity), the Certificate will not be considered to have OID. U.S. Holders of the Certificates with less than a de minimis amount of OID will include this OID in income, as capital gain, on a pro rata basis as principal payments are made on the Certificate. U.S. Holders of original issue discount Certificates that mature more than one year from their date of issuance will be required to include OID in income for U.S. federal tax purposes as it accrues in accordance with a constant yield method based on compounding, regardless of whether cash attributable to this income is received. Under these rules, U.S. Holders generally will have to include in taxable income increasingly greater amounts of OID in successive accrual periods. A U.S. Holder may make an election to include in gross income all profit that accrues on any particular Certificate (including qualified stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount and other profit, as adjusted by any amortisable bond premium or acquisition premium, as described below) in accordance with a constant yield method based on compounding, and generally may revoke such election (a "constant yield election") only with the permission of the IRS. However, if the Certificate has amortisable bond premium (discussed below), the U.S. Holder will be deemed to have made an election to apply amortisable bond premium against interest for all debt instruments with amortisable bond premium, other than instruments the interest on which is excludable from gross income, held as of the beginning of the taxable year to which the election applies or to any taxable year thereafter. If a U.S. Holder makes a constant yield election with respect to a Certificate with market discount (discussed below), the U.S. Holder will be treated as having made an election to include market discount in income currently over the life of all debt instruments with market discount acquired by the electing U.S. Holder on or after the first day of the first taxable year to which v

200 such election applies. U.S. Holders should consult their tax advisors about making this election in light of their particular circumstances. A Certificate that matures one year or less from its date of issuance (a "short-term Certificate") will be treated as being issued at a discount and none of the profit paid on the Certificate will be treated as qualified stated interest regardless of its issue price. In general, a cash method U.S. Holder of a short-term Certificate is not required to accrue the discount for U.S. federal income tax purposes but may elect to do so. Cash method U.S. Holders who do not elect to accrue the discount should include profit payments on short-term Certificates as ordinary income upon receipt. Cash method U.S. Holders who do elect to accrue the discount and certain other holders, including those who report income on the accrual method of accounting for U.S. federal income tax purposes, are required to include the discount in income as it accrues on a straight-line basis, unless another election is made to accrue the discount according to a constant yield method based on daily compounding. In the case of a U.S. Holder who is not required and who does not elect to include the discount in income currently, any gain realised on the sale, exchange, or retirement of the short-term Certificate will be ordinary income to the extent of the discount accrued on a straight-line basis (or, if elected, according to a constant yield method based on daily compounding) through the date of sale, exchange or retirement. In addition, those U.S. Holders will be required to defer deductions for any interest paid on indebtedness incurred to purchase or carry short-term Certificates in an amount not exceeding the accrued discount until the accrued discount is included in income. The Issuer may have an unconditional option to redeem, or U.S. Holders may have an unconditional option to require the Issuer to redeem, a Certificate prior to its stated maturity date. Under applicable regulations, if the Issuer has an unconditional option to redeem a Certificate prior to its stated maturity date, this option will be presumed to be exercised if, by utilizing any date on which the Certificate may be redeemed as the maturity date and the amount payable on that date in accordance with the terms of the Certificate as the stated redemption price at maturity, the yield on the Certificate would be lower than its yield to maturity. If the U.S. Holders have an unconditional option to require the Issuer to redeem a Certificate prior to its stated maturity date, this option will be presumed to be exercised if making the same assumptions as those set forth in the previous sentence, the yield on the Certificate would be higher than its yield to maturity. If it was presumed that an option would be exercised but it is not in fact exercised, the Certificate would be treated, solely for purposes of calculating OID, as if it were redeemed and a new Certificate were issued on the presumed exercise date for an amount equal to the Certificate's adjusted issue price on that date. The adjusted issue price of an original issue discount Certificate is defined as the sum of the issue price of the Certificate and the aggregate amount of previously accrued OID, less any prior payments other than payments of qualified stated interest. Variable Rate Certificates Certificates that provide for profit at variable rates (Variable Rate Certificates) generally will bear profit at a "qualified floating rate" and thus will be treated as "variable rate debt instruments" under U.S. Treasury regulations governing accrual of OID. A Variable Rate Certificate will qualify as a "variable rate debt instrument" if (a) its issue price does not exceed the total non-contingent principal payments due under the Variable Rate Certificate by more than an amount equal to the lesser of (i) multiplied by the product of such total noncontingent principal payments and the number of complete years to maturity of the instrument (or, in the case of a Certificate providing for the payment of any amount other than qualified stated interest prior to maturity, multiplied by the weighted average maturity of the Certificate) or (ii) 15 percent of the total noncontingent principal payments, (b) it provides for qualified stated interest, paid or compounded at least annually, at (i) one or more qualified floating rates, (ii) a single fixed rate and one or more qualified floating rates, (iii) a single objective rate, or (iv) a single fixed rate and a single objective rate that is a qualified inverse floating rate, and (c) it does not provide for any principal payments that are contingent (other than as described in (a) above). A qualified floating rate is any variable rate where variations in the value of the rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which the Variable Rate Certificate is denominated. A fixed multiple of a qualified floating rate will constitute a qualified floating rate only if the multiple is greater than 0.65 but not more than A variable rate equal to the product of a qualified floating rate and a fixed multiple that is greater than 0.65 but not more than 1.35, increased or decreased by a fixed rate, will also constitute a qualified floating rate. In addition, two or more qualified floating rates that can reasonably be expected to have approximately the same values throughout the term of the Variable Rate Certificate (e.g., two or more qualified floating rates with values within 25 basis points of each other as determined on the Variable v

201 Rate Certificate's issue date) will be treated as a single qualified floating rate. Notwithstanding the foregoing, a variable rate that would otherwise constitute a qualified floating rate but which is subject to one or more restrictions such as a maximum numerical limitation (i.e., a cap) or a minimum numerical limitation (i.e., a floor) may, under certain circumstances, fail to be treated as a qualified floating rate unless the cap or floor is fixed throughout the term of the Certificate. An objective rate is a rate that is not itself a qualified floating rate but which is determined using a single fixed formula and which is based on objective financial or economic information (e.g., one or more qualified floating rates or the yield of actively traded personal property). A rate will not qualify as an objective rate if it is based on information that is within the control of the Issuer (or a related party) or that is unique to the circumstances of the Issuer (or a related party), such as dividends, profits or the value of the Issuer's stock (although a rate does not fail to be an objective rate merely because it is based on the credit quality of the Issuer). Other variable rates may be treated as objective rates if so designated by the IRS. Despite the foregoing, a variable rate on a Variable Rate Certificate will not constitute an objective rate if it is reasonably expected that the average value of the rate during the first half of the Variable Rate Certificate's term will be either significantly less than or significantly greater than the average value of the rate during the final half of the Variable Rate Certificate's term. A qualified inverse floating rate is any objective rate where the rate is equal to a fixed rate minus a qualified floating rate, as long as variations in the rate can reasonably be expected to inversely reflect contemporaneous variations in the qualified floating rate. If a Variable Rate Certificate provides for stated interest at a fixed rate for an initial period of one year or less followed by a variable rate that is either a qualified floating rate or an objective rate for a subsequent period and if the variable rate on the Variable Rate Certificate's issue date is intended to approximate the fixed rate (e.g., the value of the variable rate on the issue date does not differ from the value of the fixed rate by more than 25 basis points), then the fixed rate and the variable rate together will constitute either a single qualified floating rate or objective rate, as the case may be. A qualified floating rate or objective rate in effect at any time during the term of the instrument must be set at a "current value" of that rate. A current value of a rate is the value of the rate on any day that is no earlier than three months prior to the first day on which that value is in effect and no later than one year following that first day. If a Variable Rate Certificate that provides for payments of Periodic Distribution Amounts at either a single qualified floating rate or a single objective rate throughout the term thereof qualifies as a "variable rate debt instrument", then any profit on the Certificate which is unconditionally payable in cash or property (other than debt instruments of the Issuer) at least annually will constitute qualified stated interest and will be taxed accordingly. Thus, a Variable Rate Certificate that provides for payments of Periodic Distribution Amounts at either a single qualified floating rate or a single objective rate throughout the term thereof and that qualifies as a "variable rate debt instrument" generally will not be treated as having been issued with OID unless the Variable Rate Certificate is issued at a "true" discount (i.e., at a price below the Certificate's stated principal amount) in excess of a specified de minimis amount. OID on a Variable Rate Certificate arising from a true discount is allocated to an accrual period using the constant yield method described above by assuming that the variable rate is a fixed rate equal to (i) in the case of a qualified floating rate or qualified inverse floating rate, the value, as of the issue date, of the qualified floating rate or qualified inverse floating rate, or (ii) in the case of an objective rate (other than a qualified inverse floating rate), a fixed rate that reflects the yield that is reasonably expected for the Variable Rate Certificate. In general, any other Variable Rate Certificate that qualifies as a "variable rate debt instrument" will be converted into an "equivalent" fixed rate debt instrument for purposes of determining the amount and accrual of OID and the qualified stated interest on the Variable Rate Certificate. Such a Variable Rate Certificate must be converted into an "equivalent" fixed rate debt instrument by substituting any qualified floating rate or qualified inverse floating rate provided for under the terms of the Variable Rate Certificate with a fixed rate equal to the value of the qualified floating rate or qualified inverse floating rate, as the case may be, as of the Variable Rate Certificate's issue date. Any objective rate (other than a qualified inverse floating rate) provided for under the terms of the Variable Rate Certificate is converted into a fixed rate that reflects the yield that is reasonably expected for the Variable Rate Certificate. In the case of a Variable Rate Certificate that qualifies as a "variable rate debt instrument" and provides for payments of Periodic Distribution Amounts at a fixed rate in addition to either one or more qualified floating rates or a qualified inverse floating rate, the fixed rate is initially converted into a qualified floating rate (or a qualified inverse floating rate, if the Variable Rate Certificate provides for a qualified inverse floating rate). Under these circumstances, the qualified floating rate or qualified inverse floating rate that replaces v

202 the fixed rate must be such that the fair market value of the Variable Rate Certificate as of the Variable Rate Certificate's issue date is approximately the same as the fair market value of an otherwise identical debt instrument that provides for either the qualified floating rate or qualified inverse floating rate rather than the fixed rate. Subsequent to converting the fixed rate into either a qualified floating rate or a qualified inverse floating rate, the Variable Rate Certificate is converted into an "equivalent" fixed rate debt instrument in the manner described above. Once the Variable Rate Certificate is converted into an "equivalent" fixed rate debt instrument pursuant to the foregoing rules, the amount of OID and qualified stated interest, if any, are determined for the "equivalent" fixed rate debt instrument by applying the general OID rules to the "equivalent" fixed rate debt instrument and a U.S. Holder of the Variable Rate Certificate will account for the OID and qualified stated interest as if the U.S. Holder held the "equivalent" fixed rate debt instrument. In each accrual period, appropriate adjustments will be made to the amount of qualified stated interest or OID assumed to have been accrued or paid with respect to the "equivalent" fixed rate debt instrument in the event that these amounts differ from the actual amount of profit accrued or paid on the Variable Rate Certificate during the accrual period. If a Variable Rate Certificate, does not qualify as a "variable rate debt instrument", then the Variable Rate Certificate will be treated as a contingent payment debt instrument. If any Variable Rate Certificates will properly be treated as contingent payment debt instruments, the proper U.S. federal income tax treatment of such Variable Rate Certificates will be more fully described in the applicable Final Terms. Market Discount If a U.S. Holder purchases a Certificate (other than a short-term Certificate) for an amount that is less than its stated redemption price at maturity or, in the case of an original issue discount Certificate, its adjusted issue price, the amount of the difference will be treated as market discount for U.S. federal income tax purposes, unless this difference is less than a specified de minimis amount. A U.S. Holder will be required to treat any principal payment (or, in the case of an original issue discount Certificate, any payment that does not constitute qualified stated interest) on, or any gain on the sale, exchange, retirement or other disposition of a Certificate, including a disposition in certain nonrecognition transactions, as foreign source ordinary income to the extent of the market discount accrued on the Certificate at the time of the payment or disposition unless this market discount has been previously included in income by the U.S. Holder pursuant to a constant yield election by the U.S. Holder to include market discount in income as it accrues(as described under " Original Issue Discount"). A constant yield election applies to all debt instruments with market discount acquired by the electing U.S. Holder on or after the first day of the first taxable year to which such election applies and may not be revoked without the consent of the IRS. A U.S. Holder that does not elect to include market discount in income currently may be required to defer, until the maturity of the Certificate or its earlier disposition (including certain non-taxable transactions), the deduction of all or a portion of the interest expense on any indebtedness incurred or maintained to purchase or carry such Certificate. Such interest is deductible when paid or accrued to the extent of income from the Certificate for the year. If the interest expense exceeds such income, such excess is currently deductible only to the extent that such excess exceeds the portion of the market discount allocable to the days during the taxable year on which such Note was held by the U.S. Holder. Market discount will accrue on a straight line basis unless a U.S. Holder makes an election for market discount on a Certificate to accrue on the basis of a constant rate. This election is irrevocable once made. Acquisition Premium and Amortisable Bond Premium A U.S. Holder who purchases a Certificate for an amount that is greater than the Certificate's adjusted issue price but less than or equal to the stated redemption price at maturity will be considered to have purchased the Certificate at an acquisition premium. Under the acquisition premium rules, the amount of OID that the U.S. Holder must include in its gross income with respect to the Certificate for any taxable year will be reduced by the portion of acquisition premium properly allocable to that year. If the U.S. Holder has a constant yield election in place for a Certificate (as described under " Original Issue Discount"), acquisition premium properly allocable to a particular year will offset all profit that accrues on the Certificate for the year v

203 If a U.S. Holder purchases a Certificate for an amount that is greater than the stated redemption price at maturity, the U.S. Holder will be considered to have purchased the Certificate with amortisable bond premium equal in amount to the excess of the purchase price over the amount payable at maturity. The U.S. Holder may elect to amortise this premium, using a constant yield method, over the remaining term of the Certificate. A U.S. Holder who elects to amortise bond premium must reduce its tax basis in the Certificate by the amount of the premium amortised in any year. An election to amortise bond premium applies to all taxable debt obligations then owned and thereafter acquired by the U.S. Holder and may be revoked only with the consent of the IRS. If a U.S. Holder makes a constant yield election (as described under " Original Issue Discount") for a Certificate with amortisable bond premium, such election will result in a deemed election to amortise bond premium for all of the Holder's debt instruments with amortisable bond premium. Sale or Other Disposition of Certificates A U.S. Holder's tax basis in a Certificate generally will be its cost, increased by the amount of any OID and market discount included in the U.S. Holder's income with respect to the Certificate, and decreased by the amount of any payments other than qualified stated interest payments on the Certificates and the amount of any amortisable bond premium or acquisition premium previously applied. A U.S. Holder generally will recognise gain or loss on the sale or other disposition of a Certificate equal to the difference between the amount realised on the sale or other disposition and the U.S. Holder's tax basis in the Certificate. Except to the extent described above under " Original Issue Discount" and " Market Discount" or attributable to accrued but unpaid profit or changes in exchange rates (as discussed below), gain or loss recognised on the sale or other disposition of a Certificate will be capital gain or loss and generally will be treated as from U.S. sources for purposes of the U.S. foreign tax credit limitation. In the case of a U.S. Holder that is an individual, estate or trust, the maximum marginal federal income tax rates applicable to capital gain is generally currently lower than the maximum marginal rates applicable to ordinary income if the Certificates are held for more than one year at the time of the sale of other disposition. The deductibility of capital losses is subject to significant limitations. Foreign Currency Certificates The following discussion summarises certain U.S. federal income tax consequences to a U.S. Holder of the ownership and disposition of Certificates the payments of Periodic Distribution Amounts or principal on which are denominated in or determined by reference to a currency other than the U.S. dollar ("foreign currency Certificates"). The rules applicable to foreign currency Certificates could require some or all gain or loss on the sale, exchange or other disposition of a foreign currency Certificate to be recharacterised as ordinary income or loss. The rules applicable to foreign currency Certificates are complex and depend on the U.S. Holder's particular U.S. federal income tax situation. For example, various elections are available under these rules, and whether a U.S. Holder should make any of these elections depends on the U.S. Holder's particular U.S. federal income tax situation. U.S. Holders are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the ownership and disposition of foreign currency Certificates. A U.S. Holder who uses the cash method of accounting and who receives a payment of qualified stated interest in a foreign currency with respect to a foreign currency Certificate will be required to include in income the U.S. dollar value of the foreign currency payment (determined on the date the payment is received) regardless of whether the payment is in fact converted to U.S. dollars at the time. An accrual method U.S. Holder will be required to include in income the U.S. dollar value of the amount of interest income (including OID or market discount, but reduced by acquisition premium and amortisable bond premium, to the extent applicable) that has accrued and is otherwise required to be taken into account with respect to a foreign currency Certificate during an accrual period. The U.S. dollar value of the accrued income will be determined by translating the income at the average rate of exchange for the accrual period or, with respect to an accrual period that spans two taxable years, at the average rate for the partial period within the relevant taxable year. The U.S. Holder will recognise ordinary income or loss with respect to the accrued income on the date the income is actually received. The amount of ordinary income or loss recognised will equal the difference between the U.S. dollar value of the foreign v

204 currency payment received (determined on the date the payment is received) in respect of the accrual period and the U.S. dollar value of the income that has accrued during the accrual period (as determined above). Rules similar to these rules apply in the case of a cash method taxpayer required to currently accrue OID or market discount. An accrual method U.S. Holder or cash method U.S. Holder accruing OID may elect to translate the income from Periodic Distribution Amounts (including OID) into U.S. dollars at the spot rate on the last day of the accrual period (or, in the case of a partial accrual period, the spot rate on the last day of the partial accrual period in the relevant taxable year). Additionally, if the last day of the accrual period is within five business days of the date of receipt of the accrued profit payment, a U.S. Holder that has made such election may translate accrued profit using the spot rate of exchange in effect on the date of receipt. The above election will apply to all debt obligations held by such U.S. Holder and may not be changed without the consent of the IRS. A U.S. Holder that makes this election must apply it consistently to all debt instruments from year to year and cannot change the election without the consent of the IRS. OID, market discount, acquisition premium and amortisable bond premium on a foreign currency Certificate are to be determined in the relevant foreign currency. Where the U.S. Holder elects to include market discount in income currently, the amount of market discount will be determined for any accrual period in the relevant foreign currency and then translated into U.S. dollars using the average rate in effect during the accrual period. Exchange gain or loss realised with respect to such accrued market discount shall be determined in accordance with the rules relating to accrued profit described above. Accrued market discount (other than market discount currently included in income) taken into account upon the receipt of any partial principal payment or upon the sale, retirement or other disposition of a Certificate is translated into U.S. dollars at the spot rate on such payment or disposition date. If an election to amortise bond premium is made, amortisable bond premium taken into account on a current basis shall reduce interest income in units of the relevant foreign currency. Exchange gain or loss is realised on amortised bond premium with respect to any period by treating the bond premium amortised in the period in the same manner as on the sale, exchange or retirement of the foreign currency Certificate. Any exchange gain or loss will be ordinary income or loss as described below. If the election is not made, any loss realised on the sale, exchange or retirement of a foreign currency Certificate with amortisable bond premium by a U.S. Holder who has not elected to amortise the premium will be a capital loss to the extent of the bond premium. A U.S. Holder's tax basis in a foreign currency Certificate, and the amount of any subsequent adjustment to the U.S. Holder's tax basis, will be the U.S. dollar value amount of the foreign currency amount paid for such foreign currency Certificate, or of the foreign currency amount of the adjustment, determined on the date of the purchase or adjustment. A U.S. Holder who purchases a foreign currency Certificate with previously owned foreign currency will recognise ordinary income or loss in an amount equal to the difference, if any, between such U.S. Holder's tax basis in the foreign currency and the U.S. dollar fair market value of the foreign currency Certificate on the date of purchase. Gain or loss realised upon the sale, exchange or retirement of a foreign currency Certificate that is attributable to fluctuation in currency exchange rates will be ordinary income or loss which will not be treated as interest income or expense. Gain or loss attributable to fluctuations in exchange rates will equal the difference between: (i) the U.S. dollar value of the foreign currency principal amount of the Certificate, determined on the date the payment is received or the Certificate is disposed of; and (ii) the U.S. dollar value of the foreign currency principal amount of the Certificate, determined on the date the U.S. Holder acquired the Certificate. Payments received attributable to accrued profit will be treated in accordance with the rules applicable to payments of interest on foreign currency Certificates described above. The foreign currency gain or loss will be recognised only to the extent of the total gain or loss realised by the U.S. Holder on the sale, exchange or retirement of the foreign currency Certificate. The foreign currency gain or loss will generally be U.S. source gain or loss. Any gain or loss realised by these U.S. Holders in excess of the foreign currency gain or loss will be capital gain or loss except to the extent of any accrued market discount or discount on a short-term Certificate not previously included in the U.S. Holder's income. Holders should consult their tax advisors with respect to the tax consequences of receiving payments in a currency different from the currency in which payments with respect to such Certificate accrue. A U.S. Holder will have a tax basis in any foreign currency received on the sale, exchange or retirement of a foreign currency Certificate equal to the U.S. dollar value of the foreign currency, determined at the v

205 time of sale, exchange or retirement. A cash method taxpayer who buys or sells a foreign currency Certificate that is traded on an established securities market is required to translate units of foreign currency paid or received into U.S. dollars at the spot rate on the settlement date of the purchase or sale. Accordingly, no exchange gain or loss will result from currency fluctuations between the trade date and the settlement date of the purchase or sale. An accrual method taxpayer may elect the same treatment for all purchases and sales of foreign currency obligations provided that the Certificates are traded on an established securities market. This election cannot be changed without the consent of the IRS. If either: (i) the Certificate is not traded on an established securities market; or (ii) the U.S. Holder is an accrual method taxpayer that does not make the election described above with respect to such Certificate, exchange gain or loss may result from currency fluctuations between the trade date and the settlement date of the purchase or sale. Any gain or loss realised by a U.S. Holder on a sale or other disposition of foreign currency (including its exchange for U.S. dollars or its use to purchase foreign currency Certificates) will be ordinary income or loss. Information reporting and backup withholding Information returns may be filed with the IRS (unless the U.S. Holder establishes, if requested to do so, that it is an exempt recipient) in connection with payments on the Certificates, and the proceeds from the sale, exchange or other disposition of Certificates. If information reports are required to be made, a U.S. Holder may be subject to U.S. backup withholding if it fails to provide its taxpayer identification number or to establish that it is exempt from backup withholding. The amount of any backup withholding imposed on a payment will be allowed as a credit against any U.S. federal income tax liability of a U.S. Holder and may entitle the U.S. Holder to a refund, provided the required information is timely furnished to the IRS. U.S. Holders should consult their own tax advisors regarding any reporting obligations they may have as a result of their acquisition, ownership or disposition of Certificates, including requirements related to the holding of interests in certain accounts or specified foreign financial assets. Failure to comply with applicable reporting obligations could result in the imposition of substantial penalties. United Arab Emirates (excluding the Dubai International Financial Centre) The following summary of the anticipated tax treatment in the United Arab Emirates in relation to the payments on the Certificates is based on the taxation law and practice in force at the date of this Base Prospectus and does not constitute legal or tax advice and prospective investors should be aware that the relevant fiscal rules and practice and their interpretation may change. Prospective investors should consult their own professional advisors on the implications of subscribing for, buying, holding, selling, redeeming or disposing of Certificates and the receipt of any payments with respect to such Certificates under the laws of the jurisdictions in which they may be liable to taxation. There is currently in force in the Emirate of Dubai legislation establishing a general corporate taxation regime (the Dubai Income Tax Decree 1969 (as amended)). The regime is, however, not enforced save in respect of companies active in the hydrocarbon industry, some related service industries and branches of foreign banks operating in the UAE. It is not known whether the legislation will or will not be enforced more generally or within other industry sectors in the future. Under current legislation, there is no requirement for withholding or deduction for or on account of UAE or Dubai taxation in respect of payments of profit and principal to any holder of the Certificates. With effect from 1 January 2018, the UAE (together with the other GCC states) has implemented a GCCwide VAT regime at a rate of 5 per cent. The UAE national legislation implementing this framework agreement was published on 23 August 2017 (UAE Federal Decree Law No. 8 of 2017) and, on 28 November 2017, the UAE Ministry of Finance published accompanying VAT implementing regulations. The Constitution of the UAE specifically reserves to the Federal Government of the UAE the right to raise taxes on a federal basis for purposes of funding its budget. It is not known whether this right will be exercised in the future. The UAE has entered into "Double Taxation Arrangements" with certain other countries, but these are not extensive in number v

206 Dubai International Financial Centre Pursuant to Article 14 of Law No. (9) of 2004 in respect of the Dubai International Financial Centre (the "DIFC Law"), entities licensed, registered or otherwise authorised to carry on financial services in the Dubai International Financial Centre and their employees shall be subject to a zero rate of tax for a period of 50 years from 13 September This zero rate of tax applies to income, corporation and capital gains tax. In addition, this zero rate of tax will also extend to repatriation of capital and to transfers of assets or profits or salaries to any party outside the Dubai International Financial Centre. Article 14 of the DIFC Law also provides that it is possible to renew the 50-year period to a similar period upon issuance of a resolution by the Ruler of the Emirate of Dubai. As a result no payments by the Trustee under the Certificates are subject to any Dubai International Financial Centre tax, whether by withholding or otherwise v

207 ERISA AND CERTAIN OTHER U.S. CONSIDERATIONS The U.S. Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), impose certain restrictions on: (i) employee benefit plans (as defined in Section 3(3) of ERISA) that are subject to Part 4, Title I of ERISA; (ii) plans (as defined in Section 4975(e)(1) of the Code) that are subject to Section 4975 of the Code, including individual retirement accounts and Keogh plans; (iii) any entities whose underlying assets could be deemed to include plan assets by reason of a plan's investment in such entities (each of the foregoing, a "Plan"); and (iv) persons who have certain specified relationships to a Plan or its assets ("parties in interest" under ERISA and "disqualified persons" under the Code; collectively, "Parties in Interest"). ERISA also imposes certain duties on persons who are fiduciaries of Plans subject to ERISA, and ERISA and Section 4975 of the Code prohibit certain transactions between a Plan and Parties in Interest or Disqualified Persons with respect to such Plan. Violations of these rules may result in the imposition of excise taxes and other penalties and liabilities under ERISA and the Code. ERISA and Section 4975 of the Code prohibit a broad range of transactions involving plan assets and Parties in Interest, unless a statutory or administrative exemption is available. Parties in Interest that participate in a prohibited transaction may be subject to penalties imposed under ERISA and/or excise taxes imposed pursuant to Section 4975 of the Code, unless a statutory or administrative exemption is available. These prohibited transactions generally are set forth in Section 406 of ERISA and Section 4975 of the Code. Certain employee benefit plans, including governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA), and non-u.s. plans (as described in Section 4(b)(4) of ERISA) are not subject to the prohibited transaction rules of ERISA or the Code but may be subject to similar rules under other applicable laws or documents. Accordingly, assets of such plans may be invested in the Certificates (without regard to the prohibited transaction considerations under ERISA and the Code described above), but such plans may be subject to the provisions of other applicable federal, state or non-u.s. law ("Similar Law"). The U.S. Department of Labor, the governmental agency primarily responsible for the administration of ERISA, has issued a final regulation (29 C.F.R. Section ), which as modified by Section 3(42) of ERISA, sets out the standards that will apply for determining what constitutes the assets of a Plan (collectively, the "Plan Asset Regulation"). Under the Plan Asset Regulation, if a Plan invests in an "equity interest" of an entity that is neither a "publicly-offered security" nor a security issued by an investment company registered under the Investment Company Act, the Plan's assets ("plan assets") include both the equity interest and an undivided interest in each of the entity's underlying assets, unless it is established that the entity is an "operating company" or that equity participation in the entity by "benefit plan investors" (which are essentially Plans) is not "significant". The Plan Assets Regulation generally defines equity participation in an entity by "benefit plan investors" as "significant" if 25 percent or more of the value of any class of equity interest in the entity is held by "benefit plan investors". If the assets of the Trust were deemed to be plan assets of a Plan, the Trustee, and any other party with discretionary control over the assets of the Trust, would be subject to certain fiduciary obligations under ERISA and certain transactions that the Trust might enter into, or may have entered into, in the ordinary course of business might constitute or result in non-exempt prohibited transactions under ERISA or Section 4975 of the Code and might have to be rescinded. Each initial purchaser of the Certificates (or any interest in a Certificate) and each subsequent transferee will be deemed to have acknowledged, represented and agreed, by its purchase or holding of Certificates, that (A) it is not and for so long as it holds Certificates will not be: (i) a Plan; or (ii) a governmental, church or non-u.s. plan unless the purchase and holding of the Certificates by such governmental, church or non-u.s. Plan would not result in a violation of any Similar Law or subject the assets of the Trust to any Similar Law, and (B) it and any person causing it to acquire any of the Certificates agrees to indemnify and hold harmless the Trust, the Trustee Administrator, the Trustee, KFH and the Arrangers and Dealers and their respective affiliates from any cost, damage or loss incurred by them as a result of it being or being deemed to be a Plan or a plan subject to Similar Law. Each fiduciary for a plan subject to Similar Law plan should consult with its legal or other advisors concerning the potential consequences to the plan under such Similar Laws of an investment in the Certificates or any interest therein. This Base Prospectus is not directed to any particular investor, nor does it address the needs of any particular investor v

208 SUBSCRIPTION AND SALE AND TRANSFER AND SELLING RESTRICTIONS The Dealers have, in a programme agreement dated 16 May 2018 (the "Programme Agreement"), agreed with the Trustee and KFH a basis upon which they or any of them may from time to time agree to purchase Certificates for their own account or for resale to investors and other purchasers at varying pricing relating to prevailing market prices at the time of resale as determined by any Dealer or for resale at a fixed offering price. Any such agreement will extend to those matters stated under "Form of Certificates" and "Terms and Conditions of the Certificates". In accordance with the terms of the Programme Agreement, the Trustee (failing which KFH) has agreed to reimburse the Dealers for certain of their expenses in connection with the establishment and any future update of the Programme and the issue of Certificates under the Programme and to indemnify the Dealers against certain liabilities incurred by them in connection therewith. In order to facilitate the offering of any Tranche of the Certificates, certain persons participating in the offering of the Tranche may engage in transactions that stabilise, maintain or otherwise affect the market price of the relevant Certificates during and after the offering of the Tranche. Specifically, such persons may over-allot or create a short position in the Certificates for their own account by selling more Certificates than have been sold to them by the Trustee. Such persons may also elect to cover any such short position by purchasing Certificates in the open market. In addition, such persons may stabilise or maintain the price of the Certificates by bidding for or purchasing Certificates in the open market and may impose penalty bids, under which selling concessions allowed to syndicate members or other brokerdealers participating in the offering of the Certificates are reclaimed if Certificates previously distributed in the offering are repurchased in connection with stabilisation transactions or otherwise. The effect of these transactions may be to stabilise or maintain the market price of the Certificates at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the Certificates to the extent that it discourages re-sales thereof. No representation is made as to the magnitude or effect of any such stabilising or other transactions. Such transactions, if commenced, may be discontinued at any time. Under United Kingdom laws and regulations, stabilising activities may only be carried on by the Stabilising Manager(s) named in the relevant subscription agreement (or persons acting on behalf of any Stabilising Manager(s)) or, as the case may be, named in the applicable Final Terms, and only for a limited period following the Issue Date of the relevant Tranche of Certificates. Certain of the Dealers and their affiliates have engaged in, or may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with the Trustee, KFH or their respective affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. In addition, in the ordinary course of their business activities, the Dealers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank financings) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Trustee, KFH or their respective affiliates. Certain of the Dealers or their affiliates that have a lending relationship with the Trustee, KFH or their respective affiliates routinely hedge their credit exposure to the Trustee, KFH or their respective affiliates consistent with their customary risk management policies. Typically, such Dealers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in the Trustee's, KFH or their respective affiliates' securities, including potentially the Certificates offered hereby. Any such short positions could adversely affect future trading prices of the Certificates offered hereby. The Dealers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. In connection with the sale of the Certificates, KFH, any shareholder or related party of KFH or the Arrangers or any Dealer may invest in, and may take up, Certificates and may retain, purchase or sell for its own account such Certificates. Accordingly, references herein to the Certificates being sold should be read as including any sale of the Certificates to KFH, any shareholder or related party of KFH or the Arrangers or Dealers. Such persons do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so v

209 Transfer Restrictions Purchasers of Certificates are advised to consult legal counsel prior to making any purchase, offer, sale, resale or other transfer of such Certificates. The Certificates have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. In addition, the Trustee is relying on the exemption from the registration requirements of the Investment Company Act provided by Section 3(c)(7). Accordingly, the Certificates are being offered and sold: (i) only to persons reasonably believed to be QIBs that are also QPs in reliance on Rule 144A of the Securities Act; or (ii) to persons who are not U.S. persons in an offshore transaction in reliance on Regulation S. Any reoffer, resale, pledge, transfer or other disposal, or attempted reoffer, resale, pledge, transfer or other disposal, made other than in compliance with the restrictions noted below shall not be recognised by the KFH or the Trustee. Each purchaser of Certificates (other than a person purchasing an interest in a Global Certificate with a view to holding it in the form of an interest in the same Global Certificate) or person wishing to transfer an interest from one Global Certificate to another or from global to definitive form or vice versa, will be required to acknowledge, represent and agree, and each person purchasing an interest in a Global Certificate with a view to holding it in the form of an interest in the same Global Certificate will be deemed to have acknowledged, represented and agreed, as follows (terms used in this paragraph that are defined in Rule 144A or in Regulation S are used herein as defined therein): (i) that either: (a) (b) it is a QIB that is also a QP; not a broker dealer that owns and invests on a discretionary basis less than U.S.$25 million in securities of unaffiliated issuers; not a participant directed employee plan, such as a 401(k) plan; acquiring such Certificates for its own account, or for the account of one or more QIBs, each of which is also a QP; understands that the Certificates acquired by it are "restricted securities" and for so long they are "restricted securities", such Certificates may not be transferred except as described in paragraph (v) below, and aware, and each beneficial owner of the Certificates has been advised, that the sale of the Certificates to it is being made in reliance on Rule 144A and the Trustee is relying on the exemption from the registration requirements of the Investment Company Act provided by section 3(c)(7); or it is outside the United States and is not a U.S. person; (ii) (iii) (iv) (v) (vi) that it is not formed for the purpose of investing in the Trustee; that it, and each account for which it is purchasing, will hold and transfer beneficial interests in the Certificates in a principal amount that is not less than US$200,000; that it understands that the Trustee may receive a list of participants holding positions in its securities from one or more book-entry depositories; that the Certificates are being offered and sold in a transaction not involving a public offering in the United States within the meaning of the Securities Act, and that the Certificates and the Master Declaration of Trust have not been and will not be registered under the Securities Act or any other applicable U.S. state securities laws and, accordingly, the Certificates may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons, except as set forth below; that, unless it holds an interest in an Unrestricted Global Certificate, is located outside the United States and is not a U.S. person, if in the future it decides to resell, pledge or otherwise transfer the Certificates or any beneficial interests in the Certificates, it will do so only: (a) to the Trustee or any affiliate thereof; (b) inside the United States to a person whom the seller reasonably believes is a QIB that is also a QP purchasing for its own account or for the account of a QIB that is also a v

210 QP in a transaction meeting the requirements of Rule 144A whom the holder has informed, in each case, that such resale, pledge or transfer is being made in reliance on Rule 144A under the Securities Act, and in an amount for each account of Certificates of not less than U.S.$200,000 principal amount; (c) outside the United States to a person that is not a U.S. person in accordance with Rule 903 or Rule 904 under the Securities Act and in each case in accordance with any applicable securities laws of any state or other jurisdiction of the United States; (vii) (viii) (ix) (x) (xi) it will, and will require each subsequent holder to, notify any purchaser or transferee, as applicable, of the Certificates from it of the resale and transfer restrictions referred to in paragraph (vi) above; that Certificates initially offered to QIBs that are also QPs will be represented by one or more Restricted Global Certificates and that Certificates offered to persons who are not U.S. persons in reliance on Regulation S will be represented by one or more Unrestricted Global Certificates; that it understands that the Trustee has the power to compel any beneficial owner of Certificates represented by a Restricted Global Certificate that is a U.S. person and is not a QIB that is also a QP to sell its interest in such Certificates, or may sell such interest on behalf of or purchase such interest from, such owner at a price equal to the lesser of: (x) the purchase price therefor paid by the original transferee; (y) 100 per cent. of the principal amount thereof; or (z) the fair market value thereof.. The Trustee has the right to refuse to honour the transfer of an interest in any Restricted Global Certificate to a U.S. person who is not a QIB that is also a QP. Any purported transfer of an interest in a Restricted Global Certificate to a purchaser that does not comply with the requirements of the transfer restrictions herein will be of no force and effect and will be void ab initio; that (a) it is not and is not acting on behalf of: (i) a Plan, or (ii) a governmental, church or non- U.S. plan or entity whose underlying assets are deemed to include the assets of any such plan, unless, under this subsection (ii), the purchase and holding of the Certificate would not result in a violation of any Similar Law or subject the Trust or any transaction thereby to any such Similar Law and (b) it will not sell or otherwise transfer any Certificates or interest to any person unless the same foregoing representations and warranties apply to that person; that the Certificates in registered form, other than the Unrestricted Global Certificates, will bear a legend to the following effect unless otherwise agreed to by the Trustee: "THE CERTIFICATE REPRESENTED HEREBY HAS NOT BEEN OR WILL BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE U.S. STATE SECURITIES LAWS, NONE OF THE TRUSTEE OR KFH HAS REGISTERED OR INTENDS TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), AND, ACCORDINGLY, THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: (A) REPRESENTS THAT: IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") THAT IS ALSO A QUALIFIED PURCHASER WITHIN THE MEANING OF SECTION 2(A)(51)(A) OF THE INVESTMENT COMPANY ACT (A "QP"), PURCHASING THE SECURITIES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QIBS THAT ARE QPS IN A MINIMUM PRINCIPAL AMOUNT, IN EACH CASE, OF U.S.$200,000 (OR THE EQUIVALENT AMOUNT IN A FOREIGN CURRENCY); (B) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITIES EXCEPT IN ACCORDANCE WITH THE AGENCY AGREEMENT AND, PRIOR TO EXPIRATION OF THE APPLICABLE REQUIRED HOLDING PERIOD DETERMINED PURSUANT TO RULE 144 OF THE SECURITIES ACT FROM THE LATER OF THE LAST ISSUE DATE FOR THE SERIES AND THE LAST DATE ON WHICH THE TRUSTEE OR AN AFFILIATE OF THE TRUSTEE WAS THE OWNER OF SUCH SECURITIES OTHER THAN: (1) TO THE TRUSTEE OR ANY AFFILIATE THEREOF; (2) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS: A QIB WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT THAT IS ALSO A QP v

211 PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB THAT IS ALSO A QP IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A; (3) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A U.S. PERSON IN ACCORDANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND ANY OTHER JURISDICTION; AND (C) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CERTIFICATE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THE SECURITY. ANY RESALE OR OTHER TRANSFER OF THIS CERTIFICATE (OR BENEFICIAL INTEREST HEREIN) WHICH IS NOT MADE IN COMPLIANCE WITH THE RESTRICTIONS SET FORTH HEREIN WILL BE OF NO FORCE AND EFFECT, WILL BE NULL AND VOID AB INITIO AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUSTEE OR ANY OF ITS AGENTS. IN ADDITION TO THE FOREGOING, IN THE EVENT OF A TRANSFER OF THIS CERTIFICATE (OR BENEFICIAL INTEREST HEREIN) TO A U.S. PERSON WITHIN THE MEANING OF REGULATION S THAT IS NOT A QIB THAT IS ALSO A QP, THE TRUSTEE MAY: (A) COMPEL SUCH TRANSFEREE TO SELL THIS CERTIFICATE OR ITS INTEREST HEREIN TO A PERSON WHO: (I) IS A U.S. PERSON WHO IS A QIB THAT IS ALSO A QP THAT IS OTHERWISE QUALIFIED TO PURCHASE THIS CERTIFICATE OR INTEREST HEREIN IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT; OR (II) IS NOT A U.S. PERSON WITHIN THE MEANING OF REGULATION S IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S; OR (B) COMPEL SUCH TRANSFEREE TO SELL THIS CERTIFICATE OR ITS INTEREST HEREIN TO A PERSON DESIGNATED BY OR ACCEPTABLE TO THE TRUSTEE AT A PRICE EQUAL TO THE LESSER OF: (X) THE PURCHASE PRICE THEREFOR PAID BY THE ORIGINAL TRANSFEREE; (Y) 100 PER CENT. OF THE PRINCIPAL AMOUNT THEREOF; OR (Z) THE FAIR MARKET VALUE THEREOF. THE TRUSTEE HAS THE RIGHT TO REFUSE TO HONOUR A TRANSFER OF THIS CERTIFICATE OR INTEREST HEREIN TO A U.S. PERSON WHO IS NOT A QIB THAT IS ALSO A QP. EACH TRANSFEROR OF THIS CERTIFICATE WILL PROVIDE NOTICE OF THE TRANSFER RESTRICTIONS SET FORTH HEREIN AND IN THE AGENCY AGREEMENT TO ITS TRANSFEREE. BY ACCEPTING THIS CERTIFICATE (OR ANY INTEREST IN THE CERTIFICATES REPRESENTED HEREBY) EACH BENEFICIAL OWNER HEREOF, AND EACH FIDUCIARY ACTING ON BEHALF OF THE BENEFICIAL OWNER (BOTH IN ITS INDIVIDUAL AND CORPORATE CAPACITY), WILL BE DEEMED TO REPRESENT, WARRANT AND AGREE THAT, DURING THE PERIOD IT HOLDS ANY INTEREST IN THIS CERTIFICATE (A) IT IS NOT, AND IT IS NOT ACTING ON BEHALF OF AN "EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) SUBJECT TO THE PROVISIONS OF PART 4 OF SUBTITLE B OF TITLE I OF ERISA, A "PLAN" AS DEFINED IN AND TO WHICH SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("CODE") APPLIES, OR ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF SUCH AN EMPLOYEE BENEFIT PLAN'S OR PLAN'S INVESTMENT IN SUCH ENTITY (EACH, A "BENEFIT PLAN INVESTOR"), AND NO PART OF THE ASSETS TO BE USED BY IT TO PURCHASE OR HOLD SUCH CERTIFICATES OR ANY INTEREST HEREIN CONSTITUTES THE ASSETS OF ANY BENEFIT PLAN INVESTOR AND (B) IF IT IS, OR IS ACTING ON BEHALF OF A GOVERNMENTAL, CHURCH OR NON U.S. PLAN, OR ANY ENTITY WHOSE UNDERLYING ASSETS ARE DEEMED TO INCLUDE THE ASSETS OF ANY SUCH PLAN SUCH ACQUISITION DOES NOT AND WILL NOT CONSTITUTE OR RESULT IN A NON EXEMPT VIOLATION OF ANY LAWS THAT ARE SUBSTANTIALLY SIMILAR TO SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE AND WILL NOT SUBJECT THE TRUSTEE OR ANY TRANSACTIONS THEREBY TO ANY LAWS, RULES OR REGULATIONS APPLICABLE TO SUCH PLAN AS A v

212 RESULT OF THE INVESTMENT IN THE CERTIFICATES BY SUCH PLAN. NO PURCHASE BY OR TRANSFER TO A BENEFIT PLAN INVESTOR OF THIS CERTIFICATE, OR ANY INTEREST HEREIN, WILL BE EFFECTIVE, AND NEITHER THE TRUSTEE NOR THE DELEGATE WILL RECOGNISE ANY SUCH ACQUISITION OR TRANSFER. IN THE EVENT THAT THE TRUSTEE DETERMINES THAT THIS CERTIFICATE IS HELD BY A BENEFIT PLAN INVESTOR, THE TRUSTEE MAY CAUSE A SALE OR TRANSFER IN THE MANNER DESCRIBED IN THE BASE PROSPECTUS. THE TRUSTEE MAY COMPEL EACH BENEFICIAL HOLDER HEREOF TO CERTIFY PERIODICALLY THAT SUCH OWNER IS A QIB THAT IS ALSO A QP. THIS CERTIFICATE AND RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION, THE AGENCY AGREEMENT REFERRED TO HEREIN) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT OF, BUT UPON NOTICE TO, THE HOLDERS OF SUCH SECURITIES SENT TO THEIR REGISTERED ADDRESSES, TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS CERTIFICATE TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO RESALES OR OTHER TRANSFERS OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS CERTIFICATE SHALL BE DEEMED, BY ITS ACCEPTANCE OR PURCHASE HEREOF, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL BE CONCLUSIVE AND BINDING ON THE HOLDER HEREOF AND ALL FUTURE HOLDERS OF THIS CERTIFICATE AND ANY SECURITIES ISSUED IN EXCHANGE OR SUBSTITUTION THEREFOR, WHETHER OR NOT ANY NOTATION THEREOF IS MADE HEREON)."; (xii) that the Certificates in registered form which are registered in the name of a nominee of DTC will bear an additional legend to the following effect unless otherwise agreed to by the Trustee: "UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORISED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, ("DTC"), TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY REGISTERED NOTE ISSUED IN EXCHANGE FOR THIS GLOBAL NOTE OR ANY PORTION HEREOF IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUIRED BY AN AUTHORISED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORISED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS GLOBAL SECURITY MAY NOT BE EXCHANGED, IN WHOLE OR IN PART, FOR A SECURITY REGISTERED IN THE NAME OF ANY PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR A NOMINEE THEREOF EXCEPT IN THE LIMITED CIRCUMSTANCES SET FORTH IN THIS GLOBAL SECURITY, AND MAY NOT BE TRANSFERRED, IN WHOLE OR IN PART, EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THIS LEGEND. BENEFICIAL INTERESTS IN THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THIS LEGEND."; v

213 (xiii) if it holds an interest in an Unrestricted Global Certificate, that if it should resell or otherwise transfer the Certificates prior to the expiration of the distribution compliance period (defined as 40 days after the later of the commencement of the offering and the closing date with respect to the original issuance of the Certificates of the Tranche of which it forms part), it will do so only: (a)(i) outside the United States in compliance with Rule 903 or 904 under the Securities Act; or (ii) to a QIB that is also a QP in compliance with Rule 144A; and (b) in accordance with all applicable U.S. State securities laws; and it acknowledges that the Unrestricted Global Certificates will bear a legend to the following effect unless otherwise agreed to by the Trustee: "THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE U.S. STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE AGENCY AGREEMENT AND PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THIS LEGEND SHALL CEASE TO APPLY UPON THE EXPIRY OF THE PERIOD OF 40 DAYS AFTER THE COMPLETION OF THE DISTRIBUTION OF ALL THE NOTES OF THE TRANCHE OF WHICH THIS NOTE FORMS PART."; and (xiv) that the Trustee, each Registrar, the relevant Dealer(s) and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that if any of such acknowledgements, representations or agreements made by it are no longer accurate, it shall promptly notify the Trustee; and if it is acquiring any Certificates as a fiduciary or agent for one or more accounts it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account. Prospective purchasers are hereby notified that sellers of the Certificates may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Please see "Form of Certificates". No sale of Legended Certificates in the United States to any one purchaser will be for less than U.S.$200,000 (or the equivalent amount in a foreign currency) principal amount and no Legended Certificate will be issued in connection with such a sale in a smaller principal amount. If the purchaser is a non-bank fiduciary acting on behalf of others, each person for whom it is acting must purchase at least U.S.$200,000 (or the equivalent amount in a foreign currency) principal amount of Certificates. Selling Restrictions Dubai International Financial Centre Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered and will not offer the Certificates to any person in the Dubai International Financial Centre unless such offer is: (i) (ii) an "Exempt Offer" in accordance with the Markets Rules (MKT Module) of the Dubai Financial Services Authority (the "DFSA") rulebook; and made only to persons who meet the Professional Client criteria set out in Rule of the DFSA Conduct of Business Module of the DFSA rulebook. Hong Kong Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Certificates, except for Certificates which are a "structured product" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the "SFO"), other than: (a) to "professional v

214 investors" as defined in the SFO and any rules made under the SFO; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the "CO") or which do not constitute an offer to the public within the meaning of the CO; and (ii) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Certificates, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Certificates which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the SFO and any rules made under the SFO. Japan The Certificates have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended) (the "Financial Instruments and Exchange Act"). Accordingly, each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Certificates in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other relevant laws and regulations of Japan. Kingdom of Bahrain Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered or sold, and will not offer or sell, any Certificates except on a private placement basis to persons in the Kingdom of Bahrain who are "accredited investors". For this purpose, an "accredited investor" means: (i) (ii) (iii) an individual holding financial assets (either singly or jointly with a spouse) of U.S.$1,000,000 or more; or a company, partnership, trust or other commercial undertaking which has financial assets available for investment of not less than U.S.$1,000,000; or a government, supranational organisation, central bank or other national monetary authority or a state organisation whose main activity is to invest in financial instruments (such as a state pension fund). Kingdom of Saudi Arabia No action has been or will be taken in the Kingdom of Saudi Arabia that would permit a public offering of the Certificates. Any investor in the Kingdom of Saudi Arabia who is a Saudi person (a "Saudi Investor") who acquires any Certificates pursuant to an offering should note that the offer of Certificates is a private placement under Article 9 or Article 10 of the "Rules on the Offer of Securities and Continuing Obligations" as issued by the Board of the Capital Market Authority resolution number dated 27 December 2017 (the "KSA Regulations"), made through a person authorised by the Capital Market Authority ("CMA") to carry on the securities activity of arranging and following a notification to the CMA under the KSA Regulations. The Certificates may thus not be advertised, offered or sold to any person in the Kingdom of Saudi Arabia other than to "sophisticated investors" under Article 9 of the KSA Regulations or by way of a limited offer under Article 10 of the KSA Regulations. Each Dealer has represented and agreed that any offer of Certificates by it to a Saudi Investor will be made in compliance with Articles 9 or 10 of the KSA Regulations v

215 Each offer of Certificates shall not therefore constitute a "public offer", an "exempt offer" or a "parallel market offer" pursuant to the KSA Regulations, but is subject to the restrictions on secondary market activity under Article 15 of the KSA Regulations. Any Saudi Investor who has acquired Certificates pursuant to a private placement under Article 9 or Article 10 of the KSA Regulations may not offer or sell those Certificates to any person unless the offer or sale is made through an authorised person appropriately licensed by the CMA and: (a) the Certificates are offered or sold to a Sophisticated Investor (as defined in Article 9 of the KSA Regulations); (b) the price to be paid for the Certificates in any one transaction is equal to or exceeds Saudi Riyals 1 million or an equivalent amount; or (c) the offer or sale is otherwise in compliance with Article 15 of the KSA Regulations. Malaysia Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (i) (ii) the Base Prospectus has not been registered as a prospectus with the Securities Commission of Malaysia under the Capital Markets and Services Act 2007 of Malaysia ("CMSA"); and accordingly, the Certificates have not been and will not be offered or sold, and no invitation to subscribe for or purchase the Certificates has been or will be made, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia, other than to persons falling within any one of the categories of persons specified under Schedule 6 or Section 229(1)(b), Schedule 7 or Section 230(1)(b) and Schedule 8 or Section 257(3), read together with Schedule 9 or Section 257(3) of the CMSA, subject to any law, order, regulation or official directive of the Central Bank of Malaysia, the Securities Commission of Malaysia and/or any other regulatory authority from time to time. Residents of Malaysia may be required to obtain relevant regulatory approvals including approval from the Controller of Foreign Exchange to purchase the Certificates. The onus is on the Malaysian residents concerned to obtain such regulatory approvals and none of the Dealers is responsible for any invitation, offer, sale or purchase of the Certificates as aforesaid without the necessary approvals being in place. Singapore Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that this Base Prospectus has not been and will not be registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered or sold any Certificates or caused the Certificates to be made the subject of an invitation for subscription or purchase and will not offer or sell any Certificates or cause the Certificates to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Base Prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Certificates, whether directly or indirectly, to any person in Singapore other than: (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289 of Singapore) (the "SFA")) pursuant to Section 274 of the SFA; (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the Certificates are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) (b) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that v

216 corporation or that trust has acquired the Certificates pursuant to an offer made under Section 275 of the SFA except: (A) (B) (C) (D) (E) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; where no consideration is or will be given for the transfer; where the transfer is by operation of law; as specified in Section 276(7) of the SFA; or as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. State of Kuwait Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that no Certificates will be offered, marketed, and/or sold in the State of Kuwait, unless all necessary approvals from the Kuwait Capital Markets Authority pursuant to Law No. 7 of 2010, and its executive bylaws (each as amended), together with the various resolutions, regulations, directives and instructions issued pursuant thereto or in connection therewith (regardless of nomenclature), or any other applicable law or regulation in the State of Kuwait, have been given in respect of the offering, marketing and/or sale, of the Certificate. State of Qatar (including the Qatar Financial Centre) Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered, delivered or sold, and will not offer, deliver or sell at any time, directly or indirectly, any Certificates in the State of Qatar (including the Qatar Financial Centre), except: (a) in compliance with all applicable laws and regulations of the State of Qatar; and (b) through persons or corporate entities authorised and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the State of Qatar. This Base Prospectus has not been reviewed or approved by the Qatar Central Bank, the Qatar Exchange, the Qatar Financial Centre Regulatory Authority or the Qatar Financial Markets Authority and is only intended for specific recipients, in compliance with the foregoing. United Arab Emirates (excluding the Dubai International Financial Centre) Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the Certificates have not been and will not be offered, sold or publicly promoted or advertised by it in the U.A.E. other than in compliance with any laws applicable in the U.A.E. governing the issue, offering or sale of securities. United Kingdom Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (i) (ii) in relation to any Certificates which have a maturity of less than one year: (a) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business; and (b) it has not offered or sold and will not offer or sell any Certificates other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Certificates would otherwise constitute a contravention of Section 19 of the FSMA by the Trustee; it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any v

217 Certificates in circumstances in which Section 21(1) of the FSMA does not apply to the Trustee or KFH; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Certificates in, from or otherwise involving the United Kingdom. United States Each Dealer acknowledges, and each further Dealer appointed under the Programme will be required to acknowledge, that the Certificates and the Master Declaration of Trust have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons, except in certain transactions exempt from or not subject to the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act. Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered and sold and shall not offer and sell Certificates of any Series: (i) as part of their distribution at any time; and (ii) otherwise until 40 days after the completion of the distribution of all Certificates of the tranche of which such Certificates are a part, as determined and certified to the Delegate by the relevant Dealer or, in the case of an issue of Certificates on a syndicated basis, the relevant lead manager of such tranche, of all Certificates of the Series of which such Certificates are a part, within the United States or to, or for the account or benefit of, U.S. persons other than in offshore transactions pursuant to Regulation S or pursuant to Rule 144A under the Securities Act to QIBs who are also QPs. Accordingly, neither it, nor its affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts (as defined in Regulation S under the Securities Act) with respect to the Certificates, and it and they have complied and will comply with the offering restrictions requirement of Regulation S under the Securities Act. Each Dealer agrees that at or prior to confirmation of sale of Certificates (other than a sale pursuant to Rule 144A under the Securities Act), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Certificates from it during the distribution compliance period a confirmation or notice to substantially the following effect: "The Certificates covered hereby have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons: (i) as part of their distribution at any time; or (ii) otherwise until 40 days after the completion of the distribution of an identifiable tranche of Certificates of which such Certificates are a part, except in either case in a transaction exempt from or not subject to the registration requirements of the Securities Act to a person that the seller reasonably believes is a "qualified institutional buyer" (within the meaning of Rule 144A under the Securities Act) that is also a "qualified purchaser" (as defined in Section 2(a)(51) of the U.S. Investment Company Act of 1940, as amended). Terms used above have the meanings given to them by Regulation S under the Securities Act". Terms used in the two preceding paragraphs have the meanings given to them by Regulation S under the Securities Act. Each Dealer may, through its respective U.S. registered broker-dealer affiliates, arrange for the offer and resale of the Certificates in the United States only to QIBs that are also QPs in a transaction not involving any public offering. Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has offered and sold and will offer and sell the Certificates in the United States only to persons: (i) whom it reasonably believes are QIBs are area also QPs and can represent that: (A) they are QIBs that are also QPs; (B) they are not broker-dealers who own and invest on a discretionary basis less than U.S.$25 million in securities of unaffiliated issuers; (C) they are not a participant-directed employee plan, such as a 401(k) plan; (D) they are acting for their own account, or the account of one or more QIBs that are also QPs; (E) they are not formed for the purpose of investing in the Trustee; (F) each account for which they are purchasing will hold and transfer at least U.S.$200,000 in principal amount of Certificates at any time; (G) they understand that the Trustee may receive a list of v

218 participants holding positions in its securities from one or more book-entry depositories; and (H) they will provide notice of the transfer restrictions set forth in this Base Prospectus to any subsequent transferees. The Certificates (and any interest in a Certificate) may not be sold to or held by or on behalf of any: (i) employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that is subject to Title I of ERISA; (ii) plan (as defined in Section 4975(e)(1) of the U.S. Internal Revenue Code of 1986, as amended (the "Code")) that is subject to Section 4975 of the Code; (iii) any entity whose underlying assets could be deemed to include "plan assets" by reason of a plan's investment in such entities for purposes of ERISA; or (iv) any governmental plan (as defined in Section 3(32) of ERISA), church plan (as defined in Section 3(33) of ERISA), non U.S. plan (as described in Section 4(b)(4) of ERISA), or entity whose underlying assets are deemed to include the assets of any such plan, that is subject to rules similar to ERISA and the Code under other applicable laws or documents ("Similar Law"), unless, under this subsection (iv), its purchase and holding of the Certificates would not result in a violation of any such Similar Law or subject the Trustee or any transactions thereby to any such Similar Law. Prohibition of Sale to EEA Retail Investors Unless the applicable Final Terms in respect of any Certificates specifies the "Prohibition of Sales to EEA Retail Investors" as "Not Applicable", each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Certificates which are the subject of the offering contemplated by this Base Prospectus as completed by the applicable Final Terms in relation thereto to any retail investor in the EEA. For the purposes of this provision: (a) the expression "retail investor" means a person who is one (or more) of the following: (i) (ii) (iii) a retail client as defined in point (11) of Article 4(1) of MiFID II; or a customer within the meaning of Directive 2002/92/EC (as amended, the "Insurance Mediation Directive"), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or not a qualified investor as defined in the Prospectus Directive; and (b) the expression an "offer" includes the communication in any form and by any means of sufficient information on the terms of the offer and the Certificates to be offered so as to enable an investor to decide to purchase or subscribe the Certificates. If the applicable Final Terms in respect of any Certificates specifies "Prohibition of Sales to EEA Retail Investors" as "Not Applicable", in relation to each Member State of the European Economic Area (each, a "Relevant Member State"), each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the "Relevant Implementation Date") it has not made and will not make an offer of Certificates which are the subject of the offering contemplated by this Base Prospectus as completed by the applicable Final Terms in relation thereto to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make an offer of such Certificates to the public in that Relevant Member State: (a) (b) (c) at any time to any legal entity which is a qualified investor under the Prospectus Directive; at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Trustee for any such offer; or at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Certificates referred to in paragraphs (a) to (c) above shall require the Trustee or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive v

219 For the purposes of this provision, the expression "offer of Certificates to the public" in relation to any Certificates in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Certificates to be offered so as to enable an investor to decide to purchase or subscribe the Certificates, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State. General Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will, to the best of its knowledge and belief, comply with all applicable securities laws, regulations and directives in force in any jurisdiction in which it purchases, offers, sells or delivers Certificates or possesses or distributes this Base Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Certificates under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Trustee, KFH nor any of the other Dealers shall have any responsibility therefor. None of the Trustee, KFH or any of the Dealers represents that Certificates may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale. With regard to each Tranche, the relevant Dealer(s) will be required to comply with such other restrictions as the Trustee, KFH and the relevant Dealer(s) shall agree and as shall be set out in the relevant subscription agreement or, as the case may be, in the applicable Final Terms v

220 GENERAL INFORMATION Authorisations The establishment of the Programme and the issuance of the Certificates thereunder was authorised by a resolution of the shareholders of KFH dated 20 March 2017 and a resolution of the board of directors of KFH dated 6 July The establishment of the Programme and the issuance of the Certificates thereunder was authorised by a resolution of the board of directors of the Trustee dated 10 May The Trustee and KFH have obtained or will obtain from time to time, all necessary consents, approvals and authorisations in connection with the issue and performance of the Certificates, as the case may be. Listing of the Certificates It is expected that each Tranche of Certificates (other than Non-PD Certificates) which is to be admitted to the Official List and to trading on the Regulated Market will be admitted separately as and when issued, subject only to the issue of a Global Certificate or Global Certificates initially representing the Certificates of such Tranche. Application has been made to Euronext Dublin for Certificates issued under this Programme during the period of 12 months from the date of this Base Prospectus to be admitted to the Official List and to trading on the Main Securities Market. The approval of the Programme in respect of such Certificates is expected to be granted on or before 16 May Non-PD Certificates may be issued pursuant to the Programme. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Trustee in relation to the Certificates and is not itself seeking admission of the Certificates to the Official List of Euronext Dublin or to trading on the regulated market of Euronext Dublin for the purposes of the Prospectus Directive. Documents Available For the period of 12 months following the date of this Base Prospectus, copies of the following documents will, when published, be available for inspection in physical form from the registered office of the Trustee and from the specified office of the Principal Paying Agent for the time being in London: (i) (ii) (iii) (iv) (v) the constitutional documents of the Trustee and KFH (with an English translation thereof (if applicable)); the Financial Statements (as defined in "Presentation of Financial and Other Information"); The Transaction Documents (including each Supplemental Declaration of Trust and Supplement Purchase Agreement in relation to each Tranche); a copy of this Base Prospectus; and any future offering circulars, prospectuses, information memoranda and supplements, including any Final Terms to this Base Prospectus and any other documents incorporated herein or therein by reference. Clearing Systems The Certificates have been accepted for clearance through Euroclear and Clearstream, Luxembourg which are the entities in charge of keeping the records. The appropriate Common Code and ISIN for each Tranche of Certificates allocated by Euroclear and Clearstream, Luxembourg will be specified in the applicable Final Terms. In addition, the Trustee may make an application for any Certificates to be accepted for trading in book-entry form by DTC. Acceptance by DTC of such Certificates and the CUSIP and/or CINS numbers for each Tranche of such Certificates, together with the relevant ISIN and (if applicable) Common Code, will be specified in the applicable Final Terms. The Legal Entity Identifier (LEI) for the Issuer is ZR9Z4QWYZXM v

221 The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels. The address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg. The address of DTC is 55 Water Street, New York, New York 10041, United States. Conditions for Determining Price The price and amount of Certificates to be issued under the Programme will be determined by the Trustee, KFH and the relevant Dealer(s) at the time of issue in accordance with prevailing market conditions. Significant or Material Change There has been no significant change in the financial or trading position of the Trustee since its incorporation on 7 September 2017, and there has been no material adverse change in the prospects of the Trustee, since its incorporation on 7 September There has been no significant change in the financial or trading position of KFH or of the Group since 31 December 2017, and there has been no material adverse change in the prospects of KFH or of the Group since 31 December Legal Proceedings There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) in the 12 months preceding the date of this Base Prospectus which may have, or have in such period had, a significant effect on the financial position or profitability of the Trustee. There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) in the 12 months preceding the date of this Base Prospectus which may have, or have in such period had, a significant effect on the financial position or profitability of KFH or of the Group. Independent Auditors The current independent auditors of KFH are Deloitte & Touche Al-Wazzan & Co and Ernst & Young Al Aiban, Al Osaimi & Partners. The professional body of auditors in Kuwait is the Kuwaiti Association of Accountants and Auditors and the auditors of KFH are members of that professional body. The auditors of KFH have no material interest in KFH. Since the date of incorporation, the Trustee has not hired an independent auditor and no financial statements of the Trustee have been prepared. The Trustee is not required by DIFC law, and does not intend, to publish audited financial statements. Certificates Having a Maturity of Less Than One Year Where Certificates have a maturity of less than one year and in respect of which the issue proceeds are to be accepted by the Trustee in the United Kingdom or whose issue otherwise constitutes a contravention of Section 19 of the FSMA, such Certificates must have a minimum denomination of 100,000 (or its equivalent in other currencies) and be issued only to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses. Conditions for Determining Price and Yield The price and amount of Certificates to be issued under the Programme will be determined by the Trustee, KFH and each relevant Dealer at the time of issue in accordance with prevailing market conditions. In the case of different Tranches of a Series of Certificates, the issue price may include accrued profit in respect of the period from the profit commencement date of the relevant Tranche (which may be the issue date of the first Tranche of the Series or, if profit payment dates have already passed, the most recent profit payment date in respect of the Series) to the issue date of the relevant Tranche v

222 The yield of each Tranche of Certificates will be calculated on an annual or semi-annual basis using the relevant issue price at the relevant issue date. It is not an indication of future yield. Dealers transacting with the Trustee and KFH Certain of the Dealers and their affiliates have engaged in, or may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with the Trustee, KFH or their respective affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. In addition, in the ordinary course of their business activities, the Dealers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank financings) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Trustee, KFH or their respective affiliates. Certain of the Dealers or their affiliates that have a lending relationship with the Trustee, KFH or their respective affiliates routinely hedge their credit exposure to the Trustee, KFH or their respective affiliates consistent with their customary risk management policies. Typically, such Dealers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in the Trustee's, KFH's or their respective affiliates' securities, including potentially the Certificates offered hereby. Any such short positions could adversely affect future trading prices of the Certificates offered hereby. The Dealers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. See also "Subscription and Sale and Transfer and Selling Restrictions". Shari'a Boards The transaction structure relating to the Certificates (as described in this Base Prospectus) has been approved by the KFH Capital Shari'a Committee and the Shariah Supervisory Committee of Standard Chartered Bank v

223 INDEX TO FINANCIAL STATEMENTS Interim condensed consolidated financial information (unaudited) of KFH and its subsidiaries for the three months ended 31 March F-2 Audited consolidated financial statements of KFH and its subsidiaries for the year ended 31 December F-28 Audited consolidated financial statements of KFH and its subsidiaries for the year ended 31 December F v F

224 F-2

225 F-3

226 F-4

227 F-5

228 F-6

229 F-7

230 F-8

231 F-9

232 F-10

233 F-11

234 F-12

235 F-13

236 F-14

237 F-15

238 F-16

239 F-17

240 F-18

241 F-19

242 F-20

243 F-21

244 F-22

245 F-23

246 F-24

247 F-25

248 F-26

249 F-27

250 KUWAIT FINANCE HOUSE ICS.C.P. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2017 F-28

251 EY Deloitte 8uiidinq a better worklnq world Detolue & Touche Al-Wazzan & Ca. Ahmed Al-Jaber Street, Sham Ernst & Ycu,g Dar Al Al-Awadi Complex, floors 7 & 9 Aiban, At Osalmi & Penrets Fax: Th P.O Box 74 kl*,t@kv.tettcom P.O. Box 20174, Safat st Flow. Bailakto.tr eco,,!mena Kuwait Ahrnnd Al Jaber Street SatSouaro ku alt Tel , Fax: e52- INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE K.S.C.P. Report on the Audit of Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Kuwait Finance House K.S.C.P. ( the Bank ) and its subsidiaries (collectively the Group ), which comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial perfonnance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (WRSs) as adopted for use by the State of Kuwait. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISM). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit ofthe Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (ESBA Code), and we have fidfllled our other ethical responsibilities in accordance with the WSBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit mailers are those matters that, in our professional judgment, were ofmost significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, ow description of how ow audit addressed the matter is provided in that context. F-2 9

252 EY Deloitte. Building a better working world INDEPENDENT AUDITORS RFJPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE KS.CP. (continued) Report on the Audit of Consolidated Financial Statements (continued) Key Audit Mailers (continued) Impairment of fmancing receivables Impairment of financing receivables is a subjective area due to the level ofjudgcment applied by management in determining provisions, such as the identification of impairment events, which differs based upon the type of financing product and customer and accordingly requires judgement on whether a loss has been incurred; and the determination of appropriate parameters and assumptions used to calculate impairment such as the credit assessment of customers that may default, the valuation of collateral for secured financing and the fiature cash flows of financing receivables granted. Due to the significance of financing receivables (representing 53.01% of the total assets) awl the related estimation uncertainty, this is considered a key audit mailer. The basis of the impairment provision policy is presented in the accounting policies in note 2 to the consolidated financial statements. Ow audit procedures included the assessment of controls over the granting, booking, monitoring and collecting processes of financing receivables and the impairment provisioning process, to confirm the operating effectiveness ofthe key controls in place that identify the impaired financing receivables and the required provisions against them. In addition to testing the key controls, we have also perfonned the following procedures: We selected samples of financing receivables outstanding as at the reporting date and assessed critically the criteria for detennining whether an impairment event had occurred and therethre whether there was a requirement to calculate an impairment provision. Our selected samples included non-performing financing receivables, where we assessed management s forecast of recoverable cash flows, valuation of collaterals, estimates of recovery on default and other sources of repayment. For the pertbnning financing receivables, we assessed that the borrowers did not exhibit any possible default risk that may affect the repayment abifities. The disclosure relating to the financing receivables are given in note 10 of the consolidated financial statements. 2 F-30

253 EY Deloitte. m bett,r varicinq world INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE ICS.C.P. (continued) Report on the Audit of Consolidated Financial Statements (continued) Key Audit Mallen (continued) Impairment of associates and joint ventura The investment in associates and joint ventures are accounted for under the equity method of accounting and considered thr impainnent in case of indication of impairment The invesftnent in associates and joint ventures is significant to ow audit due to the Group s share of results in the associates and joint ventures and the canying value of those associates and joint ventures. In addition, the management to assess impairment of investment in associates and joint ventures uses judgement and estimates. Accordingly, we considered this as a key audit matter. In our audit procedures, we evaluated management s considerations of the impaimient indicators of investment in associates and joint ventures. In such consideration, we assessed whether any significant or prolonged decline in value exists, significant adverse changes in the technological, market, economic, or legal environment in which the investee operates, structural changes in the industry in which the investee operates, changes in the political or legal environment affecting the investee s business and changes in the invcstcc s financial condition. The disclosure relating to associates and joint ventures axe given in notes 12 and 13 of the consolidated financial statements. Impairment test of investment properties and trading properties As at 31 December 2017, investment properties and trading properties amounting to KD 715,458 thousand represents 4.12% oftotai assets. The valuation of real estate properties was significant to our audit because this process is complex and requires judgement. Furthermore, there is an increased risk of impairment due to deteriorated markct outlook in various geographical areas, in which the Group operates. We selected samples and considered the methodology and the appropriateness of the valuation models and inputs used to value the real estate properties. Further, we used our internal specialists to assess the valuation of a sample of real estate properties located outside the State of Kuwait. As part of these audit procedures, we assessed the accuracy of key inputs used in the valuation such as the rents, gross multiplier yield, market comparable, and discount rates. We also evaluated the Group s assessment whether objective evidence of impairment exists for international real estate. The disclosure relating to the investment properties is given in note 14 to the consolidated financial statements. 3 F-31

254 EY Building a better worhinq world Deloitte. TNDEPENDENT AUDITORS REPORT To THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE KS.C.P. (continued) Report on the Audit of Consolidated Financial Statements (continued) Key Audit Matters (continued) Valuation of currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts (9slamic derivative financial instruments The Group has significant rslannc derivative financial instruments, the valuation of which is determined through the application of valuation techniques, which often involve the exercise of judgemcnt and the use of assumptions and estimates. Due to the significance of Islamic derivative financial instruments and the related estimation and uncertainty, there is a risk that the related financial assets and liabilities are misstated. Our audit procedures included assessment of controls over the identification, measurement and management of Islamic derivative financial instrument to confirm the operating effectiveness of the key controls in place. Our audit procedures also comprised of an assessment ofthe methodology and the appropriateness of the valuation models used to value Islamic derivative financial instruments. Further, we used our internal specialists to assess the valuation of a sample of each type of Islamic derivative financial instruments, As part of these audit procedures, we assessed the accuracy of key inputs used in the valuations such as contractual cash flows, risk free rates, profit rate volatility, swap rates, profit spot rates, implied forward rates and quoted prices from market data providers, by benchmarking them with external data. Finally, we considered completeness and accuracy of the disclosures related to Islamic derivative financial insthmients to assess compliance with the disclosure requirements. The disclosure relating to Islamic derivative financial instruments is given in note 25 to the consolidated financial statements. Other infonuafion included in the Annual Report of the Group for the year ended 31 December 2017 Management is responsible for the other thfonnation. Other information consists ofthe information included in the Annual Report of the Group for the year ended 31 December 2017, other than the consolidated financial statements and our auditors report thereon. We obtained the report of the Bank s Board of Directors, prior to the date of our auditors report, and we expect to obtain the remaining sections of the Group s Annual Report for the year ended 31 December 2017 after the date of our auditors report. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 4 F-32

255 EY BzIdInq a bctttr h worktflq t.orid Deloitte. INDEPENDENT AUDITORS REPORT TO THE SIIAREUOLDERS OF KUWAIT FINANCE HOUSE KS.C.P. (continued) Report on the Audit of Consolidated Financial Statements (continued) Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible thr the preparation and fair presentahon of the consolidated financial statements in accordance with WRSs as adopted for use by the State ofkuwait and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for oversccing the Group s financial reporting process, Auditors Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whoic arc free from material misstatement, whether due to fraud or error, and to issue mi auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of matcrial misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management 5 F-33

256 EY BuNdIr.o a beltgr workk,q wofld Deloitte INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE KS.C.P. (continued) Report on the Audit of Consolidated Financial Statements (continued) Auditors Responsibilities for the Audit of Consolidated Financial statements (continued) Conclude on the appropriateness ofmanagement s use ofthe going concern basis of accounting and based on the autht evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern, if we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including thc disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible fir the direction, supervision and peffoanance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among othermatters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies hi internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the mailers communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters. We describc these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a mailer should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such conunmilcation. 6 F-34

257 EY ar.dinq a better working world Deloitte ThIDEPENbENT AUDITORS REPORT TOT SHAREHOLDERS OF KUWAIT FINANCE HOUSE ICSC.P. (continued) Report on Other Legal and Regulatory Requirements Furthermore, in our opinion proper books of account have been kept by the Bank and the consolidated financial statements, together with the contents of the report of the Bank s Board of Directors relating to these consolidated financial statements, are in accordance therewith. We lbrther report that, we obtained all the information and explanations that we required for the pm-pose of our audit and that the consolidated financial statements incorporate all information that is required by the Capital Adequacy Regulations and Financial Leverage Ratio Regulations issued by the Central Bank of Kuwait ( CBK ) as stipulated in CBK Circular Nos. 2/RB, R8A1336/2014 dated 24 June 2014 and 2/I.B.S./343/2014 dated 21 October 2014 respectively, the Companies Law No.1 of 2016, as amended and its executive regulations, as amended and by the Bank s Memorandum of Incorporation and Articles of Association, as amended, that an inventory was duly carded out and that, to the best of our knowledge and belief, no violations of the Capital Adequacy Regulations and Financial Leverage Ratio Regulations issued by the CBK as stipulated in CHIC Circular Nos. 2/RB, RBA /336/2014 dated 24 June 2014 and 2/LBS. /343/2014 dated 21 October 2014 respectively, the Companies Law No.1 of 2016, as amended and its executive regulations, as amended or of the Bank s Memorandum of Incorporation and Articles of Association, as amended, have occurred during the year ended 31 Decembcr 2017 that might have had a material effect on the business of the Bank or on its financial position. We further report that, during the course of our audit, we have not become aware of any violations of the provisions of Law No 32 of 1968, as amended, concerning currency, the Cent-al Bank of Kuwait and the organisation ofbanking business, and its related regulations, during the year ended 31 December 2017 that might have had a material effect on the business of the Bank or on its financial position. WALEED K AL OSMMI LICENCE NO.68 A EY AL-MEAN, AL-OSAth4J & PARTNERS BADER K AL-WAr/AN LICENCE NO- 62A DFLOWE & TOUCHE AL-WAZZAN & CO. 8 January 2018 Kuwait 7 F-35

258 TO THE SHAREHOLDERS OF THE BANK His fits Fees and commissions income 96, TOTAL OPERATING EXPENSES (305,019) (294,954) BASIC AND DILUTED EARNINGS PER SHARE ArTRmUTABLE Financing income 740, ,886 Taxation 6 (29,590) (23,193) Proposed directors fees 23 (878) (772) Shareholders of the Bank 184, ,228 Non-conifolling interests 30,000 (3,289) Attributable to: PROFITFORTHEYEA.R 214, ,939 Netgainfromforeigncurrencies 17,325 23,181 Stall costs 20 (187,523) (173663) EXPENSES TOTAL OPERATING INCOME 713, ,650 Finance cost and dislxthufion to depositors (295,662) (282,931) Other income 4 47,641 33,980 General and adminisntive expenses (82,824) (84,457) Depreciation and amortization (34,671) (36,834) INCOME NET OPERATING INCOME 408, ,696 FEES 244, ,904 Loss for the year from discontinuing operations 17 (228) (21,594) PROFIT BEFORE TAXATION AND PROPOSED DIRECTORS Notes Net finance income 444, ,955 Investment income 3 106,571 78,885 Provisions and impainnent 5 (163,411) (157,198) ND 000 s For the year ended 31 December 2017 Kuwait Finance House K.S.C.P. and Subsidiaries CONSOLOAThD STAThMENT OF INCOME The attached notes Ito 35 form part of these consolidated financial statements. 8 F , ,939

259 Kuwait Finance House K.S.C.P. and Subsidiaries CONSOLIDATED STATEMENT OF COMPREHENSIVE tncome For the year ended 31 December 2017 Note Profit for the year 214, Other comprehensive (loss) Income Other comprehensive items that are or mc be reclassified to consolidated statement ofincome in subsequent periods: Realised (gain) loss on financial assets available for sale (34,714) 6,336 impairment losses of financial assets available far sale trans&rred to coasobdated stawmentof income 5 16,768 26,927 Share of other comprehensive income (toss) of associates and joint venteres 270 (2,888) Excbange diarences on naslafion of fiuzeign aperadons (37,782) (68,820) Other comprehensive toss for the year (42,791) (60,528) Total comprehensive income 171, ,411 Atthbutable to: Shareholders of the Bank 155, , , ,411 The attached notes 1 to 35 form paft of these consolidated financial statements. 9 F-37 XV 000 s Change in thir value of financial assets available for salc 12,667 (22,023) Non-confroffing interests 15,959 (27,400)

260 Kuwait Finance House K.S.CP. and Subsidiaries CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2017 KD000 s Notes ASSETS Cash and balances with banks 8 1,262,456 1,494,657 Shaft-term nurabaha 9 2,925,329 2,877,241 Financing receivables 10 9,216,475 8,175,789 Investment in Sukuk 1,428,655 1,099,603 Trading properties 161, ,341 Investments II 304, ,521 Investment in associates and joint ventures 12,13 463, ,468 Investhientpmpeites , ,801 Otherassets , ,652 Intangible assets and goodwill 16 38,659 39,175 Pmpertyandequipment 214, ,212 Assets classified as held for sale , ,893 TOTAL ASSETS 17,357,981 16,499,353 LIABILITIES Due to banks and financial institutions 2,239,923 2,398,590 Sukukpayables 518, ,061 Depositors accounts 19 11,596,733 10,716,734 Other liabilities , ,651 Liabilities directly associated with the assets classified as held for sale , ,492 TOTAL LIABILITIES 15,241,859 14,460,528 EQUITY ATTRIBUTABLE TO THE SHAREHOLDERS OF THE BANK Share capital , ,154 Sharepremium , ,333 Proposed issueofbonusshares 23 57,657 52,415 Treasury shasta 22 (45,063) (48,824) Reserves , ,652 1,775,597 1,722,730 Proposed cash dividends 23 96, TOTAL EQUITY ATTRIBUTABLE TO THE SHAREHOLDERSOFTHEBANK 1,872,242 1,810,485 Non-controlling interests 243, ,340 TOTAL EQUITY 2,116,122 2,038,825 TOTAL LIABILITIES AND EQUITY 17,357,981 16,499,353 HAMAD ABDULMONSEN AL-MARZOUQ (CHAIRMAN) MAZIN SAADMrNANEDN (GROUP Cl-flEE EXECUTIVE omcerr N The attached notes ito 35 form pan of these consolidated financial statements. 10 F-38 p

261 Kuwait Finance House KS.C.P. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES N EQUITY Fortheyearended3l December2017 ND 000 s Nan controlling rota! Atbibutable to the sharehomen ofthe Bank interests equity Proposed issue of Proposed Share Share borne fleaswy Reserves cash capital premium shares sharer (Note 21) Subtotal dlwda,ds Subtotal flaia,ice as at I Janimzy2OIl 524, ,333 $2,415 (48,824) 474,652 1,722,730 87,755 1,810, ,330 2,038,825 I mfit fortheycar , , ,155 30, ,155 I, Catza-comjrthauive - - (28,750) (28,750) - (28,750) (14,041) (42,791) Tonlcnmprthaisivcincome - Zakat paid Cash divida,d, paid DISUIbUTiOI, of1xout Plrjmnlcashth,ida-,ds Net movanoit ci trasmy Disposal ofasuhaidiary Change of ownership interest without loss 155, , ,405 15, ,364 issoeofboninshxes 52,415 - (52,415) (9,682) (9,682) - (9,682) - (9,682) (87,755) (87,755) - (87,755) (Note 23) Proposedicsueofbonusshrcs - 57,657 - (57,657) (96,645) (96,645) 96, shares 3,761 I 3,762-3,762-3,762 (Note ) - (1,434) (1,434) ,440 4,461 - (3,425) (3,425) The attached notes Ito 35 font paft of these consolidated financial statements. 11 olcoatwi (Note 18) - Net other change hi non- controlling interests - Balance a at 31 December , ,333 57,657 (45,063) 466,101 1,775,597 96,645 1,872, ,880 2,116,122

262 Non. - - nloow, - - Kuwait Finance House K.S.C.P._and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES N EQUITY (continued) Fortheyearendcd3l December2017 Thvposed AtirihutaMe to The contmlfing Toss) shareho Wan ofthe flank Inlereses equity issue of Proposed Share Share bonus fleasu y Resents each capitol premium shares shares (Note 21) SubIolal dmdn.d, Subtotal Balsoceasal Pmfii foctheymr Othaccop,thasiveIoss 1 ianua,y ,650 (50.173) 505,067 1, ,755 1,779, ,055,489 Tolalcomprehinsive income(ioss) Isazcofbonusthn, Zakal paid Cash di vmaxls paid Dislnbulinn of pcoflt (Note 23) hoposaiissueo1bmusthar Ploposat cash dividaids (47,650) , ,228 (36.417) (36.417) 128, ,8!! (7,914) (7314) - (52,415) (87.755) 87,755 Netnw,vaua.tinu,aswysbsca 1349 (349) DecoiIidationofasubsidiary - (87.755) ,228 (3239) (36,417) (24j11) (60.528) L2L8I (7,914) (79,755) (79.755) - - I 1,000 (27,400) (7,914) (79,755) (13,132) (13,132) Acquisition of non-controlling intatsts (10,793) (10,79)) (10,793) (9,207) (20,000) DMdathpaidtonon-conuoUingintaasss. Naothuchangeinnon-conuollingintants (L,596). (1596) Babnceasatjl Oanbo-20l6 524, ,415 (48,824) ,722,730 87,755 1,810, ,038,825 The attached notes ito 35 form pail of these consolidated financial statements. 12 F-40

263 Kuwait Finance House K.S.C.P. and Subsidiaries CONSOLDATED STATEMENT OF CASH FI..OWS For the year ended 31 December 2017 lcd 00Oc Notes OPERATING ACTIVITIES Pmfitfortheycar 214, ,939 A4usanafts to reconcile profit to net cash flows: Dqxaciatonandamortsation 34,671 36,834 Pmvsionsandimpairmenc 163, ,198 Dividend income 3 (5,345) (5,681) Gain on sale of invcstrnaits 3 (47,159) (6,656) Gain on sale of real watt investments 3 (12,809) (12209) Sham of results of invesmient in associates end joint ventures 3 (13303) (10,934) Other investment income 3 (13,727) (30,067) 319, ,424 Changes in operating asscts and HabIides (Increase) decrease in operating assets: Financing receivables and short tarn murabaha (1,463,612) (263,769) Trading properties 10,799 16,309 Other assets 99,585 (264,698) Statutory deposit with Central Banks (151,592) 44,410 Increase (decrease) in operating liabilities: Due to banks and financial institutions (319,030) (69,927) Depositors accounts 1,139,678 (47346) Other liabilities (3,298) 128,632 Net cash flows used in operating activities (367,476) (165,865) DIVESTING ACTiVITIES Investments, net (290,795) (171,676) Purchaseofinvestnentpwpaties (7,134) (20,150) Proceeds from sale of investment properties 19,542 19,465 Puicheacofpropotyardequipwant (37,825) (58.195) Proceeds from sale of property and equipment 1,814 25,167 Intangible assets, net (4,859) (5,068) Lcastholdmights,net (665) (13,307) Purchase of investments in associates and join: ventures (770) (9,169) Proceeds from sale of investments in associates and joint ventures 31,406 15,884 Procealfionidisposalofsubsidiaries 10,068 (1,450) Dividendreceived 15,148 (1,856 Acquisition of non-contmlling inlcest - (20,000) Net cash flows used in investing activities (264,070) (226,643) FINANCING ACTIVITIES Cash dividends paid (87,755) (79,755) Zak at paid (9,682) (7,914) Net movement in treasury shares 3,762 1,000 Dividend paid to non-controlling interests - (15%) Net eash flows used in financing activities (93,675) (88,265) DECREASE IN CASH AND CASH EQUIVALENTS (725,221) (480,773) Cash and cash equivalents as at 1 January 2,092,111 2, CASh MID CASH EQUIVALENTs AS AT 31 DECEMBER 8 1,366,890 2,092,111 The attached notes I in 35 form pail of these consolidated financial statements. 13 F-41

264 The consolidated financial statements of the Group for the year ended 31 December 2017 were authorised for issue in shareholders of the Bank has the power to amend these consolidated financial statements after issuance. The Group comprises Kuwait Finance House LS.C.P. ( the Bank ) and its consolidated subsidiaries (collectively the project construction and other trading activities without practising usury. The Bank s registered head office is at Abdulia Al-Mubarak Street, Murqab, Kuwait. Supervisory B nart The consolidated financial statements have been prepared in accordance with the regulations of the Government of Kuwait for financial services institutions regulated by the Central Bank of Kuwait. These regulations require adoption which has been replaced by the Central Bank of Kuwait s requirement for a minimum general provision as described The consolidated financial statements are prepared under the historical cost convention modified to include the The consolidated financial statements are presented in Kuwaiti Dinars (1(0) and all values are rounded to the nearest Further, certain prior year amounts have heca reclassified to conform to the current year presentation. These The Group presents its statement of consolidated financial position in order of liquidity. The accounting policies applied are consistent with those used in the previous year. Amendments to ifrss which are effective for annual accounting period starting from 1 January 2017 did not have any material impact on the Standards issued but not yet effective up to the date of issuance of the Group s consolidated financial statements are The JASB issued the final version of IFRS 9 Financial Instruments in July 2014, that replaces las 39 Financial aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application exceptions. of all International Financial Reporting Standards (if RS) except for the las 39 requirement for collective provision, activities for its own account as well as for third parties, including financing, purchase and sale of investments, leasing, measurement at fair value of financial assets available for sale, venture capital at fair value through statement of income, precious metals inventory, currency swaps, profit rate swaps, forward foreign exchange and forward thousand Dlinxs, except when otherwise in&catei IFRS 9 Financial Instnimentc under the accounting policy for impairment of financial assets. conunodity contracts. financial position, consolidated statement of income, consolidated cash flow statement and disclosures. Such affect the consolidated cash flow statement. accounting policies, financial position or performance of the Group. listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a flitire date. The Group intends to adopt those standards when they become effective. 23 CHANGES IN ACCOUNTING POLICIES reclassffications were made in order to more appropriately present certain items of consolidated statement of reclassifications do not affect previously reported assets, liabilities, equity and profit for the year, nor materially Group ) as notedinnote The Bankisapublic shanholdffigcompany incorporated inkuwait on23 March 1977 accornce with a resolution of the Bank s Board of Directors on 8 January The general assembly of the 1 CORPORATE INFORMATION and is registered as an Islamic bank with the Central Bank of Kuwait ( the CElL ). It is engaged in all Islamic banking All activities an conducted in accordance with Islamic shanea a, as approved by the Bank s Fatw and Shareea a 2 SIGNIFICANT ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION 2.2 PRESENTATION OF FINANCIAL STATEMENTS 2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited Instruments: Recognition and Measurement and all previous versions of WRS 9. WRS 9 brings together all three permitted. Except for hedge accounting, retrospective application is required but providing comparative information At31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries 14 F-42

265 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO ThE CONSOLIDATED FINANCL&L STATEMENTS At 31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) IFItS 9 Financial Insmsments (continued) The Group plans to adopt the new standard on the required effective date from 1 January The Group will avail the exemption allowing it not to restate comparative information for prior periods. Differences in the carrying amounts of fmancial assets resulting from the adoption ofwrs 9 should be recognised in opening retained earnings and reserves as at I January During the year 2017, the Group has performed a detailed impact assessment of IFRS 9. Based on the result of this exercise, existing impairment provisions significantly exceed the impairment provisions required by IFRS 9. This assessment is based on currently available information and may be subject to changes arising from Ilinher reasonable and supportable infonnation being made available to the Group, until the Group presents its first financial statements that include the date of initial application. (a) Classification and measurement IFRS 9 contains a new classification and measurement approach for financial assets that reflect the business model in which assets are managed and their cash flow characteristics. IFRS 9 contains three classification categories for financial assets: measured at Amortised Cost, Fair Value through Other Comprehensive Income ( EVOCI ) (with and without recycling of gains or losses to profit or loss on derecegnidon of debt and equity instruments, respectively) and Fair Value Through Profit or Loss ( FV]TL ). The standard eliminates the existing [AS 39 categories of held to maturity, loans and receivables and available for sale. The Group has evaluated the classification and measurement criteria to be adopted for various financial assets considering the WRS 9 requirements with respect to the business model and contractual cash flow characteristics ( CCC ) I Solely payment of principal and interest ( SPPI ). The impact from the classification and measurement is as follows: - Certain - At open-ended hinds currently classified as financial assets held as available-for-sale with gains and losses recorded in OCI will, instead, be measured at FVTPL. The changes in fair values related to those investments, which is currently presented under cumulative changes in fair value reserve, will be reclassified to retained earnings. 31 December 2017, the Group has equity securities classified as available-for-sale. Under WRS 9, the Group has assessed the impact of designating these investments as FVOCI or FVTPL and is in the process of seeking required internal approvals. Consequently, in case of designating these investments as FVOCI, all fair value gains and losses will be reported in OCI, no impairment losses will be recognised in consolidated income statement and no gnins or losses will be classified to consolidated income statcment on disposal. Altemativcly, if designated as FVrPL, all unrealised and realised gain or loss on these investments would be recorded in the consolidated income statement, and adjustment would be made to the opening balance of retained earnings equivalent to the current fair value reserve related to those investments. - The Group also expects to continue measuring at fair value all financial assets currently held at fair value. - Debt securities, currently classified as available-for-sale, are expected to be measured at FVOCI under WRS 9 as the Group expects to hold these assets under the business model to collect conncmal cash flows or to sell a significant amount on a relatively frequent basis. - Loans - There and receivables will continue to be held under the business model to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under WItS 9. Therefore, reclassification for these instruments is not required. will be no impact on the Group s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The derecognidon rifles have been transferred from las 39 Financial lasmiments: Recognition and Measurement and have not been changed. 15 F-43

266 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FTNM JCIAL STATEMENTS At31 December SIGNWICAYT ACCOUNTING POLICIES (continued) 2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) JFRS 9 Financial Instruments (continued) (b) Impairment of financial assets IFRS 9 replaces the incurred loss model in las 39 with a forward-looking expected credit loss ( ECL ) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. Under IERS 9, the impairment requirements apply to financial assets measured at amortised cost, debt instruments classified as fair value through other comprehensive income and certain loan commitments and financial guarantee contracts, At initial recognition, allowance is required for expected credit losses ( EeL ) resulting from default events that arc possible within the next 12 months ( 12-month ECL ). In the event of a significant increase in credit risk, allowance is required for ECL resulting from all possible default events over the expected life of the financial instrument ( lifetime ECL ). The Group will determine the potential impact of the expected provision for credit losses in accordance with IFRS (9) during the period ended 31 March The Group will also comply with instructions that shall be issued by the Central Bank of Kuwait in this regard. (c) Hedge accounting The hedging requirements of WRS 9 are not expected to have a significant impact on Group s consolidated financial statements, (d) Disclosure The new standard also introduces expanded disclosure requirements and changes inpresentatioa These are expected to change the nature and extent of the Group s disclosures about its financial instruments particularly in the year of the adoption of the new standard. The Group s assessment included an analysis to identify data gaps against current process and the Group has implemented the system and controls changes that it believes are necessary to capture the required data. IFRS 15; Revenuefrom Contracts with customers WRS 15 was issued by IASB on 28 May 2014, effective for annual periods beginning on or after 1 January 2018, IFRS 15 supersedes las 11 Constsuction Contracts and las 18 Revenue along with related IFRIC 13, IFRIC 15, WRJC 18 and SIC 31 from the effective date. This new standard removes inconsistencies and weaknesses in previous revenue recognition requirements, provides a more robust framework for addressing revenue issues and improves comparability of revenue recognition practices across entities, industhes,juhsdictions and capital markets. Revenue under WRS 15 will need to be recognised as goods and services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard will also specify a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and corresponding cashflows with customers. Based on the assessment, adoption ofwrs 15 is not expected to have any material effect on the Group s consolidated financial statements. Amendments to ffrs 10 and ; Sale or Contribution ofassets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and las 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in WRS 3, between an investor and its associate or joint venture, is recognised in fall. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively Disclosure Initiative Amendments to MS 7 The amendments to las 7 Statement of Cash Flows are part of the IASB s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. 16 F-44

267 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FiNANCIAL STATEMENTS M31 December SIGNifICANT ACCOUNRNG POLICIES (continued) 2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) MS 12 Recognition ofdeferred Tax Assets far Unrealised Losses Amendments to MS 12 The amendments claiiflj that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount Entities are required to apply the amendments retrospectively. These amendments are not expected to have any impact on the Group. LFRS 16 Leases IFRS 16 was issued in January 2016 and it replaces las 17 Leases,IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-Is Operating Leases-Jncentivec and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form ofa Lease. IFRS 16 sets out the principles for the recognitioa, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under LAS 17. The standard includes two recognition exemptions for lcssees leases of low-value assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease ftnn (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., n change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an ndjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today s accounting under las 17. Lessors will continue to classi& all leases using the same classification principle as in MS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under las 17. WRS 16 is effective for annual periods beginning on or after 1 January Early application is permitted, but not before an entity applies IFItS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard s transition provisions permit certain reliefs. The group is in the process of assessing the impact of IFRS 16 on its consolidated financial statements. 2.5 BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the Group as at 31 December each year and its subsidiaries as at the same date or a date not earlier than three months from 31 December. The financial statements of subsidiaries, associates and joint ventures arc prepared using consistent accounting policies and are adjusted, where necessary, to bring the accounting policies in line with those of the Group. MI significant intercompany balances and tiansactions, including unrealised profits arising fltm lana-group transactions have been eliminated on consolidation. a. Subsidiaries Subsidiaries are all entities over which the Group has control. The control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group rn-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one ormore of the three elements ofccntrol. Consolidation ofa subsidiatybegins when the Group obtains contit! over the suhsidiary and ceases when the Group loses control of the subsidiary. Refer note 18 for the list of major subsidiaries, their principal businesses and the Group s effective holding. 17 F-45

268 Business combinations art accounted for using the purchase method of accounting. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingencies but statement ofincome in the year of acquisition. reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the canying expected to benefit from the syncrgies of the combination, inrspective of whether other assets or liabilities of the translation differences, cash flow hedge and available-for-sale reserves and goodwill is recognised in the consolidated statement of income. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have and joint ventures are impaired. If this is the case, the Group calculates the amount of irnpaimient as the differencc disposal. Such gain or loss is recognised in the consolidated statement of income. net assets. Losses are allocated to the non-controlling interest even if they exceed the non-controlling interest s share transaction, of equity in the subsidiary. Transactions with non-controlling interests an treated as transactions with equity owners of the Group. A change in ownership interest in a subsidiary, without a loss of control, is accounted for as an equity consolidated statement of financial position. For each business combination, non-controlling interest in the acquiree Associates and joint ventures tights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an significant influence or Joint control with the aggregate of fair value of the retained investment and proceeds from Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is Business combinations and goodwifi Interest in the equity of subsidiaries not attributable to the Group is reported as non-controlling interest in the Where goodwill has been allocated to a CGU (or group of CGUs) and part of the operation within that wilt is disposed detemñning the gain or loss on disposal. Goodwill disposed ofin these circumstances is measured based on the relative Associates are all entities over which the Group has significant influence but not control, generally accompanying arrangement, which exists only when decisions about the relevant activities require unanimous consent of the panics necessary to determine control over subsidiaries. Investment in an associate and joint ventures are initially recognised at cost and subsequently accounted for by the equity method of accounting. The Group s share of its associates and joint ventures post-acquisition profits or comprehensive income is recognised in the consolidated statement ofother comprehensive income. The cumulative between the recoverable amount of the associate and joint venture and its carrying value and,ecognises the amount transaction is computed by comparing the carrying amount of the associate or joint venture at the time of loss of joint venture, the Group measures and recogniscs any retained investment at its fair value. Gain or loss on such When subsidiaries are sold, the difference between the selling price and the net assets plus associated cumulative sharing control. The considerations made in determining significant influence or joint control are similar to those losses is recognised in the consolidated statement of income, and its share of post-acquisition movements in other The Group determines at each reporting date whether there is any objective evidence that the investment in associate post-acquisition movements are adjusted against the canying amount of the investment. acquiree am assigned to those units, Each unit to which the goodwill is allocated represents the lowest level within the segment in accordance with WRS S Operating Segments. 23 BASIS OF CONSOLIDATION (continued) 2 SIGNWICANT ACCOUNTING POLICIES (continued) b. Non-contmllbig interest is measured either at fair value or at the proportionate share in the recognised amounts of the acqufree s identifiable 2.6 SUMMARY OF SIGNWICANT ACCOUNTING POLICEES excluding future resthuctuting) of the acquired business at fair value. Any excess ofthe cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognised directly in the consolidated value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cash generating units (CGUs) or group of CGUs, which are Group at which tho goodwill is monitored for internal management purposes, and is nor larger than an operating of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when fair values of the disposed operation and the portion of the CGU retained. a shareholding of between 20% and 50% of the voting rights. in the consolidated statement of income. Upon loss of significant influence or joint control over the associate or At31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.CP. and Subsidiaries 18 F-46

269 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLI])ATED FINANCIAL STATEMENTS At31 December STGNWICANT ACCOUNTING POLICES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currency translation The consolidated financial statements arc presented in Kuwaiti thnars, which is the Group s functional and presentational currency. Each entity in the Group detcmilnes its own fimctional currency and items included in the financial statements clench entity are measured using that fimctional currency. Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency rate of exchange riding at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are reursiated at the functional currency rate of exchange ailing at the financial position date. All differences are included within net gain/loss horn foreign currencies in the consolidated statement of income, with the exception of the effective portion of the differences on foreign currency borrowings that are accounted for as an effective hedge against a net investment in a foreign entity. These differences are recognised in other comprehensive income untii the disposal of the net investment, at which time, they are recognised in the consolidated statement of income. Tax charges and credits attributable to exchange diflbi-cnces on those monetary items am also recorded in other comprehensive income. Non-monetary items that are measured at historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition Non-monetary items measured at this value in a foreign currency use translated using the exchange rates at the date when the this value is determined. The gain or loss arising oarelmnslation ofnon-monetmy items is treated in line with the recognition of gain or loss on change in fair value of the itera Gmzq companies On consolidation the assets and Liabilities of foreign subsidiaries are translated into Kuwait Dinar at the raw ofexthange prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal, liquidation, repayment of share capital or abandonment of all, or part of a foreign subsidiary, the component of other comprehensive income relating to that particular is recognised in the consolidated statement of income. Any goodwill arising on the acquisition of a foreign subsidiary and any this value adjustments to the carrying amounts of assets and liabilities arising on the acquisition we treated as assets and liabilities of the foreign subsidiary and translated at the spot rate of exchange at the reporting date. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: i) Financing income is income from murabaha, istisna a, leased assets, wakala investments and is determined by using the effective profit method. The effective profit method is a method of calculating the amortised cost of a financial asset and of allocating the financing income over the relevant period. ii) Fee and commission income is recognised at the time the related services are provided. iii) Rental income from investment properties is recognised on an accruals basis. iv) Dividend income is recognised when the right to receive payment is established. v) Operating Jease income is recognised on a straight line basis in accordance with the lease agreement. vi) Gain from real estate investments includes gains from sale, transfer and distribution of investment properties, trading properties, and share of result of real estate joint ventures. Real estate gain is recognised when the significant risks and returns have been transferred to the buyer including satisfaction of all conditions of a contract 19 F-47

270 Kuwait, balances with banks and financial institutions, short-term murabaha contacts, cash in transit and exchange of deposits maturing within three months of contract date. The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at liability so as to achieve a constant rate of profit on the remaining balance of the liability, Finance charges are charged Group as a lessor Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. lower of cost or net realizable value determined on an individual basis. Investment properties are derecognised when either they have been disposed of or when the investment property is The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the consolidated Transfers are made to or from investment property only when there is a change in use. For a transfer from investment accordance with the policy stated under property and equipment up to the date of change in use. Properties under construction or development for future ace as investment properties are classified as investment properties and are carried at cost less any hupainnent in value. Costs an those expenses incurred by the Group that we directly attributable to the constnicflon of the asset Precious metals inventory primarily conrprises Gold and is carried at the thir value less cost to sell. Precious metals Inventory Trading properties Investment properties Properties under construction asset Operating lease payments are recognised as an expense in the consolidated statement of income on a straight line in the consolidated statement of income. Capilalised leased assets are depreciated over the estimated usefiñ lives of the the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease item, are capiffilised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of arrangement conveys a tight to use the asset Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased Leased assets are stated at amounts equal to the net investment outstanding in the leases. Trading properties are measured initially at cost Subsequent to initial recognition, trading properties are carried at the Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties an stated at depreciated cost less impairment. permanently withdrawn fitm use and no fiature economic benefit is expeeted from its disposal statement of income in the year of derecognition. property to property and equipment, the deemed cost for subsequent accounting is the carrying value at the date of Depreciation is provided on a straight-line basis over the estimated useffil lives, that range from years, of all rental properties other than fleehold land which is deemed to have an indefinite life. to trading properties at carrying value. When the Group begins to redevelop an existing investment property with a view to selling the property, it is transferred Opethtin leases to be equal or lower than this value of such assets at the time when such option is exercised. Lncepuon date: whether flulfilment of the nngmncnt is dependent on the use of a specific asset or assets or the Leases Leased assetr Cash and cash equivalents comprise cash, balances with Central Banks, tawamiq balances with the Central Bank of Group as a lessee basis over the lease term. This represents net investment in assets Jeased for periods which either approximate or cover a major pan of the economic lives of such assets, The lease agreements provide a purchase option to lessees at a pricc equal or expected change in use. If property and equipment becomes an investment property, the Group accounts for such property in Cash and cash equivalents 2.6 SUPFDL4RY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2 SIGNIFICANT ACCOUNTING POLICIES (continued) AtM December2017 NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries 20 F-48

271 Kuwait Finance House KS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS P.131 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNWICAJcT ACCOUNTING POUCIES (continued) Financial Instruments Initial recognition and subsequent measurement The Group s financial assets are classified, at initial recognition, as financing receivables, trade receivables, Financial assets available for sale (AFS), Venture capital at fair value through statement of income, or as derivatives as appropriate. An financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through the consolidated statement of income, transection costs that are attributable to the acquisition of the financial asset The Group s financial liabilities include trade payables, accrued expense, financial guarantee contracts and derivative financial hisnments. AU financial liabilities are recognised initially at fair value All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time flame generally established by regulation or convention in the market place. Financing receivables Receivables are financial assets originated by the Group and principally comprise murabahas, istisna a, wakala receivables and leased assets, These are stated at amortised cost Mumbaba is the sale of commodities and real estate at cost plus an agreed profit mark-up whereby the seller informs the purchaser of the price at which he purchases the product and also stipulates an amount of profit These are stated at amortised cost. lstisna a is a sale contract between a contract owner and a contractor whereby the contractor based on an order from the contract owner undertakes to manufacture or otherwise acquire the subject matter of the contract according to specifications, and sells it to the contract owner for an agreed upon price and method of settlement whether that be in advance, by instalments or deferred to a specific future time, Wahia is an agreement whereby the Group provides a sum of money to a customer under an agency arrangement, who invests it according to specific conditions in return thr a fee. The agent is obliged to return the amount in case of default, negligence or violation of any terms and conditions of the wakala. Trade receivable Trade receivables that primarily relate to subsidiaries in busincsses other than financing arc carted at amounts due, net of amounts estimated to be uncollecuble. An estimate for doubthñ accounts is made when collection of the flail amount is no longer probable. Bad debts are written off as incurred. This is included in other assets (Note 15). Financial assets availablefor sale (AFS) Financial assets available for sale include equity investments and debt securities (i.e. Investment in Sukook). Equity investments classified as available for sale are thosc, which we neither classified as held for trading nor designated at fair value through consolidated statement of income. Debt securities in this category are those which are intended to be held for ml indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, financial assets available for sale are subsequently measured at fair value. Unrealised gains and losses are recognised directly in the consolidated statement of other comprehensive income in the available-for-sale reserve. When the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the consolidated statement of income. Profit earned whilst holding available-for-sale financial investments is reported as financing income using the ER which takes into account any discount/premium and quali1ing transaction costs that are an integral part of the instrument s yield. Dividends earned whilst holding available-for-sale financial invesmients are recognised in the consolidated statement of income when the right of the payment has been established. The losses arising from impainnent of such investments are recognised in the consolidated statement of income in impairment losses on financial investments and removed from the available-for sale reserve. Venture capital at fair value through statement of income Certain investments in joint ventures held directly or indirectly through venture capital segment ale not accounted for using equity method, as the Bank has elected to measure these investments at fair value through statement of income in accordance with las 39, using the exemption of LAS 28: Tnvesunents in associates and joint ventures. Venture capital at fair value through statement of income are carried in the consolidated statement of financial position at fair value with net changes in fair value presented as unrealized gain (loss) in the consolidated statement of income. 21 R49

272 Financial instruments 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUZ%DMRY OF SIGNIFICANT ACCOUNTING POLICIES (continued) mihai recognition and subsequent mesauremcnt (continued) Short-term murababas axe financial assets originated by the Group and represent commodity mwabãba transactions am stated at amorfised cost. the frtnt for goods whether or not billed to the Group. In the ordinary count of business, the Group gives financial guarantees, consisting of letters of credit, guarantees A financial asset (or where applicable, a part of a financial asset or pad of a group of similar financial assets) is Tbe Group has transferred its tights to receive cash flows from the asset or has assumed an obligation to (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but the Group continues to recognise the transferred asset to the extent of the Group s continuing involvement In that to repay. the terms of an existing liability are substantially modified, such an exchange or modification is treated as a a net basis so as to realize the assets and liabilities simultaneously. amount recognised less cumulative amortisation. arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither on a basis that reflects the rights and obligations that the Group has retained. original carrying amount of the asset and the mwdmum amount of consideration that the Group could be required position when there is a legally enforceable right to set off the recognised amounts and the Group intends to settle on arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through The tights to receive cash flows from the asset have expired, or Financial guarantees Dc-recognition of financial assets and financial liabifides Trade payable relates to non-financial subsidiaries of the Group. Liabilities axe recognised for amounts to be paid in Accrued expenses higher of the best estimate of the expenditure rcquired to settle the present obligation at the reporting date and the derecognised where: pay the received cash flows in full without material delay to a third party under a pass-through has transferred control of the asset transferred nor retained substantially nfl of the risks and rewards of the asset, nor transferred control of the asset, Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured Short-term murabahas with high credit quality banks and financial institutions maturing within one year of the financial position date. These Trade payable Liabilities are recognised for amounts to be paid in the frtme for services received whether or not billed to the Group. and acceptances. Financial guarantees are initially recognised as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing fmancial liability is replaced by another from the same lender on substantially different terms, or amounts is recognised in the consolidated statement of income. Financial assets and financial liabilities axe only offet and the net amotmt reported in the consolidated financial Offsetting dencognition of the original liability and the recognition of a new liability. The difference in the respective carrying At31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries 22 F-50

273 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS AtM December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Derivative financial instruments and hedge accounting Derivatives not designated as hedges: Currency swaps, profit rate svaps, forward foreign exchange and forward commodity contracts instruments ( the mswuments ) are initially recognised in the consolidated statement of financial position at cost (including transaction costs) and subsequently measured at their fair value. The fair value of these instruments includes unrealized gain or lass from marking to market the instruments using prevailing market rates or internal pricing models. The instruments with positive market values (unrealised gains) are included in other assets and the instruments with negative market values (unreajised losses) are included in other liabilities in the consolidated statement of financial position. These instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the für value of these instruments are taken directly to the consolidated statement of income. Derivatives designated as hedges: For the purpose of hedge accounting, hedges are classified as: Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an umtcognised firm commitment Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment Hedges of a net investment in a foreign operation. Cash flow hedger: The effective portion of the gain or loss on the hedging instrument is recognised in the consolidated statement of other comprehensive income, while any ineffective portion is recognised immediately in the consolidated statement of income. Amounts recognised as other comprehensive income are transferred to the consolidated statement of income when the hedged transaction affects profit or loss. When a hedging instrument expires, is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss that has been recognised in the consolidated statement of other comprehensive income at that time remains in the consolidated statement of other comprehensive income and is recognised when the hedged forecast transaction is ultimately recognised in the consolidated statement of income, When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in the consolidated statement of other comprehensive income is immediately transferred to the consolidated statement of income. Hedger ofa net investment: Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, an accounted 11w in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised as other comprehensive income while any gains or losses relating to the ineffective portion are recognised in the consolidated statement of income. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity are transferred to consolidated statement of income Embedded swaps and profit rate contracts: Embedded swaps and profit rate instruments (the forwards) are separated from the host contract if the economic characteristics and risks of the forwards are not closely related to the economic characteristics and risks of thc host contract, a separate instrument with the same terms as the forwards would meet the definition of a derivative and the hybrid instrument is not measured at fair value with changes in fair value recognised in the consolidated statement of income. 23 F-51

274 Kuwait Finance House KS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FNANCIAL STATEMENTS At31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOLJNTH 1G POLICIES (continued) Derivative financial Instruments and hedge accounting (continued) At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument s fair value in offsetting the exposure to changes in the hedged item s fairvalue orcash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offictting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a prospective basis and demonstrate that it was highly effective (retrospective effectiveness) for the designated period in order to quali for hedge accounting. A formal assessment is undertaken both at inception and at each quarter end on an ongoing basis. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated were offset by the hedging inst-ument in a range of 80% to 125% and were expected to achieve such offset in future periods. For situations where the hedged item is a forecast transaction, the Group also assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated statement of income. Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired ifthere is objective evidence ofimpairment as a result of one or more events that have occurred art the initial recognition ofthe asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include: indications that the borrower or a group ofborrowers is experiencing significant financial diffictlty the probability that they will enter bankruptcy or other financial reerganisatiorn default or delinquency in profit or principal payments; and where observable data indicates that there is a measurable decrease in the estimated ffimre cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amartlscd cost For financial assets carried at amoriisd cost the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objectivc evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment Assets that am individually assessed for impairment and for which an impairment loss is, or continues to be, recognised am not included in a collective assessment of impainnent. The amount of any impairment loss identified is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original effective profit rate. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in consolidated statement of income. Financing receivables together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred In the Group. U in a smbsequeut year, the amount of the estimated impainncnt loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account If a write-off is later recovered, the recovery is credited to provision charged in the consolidated statement of income. 24 F-52

275 measured Kuwait Finance House LS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FII4AJ JCIAL STATEMENTS At31 Dcccmber SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUImSIAI{Y OF SIGNIFICANT ACCOUNTING POLICIES (continued) Lwpainncnt of financial assets (continued) Financial assets carried at amonised cast (cantimwd) In addition, in accordance with Central Bank of Kuwait instructions, a minimum general provision on all finance facilities net of certain categories of collateral, to which CBK instructions are applicable and not subject to specific provision, is made. Financial assets available fur sale and investment in subik For available for sale financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a Gioup of invcstments is impaired. In the case of equity investments classified as financial assets available ibr sale, objective evidence would include: * A significant or prolonged decline in the fair value of the investment below its cost and/or Other information about the issuer that may negatively affect an equity issuer s performance Significant is to be evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the impairment loss as the diflèrence between the acquisition cost and the cuirent Ilk value, less any impairment loss on that investment previously recognised in the consolidated statement of income is recognised in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income; increases in their fair value after impairment are recognised directly in other comprehensive income. In the case of sukook investments classified as available for sale, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current flir value, less any impairment loss on that investment previously recognised in the consolidated statement of income. 1f in a subsequent year, the fair value of a sukook increases and the increase can be objectively related to an event occurring afler the impairment loss was recognised in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and any impairment in value. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. MI other repairs and maintenance am charged to the consolidated statement of income during the financial year in which they are incurred. Freehold land is not depreciated. Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useflil lives, as follows: Buildings 20 years Furniture, fixtures aad equipment 3-5 years Motor vehicles 3 years The assets residual values, usethl lives and methods of depreciation arc reviewed, and adjusted if appropriate, at each financial year end. Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. My gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposnl proceeds and the carrying amount of the asset) is recognised in the consolidated statement of income in the year the asset is derecognised. Properties under development Properties under development are carried at cost less any impairment in value. Costs are those expenses incurred by the Group that are directly attributable to the construction of asset. Once completed the asset is transferred to buildings. 25 F-53

276 expense on leasehold rights is recognised in the consolidated statement of income. Gains or losses arising from derecognifion of an leasehold right are measured as the difference between the net economic benefits that are attributable u it will flow to the Group. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired intangible assets, excluding capitalized development cost, are net capitalized and expenditure is reflected in the consolidated statement of income in the year in which the expenditure is inniuei treated as changcs in accounting estimates. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either we carried at cost less any accumulated amonisafion and any accumulated impairment losses. indication that the leasehold rights may be impaired. The amortisalion period and the amortisation method for leasehold tights is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amothsation when the asset is derecognised. disposal proceeds and the carrying amount of the right and are recognised in the consolidated statement income Leasehold rights acquired are measured on initial recognition at cost FolLowing initial recognition, leasehold rights Leasehold rights are amorfised over their useful economic life and assessed for hupainnent whenever there is an Leasehold rights Intangible assets 2 SIGNiFICANT ACCOUNTU 1G POLICES (continued) 2.6 SUMMARY OF SIGNIFICANr ACCOUNTING POLICWS (continued) An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future in a business combination is its fuix value as at the date of acquisition. Following initial recognition, intangible assets we carried at cost less any accumulated amortization and accumulated impairment losses, if any. Internally generated values over their estimated useful lives, as follows: in the asset, are accounted for by changing the amortisation period or methodology, as appropriate, which are then Intangible assets with finite lives are amorfised over the useful economic life. The nortisation period and the Changes in the expected useful life, or the expected pattern of consumption of future economic benefits embodied The useful lives of intangible assets are assessed to be either finite or indefinite. Amortisadon is calculated using the straight line method to write down the cost of intangible assets to their residual amortization method for an intangible asset with a finite useful life are reviewcd at least at each financial year-end. At31 December2017 NOTES TO THE CONSOLIDATED FNANCIAL STATEMENTS Kuwait Finance House LSC.P. and Subsidiaries when the asset is derecogrilsed. A previously recognised impairment loss is reversed only if there has been a change disposai proceeds and the canying amount of the asset and are recognised in the consolidated statement of income Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made Other rights 3-7 years License of Islamic brokerage company assessed to have an indefinite useful life Software development cost 3-5 years Software license right 15 years on a prospective basis. in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognised. 26 F-54

277 Kuwait Finance House K.SC.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLTCIES (continued) Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and then its recoverable amount is assessed as part of the cash-generating unit to which it belongs. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is written down to its recoverable amount In assessing value in use, the estimated &ture cash flows are discounted to theft present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cashgenerating twit). In determining fr value less costs to sell an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impainnent calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five yearn. For longer periods, a long-term growth rate is calculated and applied to project ffitwe cash flows after the fifth year. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset s or CGU s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognised. The reversal is UmiLed so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of income. Goodwill is tested for impainnent annually as at 31 December and when circumstances indicate that the canying value may be impaired. ftnpainnent is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. hnpaüment losses relating to goodwill cannot be reversed in future periods. Taxation income tax payable on taxable profit ( current tax ) is recognised as an expense in the period in which the profits arise in accordance with the fiscal regulations of the respective countries in which the Group operates. Deferred tax assets are recognised for deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent it is probable that taxable profit will be available to utilise these. Deferred tax liabilities are recognised for taxable temporary differences. Deferred tax assets and liabilities are measured using tax rates and applicable legislation enacted at the reporting date. Non-current assets held for sale and disposal groups The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally tough a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell, The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to quali for recognition as a completed sale within one year from the date of classification. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after lax from discontinued operations in the consolidated statement of income. 27 F-55

278 Otherfinancial assets and liabilities market to which the Group has access at that date. When available, the Group measures the fair value of an instrument using the quoted price in an active market for relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation reporting period. Financial assets with no reliable measures of their fair values and for which no fair value information couid be obtained are carried at their initial cost less impairment in value, if any. volume to provide pricing information on an ongoing basis. (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each bid price and liabilities at an ask price. If an asset or liability measured at fair value has a bid price and an ask price, then the Group measures assets at a if there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and that instrument. between market participants at the measurement date in the principal or, in its absence, in the most advantageous Fair value is the price that would be received to sell an asset or paid te transfer a liability in an orderly transaction 2.6 SUMMARY OF SIGNifICANT ACCOUNTING POLICIES (continued) 2 SIGNIFICANT ACCOUNTING POLICIES (continued) At31 December2017 Fair value measurement NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House LS.C.P. and Subsidiaries materials, direct labour and an appropriate allocation of overheads, plus attributable profit to the extent that it is completion, and less any amounts received or receivable as progress billings. reasonably certain less provision for contingencies and any losses incurred or foreseen in bringing contacts to Due from/to customers of contracting subsidiaries for uncompleted contracts represents costs, which comprises direct Due fromfto customers for contract work For investment properties, fair value is determined by independent registered reai estate valuers who have relevant experience in the property markct. Inveshnentpropenies For other financial assets and liabilities, fair value is determined based on expected figure cash flows and or a liability sewed to the satisãction of creditors. management s estimate of the amount at which these assets could be exchanged for cash on an ann s length basis determined based on valuations obtained from counterpartyfthird panics. Currency swaps, profit rate swaps, forwardfo reign exchange andfanvard commodity contracts The fair value of currency swaps, profit rule swaps, forward foreign exchange and forward commodity contacts are an earnings multiple, or an industry specific earnings multiple or is based on the expected cash flows of the reference to recent aim s length transactions, current fair value of another instrument that is substantially the same, For financial assets where there is no quoted market price, a reasonable estimate of the fair value is determined by investment discounted at current rates applicable for items with similar terms and risk characteristics. Fair value estimates take into account liquidity constraints and assessment for any impairment. quoted market bid prices at the close of business on the reporting date. For investments traded in organized financial markels, fair value is determined by reference to stock exchange Fin a,cial assets availablefor sale 28 F-56

279 Group Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO ThE CONSOLIDATED Ffl L&NCIAL STATEMENTS At31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Finance cost Finance cost is directly attributable to due to banks and financial institutions and depositors accounts. Mt finance costs are expensed in the period they occur. Other provisions and reserves Otherprovisions and reserves are recognised when the Group has a present obligation (legal or consmicffve) as aresult of a past event, it is probable that an outflow of resomees embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any reserve provision is presented in the consolidated statement of income net of any reimbursement Reserves for maintenance Provisions for maintenance related costs are recognised when the service is provided. Initial recognition is based on historical experience. The initial estimate of maintenance-related costs is revised annually. Employees end ofservice benefits The Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees final salary and length of semct. The expected costs of these benefits are accrued over the period of employment. Treasury shares The Bank s holding of its owii shares are accounted for as lreaswy shares and are stated at purchase consideration including directly attributable costs. When the treasury shares we sold, gains arc credited to a separate account in equity (treasury share rcserve) which is non distributable. Any realised losses are charged to the same account to the extent of the credit balance on that account. No cash dividends an distributed on these shares. The issue of bonus shares increases the number of shares proportionately and reduces the average cost per sham without affecting the total cost of treasury shares. Fiduciary assets The Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and accordingly are not included in the consolidated statcmcnt of financial position. These ax disclosed separately in the consolidated financial statements. Judgments In the process of applying the Group s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant eact on the amounts recognised in the consolidated financial statements: Operating lease commitments as lessor The Group has entered into commercial property leases on its investment property porttbio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases Classification of real estate Management decides on acquisition of a developed and under development real estate property whether it should be classified as trading, investment property or property arid equipment The Group classifies property as trading property if it is acquired principally for sale in the ordinary course of business or when it is being redeveloped for sale. The Group classifies property as investment property if it is acquired to generate rental income Dr for capital appreciation, or for undetennined future use. The Group classifies property as property and equipment when it is acquired for owner occupation. Impairment offinancial assets availablefor sale The Group treats financial assets available for sale equity investments as impaired when there has been a significant or prolonged decline in the thir value below its cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires considerable judgement In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount ffictors for unquoted equities. 29 F-57

280 that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within Impairment ofgoodwill and intangible assets with indefinite useflul?l& use requires the Group to make an estimate of the expccted future cash flows fiom the cash-generating unit and also estimation of recoverable amount requires the Bank to make an estimate of the expected future cash flows and recent ant s length market transactions; estimation. There are a number of investments where this estimation cannot be reliably determined. Ma result, Gain on sale of investments 47,159 6,656 Note 13) 13,203 10,934 Other investment income 13,727 30,067 The Group determines whether goodwill and intangible assets with indefinite useflil life nit impaired at least on an The Group reviews its finance facilities on a quarterly basis to assess whether a provision for impairment should be the expected cash flows discounted at current rates applicable for items with similar terms and risk The determination of the cash flows and discount actors for unquoted equity investments requires significant these investments are carried at cost less impairment. Share of results of investment in associates and joint ventures (Note 12 and Dividendincome 5,345 5,681 Impairment ofinvestment prapenies and trading prapenies: Impairment losses onfinancefacilities Valuation of unquoted equity investments is normally based on one of the following: that those assets have suffered mi impairment loss if the fair values are below than the carrying values. The Bank The Bank reviews the carrying amounts of its investment and trading properties to daenninc whether that is an indication annual basis. This requires an estimation of the value in use of the cash-generating units. Estimating the value in value if there is any objective evidence that the investment in associates or joint ventures are impaired. The Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such provisions. Valuation of unquoted equity investments the next financial year are discussed below. management determines the main appropriate techniques and inputs required fur measuring the fair value using observable market data and as appropriate, the Bank uses external valuers qualified to do the valuation. in the estimation of the amount and timing of future cash flows when determining the level of provisions required. The key assumptions concerning the flutist and other key sources of estimation uncertainty at the reporting date, Impairment ofinvesan en: in associates andjoint ventures Tbe Bank calculates the amount of impairment as the difference between the recoverable amount and its carrying selection of appropriate inputs for valuation. recorded in the consolidated statement of income. In particular, considerable judgement by management is required current fair value of another instrument that is substantially the same; characteristics; or other valuation models. Estimation uncertainty 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) an earnings multiple; Rentai income from investment properties 14,328 13,338 Gain on sale of real estate investments 12,809 12,209 KD 000 s 2 SIGNIFICANT ACCOUNTING POLICES (continued) to choose a suitable discount rate in order to calculate the present value of those cash flows. 3 INVESTMENT INCOME At31 December2017 NOTES TO THE CONSOLrDAThD FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Suhsithañes 30 F ,571 78,

281 Kuwait Fbiance House K.S.C.P. and Subsidiaries NOtES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December OTHER INCOME Income from sale of property and equipment Real estate trading, development and construction income Income from maintenance, services and coasultancy Rental income from operating lease Ocher income SD 000 s ,193 4,274 8,061 3,240 12,198 13,606 7,647 7,958 16,542 4,902 47,641 33,980 S PROVISIONS AND IMPAIRMENT RD 000 s Impairment on financing receivables (Note 10) Recovery of written-off debts Impairment of financial assets available for sale Impainnent of associates and joint ventures Impairment of investment properties (Note 14) Impairment of property and equipment Impairment of intangible assets and goodwill (Note 16) Impairment of non-cash theiifles (Note 10) Impairment of trading properties Impairment ofother assets and other provisions 90,910 (22,735) 16,768 1,407 15, ,183 2,581 44, ,337 (73,180) 26,927 3,157 3,425 14,268 5,202 12, , , ,198 * The comparative figure relating to the prior year includes reclassified provision amounting to KU relating to impairment loss recognised on discontinucd operations. 16,570 thousand 6 TAXATION Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS) National Labour Support Tax (NLST) Zakat (based on Zakat Law No. 46/2006) Taxation related to subsidiaries RD 000% ,774 4,008 1,950 21,858 1,731 3,624 1,762 16,076 29,590 23,193 7 BASIC AND DILUTED EARNINGS PER SHARE ATrRThUTAELE TO TIlE SHAREHOLDERS OF THE BANK Basic and diluted earnings per share is calculated by dividing the profit for the year attributable in the shareholders of the Bank by the weighted average number of ordinary shams outstanding during the year after adjusting for treasury shares held by the Group. Basic and diluted earnings per share: Profit for the year attributable to shareholders of the Bank (thousand KU) 184, ,228 Weighted avenge number of shares outstanding during the year (thousands sham) Basic and diluted earnings pa share attributable to the shareholders of the Bank 5,682, ma 5,677, fils 31 F-59

282 current Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AtM December BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO THE SHAREHOLDERS OF TILE BANK (continued) Basic and diluted earnings per share from continuing operations: Profit for the year from continuing operations attributable to shareholders of the Bank(thousandKfl) 185, ,515 Weighted average number of shares outstanding during the year (thousands 5,682,662 5,677,734 Basic and diluted earnings per share from continuing operation atthbutable to the shareholders of the Bank fib fib The comparative basic and diluted earnings per share have been restated for bonus shares issued (Note 23). The Bank has no dilutive potential shares. As there an no dilutive instruments outstanding, basic and diluted earnings per share are identical. 8 CASH AND BAI..ANCES WITH BANKS KB DOG s Cash 258, ,707 Balances with Central Banks 591, ,371 Balances with banks and financial institutions accounts 412, ,579 Cash and balances with banks and fmancial institutions 1,262,456 1,494,657 Sbort-term murabaha maturing within 3 months of contract date 805,930 1,129,812 Cash with banks attributable to discontinued operation (Note 17) 14,606 32,152 Less; Statutory deposits with Central Banks (716,102) (564,510) Cash and cash equivalents 1,366,890 2,092,111 Statutory deposits with Central Banks represent balances that are not available for use in the Group s day-to-day operations. The fair values of cash and balances with banks do not differ from their respective book values. 9 SHORT-TERM MURABAIIA 1W QUO s Short-termmunbahawithbanks 836,525 1,282,623 Short-term murabaha with Central Banks 2,088,804 1,594,618 2,925,329 2,877,241 The fair value of short-term murabaha is not materially different from their respective carrying value. 32 F-eD

283 Kuwait Finance House LS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December FINANCING RECEWABLES Financing receivables principally comprise mumbaha, wakala, leased assets, and are slated net istisna a balances of impairment as follows: KD000 s Tstisna a and other receivables 102, ,186 10,950,501 9,828,968 Less: deferred and suspended profit (1,289,618) (1,127,413) Netreceivables 9,660,883 8,701,555 Less: impairment (444,408) (525,766) 9,216,475 8,175,789 Impairment for financing receivables is analysed as follows: 1(0 000 s Spec(fic General Tofu! Balanecasatbeginningofycar 228, , , , , ,223 Provided during the year (NoteS) 106, ,243 (15,924) 9,094 90, ,337 Amounts written off and foreign currency translation (168,211) (52,400) (4,057) (5,394) (172,268) (57,794) Balance as at end of year 166, , , , , ,766 Provision charged for the year on non-cash facilities is IC) 15,183 thousand (2016: lcd 12,435 thousand) (Note 5). The available provision balance on non-cash facilities of lcd 46,341 thousand (2016: KD 31,588 thousand) is included under other liabilities (Note 20), The fair values of financing receivables do not materially differ from their respective book values. The thmre minimum lease payments receivable in the aegate are as follows: ED 000 s Withinoneyear 977, ,532 One to five years 334, ,154 After five years 535, ,271 1,847,974 1,675,957 Non-performing financing facilities As at 31 December 2017, non-performing cash finance ficilities before impainnent (net of deterred profit and suspended profit) amounted to KD 276,224 thousand (2016: lcd 252,036 thousand). 33 F-61 Murabaha and wakala 8,048,825 8,999,840 Leased assets 1,847,974 1,675,957 Financing receivables

284 10000 s individually immaterial: Managed portfolios 70,556 92,592 Venture capital at fair value through statement of income 39,648 58, , ,521 Financial assets available for sale at fair value 168, ,844 Financial assets available for sale can-led at cost less impairment 96, ,447 Venture capital at fair value through statement of income 39,648 58,230 The following table illustrates the summarised aggregate infotmation of the Group associates, as all associates are Unquoted equity investments 96,966 12,620 service services INVESTMENT ]N ASSOCIATES The major associates of the Group ale as follows: equity % registradon acivides reporting date Interest in Country of J4ine4ial Financial statements Bank s investment in 96,008 thousand shares (2016: 100,319 thousand shares) of the Bank on behalf of depositors, ED 000 s Included in managed portfolios awotmt of KD 55,301 thousand (2016: KU 54,172 thousand) which represents the U INVESTMENTS At31 December2017 NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries Carrying amount of the investment 288, ,352 Equity 1,009,644 1,103,798 Liabilities (3,618,076) (3,151,381) Assets 4,627,720 4,255,179 Aviation lase and Finance Company Kuwait Aircraft leasing 30 September 2017 equivalent to 1.67% of the total issued share capital at 31 December 2017 (2016: 1.91%). The results ifom activities relating to dealing in these shares are attributed only to the depositors, and hence these shams an classified under nvesm1enta. Quotedeqyinvestments 25,675 43,626 Mutual funds 71,448 49, Summarised consolidated statement offinancial vosition: }CS.C.P. (ALAFCO) and financing 34 F-62 IbdarBankB.St Bahrain lslamicbanldng 30 September2017 Emirates serviccs Shaijab Islamic BankPJ.S.C. 2a 20 United Anb Islamic banking 30 September , ,521

285 Kuwait Finance House K.S.C.P. and Subsidiaries At31 December2017 NOTES TO THE CONSOLIDATED F[NANCIAL STATEMENTS 12 INVESTMENT IN ASSOCIATES (continued) LCD 000 s ? 356,354 Revenues Expenses 54, ,844 (261,558) 27,286 Profit for the year 3,610 Group s share of profit for the year thousand). (302,336) 4, INVESTMENT IN JOINT VENTURES The majorjoint ventures of the Group are as follows: Summarised consolidated statement ofincome: Investments in associates with a canying amount of 1W 236,492 thousand (2016; 1W 220,475 thousand) have a marketyalue oflw 235,197 thousand at 31 December2017 (2016: KD206,t IS thousand)basedonpublishedquotes. Dividends received from the associates during the current year amounted to 1W 3,288 thousand (2016: lcd 3,985 Diyar Homes Company W.L.L (Souq Al Muharmq) Al Dumdt Al TijariaCmnpany W.LL Diyar Al Muharmq Company W.LL development Dabrain Real estate development 3! October2017 3! October Bahmin Real estate dcvclopm em so sa Bahrdin fteal estate 31 October2017 Summarised consolidated statement offinancial po.cition: Assets Liabilities Equity Carrying amount of the investment Summarised consolidated statement ofincome: ID 000 s 20!? ,728 Revenues 80,240 (85,334) Expenses (63,947) Profit for the year 16,293 Group s share of profit for the year 8,408 Dividends received from the joint ventures during the current year amounted to 1(1) 2,207 thousand (2016: Nil). F-6 3 Interest hi Counay of iwnc4ml Fbi ancial slateme,its equity % registration activities date reponhig the Group joint ventures, as joint The following table illusntes the summarised aggregate information of K! 000 S 201? 2016 ventures am individually immaterial: 863, (482,728) (444,729) 380, , , ,116 14,394 7,324 35

286 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December INVESTMENT PROPERTIES As at) Januazy Additions Transfer to trading properties Disposals Discontinued operations Depreciation charge for the year Impairment (NoteS) Mat 31 December KD 000 s , ,499 7,811 65,221 (1,377) (1,962) (20,821) (9,062) (33,419) (6,913) (7,051) (15,160) (3,425) 554, ,801 KD 000 s Developed properties Properties under ccnsthiction 421, , , , , , OTHER ASSETS Precious metals inventory Trade receivable Clearing accounts Receivables on sale of investment Deferred tax Advances and prepaymeuts Other miscellaneous assets KD 000 s ,776 70, , , , ,902 22,601 47,342 24,564 23,214 76,222 59, , , , WTANGmLE ASSETS AND GOODWELL Intangible assets Goodwill lcd 000 s ,010 32,453 6,649 6,722 38,659 39,175 Movement of intangible assets is as fouows: Cost As at 1 January Additions Disposal Impairment As at31 December KD 000 s ,588 77,752 6,596 3,958 (3,685) (4,936) - (5,186) , F-64

287 Kuwait Finance House FLS.C.P. and Subsidiaries NOTES TO THE CONSOLDATED FINANCIAL STATEMENTS At31 Dcccmbcr2oll 16 INTANGIBLE ASSETS AND GOODWILL (continued) Accumulated amortization Net book value Intangible asset include license of an islamic brokerage company amounting to KU thousand (2016: 1W 14,671 thousand) and is considered as an intangible asset with an indefinite useflul life. The can)thg value of the islamic brokerage license is tested for impairment on an annual basis by estimating the recoverable amount of the cash generating unit (CGU). The recovemble amount of the license has a been determined using discount rate of 10.12% (2016: 9.79%) and a terminal growth rate of 3.3% (2016: 3%). As a result, the management believes there are no indications of any impairment in value. Other intangible assets amounting to lcd 17,339 thousand (2016:1W 17,782 thousand) represent software development cost, software license right and othertights with finite useful lives. Intangible assets with finite lives are amortised over their useful economic life. 17 DISCONTINUED OPERATIONS Investment Group (AIG). As a result, the consolidated statement of financial position at 31 December 2017 presents the assets and liabilities of MG as assets classified held for sale and liabilities directly associated with the assets classified as held for sale, respectively, in accordance with WRS 5 Non-current Assets Held for Sale and Discontinued Operations. statement of financial position. Held for Sale and Discontinued Operations. were partly syndicated. 37 F-65 N OOfl As at I January 39,135 36,530 Charge for the year 4,290 4,231 Disposals (936) (1,626) As at3l December 42,489 39,135 As at 31 December 32,010 32,453 On 30 June 2016, the Board of Directors of the Bank approved to sell the Group s interest hi its subsidiary Aref The major classes of assets of AIG comprise ofleasehold rights, investments in equities and real estate and liabilities comprise of due to banks and financial institutions and other liabilities. The Bank has presented MG assets classified as held for sale amounting to lcd 308,045 thousands and liabilities directly associated with the assets classified as held for sale amounting to LCD 185,319 thousands in the consolidated Dining the current year, the Board of Directors of a subsidiary approved to sell the company s interest in its subsidiary New Technology Bottling Company K.S.C (Closed) (NTBC). Ma result, the consolidated statement of financial position of the Bank as at 31 December 2017 presents the assets and liabilities of NTBC amounting to lcd 16,255 thousand and KD 2,570 thousand, respectively, as assets classified held for sale, and liabilities directly associated with the assets classified as held for sale, respectively, in accordance with IFRS 5 Non-current Assets During the year ended as at 31 December 2017, the Group has sold its entire holding in Public Services Company K.S.C. (Closed), and also certain subsidiaries established for syndication purpose and classified as held for sale

288 3S (Closed) Islands investment Islands services Kuwait Turkish Participation Turkey Islamic banking 31 December 2017 Bank services Financial 18.1 Details ofprindpal operating material mbsldiada 18 SUBSIDIARIES A131 December2017 Name reglsfration Principal activity reporting date NOTES TO THE CONSOLIDATED FNANCAL STATEMENTS Cunty of Interest in equity statement Kuwait Finance House K.S.CP. and Subsidiaries F-66 Al Salam Hospital K.S.C. Kuwait Healthcase services 30 September 2017 E amar Cayman Islamic investments 31 December2017 Automobile Trading export a fused cars Company K.S.C. (Closed) Gull Intemaffanal Kuwait Trading, import and 30 September 2017 software services International Turnkey Kuwait Computer 30 September 2017 (Closed) constfltancy and Systems Company K.S,C. maintenance, InvestmentCompanyS.S.C. Arabia developmentand Baitak Real Estate Saudi Real estate 30 September2017 (Closed) * investment Holding Company K.S.C industrial Development Enterprises Kuwait Inftasthicnut and 31 December 2017 management and real estate K.S.CP. investment, ndhig Al Enma a Real Estate Company Kuwait Real estate, 31 October2017 KS.C. (Closed) deveiopmcnt and KflI Real Estate Company Kuwait ReaJ estate 31 October2017 KFH Private Equity lid Cayman Islamic investments 31 December 2017 Company K.S.C. (Closed) investments 1(131 Capital Investments Kuwait Islamic finance and 31 October2017 S.S.C. (Closed) Arabia Saudi Kuwait Finance House Saudi Islamic investment 31 December 2017 via1aysia) Berhad services Kuwaitfinance [louse Malaysia Islamic banking 31 December2017 Kuwait Fine flouse BS.C. Bahnin Islamic banjdng 31 December 2017

289 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SUBSIDIARIES (continued) 18.1 Details ofprincipal operating material subsidiaries (continued) Financial Country of Interest in equity statements Name registration rrincipal activity reporting date Muthana 0CC Islamic Banks Fund Kuwait Islamic equity 30 September 2017 investments Muthana Islamic Index Fund Kuwait Islamic equity 30 September 2017 investments ArefInvestment Group Kuwait Islamic investments 30 September 2017 K.S.C.(Closed) Turkapital Holding B.S.C.(C) Bahmin Real estate, auto leasing 30 September 2017 and insurance KFH Financial Service Ltd. Cayman Islamic real estate 31 December 2017 Islands development and investments Public Service CompanylCS.C. Kuwait - 80 Management 30 September2017 (Closed) consultancy and services *Effective ownership percentage is 100% (2016: 100%). (a) During the current year, the Group sold its investment in Public Service Company K.S.C. (Closed) to a third party. (b) During the current year, the Group sold part of its ownership interest in Muthana Islamic Index Fund and Muthana 0CC Islamic Banks Fund. These disposals did not result in loss of control Matedalpanly-rnvned subsidiary Financial information of subsidiary thnt have material non-controlling interest is pmvided below: Proportion of equity Interest held by non-controlling Intercsts: Country of incorporation & operation Non controlling interest percentage Kuwait TurMth Participation Bank Turkey 38% 38% The summarised financial information of the subsidiary is provided below. This information is based on amounts before intra Group eliminations and adjustments. 39 F-6 7

290 40 a) The depositors accounts of the Bank comprise the following: 18 SUBSIDIARIES (continued) 19 DEPOSITORS ACCOUNTS Revenues Expenses Operating Financing (100,834) 104,398 Attributable to non-controlling interests Total liabilities Investing Summarised consolidated statement of financial position as at: Summarised consolidated statement of cash flows for year ended: Attributable to non-controlling interests Summarised consolidated statement of income for the year ended: Total equity TotaL assets , ,575 (315,552) (320,738) 58,346 57,837 RD 000 s 4,520,545 4,221,015 (72,793) 4,520 77,915 RD 000 s (139,326) 381, , , ,841 (32,561) 165,809 (4,139,073) (3,858,618) 22,031 21, Materialpartly-owned subsidiary (continued) At31 December2017 NOTES TO ThE CONSOLJDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries b) The fair values of depositors accounts do not differ from their canying book values. determines, or bear a share of toss based on the results of the financial year. In eli cases, the investment deposits receive a proportion of the profit as the board of directors of the Bank automatically renewable for the same periods unless notified to the conflry in writing by the depositor. Investment savings accounts an valid for an unlimited period. 2) Investment deposits: These have fixed matirity as specified in the term of the connct and are these deposits are considered Qard Hasan from depositors to the Bank under Islamic Shareea a. do they bear any risk of loss as the Bank guarantees to pay the related balances on demand. Accordingly, 1) Non-investment deposits in the form of current accounts: These deposits are not entitled to any profits nor Net (decrease) increase in cash and cash equivalents Profit for the year F RD 000 s

291 Kuwait Finance House KS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December OTBERLIABUATWS RD 000 s Tndepayahles 162, ,702 Accrued expenses 147, ,549 Certified cheques 48,613 56,763 Due to customers for contract work 29,877 25,012 Maintenance and other reserve 96,052 80,839 Employees end of service benefits 71,905 52,994 Refundable deposits 8,097 7,149 Provision on non cash facilities (Nato 10) 46,341 31,588 Other miscellaneous liabilities 88,956 71, , ,651 Dining the year amendments to Kuwait labor law no. 6 of 2010 concerning labor in private sector were published in the official gazette affecting the employees short term and post employment benefits. Accordingly, the Group has recorded additional liability for employee s end of service benefits amounting to IC) 17,618 thousand This amount has been recorded under staff costs in the consolidated statement of income. 41 F-69

292 Other Kb 000 s resents Total (34,389) 474, ,155 - (28,750) - 155,405 - (9,632) (57,657) (96,645) Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A131 December RESERVES StoiuW y Volunta,y Retained Eserw reserve earnings Treaswy Fair value Foreign achange shares reserve reserve trans/allan new Balanceasat I January2017 Profit tbrtheycar Other comprthensive loss Total compmhcnsivc income (loss) Zakat paid Trmmfer to ra,es Proposal issuance ofbonus sha,ts (Note 23) Proposed cash divida,ds (Note 23) Change of ownership interest without loss of contiol (Note 18) Nd movemeit in usuy shams 255, , ,099 6,735 25,728 (141,649) , ,155 - (9,682) (6,577) (22,173) - (6,577) (22,173) ,277 19,277 (38,554) (57,651) - (%,645J BMance.s at 31 Dcccmba , ,841 88,716 6,736 19,151 (163,322) (34,362) 466, F-70

293 RD 000 s psene reserve earnings shares reserve ten e translation re,en e reserves Total NOThS TO THE CONSOLIDAThD FINANCIAL STATEMENTS F-71 Kuwait Finance House K.S.C.P. and Subsidiaries Proposcdissuanccofbonusshart(NcIe23) - 21 RESERVES (continued) At 31 December2017 Pmfitfnrtheyr - SlaIuIrny Voluntary Retained Treasury Fair value Foreign exchange Other Balance as at I January , , ,579 7,084 17,729 (97,233) (23,596) 505, , ,228 Other comprehensive income Qcss) ,999 (44,416) (36,417) - 165,228-7,999 (44,416) - 128,811 (7,914) (7,914) sh Pmposal dividends (Note 23) - Acquisition ofnon-conuolling interests - - (87,755) (52,415) - - (87,755) - (10.793) (10,793) - (349) - TolalcomprebaisiveincomeQoss) - Zakntpaid (52.415) Balance Mat 31 December , ,564 07,099 6,735 25,728 (141,649) (34,389) 474,652 Na movement in nasury tharns - (349) - Transftoresesvas 17,312 17,312 (34,624) -

294 general assembly of thc shareholders of the Bank can approve an increase in the transfer of 10% each of the profit for discretion of the ordinary general assembly in ways that may be deemed beneficial to the Bank thstnbuflon of the balance of the statutory reserve is limited to the amount required to enable the payment of a dividend of 5% of paidup share capital to be made in yearn when accumulated profits are not sufficient for the payment of a dividend of that The ordinary general assembly meeting of the shareholders of the Bank held on 16 March 2015 approved to restrict The share premium balance is not available for distribution. account holders. The ordinary general assembly of the shareholders of the Bank held 0020 March 2017 approved 10% bonus shares on Number of shares In issue 31 December 5,765,693,556 5,241,539,597 the balance of statutory reserve and voluntary reserve up to 50% of the paid-up share capital and transfer amounts period of the treasury shares (Note 22). may be deemed beneficial to the Bank, except for the amount of KD 45,063 thousand (2016: 1(1) 48,824 thousand) which is equivalent to the cost ofpurchasing treaswy shares and is not available for distribution throughout the holding in excess of 50% of the paid-up capital from statutory reserve and voluntary reserve to retained earnings. amount the year attributable to the shareholders of the Bank to statutory and voluntary reserves, as appropriate, ifproposed by the board of directors of the Bank. Bank to statutory reserve in excess of 10%. Tn accordance with the articles of association of the Bank, the ordinary Only that part of the statitoty reserve in excess of 50% of paid-tip share capital is freely distributable and usable at the Voluntary reserve is available to be distributed to shareholders at the discretion of the general assembly in ways that Fair value reserve, foreign currency translation reserve and other reserve are attributable to both shareholders and deposit Authorized, issued and Silly paid in cash and bonus shares: Bonus shares issued 524,153, ,503,599 Number of shares in issue as at 1 January 5,241,539,597 4,765,035, Share capital ED 000 s outstanding shares amounting to KD 52,415 thousand for the year ended 31 December 2016 (Note 23). 5,765,693,556 (2016: 5,241,539,597) shares of 100 ifis each 576, ,154 The movement in ordinary shares in issue during the year was as follows: the ordinary general assembly resolved to suspend transfers ofpxcfit for the year attributable to the shareholders of the In the ordinary and extraordinary general assembly meeting of the shareholders of the Bank held on 14 March RESERVES (continued) 22 SHARE CAPITAL AND TREASURY SHARES At31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House LS.C.P. and Subsidiaries F-7 2

295 Kuwait Finance House K.S.C.P. and Subsidiaries 22 SHARE CAPITAL AND TREASURY SHARES (continued) Number of treasmy shares 80,699,163 79,473,239 Treaswy shares as a percentage of total shares in issue 1.40% 1.52% Cost of treasury shares (KB) 45,062,788 48,823,661 Market value of treasury shares (lcd) 46,482,718 42,915,549 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS M31 December2017 The Group held the kllowing treasury shares at the yrar-end: The balance in the treasury share reserve account is not available for distribution treasury shares. ills per share. An amount of KD 45,063 thousand (31 December 2016: lcd 48,824 thousand) equivalent to the cost of purchase of Theaswy shares and treasury share reserve. the frea.swy shares have been earmarked as non-disthbutahle flum voluntary reserve throughout the holding period of The weighted avenge market price of the Bank s shares for the year ended 31 December2017 was 566 (2016: 487) 23 PROPOSED CASh DIVIDENDS, BONUS SHARES, AND DIRECTORS FEES 17%) and issuance of bonus shares of 10% (2016: 10%) ofpaid up share capital as follows: 1W 000 s 2016 completion of legal formalities. Proposed dividends arc shown separately within equity. assembly of the shareholders of the Bank TheBoard of Directors of the Bank haspmposed a cash dividend of 17% for the year ended 31 December2017 (2016: Total 87,755 52,415 This proposal is subject to the approval of the ortlinaty general assembly of the shareholders of the Bank and The Board of Directors of the Bank has proposed Directors fees of KD 878 thousand (2016:1(0 772 thousand), (Note 26) are within the amount permissible under local regulations and we subject to approval by the annual general 24 CONTINGENCIES AM) CAPITAL COMMnMENTS Contingencies 2017 Total Proposed issuance of bonus shares (per 100 shares) 17 ills 96, Ills to shares 57, shares KD 000 s , ,155 1,897,510 1,675,716 2,087,030 1,821,871 Proposed cash dividends (per share) At the rnporting date, there were outstanding contingencies and commitments entered into in thc ordirmy coursc of KD 000 s Capital commihnents 408, , F-73 business in respect of the following: Acceptances and letters of credit Letter of Guarantees

296 profit rate risk. Currency swaps and frirwarti commodity contracts are based on Weed (promise) structure between Embedded swaps and profit rate contracts am balances with banks and fmancial institutions with rates of return tied underlying asset, reference rate or index and is the basis upon which changes in the value of these instruments are Forward contracts Embedded precious metals Embedded precious metals and forward commodity contracts (Islamic derivative financial instruments ) to mitigate foreign currency and In the ordinary count ofbusiness the Omup enters into currency swaps, profit rate swaps, forward foreign exchange comprises profit rate swap end currency swap. For profit rate swap, counterparties generally exchange fixed and payments as well as notional amounts are exchanged in different currencies. measured. The notional amounts indicate the volume of transactions outstanding at the year end and axe not Currency swaps Forward contracts Profit rate swaps Currency swaps 31 December s Profit rate swaps to changes in value of precious metals. to hedge the foreign currency risk of the firm commitments. 31 Decenther 2017 floating rate profit payments based on a notional value in a single currency. For currency swaps, fixed or floating The table below shows the positive and negative fair values of these instruments, which are equivalent to the market values, together with the notional amounts. The notional amount is the amount of currency swap instruments indicative of the credit risk. a conditional promise to purchase a commodity through unilatcral purchase undertaldng. Currency swap structure two parties to buy a specified Shareca a compliant commodity at an agreed price on the relevant date in future. It is INSTRUMENTS ) FORWARD COMMODITY CONTRACTS ( ISLAMIC DERIVATIVE FINANCIAL 25 CURRENCY SWAPS, PROFF RATE SWAPS, FORWARD FOREIGN EXCHANGE AND The currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts arc being used At 31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House LSt.P. and Subsidiaries 46 F-74 10,012 22, ,188 90,872 7,665 21, , ,591 2,017 1, ,878 fair value fair value amount Positive Negative Notional 2,300 12, , , , , ,348 1,369 1, ,037 fair value fair value amtiunt Positive Negative Notional SD 000 s

297 Kuwait Finance House LS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December CURRENCY SWAPS, PROFIT RATE SWAPS, FORWARD FOREIGN EXCHANGE MW FORWARD COMMODITY CONTRACTS ( ISLAMIC DERIVATIVE FINANCIAL INSTRUMENTS ) (continued) In respect of currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts the notional amount represents the gross cash flows. However1 the amounts may be settled net The Ibilowing table ShOWS the net cash flows: ED 000 s Notional Within 3 to 12 More than 31 December2017 amount 3 months months 12 months Cash inflows 776, , , ,853 Cash outflows (673,730) (427,349) (124,712) (121,669) Net nih flows 102,942 (2,379) 115,136 (9,815) 31 Decenber 2016 Cash in&ws 980, ,014 68,958 Cash outflows ( ) (512385) (133,450) (100,088) Netcash flows 234, ,931 84,SM (31,130) 26 RELATED PARTY TRMcSACHONS Certain related parties (Major shareholders, directors and executive cmployees, officers of the Group, their thmilies, associated companies joint ventures and companies of which they are the principal owners) are depositors and financing theilities, customers of the Group, in the ordinary course of business. Such transactions were made on substantially the same terms, including profit rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties and did not involve more than a normal amount of risk Transactions with related parties included in the consolidated statement of income are as follows: K)) 000 s Total Board Associates Members Other Major &joint and aecudve related shareholders ventures Officers pa )6 Financing income - 5, ,576 4,217 Fee and commission income - 1, , Finance costs and distribution to depositors 23, ,264 25,660 25,946 Balances with rclatcd parties included in the consolidated statement of financial position art as follows: K)) 000 s Total Board Associates Members and Other Major & joint aeculipe nkzted shareholders ventures Officers puny Financingreceivables - 226,088 4,261 10, , ,413 Due to banks and financial institutions 1,360,235 27, ,387,400 1,335,174 Depositors accounts 54,066 7,028 17,601 88,695 98,435 Contingencies and capital commitments 486 8, ,111 12,473 14,801 Investment managed by related party ,281 33,281 34, F-75

298 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FNANC[AL STATEMENTS At31 December2017 U RELATED PARTY TRANSACTIONS (continued) Details of the interests of Board Members and Executive Officers are as follows: ED 000 E The number of relatedpastes The number of (Relatives ofboard Board Members or members or Executive Officers executive officers) Board Members Finance thcilities U 20 2,466 16,033 Creditcards Deposits ,345 10,021 Collateral against financing facilities ,559 15,190 Executive officers Finance facilities ,577 3,360 Creditcards Deposits ,120 9,171 Collateral against financing facilities ,515 7,549 The transactions included in the consolidated statement of income are as follows: 1W 000 s Total Board Members Finance income Executive officers Finance income Salaries, allowances and bonuses of key management personnel and remtmendoa ofchairman and board members are as follows: ((fl 000 s Total Salaries, allowances and bonuses of key management personnel 18,260 18,113 Termination benefits of key management persoamel 1,292 1,113 Remuneration of chairman and board members 1,435 1,536 20,987 20,762 * Remuneration ofchairman and board members includes special comperiswianfor additional conoibutioas related Iopanic4asion in the executive committees in accordance with board ofdfrectors decisions. The remuneration of chairman and board members are subject to the apptoval of the Annual General Assembly. 48 F-76

299 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SEGMENTAL ANALYSIS him aiy segment information For management purposes, the Group is organized into four major business segments. The principal activities and services under these segments axe as follows: Treasury: Retail and Private Banking: Uqnidity management, mumbtha investments, investment in Sukulç exchange of deposits with banks and financial institutions and international banking relationships. Consumer banking provides a diversified range of producis and services to individual. Private banking provides comprehensive range of customised and innovative banking services to high nct worth individuals Corpotaws Banking: Providing a range of banking services and investment products to corporate, providing commodity and real estate mumbaha finance, local leasing, wakaia and istisna a facilities. investment 31 December2017 Managing direct equity and real estate investments, ron-banking Group entities. associates and Joint venanes. KB COO s Retail and pthwe Corporate Treasury Banking Banking Investment Total Total assets 4,322,393 5,602,145 5,017,819 2,415,624 17,357,981 Total liabilities 3,182,227 9,193,523 2,128, ,222 15,241,859 Operating income 28, , , , ,280 Provisions and impairment (4,649) (15,954) (82,205) (60,603) (163,411) Profltfortheyear 12, ,394 80,231 11, , December 2016 lcd 000 s Retail and private Corporate Treasury Banking Banking Invesim ens Total Totalassets 4,481,909 5, ,204,922 2,718,560 16,499,353 Total liabilities 3,143,975 8,706,278 1,871, ,128 14,460,528 Operating income 49, , , , ,650 Provisions and impairment (88) (11,182) (60,935) (84,993) (157,198) Profit (loss) for the year 38, ,405 57,868 (39,695) 161, F-77

300 50 Secondasy sqmen inform asian Board and senior management. The first line of defence recognizes that risks are raised by the business units and within their business. In XFH, all employees (credit officers, dealers, operations, etc.) are required to ensure thc effective management of risks within control effectiveness is working as required within the risk management framewort The risk management department is responsible for managing and monitoring risk exposures. It also, measures risk historical experiences adjusted to reflect the current economic environment. KD 000 s Other 1,144,097 1,177,435 30,047 38,390 Geographical areas: Contingencies and capital Assets commitments The Group operates in different geographical areas, A geographical analysis is as follows: Middle East 11,622,596 11,101,762 I,302$ Europe 4,591,288 4,220,156 1,162, ,123 The second line of dece comprises the Risk Management Department and the Financial Control Department, which are responsible for ensuring that the risks are managed in accordance within the stated risk appetite. The third line of defence is the independent assurance provided by the Internal Audit function. Its role is defined using risk models and presents reports to the Board Risk Committee. The models use probabilities based on managing risk: management and governance bodies. The Internal Audit function provides assurance that the overall system of and overseen by the Audit Committee. The findings from the Internal Audit audits are reported to all relevant KFH continues to upgrade its risk management capabilities in the light of developments in the business, banking and market regulations and risk management best practices. KFH operates a three lines of defence system for Risk management is an integral part of Group decision-making processes. It is implemented through a governance process that emphasizes on independent risk assessment, control and monitoring, overseen directly by the their organizational responsibilities. 28 RISK MANAGEMENT ff1) 000 s 27 SEGMENTAL ANALYSIS (continued) At 31 December 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries F-78 from changes in yields, foreign currencies and, equity risks, The Group actively uses collateral to reduce its credit risks. and forward commodity contracts (within accepted sharia products) to manage exposures and emerging risks resulting As pail of its overall risk management, the Group uses currency swaps, profit rate swaps, forward foreign exchange Risk mitigation is willing to accept. business strategy and market environment of the Group as well as the level ofrisk thatthe Bank s Board of Directors Monitoring and controlling risks are managed through limits set by the Board of Directors. These limits reflect the Profit for the year 83,177 63, ,978 98, , ,939 Operating income 316, , , , , , International Total 17,357,981 16,499,353 2,495,284 2,220,929

301 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLTDATED HNANCIAL STATEMENTS At31 December RISK MANAGEMENT (continued) Excessive risk concentradan In order to avoid excessive concentrations of risk, the Bank s policies and procedures include specific guidelines to relationship and industry levels. procedures as overseen by the Bank s Board of Directors. focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accmxlingly. Selective hedging (Stinria compliance) is used within the Bank to manage risk concenfltions at both the In addition, each of the banking subsidiaries of the group has similar risk management structures, policies and 29 CREDIT RISK monitoring exposures in relation to such limits. risks to which is cxposed to and take corrective actions. CredIt-related commitments risk Group to similar risks to finance facilities and these are mitigated by the same control processes and policies. attributable risk ratings an assessed and updated regularly. Maximum exposure to credit risk without taking account of any collateral before th effect of mitigation through the use of master netting and collateral agreements. Balances with banks and financial institutions S 1,003,866 1,242,950 Short term murabaha 9 2,925,329 2,877,241 Financing receivables 10 9,660,883 8,701,555 Investment in Sukuk 1,429,963 1,100,822 Trade and other receivables 305, ,041 Total 15,325,431 14,276,609 Contingencies 24 2,087,030 1,821,871 Commitments , ,058 Total 2,495,284 2,220,929 Total credit risk exposure 17,820,715 16,497,538 Where financial insumnnents are recorded at fair value, the amounts shown above represent the current credit risk exposure but not the maximum risk exposure that could arise in the fatare as a result of changes in values. Credit risk is the risk that the Group will incur a loss because its customers, clients or counterpafties failed to discharge theft conuacuma) obligations The Group manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by The Group has process to review credit quality to provide early identification of possible changes in the creditworthiness of counterparfies, including regular collateral revisions, Counterpany limits an established by using credit risk classification system, which assigns each counterparty a risk rating. Risk ratings an subject to regular revision. The credit quality review process allows the Group to assess the potential loss as a result of the The Group makes available to its customers guarantees, which may require that the Group make payments on their behalf Such payments are collected from customers based on the tcnns of the letter of credit They expose the It is the Group s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates.51 F-79 focused management of the applicable risks and the comparison of credit all exposures across lines of business, geographic regions and products. Thc rating system is supported by a with variety of financial analytics, combined processed market information to provide the main inputs for the measurement of counterparty risk MI internal risk ratings are tailored to the various categories and are derived in accordance with thc Bankt rating policy. The The table below shows the maximum exposure to credit risk for the components of the consolidated statement of financial position. The maximum cxposure is shown (before impairment, net of deferred and suspended profit), AD 000 s Notes

302 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December CREDIT RISK (conduced) Risk concentrations of the maximum exposure to credit rist Concenntion offlsk is managed by countaparty by geographical region and by indnsty sector. The maximum credit exposure to a single countexpastyas ofjl December2017 waslw 275,509 thousand (2016: lcd 181,019 thousand) before taking account ofany coflaterals. The Group s financial assets, before taking into account any collateral held can be analysed by the llowing geographical regions: RD 000 s Middle East 10,042,667 9,030,553 Europe 4,425,614 4,115,592 Other 857,150 1,130,464 15,325,431 14,276,609 An industry sector analysis oldie Group s financial assets, before taking into account collateral held is as fillows: Kb 000 s Trading and manuthcmñng 4,497,392 4,279,138 Banks and financial institutions 5,409,920 5,216,544 Consutction and real estate 2,897,215 2,636,527 Other 2,520,91)4 2,144,400 15,325,431 14,276,609 Credit quality per class of financial assets The table below shows the credit quality by class of financial assets before impairment for consolidated statement of financial position lines: RD 000 s Neither past due nor impaired Stan dard High grade grade Past due or impaired Total 31 Decanbet 2017 Balances with banks and financial institutions Short-term munbaha Financing receivables (Note 10) Investment in Sukuk Trade and other receivables 1,003,866 2,925,329 7,853,216 1,274, ,390 1,029, ,193 7,993 1,308 1,003,866 2,925,329 9,660,883 1,429, ,390 13,362,263 1,183, ,301 15,325,431 PC) 000 s Neitherpast due nor impaired High grade Standard grade Past due or impaired Total 31 December2016 Balances with banks and financial institutions Short-term mumbaha Financing receivables (Note 10) Investment in Sukuk Trade and other receivables - 1,242,950 1,242,950-2,877,241 6,826,939-1,148, ,315 8,701,555 1,025,359 74,244 1, , , ,04) 12,326,530 1,222, ,534 14,276, F-8 0

303 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December CREDIT RISK (continued) Aging analysis of past due but not Impaired finance facilities by clan of financial asicts: ND YOU s Less than 30 days Slto6Odays 6lw9Odays Total 3) December 20)7 Financing receivables 339, ,284 60, , December 20)6 Financing receivables 295,073 [14,153 65, ,279 Rescheduled facilities (before impairment, net of deferred and suspended profit) amounted to KD 138,361 thousand (2016: lcd 213,280 thou.sand). These represent financing receivable which are not impaired, however as required by regulations, group has recorded specific provision against these facilities. It is the Group s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates focused management of the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of financial analytics, combined with processed market information to provide the main inputs for the measurement of counterparty risk MI internal risk ratings are tailored to the various categories and are derived in accordance with the Bank rating policy. The attributable risk ratings are assesjed and updated ztgtlarly. Collateral The amount and type of collateral required depends on an assessment of the credit risk of the counteiparty. Guidelines initiated by tbe Bank s risk management and credit committee an implemented regarding the acceptability of types of collateral and valuation parameters. The main types of collateral accepted include real estate, securities, cash and bank guarantees. The Group also obtains guarantees from parent companies for finance facilities extended to their subsidiaries. Management monitors the fair value of collateral and requests additional collateral in accordance with the underlying agreements *hen necessary. The fair value of collateral that the Group holds relating to past due or impaired finance ftciities as at 31 December 2017 was KD 285,220 thousand (2016; 10) 284,864 thousand). The collateral consists of cash, securities, sukook, letcm of guarantee and real estate assets. 53 F-Si

304 The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors The table below summathes the maturity profile of the Group s assets and liabilities. The maturity profile is classified as held for sale - Intangible assets and goodwill - - an assessment of expected cash flows and the availability of high-grade collateral, which could be used to secure 187,889 the event of an unforeseen interruption of cash flow. The Bank also has conmained lines of credit that it can access In addition, the Bank maintains a portfolio of highly marketable and diverse assets that can be easily liquidated in deposit base while manages assets and monitors fbture cash flows with liquidity on a daily basis. This incorporates additional funding if required. relating to both the market in general and specifically to the Bank. liabilities at the year end are based on contractual repayment arrangement and planned exit dates. Liabilities directly associated with assets Due to banks and financial monitored by management to ensure ndequate liquidity is maintained. The maturity profile of the assets and LiabiThks 554,321 38,659 Asset and stress circumstances. To limit this risk, management arranges diversified flmdthg soirees in addition to its core liquidity risk is the risk that the Bank will be unable to meet its payment obligations when they due under normal 30 UQVflV RISK to meet liquidity needs. M31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries 54 F-8 2 8,955,353 1,534,140 4,752,366 15,241, ,889 Other liabilities 137,128 97, , ,236 Depositors accounts 7,395, ,546 3,628,955 11,596,733 Suloskpayables 39,203 50, , ,078 institutions 1,383, , ,481 2,239,923 5,584,311 3,993,307 7,780,363 17,357,981 Assets classified as held for sale - 324, ,001 Property and equipment , ,300 38,659 Investment in associates and joint ventures - Investment properties - 554, ,797 Investments 16,985 3, , ,293 Trading pmpettes 9,172 21, , ,137 Other assets 155,113 64, , ,558 kvestruentin Sukuk 184,566 57,750 1,186,339 1,418,655 Financing receivables 2,258,152 2,328,692 4,629,631 9,216,475 Cash and balances with banks 1,226,319 2,557 33,580 1,262,456 Short-term murabaha 1,734,004 1,191,325-2,925,329 3 months months one year Total 463,797 Upto 31ol2 After The maturity profile ofassets and undiscounted liabilities at 31 December 2017 is as follows: Xi) 000 s

305 Kuwait Finance House K.S.C.P. and Subsidiaries M31 December LIQUIDU Y RISK (continued) The nthritypmfile of assets and undiscounted liabilities at 31 December2016 is as follows: KB 000 s Upto 3w!? Afler Asceft 590,801 LWbiuties RD 000 s 2017 F-83 3 months months one year Total Cash and balances with banks 1,459,959 4,772 29,926 1,494,657 - Short-term munbaha 1,930, ,172 Financing receivables 1,875,653 2,189,756 4,110,380 8,175,789 2,877,241 Investment in Sukuk 436,593 15, ,556 1,099,603 Trading pmpcthes 28,836 17, , ,341 Investments 17,261 40, , , , ,801 Otherassets 225,167 69, , ,652 Intangible assets and goodwill - 39,175 39, , , , ,893 5,981,456 3, ,795,721 16,499,353 flue to banks and financial institutions 1,607, , ,626 2,398,590 Sukukpayables 111, , , ,061 Depositors accounts 7,016, ,009 3,218,219 10,716, ,492 Other liabilities 129, , , ,651 8,868,005 1,381,262 4,211,261 14,460,528 The table below shows the contractual expiry by tnamflty of the Bank s contingencies and commitnenis: Upto3 3to12 Over months months 1 year Total NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS thvcstmentsinassociatesandjointvcaunts - Investmentpropenies - Pmpenyandequipment - Assetsclassthedasheldforsale 7, ,975 - Liabilities directly associated with assets classified as held for sale ,416 - Contingeacies (Note 24) 731, , ,696 2,087,030 Capital commibnents (Note 24) 323,141 67,032 18, ,254 Total 1,053, , ,777 2,495,284

306 The tables below indicate the currencies to which the Bank had significant exposure at 31 December 2017 on its 31 December2017 Total 984, , ,379 2,220,929 commitments. Market risk is defined as the risk that arises from the Banks investments transactions, including investments in fluctuation and bow to manage the risks arises from those exposures as to achieve the highest expected profits, which contributes to the profits distributed to customers and shareholders of the bank. This is the risk of incurring tosses due to changes in currency exchange rates ithich affects both the banking book (including stmcturaj positions arising from cross-border investments) and trading book Non-trading mirket risk Currency risk and outflows or fhir values whose profitability and performance are evaluated through the sensitivity of profit rates Profit rate risk Contingencies (Note 24) 629, ,8 Il 843,325 1,821, equity shares (both listed and unlisted), Sukuk, real estate and others. These risks are classified into three main areas investment portfolio, they are as follows: months months 1 year Total Capital commitments (Note 24) 354,995 12,009 32, ,058 The Bank expects that not all of the contingencies or capital commitments will be drawn before exphy of the through which the market risk is being measured and managed, as it direcfly impact the performance of the Bank s Upto3 Sic 12 Over KD 000 s In accordance with the provisions of Islamic Sharia a, the Bank generates assets and liabilities that have cash inflows 30 UQUThITY RISK (continued) 31 MARKET RISK At31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House }CS.C.P. and Subsidiaries Currency rate profit reserve on the profit and the fair value reserve (due to the change in thir value of financial assets available for sale). reasonably possible movement of the currency rate against the Kuwaiti Dinar, with ad other variables held constant non-trading monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a also uses currency swap and forward foreign exchange contracts (within Sharia complaint products) to mitigate foreign currency risk. matches currency exposures inherent in certain assets with tiabilities in the same or a correlated currency. The Group of the Group open positions, and current and expected exchange rate movements. The Group, wherever necessary, Currency risk is managed based on limits determined by the Bank s Board of Directors and a continuous assessment 56 F-84 BahrainiDinar , U.S. Dollars l *1 (954) 615 rate profit value reserve Change in Effect on currency Effect on fair value currency Effect on Effect on fair Change in 31 December2016 KD 000 s

307 Kuwait Finance House LS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December MARKET RISK (ennilnued) Non-trading market risk (continued) Price risk (trading arid banking book This is the risk arising from the changes in the market value of investments - equity thchtg strategic invesunents), Sukulç and real estate. The effect on fair value reserve (as a result of a change in the sale at fair value of financial assets available fl,r 31 December) due to a reasonably possible change in equity indices, with all held is as follows: other variables constant KD 000 s Change In Effect an fair Change in Effect on fair equity price value resent equity price value reserve Market indices Kuwait Stock Exchange OtherGCCththces ;1 71 Operational risk Operational risk is the risk of loss arising from systems failure, human error, processes or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Bank cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Bank is able to manage the risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessmentprncesses, including the use of internal audit. The Bank has a set of policies and procedures, which is approved by its Board of and to Directors applied identify, assess and supervise operational risk in addition to other types of risks relating to the and banking financial activities of the Bank. Operational risk managed by the Operational Risk Management, which reviews policies, procedures, pmducls, sen-ices and support business lines in managing and monitoring operational risks as part of overall Bankwide risk management. Operational Risk Management of the Bank is in line with the CBK instructions concerning the general guidelines for internal controls and the sound practices for managing and monitoring operational risks in Group. Country risk Country risk is the risk that incidents within a counlzy could have an adverse effect on the Bank directly in impairing the value of the Group or indirectly through an obligor s inability to meet its obligations to the Bank. Generally, these occurrences relate, but are not limited to: sovereign events such as defaults or restructuring; political events currency crisis; and natural disasters. 32 CAPITAL MANAGEMENT its business and to maximize shareholders value, The Group actively manages its capital base in order to cover risks inherent in the business. The adequacy of the Group s capital is monitored using, among other measures, the mica and ratios established by the Basel Committee on Banking Supervision (BIS ml&nfios) and adopted by the Central Bank of Kuwait in supervising the Group. 57 F-85 such as contested elections; restrictions on currency movements; non market currency convertibility; regional conflicts; economic contagion from other cvents such as sovereign default issues or regional urmoit banking and The primary objectives of the Group s capital management are to ensure that the Group complies with regulatory capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support

308 Total capital adequacymiio 17.76% 17,88% fiducimy activities. 32 CAPITAL MANAGEMENT (continued) The Group s regulatory capital and capital adequacy ratios are calculated in accordance with CaR circular ulmiber The Group s financial Leverage ratio for the year ended 31 December 2017 is calculated in accordance with CBK 33 MANAGEMENT OF PURCHASED DEBTS In accordance with Decree 32/92 and L.aw 41/93 in respect of the financial and banking sector, the Bank is required to manage the purchased debts without rcmuneration in confounity with the terms of the debt purchase agreement. 34 FIDUCIARY ASSETS Fees and commission income include fees of KD 4,917 thousand (2016: lcd 2,504 thousand) arising from trust and Capital required 1,811,047 1,711,338 The aggregate value of assets held in a trust or fiduciasy caparity by the Group at 31 December 2017 amounted to KB 1,235,457 thousand (2016: RI) 1,103,087 thousand). circular number 2fRflAJ343/20 14 dated 21 October 2014 is shown below: Financial leverage ratio 9.99% 9.99% Tier 1 capital 1,932,356 1,853,574 Tier I capital adequacy ratio 16.00% 16.25% Total exposure 19,344,352 18,554,168 Risk WeightedAssets 12,073,649 11,408,921 Capital adequacy Tier2capital 212, ,792 RD 000 s Tier I capital 1,932,356 1,853,574 2/RB, RBM336/2014 dated 24 June 2014 (Basal 111) are shown below Capital available Total capital 2,144,693 2,040,366 At31 December2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries lcd 000 s 58 F-86

309 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December FAIR VALUES The Group uses the following hiciarchy for detaminiug and disclosing the fair value by valuation technicpe: Level I: Level 2: Level 3: quoted (unadjusted) prices in active markets other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and other techniques which use inputs which have a significant effect on the recorded I air value that am not based on observable market date. The following table provides the fair value measurement hierarchy of the Group s assets and liabilities as at 31 December2017. El 0O0c Financial assets measured at fair value: (Level!) (Level 2) (Level 3) Total Venture capital at fisk value through statement of income (Note 11) - 39,648 39,648 Financial assets available for sale (Note 11) 81,692 57,986 28, ,143 Investment in Sukuk 1,132, ,034 1,428,655 Derivaive financial assets: Forward contacts 1,369-1,369 Profitrate swaps Currency swaps Non-financIal assets: Investment properties - 685, ,407 1,214, , ,499 2,324, Kb 000 s Financial liabilities measured at fair value: (Lewd)) (Level 2) (Level 3) Total Denvacivefinancial liabilities: Forward contracts - 1,890-1,890 Currency swaps - 10,786-10,786 Embcddcdprcciousmetals ,797 12,797 The fallowing table provides the fair value measurement hierarchy of the Group s assets and liabilities as at 31 December2016. hi) 000 s Financial assets measured at fair value: (Level 1) (Level 2) (Level 3) Total Venture capital at fair value through statement of income (Note 11) 58,230 58,230 Financial assets available for sale (Note Il) - 99,188 48,216 26, ,844 Investment in Sulaik 768, ,067 l,09,6o3 Den vativefinancial assets: Forward contracts - 2,017-2,017 Profitnie swaps Currency swaps 7,665-7,665 Non-fmaacial assets: Investment properties - 723, , , , ,507 2,064,717 F-87

310 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December FAIR VALUES (continued) Kb 000 s Financial liabilities measured at fair value: (Level)) (Level 2) (Level 3) Tow! Deth advefinwicial liabilities: 1,540 Forward contracts. 1,540 Cuuencyswaps 21,037-21, Embedded precious metals ,639-22,639 Investments classified under level I are valued based on the quoted bid price. Investments classified under level 2 are valued based on the reported NAVe. Level 3 investments included unquoted sukook of KB 296,034 thousand (2016: 1W 331,067 thousand) and unquoted equity investments ofkb 28,465 thousand (2016: lcd 26,440 thousand). Sukook included in this category represent sukook issued by sovereign entities, financial institutions and corporates. The thir values of unquoted sukook are estimated using discounted cash flow method using discount rate (ranging from 2.5% to 7.4%). Unquoted equity investments are fir valued using valuation technique that is appropriate in the circumstances. Valuation techniques include discounted cash flow models, observable market infbimation orcomparable companies, recent transaction infonnation and net asset values. Significant unobservable inputs used in valuation techniques mainly include discount rate, terminal growth rate, revenue and profit estimates. The impact on the consolidated statement of financial position or the consolidated statement of income or the consolidated statement of changes in equity would be immaterial if the relevant risk variables used for fair value estimates to fair value the unquoted equity investments were altered by 5%. Instruments disclosed in note 25 an valued by discounting all fiimre expected cash-flows using directly observable and quoted rate curves and spot/forward FX rates from recognised market sources (i.e. Reuters, Bloombcrg, F1nCAD, ete). Investment properties have been valued based on valuations by valuers who hold a recognised and relevant professional qualification and have recent experience in the location and category of the investment properties being valued. The valuation reflects market conditions at the reporting date. Mi investment properties are valued using observable market inputs. Market comparable approach is used for all investment properties, where market price per square meter and annual income are significant inputs to the valuation. During the year ended 31 December 2017, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. The following able below shows a reconciliation of the opening and the closing amount of level 3 financial assets available for sale: Kb 000 s As at I Saauary 357, ,385 Re-measurement recognised in other comprehensive income 1,369 1,613 Purchases, nec (34,377) 89,50 As at3l December 324, , F-88

311 KTJWMT FINANCE HOUSE ICS.C.P. AND SuBsIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2016 F-89

312 Fax: t , workthq world SaFa quara 3iI0 Vvi,,r Tel , ,r,1jLter Sr e k_c,3c,.,i a 4t u; fln irr Kuwait P.O. Box 20174, Safat ,.L3,. ou (l:r. -. Pz:, t. F, 14t Tel Oar Al-Awadi Complex, floors 7 & 9 Mmed N-Jaber Street, Sharq auhulnq a bettor Alwazzan & Ce. F-90 that context. opinion thereon, and we do not provide a separate opinion on these matters. For each key audit matter identified below, matter below, our description of how our audit addressed the matter is provided in in the context of our audit of the consolidated financial statements as a whole, and in forming our Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed Key Audit Matters and appropriate to provide a basis for our opinion. responsibilities under those standards are thrther described in the Auditors Responsibilities for the Audit of the Consolidated Financial Statement s section of our report. We are indepcndent of the accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient We conducted our audit in accordance with International Standards on Auditing (ISM). Our Group in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (TESBA Code) and we have thlfihled our other ethical responsibilities in Basis for Opinion International Financial Reporting Standards (IFRSs) as adopted for use by the State of Kuwait. respects, the consolidated financial position of the Group as at 31 December2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with In our opinion, the accompanying consolidated financial statements present fairly, in all material financial position as at 31 December 2016, and the consolidated statement of income, consolidated Bank ) and its sthsidiafies (collectively the Group ), which comprise the consolidated statement of statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. We have audited the consolidated financial statements of Kuwait Finance House K.S.C.P. ( the Opinion Report on the Audit of the Consolidated Financial Statements KUWMT FINANCE HOUSE K.S.C.P. INDEPENDENT AUDITORS REPORT TO ThE SHAREHOLDERS OF EY Deloitte & Deloitte

313 F-91 2 Deloitte. INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE KS.C.P. (continued) Key Audit Mafters (continued) Impairment of financing receivables Impairment of financing receivables is a subjective area due to the level of judgement applied by management in determining provisions, such as the identification of impairment events, which differs based upon the type of financing product and customer and accordingly requires judgement on whether a loss has been incurred; and the determination of appropriate parameters and assumptions used to calculate impairment such as the credit assessment of customers that may default, the valuation of collateral for secured financing and the future cash flows of financing receivables granted. Due to the significance of financing receivables (representing 49.55% of the total assets) and the related estimation uncertainty, this is considered a kcy audit matter. The basis of the impairment provision policy is presented in the accounting policies and in note 10 to the consolidated financial statements. Our audit procedures included the assessment of controls over the granting, booking, monitoring and collecting processes of financing receivables and the impairment provisioning process, to confirm the operating effectiveness of the key controls in place that identi, the impaired financing receivables and the required provisions against them. In addition to testing the key controls, we have also performed the following procedures: We selected samples of financing receivables outstanding as at the reporting date and assessed critically the criteria for determining whether an impairment event had occurred and therefore whether there was a requirement to calculate an impairment provision. Our selected samples included non-performing financing receivables, where we assessed management s forecast of recoverable cash flows, valuation of collaterals, estimates of recovery on default and other sources of repayment. For the performing financing receivables, we assessed that the borrowers did not exhibit any possible default risk that may affect the repaymcnt abilities. The disclosure relating to the financing receivables are given in note 10 of the consolidated financial statements.

314 DeIoitte INDEPENDENT AUDITORS REPORT TO THE SRAIEHOLDERS OF KUWAIT FINANCE HOUSE KS.C.P. (continued) Key Audit Matters (continued) Impairment of associates and Joint ventures The investment in associates and joint ventures are accounted for under the equity method of accounting and considered for impairment in case of indication of impairment The investment in associates and joint ventures is significant to our audit due to the Group s share of results in the associates and joint ventures and the carrying value of those associates and joint ventures. In addition, the management to assess impairment of investment in associates and joint ventures uses judgement and estimates. Accordingly, we considered this as a key audit matter. In our audit procedures, we evaluated managemenvs considerations of the impairment indicators of investment in associates andjoint ventures. In such consideration, we assessed whether any significant or prolonged decline in value exists, significant adverse changes in the technological, market, cconomic, or legal environment in which the investee operates, structural changes in the industry in which the investee operates, changes in the political or legal environment affecting the investee s business and changes in the investe&s financial condition. The disclosure relatingto associates and joint ventures are given innotes 12 and 13 of the consolidated financial statements. Impairment test of investment properties and trading properties As at 31 December 2016, investment propertics and trading properties amounting to KD 777,142 thousand represents 4.71% of total assets. The valuation of real estate properties was significant to our audit because this process is complex and requires judgement. Furthermore, there is an increased risk of impairment due to deteriorated market outlook in various geographical areas, in which the Group operates. We selected samples and considered the methodology and the appropriateness of the valuation models and inputs used to value the real estate properties. Further, we used our internal valuation specialists to assess the valuation of a sample of real estate properties located outside the State of Kuwait. As part of these audit procedures, we assessed the accuracy of key inputs used in the valuation such as the rents, gross multiplier yield, market comparable, and discount rates. We also evaluated the Group s assessment whether objective cvidcnce of impairment exists for international real estate. The disclosure relating to the investment properties is given in note 14 to the consolidated financial statements. F-92

315 Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors report, we conclude that there is a material misstatement of other information; we are required to report that fact. We have nothing to report in this regard. F-93!Lr Deloitte. INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAiT FINANCE ROUSE KS.C.P. (continued) Key Audit Matters (continued) Valuation of currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts ( Islamic derivative fm,neial instruments ) The Group has significant Islamic derivative financial instruments, the valuation of which is determined through the application of valuation techniques, which often involve the exercise of judgement and the use of assumptions and estimates. Due to the significance of Islamic derivative financial instruments and the related estimation and uncertainty, there is a risk that the related financial assets and liabilities are misstated. Our audit procedures included assessment of controls over the identification, measurement and management of Islamic derivative financial instrumcnt to confirm the operating effectiveness of the key controls in place. Our audit procedures also comprised of an assessment of the methodology and the appropriateness of thc valuation models used to value Islamic derivative financial instruments. Further, we used our internal valuation specialists to assess the valuation of a sample of each type of Islamic derivative financial instruments. As part of these audit procedures, wc assessed the accuracy of key inputs used in the valuations such as contractual cash flows, risk free rates, profit rate volatility, swap rates, interest spot rates, implied forward rates and quoted prices from market data providers, by benchmarldng them with extcmal data. Finally, wc considered completeness and accuracy of the disclosures related to Islamic derivative financial instruments to assess compliance with the disclosure requirements. The disclosure relating to Islamic derivative financial instruments is given in note 27 to the consolidated financial statements. Other information included in the Annual Report of the Group for the year ended 31 December 2016 Management is responsible for the other information, Other information consists of the information included in the Annual Report of the Group for the year ended 31 December 2016, other than the consolidated financial statements and our auditors report thereon. We obtained the report of the Bank s Board of Directors, prior to the date of our auditors report, and we expect to obtain the remaining sections of the Group s Annual Report for the year ended 31 December 2016 after the date of our auditors report.

316 Delo tte INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE K.S.CY. (continued) Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with WRSs as adopted for use by the State of Kuwait and for suith internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance arc responsible for overseeing the Group s financial reporting process. Auditors Responsibilities for the Audit of Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or enor and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for ow opinion. The risk of not detecting a material misstatement resulting from fraud is higher than frr one resulting from entr, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control, Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the Group s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. F-94

317 Deloitte INDEPEN1)ENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE HOUSE ICS.CP. (continued) Auditors Responsibilities for the Audit of Consolidated Financial statements (continued) Conclude on the appropriateness of management s use the going concern basis based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern. [f we conclude that a material uncertainty exists, we required to draw attention in our auditors report to the related disclosures in the consolidated financial statements or, such disclosures are inadequate, to modi& our opinion. Our conclusions are based on the audit evidence obtained up to the date to continue as a going concern. art of if of accounting and of our auditors report. However, thture events or conditions may cause the Group to cease Evaluate the overall presentation, structure and content the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves lair presentation. Obtain sufficient appropriate audit evidence regarding the financial information the entities or business activities within the Group to express an opinion on the consolidated financial statements. We arc responsible for the direction, supervision and performance the group audit. We remain solely responsible for our audit opinion. We communicate to those charged with governance regarding, among other matters, the planned scope and timing the audit and significant audit findings, including any significant deficiencies in internal control that we identi& during our audit. of We also provide those charged with governance with a statement that we have complied with relevant ethical requirements independence, and to communicate with them all relationships and other matters that may reasonably be thoughi to bear on our independence, and where applicable, related safeguards. regading From the matters communicated to those charged with governance, we determine those mutters that were the consolidated financial statements the current year and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a mailer should not be communicated in our report because the adverse consequences doing so would reasonably be expected to outweigh the public interest benefits of most significance in the audit of of of of of of of such communication. 6 F-95

318 Report on Other Legal and Regulatory Requirements INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT FINANCE ROUSE KS.C.P. (continued) 7 F-96 Kuwait 10 January 2017 AL AJBAN, AL OSAIMI & PARTNERS AL-WAZThN & CO. EY DELOnTE & TOUCHE LICENCE NO.68 A LICENCE NO. 62A WAIlED A. AL OSAUvuT have had a material effect on the business of the Bank or on its financial position. of banking business, and its related regulations during the year ended 31 December 2016 that might the provisions of Law No 32 of 1968, as amended, concerning currency, the CBK and the organisation We further report that, during the course of our audit, we have not become aware of any violations of no violations of the Capital Adequacy Regulations and Financial Leverage Ratio Regulations issued as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, 2/I.B.S.1343/2014 dated 21 October 2014 respectively, the Companies Law No I of 2016, and its /343)20 14 dated 21 October 2014 respectively, the Companies Law No 1 of 2016, and its executive the consolidated financial statements incorporate all information that is required by the Capital to these consolidated financial statements, are in accordance therewith. We further report that we financial statements, together with the contents of the report of the Bank s Board ofdireetors relating Kuwait ( OK ) as stipulated in CBK Circular Nos. 2/RB, RBA/336/2014 dated 24 June 2014 and Furthermore, in our opinion, proper books of account have been kept by the Bank and the consolidated obtained all the information and explanations that we required for the purpose of our audit and that Adequacy Regulations and Financial Leverage Ratio Regulations issued by the Central Bank of executive regulations, and by the Bank s Memorandum of Incorporation and Articles of Association, by the CBK as stipulated in CBK CircularNos. 2/RB, RBA /336,2014 dated 24 June2014 and 2/LBS. regulations, or of the Bank s Memorandum of Incorporation and Articles of Association, as amended) have occurred during the year ended 31 December 2016 that might have had a material effect on the business of the Bank or on its fmancial position. Deloitte.

319 The attached notes Ito 37 form pan of these consolidated financial statements. 8 Kuwait Finance House KS.C.P. and Subsidiaries CONSOLIDATED STATEMENT OF INCOME Year ended 31 December 2016 KD QUIPs Notes i5 CONTINUING OPERATIONS INCOME Financing income 717, ,080 Finance cost and distribution to depositors (282,931) (263,399) Net finance income 434, ,681 Investment income 3 78, ,259 Fees and commissions income 84,522 81,886 Net gain from foreign cunencies 23,181 25,424 Other income 4 38,107 55,693 TOTAL OPERATING INCOME 659, ,943 EXT ENSES Staff costs (173,663) (171,966) General and administrative expenses (84,457) (80,525) Depreciation and amortization (36,834) (77,977) TOTAL OPERATING EXPENSES (294,954) (330,468) NET OPERATING INCOME 364, ,475 Provisions and impairment 5 ( ) (183,561) PROFIT BEFORE TAXATION AND PROPOSED DIRECtORS FEES 224, ,914 Taxation 6 (23,193) (20,433) Proposed directors fees 25 (772) (610) PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 200, ,671 DISCONTINUED OPERATIONS ([nss) /pmflt after tax for the year from discontinued operations 18 (21,594) 21,899 Impainnent loss recognised on discontinued opoation 18 (16,570) (I.osses)/pmfit after tax for the year from discontinued operations (38,164) 21,899 PROFIT FOR THE YEAR 161, ,770 Attributable to: Shareholders of the Bank 165, ,84 Non-controlling interests (3,289) 43, , ,770 BASIC AND DILLTI ED EARNINGS PER SHARE ATTRIBUTABLE TO THE SHAREHOLDERS OF THE BANK ills fits

320 periods: Other comprehensive floss income hems that are or maybe reclassified to consolidated statement of income in subsequent Profit for the year 161, ,770 Note lcd QUO S Year ended 31 December 2016 Other comprehensive (loss) (acome 9 F-96 The attached notes Ito 37 form pan of these consolidated financial statements. 101, ,565 Non-controlling interests (27,400) 19,382 Shareholdersoftheliank 128, ,183 Attributable to: Total comprehensive Income 101, ,565 Other comprehensive loss for the year (60,528) (47,205) Share of othercomprehensive (loss) income of associates and joint Impairment losses tansfened to consolidated statement of income 5 26, Exchange differences on translation of foreign operations (68,880) (62,679) Change in fair value of financial assets available for sale (22,023) 991 Realised loss (gain) on financial assets available for sale 6,336 (2,484) ventures (2,88S) 647 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Kuwait Finance House K.S.C.P. and Subsidiaries

321 z i- HAMAD ABDUL MOHSEN AL-MARZOUQ MAZIN SAAD AL-NAHEDg_. (CHAIRMAN) (GROUP CHIEF EXECUTIVE OFFICER) The attached notes Ito 37 form part of these consolidated financial statements. 10 F-99 1/ Kuwait Finance House K.S.C.P. and Subsidiaries CONSOLIDATED STATEMENT OF FINANCIAL POSITION At31 December2016 KB 000, Nos ASSETS Cash and balances with banks and financial institutions 8 1,494,657 1,599,712 Short-tenn mumbaha 9 2,877,241 3,193,930 Financing receivables 10 8,175,789 8,095,492 Tnding properties 186, ,362 Investments II 1,456,124 1,314,756 Investment in associates and joint ventures 12,13 469, ,856 Investment properties , ,499 Otherassets , ,309 Intangible assets and goodwill 16 39,175 47,960 Property and equipment 216, Leasehold rights ,627 Assets class thed as held for sale ,893 TOTAL ASSETS 16,499,353 16,494,684 LIABILITIES Due to banks and financial institutions 20 2,871,651 3,052,947 Depositors accounts 21 10,662,140 10,709,386 Othcr liabilities , ,862 Liabilities directly associated with assets classified as held for sale ,492 - TOTAL LIABILITIES 14,460,528 14,439,195 EQWTY ATrRIBUTABLE TO THE SHAREHOLDERS OF THE BANK Share capital , ,504 Share premium 720, ,333 Proposed issue of bonus shares 25 52,415 47,650 Tmasury shares 24 48$Z4) (50,173) Rtcervc , ,067 l,7z2,730 1,699,381 Proposed cash dividend 25 87,755 79,755 TOTAL EQUITY ATrRIBUTABLE TO THE SHAREHOLDERS OF THE BANK 1,810,485 1,779,136 Non-controlling interests 228, ,353 TOTAL EQUIn 2,038,825 2,055,489 TOTAL LIABILITIES AND EQUITY 16,499,353 16,494,684 /

322 (47,650) A131 Dncmbcrlfll6 524, ,333 52,415 (4,824) 474,652 1,722,730 87,755 1,810, ,340 2,038,825 Nan ND 000 s Kuwait Finance House K.S.C.P. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN EQUHY Year ended3l December2016 Proposed controlling Total Attdbutabk lathe shareholder, ofthe Bank inwrest eqwø isnse j Proposed Shari, Share bonus Treawr, Reserves cash capital prsmdsm shosa shar (Note 23) S abtotal diwdad Subtotal flalanceat 1 Januasy , ,333 47,650 (50,173) 505,067 1,699,381 79,755 1,779, ,353 2,055,489 Psofitfortheyesr , , ,228 (3,289) 161,939 Othercompwhssive loss - - (36,417) (36,417) - (36,417) (24,111) (60,528) Total coniprthuisive iaromefloss) 128, , ,811 (27,400) 101,311 1asueofbonusshaa 47, Zakatpaid - (7,914) (7,914) - (7,914) - (7314) Cash diiidaids paid Ditibution of pcoflt (Note 25) (79,755) (79,755) - (79,755) Pmposcdissuenfbonusshans ,415 - (52,415) hoposed cash dividamjs (87,755) (87,755) 87,755 - Net movanant in uxmy shares ,349 (349) 1,000-1,000-1,000 Deconsolidalionofasubsidian (13,132) (13,132) Acquisition of non-cenirolling inlncsls (10,793) (10,793) (10,793) (9,207) (20,000) idspaidtonon-conuouthginiaiat - Ncbangeinnon-ctmtsollingiatemsts (1,596) 0,596) -ii The attached notes I to 37 form past of these consolidated financial statenienls. II

323 Year ended 31 December 2016 CONSOLIDATED STATEMEN T OF CHANGES IN EQUITY (continued) Kuwait Finance House K.S.C.P. and Subsidiaries (22.658) 145,841 (22,658) Zalat paid - - (6,327) (6,327) cash dividaids paid - - (6327) (6.327) 47,650 - (79,755) (47,650) - (63,935) - Diczifraüun oflxofit (Note 25) (79.755) 79, (14.676) (14,676) 14, (14,676) - - (6,064) - The attached notes Ito 37 fom3 part of these consolidated financial statements. At31 Daxmba-20I5 476, ,333 47,650 (50,173) 505,067 1, ,755 t, ,353 2,055, Net other change in non- coaholling inlats 1, (6,064) DIvidendspaidtonon.eontsollinginlarsts - (7.029) (7,029) (104,515) (111444) (1,029) 2, Acquisi(ianofnon-contmlling incucsts - Deconsolidation of a subsidiary - Nemovvnaitthnnsiuysbr. - - Pmsaltasbdividods - Pioposalissueofbonosshares - (63.935) (63,935) I23,L , ,183 IssueoFnustha, (43,319) - Totalcomd,a,siwiixorne - (24,547) (47205) 43, ,770 (22,658) - 145, ,841 Otho-comp,isivrIo&s - Ponfit Iortheymr. Balance at 1 Janumy , , (52.497) ,681,655 63,935 1,745, , ,048 capital premium shares shares (Note 23) Subtotal divtdnid Subtotal Shun Share bvna, flrasurt Resena cash tssuec( Propcsed Pmposed controlling Total Artribwahlr to the shanhowen ofthe Dank interests egiiltj KD000 s Non.

324 Depreciation and enortisation 36,834 77,977 Profit (loss) for the year Adjustments to rend1e profit to net cash flows: - Continuing operations 200, ,871 - Discontinued operations (38,164) OPERATING ACIWITIES Notes Kb COO s Year ended 31 December F-102 The attached notes Ito 37 form pan of these consolidated financial statements. CASH AND CASH EQUIV.4IINTS AT3I DECEMBER 8 2,092,111 2,572,884 Cash end cash equivalents at I January 2,572,884 2,433,322 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (480,773) 139,562 Net cash flows used in financing activities (88,265) (73,996) FINANCING AaIVITIES Cash dividends paid (79,755) (63,935) Dividend paid to non-controlling interests (1,596) (6,064) Netmovancntint-zasurysha,tc 1,000 2,330 Zakatpthd (7.914) (6,327) Net cash flows used in investing activities (226,643) (87,660) INVESTING AUnVITIES Dividend received 11, Acquisition of non-continuing intacst (20,000) Donsolidazion of a subsidiary (1,450) (63,582) Purchase of investment properties (20,150) (47,846) Proceeds from sale) redemption of investments in associates and joint ventures 15,884 8,471 Purclase of bvestnouts in assoc :ates and joint ventures (9,169) (19,569) (Pur&asc oq proceeds from sale of invesnients, net (171,676) 42,774 Leasthold tigbts, net (13,307) - Purchase of property and equipment (58,195) (122,620) Proceeds from sale of property and equipment 25,161 61,602 Intangible assets, net (5,068) (10,351) Procls from sale of investment properties 19,465 50,781 Nd cash flows (used in) from openting acthidt (165,865) 301,218 Otherliabilifles 128,632 (129,494) Depositors accounts (47,246) 21,017 Othe assets (263,698) 158,052 (Increase) dectise in operating assets: Trading propaties 16,309 (38,892) Statutoty deposit with Central Banks 44,410 12,340 Increase (decrease) in operating liabilities: Changes in opeinting assets and liabilities: Financing receivables and short leem mumbaha (263,769) 100,740 Due to banks and financial institutions (69,927) (177,284) 290, ,739 Othe, investment income 3 (30,067) (14,682) Show of results of associates and joint ventures 3 (10,934) Dividend income (5,681) (5,632) Gain on sale ofinvesenenlc 3 (6,656) (3,561) S Gain on real estatc investments (12,209) (73,669) Provisionandimpainnent 157, ,561 CONSOLIDATED STATEMENT OF CASH FLOWS Kuwait Finance House K.S.C.P. and Subsidiaries

325 operation, in which the activity of thcjoint operation constitutes a business, must apply the relevant IFRS3 Busine.nc Combinations principles for business combination accounting. The amendments also clari& that a previously held interest in ajoint operation is not remeasured on the acquisition of an additional interest in the samejoint operation ifjoint control is retained. In addition, a scope exclusion has been added to ff115 Ilto specify that the amcndments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are applicd prospectively. These amendments do not have any impact on the Group as there has been no interest acquired in a joint operation during the year F Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December2016 I CORPORATE INFORMATION The consolidated financial statements of the Group for the year ended 31 December 2016 were authodsed for issue in accordance with a resolution of the Bank s Board of Directors on 10 January The general assembly of the shareholders of the Bank has the power to amend these consolidated financial statements after issuance. The Group comprises Kuwait Finance House K.S.C1. ( the Bank ) and its consolidated subsidiaries (collectively the Group ) as noted in Note 19. The Bank is a public shambolding company incorporated in Kuwait on 23 March 1977 and was registered as an Islamic Bank with the Ccntral Bank of Kuwait on 24 May 2004 as Kuwaiti registered Islamic bank whose shares are listed on the Kuwait Stock Exchange. ft is engaged principally in providing banking services, the purchase and sale of properties, leasing, project construction for its own account as well as for third parties and other trading activities without practicing usury. Trading activities am conducted on the basis of purchasing various goods and selling them on murubaha at negotiated profit margins and can be settled in cash or on instalment credit basis. The Bank s registered head office is at Abdulla Ai-Mubank Street, Murqab, Kuwait All activities are conducted in accordance with Islamic shareea a, as approved by the Bank s Fatwa and Shareea a Supervisory Board. 2 SIGN WICANT ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with the regulations of the Government of Kuwait for financial services institutions regulated by the Central Bank of Kuwait. These regulations require adoption of all International Financial Reporting Standards (felts) except for the las 39 requirement for collective provision, which has been replaced by the Central Bank of Kuwait s requirement for a minimum general provision as described under the accounting policy for impairment of financial assets. The consolidated financial statements are prepared under the historical cost convention modified to include the measurement at fair value of financial assets available for sale, venture capital at fair value through statement of income, precious metals inventory, currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts. The consolidated financial statements arc presented in Kuwaiti Dinass (1(D) and all values are rounded to the nearest thousand Dinan, except when otherwise indicated. 2.2 PRESENTATION OF FINANCIAL STATEMENTS The Group presents its statement of financial position in order of liquidity. 2.3 CHANGES IN ACCOUNTING POLICIES The accountiag policies adopted are consistent with those of the previous financial year, except for the following amended WRS recently issued by the International Accounting Standards Board (IASB) and International Financial Reporting rnteqremtions Committee (WRIC) interpretations effective as of I January Amendments to Th RS 11 Joint Arrangements: Accounting for Acquisitions ofinterests The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint

326 method cannot be used to depreciate property, plant and equipment and may only be used in vei-y limited Amendments to las 16 and IAS38: Clarification ofacceptable Methods ofdep reclusion and Arnortisation part) rather than the economic benefits that are consumed through use of the asset As a result, a revenue-based The amendments clarify the principle in MS 16 Property, Plant and Equipment and MX 38 Intangible Assess that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is a 2.3 CHANGES IN ACCOUNTING POLICIES (continued) 2 SIGNIFICANT ACCOUNTING POLICES (continued) At31 December E-T04 accounting for financial instruments project: classification and measurement, impairment and hedge accounting. for hedge accounting, retrospective application is required but providing comparative information is not exceptions. Recognition and Measurement and all previous versions of IFRS 9. if RS 9 brings together all three aspects of the compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited ifrs 9is effective for annual periods beginning on orafler I January 2018, with early application permitted. Except In July 2014, the JASB issued the final version of IFRS 9 that replaces las 39 Financial Instruments: CR59 Financial Instruments applicable at a future date. The Group intends to adopt those standards whcn they become effective. listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be Standards issued but not yet effective up to the date of issuance of the Group s consolidated financial statements are 2.4 STANDARDS ISSUED BUT NOT YET EFFECrIVE MS 34 Interim Financial Reporting las 19 Employee Benefits IFRS 7 Financial Instruments: Disclosures JFRS 5 Non-current Assets Heldfor Sale and Discontinued Operations These improvements do not have any impact on the Group. They include: Annual Improvements 20)2-20)4 Cycle do not have any impact on the Group. statement of financial position and the statements of income and other comprehensive income. These amendments Funhennom, the amendments clarify the requirements that apply when additional subtotals are presented in the not be subsequently reclassified to statement of income. That entities have flexibility as to the order in which they present the notes to financial statements; of financial position may be disaggregated; That specific line items in the statement of income, statement of other comprehensive income and the statement The nmtedahty requirements in las 1; That the share of other comprehensive income of associates and joint ventures accounted for using the equity clari: 1 Amendmcnts to MS Disclosure tnitiativc I The amendments to las elm-its, rather than significantly change, existing las requirements. I The amendments method must be presented in aggregate as a single line item, and classified between those items that will or will on the Group, given that it has not used a revenue-based method to depreciate its non-current assets. circumstances to amortise intangible assets. The amendments are applied prospectively and do not have any impact NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

327 of low-value assets (e.g., personal The standard includes two recognition exemptions for lessees computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of leases a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset 16 F1D5 Kuwait Finance House K.S.CP. and Subsidiaries NOTES TO THE CONSOLII)ATED HNANCIAL STATEMENTS A131 December SIGNifICANT ACCOUNTING POLICIES (continued) 2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) JFRS 9 Financial Instnsments (continued) The Group plans to adopt the new standard on the required effective date. The group is in the process of assessing the impact of WRS 9 on its consolidated financial statements. WRY 15 Revenuefivm Contmac with Customers TFRS IS was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under WRS IS, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or setwiccs to a customer. Thc ncw revenue standard will supersede all current revenue recognition requirements under IFItS. Luther a hill retrospective application or a modified retrospective application is required for annual periods beginning on or after I January Early adoption is permitted. The group is in the process of assessing the impact of WRS 15 on its consolidated financial statements. Amendments to ILRS 10 and MS 28: Sale or Contribution of Assets between an Investor and ftc Associate or Joint Venture The amendments address the conflict between WRS 10 and las 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments claii that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate orjoint venture, is recognised in fill, Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors interests in the associate or joint venture The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. las 7 Disclosure Initiative Amendments to MS 7 The amendments to las 7 Statement of Cash Flows are pan ofthe IASB s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. These amendments arc effective for annual periods beginning on or after I January 2017, with early application permitted. L4S 12 Recognition offlqfen-ed raxa.cetsfor Unrealised Losses Amendments to The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount Entities am required to apply the amendments retrospectively. These amendments are not expecied to have any impact on the Group. IFRS 16 Leases IFRS 16 was issued in Januaty 2016 and it replaces las 17 Leases,IFRJC 4 Determining whether an Arrangement contains a Lease, SIC-IS Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transacilons Involving the Legal Form ofa Lease. WRS 16 sets out die principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under las 17.

328 of leases: operating and finance leases. continue to classify all leases using the same classification principle as in las 17 and distinguish between two types Lessor accounting under WRS 16 is substantially unchanged from today s accounting under las 17. Lessors will JEWS 16 Leases (continued) 2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) 2 SIGNIFICANT ACCOUNTING POLICIES (continued) At31 December2016 F-106 determine control over subsidiaries. The considerations made in determining significant influence or joint control are similar to those necessary to rights to the net assets of the joint venlure. Joint control is the contractually agreed sharing of control of an sharing control. arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties A joint venture is a type of joint arrangement whereby the parties that have joint confrul of the arrangement have a shareholding of between 20% and 50% of the voting rights. Associates are all entities over which the Group has significant influence but not control, generally accompanying c. Associates andjoint ventures transaction. consolidated statement of financial position. For each business combination, non-controlling interest in the acquiree of the Group. A change in ownership interest in a subsidiary, without a loss of control, is accounted for as an equity of equity in the subsidiary. Transactions with non-controlling interests are treated as transactions with equity owners net assets. Losses arc allocated to the non-controlling interest even ifthey exceed the non-controlling interest s share is measured either at fair value or at the proportionate share in the recognised amounts of the acquiree s identifiable Tnterest in the equity of subsidiaries not attributable to the Group is reported as non-controlling interest in the b. Non-controlling interest subsidiaries, their principal businesses and the Group s effective holding. over the subsidiary and ceases when the Group loses control of the subsidiary. Refer note 19 for the list of major to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control The Group re-assesses whether or not it controls an investec if facts and circumstances indicate that there we changes Subsidiaries are all entities over which the Group has control. The control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the invcstee. a. Subsidiaries adjusted, where necessary, to bring the accounting policies in line with those of the Group. MI significant intercompany balances and transactions, including unrealised profits arising from intro-group transactions have been and its subsidiaries as at the same date or a date not earlier than three months from 31 December. The financial The consolidated financial statements comprise the financial statements of the Group as at 31 December each year statements of subsidiaries, associates and joint ventures are prepared using consistent accounting policies and are eliminnied on consolidation. 25 BASIS OF CONSOLIDATION In 2017, the Group plans to assess the potential effect of IFRS 16 on its consolidated financial statements. process of assessing the impact of IFRS 16 on its consolidated financial statements. IFItS 16 is effective for annual periods beginning on or nfter January Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a Mi retrospective or a modified retrospective approach. The standard s transition provisions permit certain reliefs. The group is in the WRS 16 also requires lessees and lessors to make more extensive disclosures than under las 17. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

329 Foreign currency translation The consolidated financial statements are presented in Kuwaiti Dlimrs, which is the Group s functional and presentational currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Trancqcfloes and balances Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of the transaction. 18 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SIGN WICANT ACCOUNTING POLICIES (continued) 2.5 BASIS OF CONSOLIDATION (continued) c. Associates andjoint ventures (continued) Investment in an associate and joint ventures are initially recognised at cost and subsequently accounted for by the equity method of accounting. The Group s share of its associates and joint ventures post-acquisition profits or losses is recognised in the consolidated statement of income, and its share of post-acquisition movements in other comprehensive income is recognised in the consolidated statement of other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. The Group determines at each reporting date whether there is any objective evidence that the investment in associate and joint ventures are impaired. If this is thc casc, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and joint venture and its carrying value and recognises the amount in the consolidated statement of income. Upon loss of significant influence or joint control over the associate or joint venture, the Group measures and recognises any retained investment at its lift value. Gain or loss on such transaction is computed by comparing the carrying amount of the associate or joint venture at the lime of loss of significant influence or joint control with the aggregate of fair value of the retained investment and proceeds from disposal. Such gain or loss is recognised in the consolidated statement of income. 2.6 SUMMARY OF SIGNifICANT ACCOUNTING POLICIES Business combinations and goodwill Business combinations are accounted for using the purchase method of accounting. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognised directly in the consolidated statement of income in the year of acquisition. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, fl-am the acquisition dale, allocated In each of the Group s cash generating units (COUs) or group of CGUs, which nre expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquirec ale assigned to those units. Each unit to which the goodwill is allocated represents the lowest level v, ithin the Group nt which the goodwill is monitored for internal management purposes, and is not larger than an operating segment in accordance with IFRS 8 Operating Segments. Where goodwill has been allocated to a CGU (or group of CGUs) and pan of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when dctennining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative fair values of the disposed operation and the portion of the CGU retained. When subsidiaries are sold, the difference between the selling price and the net assets plus associated cumulative translation differences, cash flow hedge and available-for-sale ttseives and goodwill is recognised in the consolidated statement of income.

330 All differences are included within net gain/loss from foreign currencies in the consolidated statement of income, with Monetary assets and liabilities denominated in fireign currencies are retranslated at the fimetional cwrency rate of exchange ruling at the financial position date. Foreign currency translation (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2 SIGNWICAI 4T ACCOUNTING POLICIES (continued) At31 December F4OW arrangement conveys a right to use the asset. inception date: whether fluhilment of the arrangement is dependent on the use of a specific asset or assets or the The determination of whether an arrangement is, or contains, a lease is based on the substance of the anangemer.t at Leases deposits maturing within three months of contract date, Kuwait, balances with banks and financial institutions, short-term mumbaba contracts, cash in tmasit and exchange of Cash and cash equivalents comprise cash, balances with Central Banks, tawamiq balances with the Central Bank of Cash and cash equivalents contract. significant risks and returns have been transferred to the buyer including satisfaction of all conditions of a trading properties, and share of result of real estate joint ventures. Real estate gain is recognised when the a financial asset and of allocating the financing income over the relevant period. vi) Gain from real estate investments includes gains from sale, transfer and distribution of investment properties, iv) Dividend income is recognised when the right to receive payment is established. v) Operating lease income is recognised on a straight line basis in accordance with the lease agreement. iii) Rental income from investment properties is recognised on an accruals basis, ii) Fee and commission income is recognised at the time the related services are provided can bc reliably measured. The following specifc recognition criteria must also be met before revenue is recognised: using the effective profit method. The effective profit method is a method of calculating the amortised cost of i) Financing income is income from murabaha, istisna a, leased assets, wakala investments and is determined by Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and tile revenue Revenue recognition translated at the spot mtc of exchange at the reporting date, of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign subsidiary and Any goodwill arising on the acquisition of a foreign subsidiary and any fair valuc adjustments to the carrying amounts the transactions. The exchange differences arising on translation for consolidation are recognised in other prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of subsidiary, the component of other comprehensive income relating to that particular is recognised in the consolidated statement of income. On consolidation the assets and liabilities of foreign subsidiaries are translated into Kuwait Dinar at the rate ofexchange Group companies comprehensive income. On disposal, liquidation, repayment of share capital or abandonment of all, or part of a foreign the rccognitioa of gain or loss on change in fair value of the item. when the fair value is determined. The gain or loss arising on retranslation of non-monetary items is treated in line with Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date rates as at the date of recognition. Non monetary items that are measured at historical cost in a foreign currency arc translated using the spot exchange income. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in effective hedge against a net investment in a fomign entity. These differences are recognised in other comprehensive income until the disposal of the net investment, at which time, they are recognised in the consolidated statement of other comprehensive income. the exception of the effective portion of the differences on foreign currency borrowings that am accounted for as an NOTES TO THE CONSOLIDATED HNANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

331 Properties under construction Preperdes under construction or development for future use as investment properties are classified as invesanent properties and arc carried at cost less any impairment in value. Costs are thosc expenses incurred by the Group that are directly attributable to the eoastmcion of the asset. Precious metals inventory Precious metals inventory primarily comprises Gold and is carried at the fuir value less cost to sell FTG9 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCiAL STATEMENTS AtM December SIGN WICANT ACCOUNT[NG POLICIES (continued) 2.6 S1ThThIARY OF SIGN WICAIcT ACCOUNTING POLICIES (continued) Leases (continued) Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitaliscd at the inception of the lease at the fur value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the financc charges and reduction of the lease liability so as to achieve a constant rate of profit on the remaining balance of the liability. Finance charges are charged in the consolidated statement of income. Capitaliscd leased assets arc depreciated over the estimated useffil lives of the asset Operating lease payments are recognised as an expense in the consolidated statement of income on a straight line basis over the lease term. Group as a lessor Leased assets This represents net investment in assets leased for periods which either approximate or cover a major pan of the economic lives of such assets. The lease agreements provide a purchase option to lessees at a price equal or expected to be equal or lower than flit value of such assets at the time when such option is exercised. in lea. es Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Leased assets are stated at amounts equal to the net investment outstanding in the leases. Trading properties Trading properties are measured initially at cost. Subsequent to initial recognition, trading properties are carried at the lower of cost or net realizable value determined on an individual basis. Investment properties Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties ore stated at depreciated cost less impairment. Investment properties are dereeogniscd when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the eanying amount of the asset is recognised in the consolidated statement of income in the year ofderecognitioa Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to property and equipment, the deemed cost for subsequent accounting is the carrying value at the date of change in use. if property and equipment becomes an investment property, the Group accounts for such property hi accordance with the policy stated under property and equipment up to the date of change hi use. When the Group begins to redevclop an existing investment property with a view to selling the property, it is transferred to trading properties at carrying value. years, of all Depreciation is provided on a straight-line basis over the estimated useful lives, that range from rental properties other than freehold land which is deemed to have an indefinite life.

332 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OP SIGNIFICANT ACCOUNTING POLICIES (continued) Financial Instruments initial recognition and subsequent measurement The Group s financial assets are classified, at initial recognition, as financing receivables, trade receivables, Financial assets available for sale (APS), Venture capital at fair value through statement of income, or as derivatives as appropriate. MI financial assets are recognised initially at fhir value plus, in the case of financial assets not recorded at fair value through the consolidated statement of income, transaction costs that are attributable to the acquisition of the fmancial asset. The Group s financial liabilities include trade payables, accrued expense, financial guarantee contracts and derivative financial instruments. MI financial liabilities are recognised initially at Ihir valuc All regular way purchases and sales of financial assets are recognised on the bade date, Le. the date that the Group commits to purchase or sell the asset, Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Financing receivables Receivables are financial assets originated by the Creep and principally comprise munbahas, istisnn a, wakala receivables and leased assets. These axe stated at amottised cost. Murabaha is the sale of commodities and real estate at cost plus an agreed profit mark-up whereby the seller informs the purchaser of the price at which he purchases the product and also stipulates an amount of profit. These are stated at amortised cost. lstisna a isa sale contract between a contract owner and a contractor whereby the contractor based on an order from the contract owner undertakes to manucture or otherwise acquire the subject matter of the contract according to specifications, and sells it to the contract owner for an agreed upon price and method of settlement whether that be in advance, by instalments or deferred to a specific future time. Wnkala is an agreement whereby the Group provides a sum of money to a customer under an agency arrangement, who invests it according to specific conditions in return for a fee. The agent is obliged to return the amount in case of default, negligence or violation of any terms and conditions of the walaja. Trade receivable Trade receivables that primarily relate to subsidiaries in businesses other than financing are carried at amounts due, net of amounts estimated to be uncollectible. An estimate for doubthil accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. This is included in other assets (Note 15). Financial assets availablefor sale (AFS) Financial assets available for sale include equity investments and debt securities (i.e. Sukook). Equity investments classified as available for sale are those, which are neither classified as held for trading nor designated at fair value through consolidated statement of income. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, financial assets available for sale are subsequently measured at fair value. Unrealised gains and losses are recognised directly in the consolidated statement of other comprehensive income in the available-for-sale reserve. When the investment is disposed of, the cumulative gain or loss previou.sty recognised in equity is recognised in the consolidated statement of income. Profit earned whilst holding available-for-sale financial investments is reported as financing ukome using the HR which takes into account any discounvpremium and quali ing transaction costs that are an integral pan of the instrument s yield. Dividends earned whilst holding available-for-sale financial investments am recognised in the consolidated statement of income when the right of the payment has been established. The tosses arising from impairment of such investments are recognised in the consolidated statement of income in impairment losses on financial investments and removed from the available-for sale reserve. Venture capital at fair value through statement of income Certain investments in joint ventures held directly or indirectly through venture capital segment an not accounted for using equity method, as the Bank has elected to measure these investments at fair value through statement of income in accordance with las 39, using the exemption of las 28: Investments in associates and joint ventures. Venture capital at fair value through statement of income we carded in the consolidated statement of financial position at fair value with net changes in fair value presented as unrealized gain Ooss) in the consolidated statement of income. 21 F-hO

333 the tents of an cxisting liability are substantially modified, stich an exchange or modification is treated as n derecognition of the original liability and the recognition ofa new liability. The difference in the respective carrying amounts is recognised in the consolidated statement of income. F-liE 22 - Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December STGNWICA.NT ACCOUNTING POLICIES (continued) 2.6 SLThflIARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial Instruments Initial recognition and subsequent measurement (continued) Shofl-lcnn muraba has Short-term mm-abahas are financial assets originated by the Group and represent commodity murabaha transactions with high credit quality banks and financial instimuons maturing within one year of the financial position date. These arc stated at amortised cost. Trade payable Trade payable relates to non-financial subsidiaries of the Group. Liabilities axe recognised for amounts to be paid in the finurt for goods whether or not billed to the Group. Accrued expenses Liabilities are recognised for amounts to be paid in the hitare for services received whether or not billed to the Group. Financial guarantees In the ordhiaiy course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances, Financial guarantees are initially recognised as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee, Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. Dc-recognition of financial assets and financial liabilities A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where: The rights to receive cash flows from the asset have expired, or The Group has transferrcd its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement, and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retaiaed substantially all the risks and rewards of the asset, but has transferred control of the asset XThcn the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluales ifand to what extent it has retained the risks and rewards of ownership. When it has noither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. A financial liability is derecognised when the obligation under the liability is diseharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or

334 Derivative financial Instruments and hedge accounting a net basis so as to realize the assets and liabilities simultaneously. position when there isa legally enforceable tight to set off the recognised amounts and the Group intends to settle on Financial assets and financial liabilities arc only offset and the net amount reported in the consolidaled financial Offsetting 2.6 SUMMARY OF SIONLEICANT ACCOUNTING POLICIES (continued) 2 SIGN WICANT ACCOUNTING POLICIES (continued) At 31 December2016 RITZ Embeddcd swaps and profit rate instruments (the forwards) are separated from the host contract if the economic statement of income. the hybrid instrument is not measured at fair value with changes in fair value recognised in the consolidated contract, a separate instrument with the same terms as the forwards would meet the definition of a derivative and Embedded swaps and profit rate contracts: characteristics and risks of the forwards arc not closely related to the economic characteristics and risks of the host Hedges ofa net investment: instrument relating to the effective portion of the hedge arc recognised as other comprehensive income while any consolidated statement of income of the net investment are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging of the foreign operation, the cumulative value of any such gains or losses recorded in equity are transferred to gains or losses relating to the ineffective portion are recognised in the consolidated statement of income. On disposal Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part When a hedging instrument expires, is sold, terminnted, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss that has been recognised in the consolidated statement of other income. comprehensive income at that time remains in the consolidated statement of other comprehensive income and is consolidated statement of other comprehensive income is immediately transfened to the consolidated statement of recognised when the hedged forecast transaction is ultimately recognised in the consolidated statement of income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in the the hedged transaction affects profit or loss. Amounts recognised as other comprehensive income are transferred to the consolidated statement of income when of iacome. The effective portion of the gain or loss on the hedging instrument is recognised in the consolidated statement of other comprehensive income, while any ineffective portion is recognised immediately in the consolidated statement Car/iflow hedges: I ledges of a net investment in a foreign operation. or an unrecognised finn commitment Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a the foreign currency risk in an unrecognised firm commitment For the purpose of hedge accounting, hedges are classified as: Derivatives designated as hedges: particular risk associated with a recognised asset or liability or a highly probable forecast transaction or as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the thir value of models. The instruments with positive market values (unrcalised gains) are included in other assets and the these instruments are taken directly to the consolidated statement of income. transaction costs) and subsequently measured at their fair value. The fair value of these instruments includes instwmcnts with negative market values (unrealised losses) arc included in other liabilities in the consolidated instruments ) we initially recognised in the consolidated statement of financial position at cost (including Currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts instruments ( the unrealized gain or loss from marking to market the instruments using prevailing market rates or internal pricing statement of financial position. These instruments are carried as financial assets when the fair value is positive and Derivatives not designated as hedges: NOTES TO THE CONSOLATED financial STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

335 Kuwait Finance House ICSE.P. and Subsidiaries NOTES TO THE CONSOLIDATED financial STATEMENTS At31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Derivative financial instruments and hedge accounting (continued) At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The doctanentafion includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and bow the entity will assess the effectiveness of changes in the hedging instrument s fair vnjue in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving othetfing changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a prospective basis and demonstrate that it was highly effective (retrospective effectiveness) for the designated period in order to quali for hedge accounting. A fonnnl assessment is undertaken both at inception and at each quarter end on an ongoing basis. A hedge is expected to be highly effective if the changes in fhir value or cash flows attributable to the hedged risk during the period for which the hedge is desigaated were offset by the hedging instrument in a range of S0% to 125% and were expected to nchieve such offset in future periods. For situations where the hedged item is a forecast transaction, the Bank also assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated statement of income. Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset ora group of financial assets is deemed to be impaired if there is objective evidence ofimpairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include: indications that the borrower or a group olborrowers is experiencing significant financial difficulty the probability that they will enter bankruptcy or other financial reorganisatioa; default or delinquency in profit or principal payments; and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlaie with defaults. Financial assets carried at anzonised cost For financial assets curried at ainortised cost the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that am not individually significant. If die Group determines that no objective evidence of impainnent exisls for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment

336 The amount of any impairment loss identified is measured as thc difference between the asset s canying amount and an not included in a collective assessment ofimpainnent. Assets that are individually assessed for impainncnt and for which an impairment loss is, or continues to be, recognised Impairment of financial assets (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTLNG POLICIES (continued) 2 SIGNIFICANT ACCOUNTING POLICIES (continued) At31 December [--114 Subsequent costs are included in the asset s carrying amount or are recognised as a separate asset, as appropriate, only during the financial year in which they are incurred. item can be measured reliably. Mi other repairs and maintenance are charged to the consolidated statement of income when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the Historical cost includes expenditure that is directly attributable to the acquisition of the items. Property and equipment are stated at historical cost less accumulated depreciation and any impairment in value. Property and equipment impairment loss on that investment previously recognised in the consolidated statement of income. If, in a through the consolidated statement of income. after the impairment loss was recognised in the consolidated statement of income, the impairment loss is reversed cumulative loss measured as the difference between the amortized cost and the current fair value, less any subsequent year, the fair value of a sukook increases and the increase can be objectively related to an event occurring In the case of sukook investments classified as available for sale, the amount recorded for impairment is the be evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost Where there is evidence of impairment, the impairment loss as the difference between the acquisition cost and the current fair value, less any impaimient loss on that investment previously recognised in the consolidated statement of income is recognised in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income; increases in their fair value after impairment are recognised directly in t,ther comprehensive income. A significant or prolonged decline in the fair value of the investment below its cost and/or; Other information about the issuer that may negatively affect an equity issuer s performance Significant is to measured In the case of equity investments classified as financial assets available for sale, objective evidence would include: that an investment or a Group of investments is impaired. For available for sale financial assets, the Group assesses at each reporting date whether there is objective evidence Financial assets available for sale provision, is made. facilities net of cenain categories of collateral, to which CBK instructions are applicable and not subject to specific In addition, in accordance with Central Bank of Kuwait instructions, a minimum general provision on all finance If, in a subsequcnt year, the amount of the estimated impairment loss increases or decreases because of an event there is no realistic prospect of fixture recovery and all collateral has been realised or has been transferred to the Group. consolidated statement of income. Financing receivables together with the associated allowance are written off when occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account If a write-off is later recovered, the recovery is credited to provision charged in the consolidated statement of income. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in incurred). The present value of the estimated future cash flows is discounted at the financial asset s original effective profit rate. the present value of estimated ftzture cash flows (excluding ftrnire expected credit losses that have not yet been NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

337 Amonisation is calculated using the straight line method to write down the cost of intangible assets to their residual values over their estimated useful lives, as follows: License of Islamic brokerage company assessed to have an indefinite useful life Exploration rights 10 years Software development cost 3-5 years Software license right 15 years Otherrights 3-7 years The useful lives of intangible assets am assessed to be either finite or indefinite. F Kuwait Finance flouse K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property and equipment (continued) Freehold land is not depreciated. Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated usefid lives, as Miow s: Buildings 20 years Furniture, fixtures and equipment 3-5 years Motor vehicles 3 years The assets residual values, useful lives and methods ofdepreciation are reviewed, and adjusted if appropriate, at each financial year end. Property and equipment is derecognised on disposal or when no future economic benefits are expected fiom its use. Any gain or loss arising on dc-recognition of the asset (calculated as the difference between the act disposal proceeds and the canying amount of the asset) is recognised in the consolidated statement of income in die year the asset is derecognised. Properties under development Properties under development are carried at cost less any impairment in value. Costs are those expenses incurred by the Group that are directly attributable to the construction of asset Once completed the asset is transferred to buildings. Leasehold rights Leasehold rights acquired are measured on initial recognition at cost Following initial recognition, leasehold rights are carried at cost less any accumulated amortisation and any accumulated impairment losses. Leasehold rights are amorflsed over their useful economic life and assessed for impairment whenever there is an indication that the leasehold rights may be impaired. The amorfisation period and the amortisation method for leasehold rights is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and arc treated as changes in accounting estimates. The amortisation expense on leasehold rights is recognised in the consolidated statement of income. Gains or losses arising from derecognition of an leasehold right am measured as the difference between the net disposal proceeds and the carrying amount of the right and are recognised in the consolidated statement income when the asset is derecognised. Intnngiblc assets An intangible asset is recognised only when its cost can be measured reliably and ii is probable that the expected future economic benefits that are attributable to it will flow to the Group. Intangible assets acquired separately are measured on initial recognition at cost The cost of intangible assets acquired in a business combinalioa is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the consolidated statement of income in the year in which the expenditure is incurred.

338 Intangible assets with finite lives are amortised ever the useful economic life. The amortisation period and the amortization method for an intangible asset with a finite use&1 life are reviewed at least at each fmancial year-end. treated as changes in accounting estimates. in the asset, are accounted for by changing the amortisation period or methodology, as appropriate, which are then Changes in the expected useful life, or the expected pattern of consumption of flmwe economic benefits embodied Intangible assets (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2 SIGNIFICANT ACCOUWFING POLICIES (continued) At31 December fr-llb value may be impaired. Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that the carrying For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of income. recoverable amount, nor exceed the carrying amount that would havc been determined, net of depreciation, bad no only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last the Group estimates the asset s or CGU s recoverable amount. A previously recognised impairment loss is reversed that reflects current market assessments of the time value of money and the risks specific to the asset (or cashgenerating unit). In determining fair value less costs to sell an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. separately for each of the Group s CGUs to which the individual assets are allocated. These budgets and forecast The Group bases its impairment calculation ott detailed budgets and forecast calculations, which are prepared In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate to its recoverable amount. as pan of the cash-generating unit to which it belongs. Where the carrying amount of an asset (or cash-generating that are largely independent of those from other assets or groups ofassets and then its recoverable amount is assessed sell and its value in use and is determined for an individual asset, uniess the asset does not generate cash inflows amount. An asset s recoverable amount is the higher of an asset s or cash-ftenerating unit s fair value less costs to unit) ekceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is written down indication exists, or when annual impairment testing for an asset is required, the Group estimates asset s recoverable The Group assesses at each reporting date whether there is an indicatioo that an asset may be impaired. If any such Impairment of non-financial assets in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognised. disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of income Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net when the asset is derecognised. A previously recognised impairment loss is reversed only if them has been a change on a pruspeetive basis. individually or at the cash-generating unit Ievcl. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made Intangible assets with indefinite usefifi lives are not amortized, but axe tested for impairment annually, either NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

339 The Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisadon (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. T-1i7 28 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December sicawicaft ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICWS (continued) Impairment of non-financial assets (continued) Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Taxation Income tax payable on taxable profit ( current tax ) is recognised as an expense in the period in which the profits arise in accordance with the fiscal regulations of the respective countries in which the Group operates. Deferred tax assets are recogrthicd for deductible temporary differences, cany foiward oc unused tax credits and unused tax losses, to the extent it is probable that taxable profit will be available to ulilise these. Deferred lax liabilities are recognised for taxable temporary differences. Defend tax assets and liabilities are measured using tax rates and applicable legislation enacted at the reporting date. Non-current assets held for sale and disposal groups The Group classifies non-current assets and diwosal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the Lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qua1i for recognition as a completed sale within one year from the date of classification. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of income. Fair value measurement Fair value is the price that would be received to sell an asset or paid to trausfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, in the most advantageous market to which the Group has access at that date. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is ragarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or liability measured at fair value has a bid price and an ask price, then the Group measures assets at a bid price and liabilities at an asl price.

340 For investments traded in organized financial markets, fair value is determined by reference to stock exchange For financial assets where there is no quoted market price, a reasonable estimate of the fair value is determined by quoted market bid prices at the close of business on the reporting date. Financial assets availablefor sale Fair value measurement (continued) 2 SIGNifICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNWICANT ACCOUNTING POLICIES (continued) AtM December2016 an earnings multiple, or an industry specific earnings multiple or is based on the expected cash flows of the or a liability settled to the satisfaction of creditors, Other provisions and reserves are recognised when the Group has a present obligation (legal or constructive) as a result historical experience. The initial estimate of maintenance- related costs is revised annually, The end Group provides of service benefits to its employees. The entitlement to these benefits is based upon the employees final and length salaly of The service. expected costs of these benefits are accrued over the period of The Bank s its own holding of shares are accounted for as keasuiy shares and are stated at purchase consideration including attributable costs. directly When the treasury shares are sold, gains an credited to a separate account in equity share reserve) (treasury which is non distributable. Any realised losses are charged to the same account to the extent the credit on that of balance account. No cash dividends are distributed on these shares. The issue of bonus shares the increases number of shares proportionately and reduces the avenge cost per sham without affecting the total cost shares. of treasury Treasury shares employment. Employees end of service benefits Provisions for maintenance related costs are recognised when the service is provided. Initial recognition is based on Reserves for maintenance provision is presented in the consolidated statement of income net of any reimbursement. obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any reserve of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the Other provisions and reserves costs are expensed in the period they occur. Finance cost is directly attributable to due to banks and financial institutions and depositors accounts. All finance Finance cost materials, direct labour and an appropriate allocation of overhcads, plus attributable profit to the extent that it is completion, and less any amounts received or receivable as progress billings. reasonably certain less provision for contingencies and any losses incurred or foreseen in bringing contracts to Due fror&to customers for contract work Due fromllo customers of contracting subsidiaries for uncompleted contracts represents costs, which comprises direct experience in the property market. For investment properties, fair value is determined by independent registered real estate valuers who have relevant Investment properties management s estimate of the amount at which these assets could be exchanged for cash on an ann s length basis For other financial assets and liabilities, fair value is determined based on expected future cash flows and Otherfinancial assetr and liabilities The fur value of currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts are Currency swaps, profit rate swaps, forwardforeign exchange andforward commodity contracts determined based on valuations obtained from counlerparty/thfrd panics. obtained are carried at their initial cost less impairment in value, if any. Financial assets with no reliable measures of their fair values and for which no fair value information could be estimates take into account liquidity constraints and assessment for any impairment. investmcnt discounted at current rates applicable for items with similar tenns and risk characteristics. Fair value reference to recent arm s length transactions, current fair value of another instrument that i substantially the same, NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

341 usc requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Impainnent losses onfrnancefacilides The Group reviews its finance facilities on a quarterly hasis to assess whether a provision for impairment should be recorded in the consolidated statement of income. in particular, considerable judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such provisions. 30 F119 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SIGNifICANT ACCOUNTDIG POLICIES (continued) 2.6 SUNNARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fiduciary assets The Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and accoidingly are not included in the consolidated statement of financial position. These are disclosed separately in the consolidated financial statements. Judgments in the process of applying the Group s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognised in the consolidated financial statements: as lessor Group Operating lease commitments The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of awuerslilp of these properties and accounts for the contracts as operating (eases. Classification ofreal estate Management decides on acquisition of a developed and under development real estatc property whether should it be classified as trading, investment property or property and equipment The Group classifies property as trading property if it is acquired principally for sale in the ordinary coune of business or when it is being redeveloped for sale. The Group classifies property as investment property if it is acquired to generate rcntal income or for capital appreciation, or for undetermined future use. The Group classifies property as property and equipment when it is acquired for owner occupation. Impairment offinancial assets available for sale The Group treats financial assets available for sale equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires considerable judgement. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and die discount factom for unquoted equities. Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. hnpainnent ofgoodwill and intangible assets with indefinite usaful life The Group determines whether goodwill and intangible assets with indefinite useful life are impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units. Estimating the value in

342 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Estimation uncertainty (continued) Valuation of unquoted equity investments Valuation of unquoted equity investments is normally based on one of the following: a recent arm s length market transactions; current fair value of another instrument that is substantially the same; an earnings multiple; the expected cash Lows discounted at current rates applicable for items with similar terms and risk characteristics; or other valuation models. The determination of the cash flows and discount factors for unquoted equity investments requires significant cstimation. There arc a number of investments where this estimation cannot be reliably determined. As a result, these investments are carried at cost less impairment. 3 INVESThWNT INCOME Gain on real estate investments Rental income from investment properties Dividend income Gain on sale of investments Sham of results of associates and joint ventures (Note 12 and Note 13) Other investment income 1W 000 s ,209 73,669 13,338 11,690 5,681 5,632 6,656 3,561 10,934 (975) 30,067 14,682 78,885 log OTHER INCOME Income from sale of property and equipment Real estate development and construction income Income from maintcnance, services and consultancy Rental income from operating lease Other income ED 000 s Q15 4,274 9,147 3,240 5,133 13,606 21,460 7,958 10,741 9,029 9,212 38,107 55, F-120

343 Weighted average number of shares outstanding during the year (thousands share) 5,161,147 5,158,926 Basic and diluted earnings per share from continuing operation attributable to the shareholders of the Bank fits fits The Bank has no dilutive potential shares. The comparative basic and diluted earnings per share have been restated for bonus shares issued (Note 25). As there are no dilutive instruments outstanding, basic and diluted earnings per share arc identical. 32 F-121 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December2016 S PROVISIONS AND AIPAUtMENT 1W 000 s Impairment on financing receivables (Note 10) 111, ,880 Recovery of wtitten-offdebts (73,180) (81,213) Impairment of financial assets available for sale 26,927 16,320 Impaiiment of associates and joint ventures 3,157 13,889 Impairment of investment properties (Note 14) 3,425 12,677 Tmpainnent of property and equipment 14,268 14,481 Impairment of intangible assets and goodwill (Note 16) 5,202 12,894 Impairment (reversal of impairment) of non-cash facilities (Note 10) 12,435 (10,593) Impairment of trading properties 5,955 9,445 Impairment of other assets and otherprovisions 31,102 27, , ,561 6 TAXATION KB 000 s Conmbution to Kuwait Foundation thr the Advancement of Sciences (KFAS) 1,731 1,519 National Labour Support Tax (NTST) 3,624 2,688 Zakat (based on Zakat Law No. 46)2006) 1,762 1,296 Taxation related to subsidiaries 16,076 14,930 23,193 20,433 7 BASIc AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO TIlE SHAREHOLDERS OF THE BANK Basic and diluted earnings per share is calculated by dividing the profit for the year attributable to the shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year after adjusting for trcasuty shares held by the Group. Basic and diluted earnings per share: Profit for the year attributable to shareholders of the Bank (thousand IC)) 165, ,841 Weighted average number of shares outstanding during the year (thousands share) 5,161,147 5,158,926 Basic and diluted earnings per share attributable to the shareholders of the Bank ffls Ills Basic and diluted earnings per share from continuing operations: Profit for the year from continuing operations attributable to shareholders of the Bank (thousand lcd) 184, ,155

344 Balances with Central Banks 715, ,592 Balances with banks and financial institutions accounts 527, ,405 Cash and balances with banks and financial institutions 1,494,657 1,599,712 Short-term murabaha maturing within months 3 of contract date 1,119,810 1,487,068 Cash 251, ,715 RD 000 s 8 CASH AND CASH EQUIVALENTS current At31 December i ,175,789 8,095,492 Net receivables 8,101,555 8,567,715 Less: impairment (525,766) (472,223) Less: deferred and suspended profit (1,127,413) (1,139,659) 9,828,968 9,707,374 lstisna a and other receivables 104, ,280 Leased assets 1,675,957 1,752,062 Min-abaha and wakala 8,048,825 7,846,032 FinancIng receivables (0 COO s impairment as follows: Financing receivables principally comprise murabaha, wakala, leased assets, and istisna a balances are slated net of The fair value of short-term mumbaha is not materially different from their respective carrying value. 2,877,241 3,193,930 Short-term murabaha with banks 1,282,623 1,680,902 Short-term murabaha with Central Banks 1,594,618 1,513, ND 000 s values. The fair values of cash and balances with banks and financial institutions do not differ from their respective book operations. Statutory deposits with Central Banks represent balances that are not available for use in the Group s day-to-day Cash and cash equivalents 2,092,111 2,572,884 Less: Statutory deposits with Central Banks (564510) (608,920) maturing 3 months of contract date 10,082 95,024 9 SHORT-TERM MURABMIA 10 FINANCING RECEIVABLES Tawaimq balances with Central Bank of Kuwait - within Cash with banks attributable to discontinued operation (Note 18) 32,152 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

345 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December FU ANC1NG RECEIVABLES (continued) The distribution of financing rcceivables is as follows: Industry sector 1W 000 s Trading and manufacturing Banks and financial institutions Constmodons and real estates Other Less: deferred and suspended profit 4,755, ,118 2,868,486 1,844,660 9,828,968 (1,127,413) 4,520, ,915 2,932,547 2,037,391 9,707,374 (1,139,659) Net receivables Less: impairment 8,701,555 8,567,715 (525,766) (472,223) 8,175,789 8,095,492 KD 000 s Geographic region Middle East Europe Other Less: deferred and suspended profit 6,386,562 2,915, ,459 9,828,968 (1,127,413) 5,810,556 3,109, ,511 9,707,374 (1,139,659) Net receivables Less: impafiment 8,701,555 8,567,715 (525,766) (472,223) 8,175,789 8,095,492 Impairment of receivables from customen for financing receivables is analysed as follows: Specific lcd 000 s General Total Balance at beginning of year Provided during the year (Note 5) Amounts written off and foreign currency translation Balance at end of year Murababas and wakalas Leased assets lstisna a and other receivables 178, , , , , , , ,600 9,094 26, , ,880 (52,400) (172,425) (5,394) (9,891) (57,794) (182,316) 228, , , , , , , , , , ,S26 424,312 7,991 15,621 28,279 28,874 36,270 44,495 1,972 1,653 1,998 1,763 3,970 3, , , , , , , F-i 23

346 other liabilities (Note 22). 10 FINANCING RECEIVABLES (continued) At 31 December 2016, non-performing cash finance lhcilides before impairment (net of deferred profit and suspended The available provision on non-cash facilities of K]) 31,588 thousand (2015: KD 19,995 thousand) is included under profit) amounted to K]) thousand (2015: 1W 295,484 thousand). Provision for the year on non-cash facilities is K]) 12,435 thousand (2015: reversal of KD 10,593 thousand) (Note 5). Non-performing financing facilities A131 December2016 The future minimum lease paymenis receivable in the aggregate an as follows: KD 000 s One to live years 324, ,174 1,675,957 1,752,062 The fair value of collateral held against leased assets at 31 December 2016 is K]) 6,622,336 thousand (2015: KD 5,743,941 thousand). 11 INVESTMENTS KD 000 s Mutual funds 49,453 71,911 1,456,124 1,314,756 Bank s investment in 100,319 thousand shares (2015: 91,199 thousand shares) of the Bank on behalf of depositors, relating 10 in are dealing these shares attributed only to the depositors, and hence these shares are classified under investments. 35 F424 equivalent to 1.91% of the total issued share capital at 31 December 2016 (2015: 1.91%). The results from activities Included in managed portfolios is an amount of K]) 54,172 thousand (2015: K]) 49,248 thousand) which represents the Venture capital at fair value through statement of income 58, ,030 assets for sale at Financial available fair value 1,273,447 1,040,754 assets for sale Financial available carried at cost 124, ,972 1,456,124 1,314,756 Quoted equity investments 43,626 73,515 Unquoted equity investenta 112, ,855 Sukook 1,099, ,544 Managed portfolios 92, ,901 Venture capital at fair value through statement of income 58, , (2015: lcd 238,501 thousand). The unguarantccd residual value of the leased assets at 31 December 2016 is estimated at K]) 155,117 thousand After five years 441, ,468 Within one year 910,532 1,047, The fair values of financing receivables do not materially differ from their respective book values. NOTES TO THE CONSOLIDATED FTNANCIAL STATEMENTS Kuwait FInance House K.S.C.P. and Subsidiaries

347 36 -r125 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December investment in ASSOCIATES The major associates of the Group am as follows: Interest in Counfry of Principal Financial statements equity % registration activities reporting date Shaijth islamic Bank P.LS.C United Arab Islamic banking 30 September 2016 Emirates services lbdarbankb.s.c Babrain Islamicbank-ing 30 September2016 service Aviation Lease and Finance Company Kuwait Aircraft leasing 30 September 2016 K.S.C.P. (ALAFCO) and financing Scrvices The following table illustrates the summarised aggregate infomntion of the Group associates, as all associates are individually immaterial: Summarised covisoleda ted statement offinancial vosition: lcd 000 s Assets 4355,179 4,065,714 Liabilities 3,i51,381) (2,869,457) Equity 1,103,798 1,196,257 Carrying amount of the inveslment 297, ,670 Summarised consolidated statcn,ent ofincome: Revenues 288, ,463 E cpenscs (261,558) (139,689) Profit for the year 27,286 26,774 Group s share of profit/(ioss) for the year 3,610 (2,251) Investments in associates with a carrying amount of lcd 200,007 thousand (2015: lcd 193,431 thousand) have a market value of KD 189,924 thousand at 31 December 2016(2015: KD 160,782 thousand) based on published quotes. Dividends received from the associates during the current year amounted to KI) 3,985 thousand (2015: lcd 5,068 thousand).

348 Al Muhamapj Diyar Homes Company W.LL (Souq SD 50 Bahmin Real estate 30 Novemba equity % registration adlywes Interest in reporting date Country of Principal Financial staten, rigs The majorjoint ventures of the Group an as follows: 13 INVESTMENT P4 JOINT VENTURES At 31 December fr-1zo At 1 Januaiy At 31 December lmpaümcnt loss cbarged for the year (Note 5) Depreciation charged for the year (12,677) 580,499 Transfer to trading properties Discontinued operations Additions Disposals (136) Tnnsr to leasehold tights (23,10K) 580,499 65,221 (9,062) (33,419) (7,051) (3,425) 590, ,285 (46,101) (7,770) (1,962) 141, ED 000 s 14 INVESTMENT PROPERTIES Group s share of profit for the year 7,324 1,276 Profit for the year 14,394 2,683 Revenues Expenses 99,728 8,039 (85,334) (5,356) ED 000 s,yjpjarlced consolidated statement ofincome: Carrying amount of the investment 172, ,186 Equity Assets Liabilities (444,729) (397,371) 223, , , ,232 20) ltd 000 s Sum marised consolidated statement of financial position: ventures are individually immaterial: The following table illustrates the summarised aggregate information of the Group joint ventures, as all joint Diyar Al Muhnq Company W.L.L. development Al Durrat Al Tijatia Company W.L.L &inin Real estate Babmin Real estate development development 30 Novemb November2016 NOTES TO THE CONSOLWATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

349 Accumulated amortization 36,530 Al 1 January Charge for the year Disposals 4,231 28,519 9,803 (11792) (1,626) 36,530 39,135 At 31 December Net book value 41,222 32,453 At 31 December - - F-12r 38 KB 000 s ,59! 434, , , , ,499 KB 000 s ,495 49, , , ,902 81,846 47,342 6,210 23,214 26,968-2, , , , ,309 KB 000Y ,453 4)222 6,722 6,738 39,175 47,960 KB 000 s ,707 77,752 11,689 3,958 (4,936) (5,186) (4,768) (12,876) 77,752 71,528 Kuwait Finance House KS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December INVESTMENT PROPERTIES (continued) Developed properties Properties under construction 15 OTHER ASSETS Precious metals inventory trade receivable Clearing accounts Receivables on sale/redemption of investment Deferred tax Advances for investment properties Other miscellaneous assets 16 INTANGIBLE ASSETS AND GOODWILL Intangible assels Goodwill Movement of intangible assets is as follows: Cost At I January Additions Disposal Impairment At 31 December

350 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December INTANGIBLE ASSETS AND GOODWILL (continued) Intangible asset include license of an Islamic brokerage company amounting to K]) 14,671 thousand (2015: KD 14,67! thousand) and is considered as an intangible asset with an indefinite useful life. The carrying value of the islamic brokerage license is tested for impairment on an annual basis by estimating the recoverable amount of the cash generating unit (CGU). The recoverable amount of the license has been determined using a discount rate of 14.35% and a terminal growth rate of 3%. As a result, the management believes there are no indications of any impairment in value. In addition, the balance includes exploration rights of Nil (2015: KU 6,162 thousand) with a finite usefli life. Other intangible assets amounting to KD 17,782 thousand (K]) 20,389 thousand) represent software development cost, software license right and other rights with finite useful lives. Intangible assets with finite lives arc amortised over their useffil economic life. 17 LEASEHOLD RIGHTS On classification of assets of MG as discontinued operations (Note 18), leasehold rights have been presented as Assets classified as held for sale in the consolidated statement of financial position. 18 DISCONTINUED OPERATIONS On 30 June 2016, the Board of Directors of the Bank approved to sell the Group s interest in its subsidiary Aref Tnvesftnent Group (AIG). As a result, the consolidated statement of financial position at 31 December 2016 presents the assets, liabilities of MG as assets classified held for sale, and liabilities directly associated with the assets classified as held for sale, respectively, in accordance with WRS S Ron-current Assets Held for Sale and Discontinued Operations. The major classes of assets of AIG comprise of leasehold rights, investments in equities and real estate and liabilities comprise of due to banks, financial institutions, and other liabilities. The Bank has presented MG assets classified as held for sale amounting to KD 375,322 thousands and liabilities directly associated with the assets classified as held for sale amounting to K]) 162,862 in the consolidated statcment of financial position net of accumulated impairmentprovision attributable to the shareholders of the Bank of KD4I 487 thousand and inter-group eliminations. During the current year, the Board of Directors of the Bank approved to sell the Group s interest in its subsidiary Public Service Company K.S.C. (Closed) (PSC). As a result, the consolidated statement of financial position at 31 December 2016 presents the assets and liabilities of PSC amounting to KU 7,920 thousand and KD 3,076 thousand respectively as assets classified held forsale, and liabilities directly associated with the assets classified as held for sale, respectively, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. During the current year, the Group established certain subsidiaries for Syndication purpose. Therefore, these subsidiaries were classified as a disposal group held for sale in the consolidated statement of financial position at 31 December Assets and liabilities of these subsidiaries amounting to KU 103,138 thousand and K]) 61,554 thousand respectively are presented as assets classified held for sale, and liabilities directly associated with the assets classified as held for sale, respectively, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. 39

351 40 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SUBSIDIARIES 19.1 Details ofprincipal operating material subsidiaries Financial Country of Interest in statements Name registration equity % Principal activity reporting date Kuwait Finance House (Malaysia) Malaysia [ Islamic banking services 31 December2016 flerbad KFH Private Equity Ltd Cayman Islamic investmenis 31 December2016 Islands KFH Financial Service Ltd. Cayman Islamic real estate 31 December 2016 Islands development and investments KFH Capital Investments Company Kuwait Islamic finance and 30 September 2016 K.S.C. (Closed) investments KFH Real Estate Company K.S.C. Kuwait ,9 Real estata development 31 October 20(6 (Closed) * and leasing Development Enterprises Holding Kuwait Inftastrncture and 31 December 2016 Company K.S.C. (Closed) industrial investment Baitak Real Estate Tnvestment Saudi Real estate developmeat 30 September 2016 Company S.S.C. Ambia and investment

352 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 Decembcr UBsmEARIES (continued) 19.1 Details ofprincjpal operating material subsidiaries (continued) Financial Counfry of Interest in statements Name regisfradan equity % Principal activity reporting date KFH Investment Company Kuwait - K.S.C.(Closed)(a) 99.9 Islamic finance and 30 September2016 investments Saudi Kuwait Finance House SS.C. Saudi IsLamic investment 31 December 2016 (Closed) Arabia Kuwait Finance House B.S.C. Bahrain Islamic banking services 31 December 2016 Gulf International Automobile Kuwait Trading, import and export 30 September 2016 Trading Company K.SC. (Closed) of used cam E amar Cayrnan Islamic investments 31 December 2016 Islands International Turnkey Systems Kuwait Computermaintenance, 30 September2016 Company K.S.C. (Closed) consultancy and software services Muthana GCC Islamic Banks Fund Kuwait islamic equity investments 30 September 2016 Public Service Company K.S.C. Kuwait 80 So Management consultancy 30 September 2016 (Closed) and services Kuwait Turkish Participation Bank Turkey islamic banking services 31 December 2016 Al Salam Hospital K.S.C. (Closed)(b) Kuwait Healthcarc services 30 September 2016 Al Enma a Real Estate Company Kuwait Real estate, investment, 31 October 2016 K.S.C.P, trading and real estate management Muthana Islamic Index Fund Kuwait islamic equity investments 30 September 2016 ArelTnvesunent Group Kuwait Islamic invcstmer.ts 30 Scptember 2016 K.S.C.(Closed) Turkapital Holding B.S.C.(C) Babmin Real estate, auto leasing and 30 September 2016 insurance teffective ownership percentage is 100% (2015: 100%). (a) During the current year, the Group sold its investment in KFH investment Compaoy K.S.C (Closed) to a third party. (b) During the current year, the Group acquired an additional 21% equity stake in Al Salam Hospital K.S.C (Closed) from an associate. 41 F-130

353 Net Increase In cash and cash equivalents 104, , F-131 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SUBSifiLARIES (continued) 19.2 Materialpanty-awned subsidiasy Financial information of subsidiary that have material non-controlling interest is provided below: Proportion of equity interest held by non-controlling Interests: County of incorporation & operation Percentage Kuwait Turkish Participation Bank (KTPB) Turkey 38% 38% The summarised financial information of the subsidiary is provided below. This information is based on amounts before inter-company eliminations and adjustments. Summarised consolidated statement of Income far the year ended: ED 000 s KDOQThc Revenues 378, ,336 Expenses (320,738) (274,900) Profit for the year 57,837 58,436 Attributable to non-controlling interests 21,839 22,065 Summarised consolidated statement of financial position as at: ED 000 s KD000c Total assets 4,588, ,514 Total liabilities (4,000,251) (4,245,110) Total equity 579, ,404 Attributable to non-controlling interests 239, ,249 Summarised consolidated statement of cash flows for year ended: ED 000 s ED 000 s Operating 165, ,510 Investing (139,326) (5,581) Financing 77,915 (127,055)

354 2,871,651 3,052,947 Current accounts 5,664 5,387 Sukook payable 473, ,466 Munbaha payable 2,392,926 2,725, ED 000 s 20 DUE TO BANKS AND FINANCIAL INSTITUTIONS At31 December2016 F , ,862 Trade payables 198, ,799 Maintenance and other reserve 80,839 42,790 Employees end of service benefits 68,922 68,825 Other miscellaneous liabilities 71,055 77,279 Accrued expenses 104,621 97,574 Certified cheques 56,763 74,309 Refundable deposits 7, Provision on non cash facilities (Note 10) 31,588 19,995 Letter of guarantee covered 54,594 46,423 Due to customers for contract work 25,012 37, s 22 OTHER LL4BIUTIES b) The fair values of depositors accounts do not differ from their canying book values. determines, or bear a share of loss based on the results of the financial year. In all cases, the investment deposits receive aproponion of the profit as the board of directors of the Bank automatically reneuble for the same periods unless notified to the contrary in writing by the depositor. Investment savings accounts are valid for an unlimited period. 2) Investment deposits: These have fixed maturity as specified in the term of the contract and are these deposits are considered Qard Hasan from depositors to the Bank under Islamic Shareea a. do they bear any risk of loss as the Bank guarantees to pay the related balances on demand. Accordingly, 1) Noim-invesunent deposits in the form of current accounts: These deposits are not entitled to anyprofits nor a) The depositors accounts of the Bank comprise the following: 21 DEPOSITORS ACCOUNTS carrying values. The fair values of balances due 10 banks and fmancial institutions do not materially differ from their respective NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

355 Balance at3l December , , ,099 6,735 25,728 (141,649) (34,389) 474, RESERVES Balnnceat I Janumy , , ,579 7,084 17,729 (97,233) (23,596) 505,067 At 3] December2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries , , , , (52,415) - - ($7,755) - (349) (Note 19.1) (10,793) (10,793) - Loss on sale oftreasury shams (349) (52,415) (87,755) - Acçuisiiioo of non-watnlling interests Proposedeashdividaids(Nutc2S) - Pmposdissueofbcnusshams(Nocc2S) (7,914) - Transfertoitservrs 17,312 17,312 (34,624) (1,914) ijkat paid - - 7,999 (44,416) Tolal compithensiveincomeqoss) Ochacompithensivcincorne(loss) 7,999 (44,416) (36,417) - Pwfit for the year - resent reserve earnings shn,es reserve?tcen e translation reserve resents Total Staluroiy Voluniaty Retained Treacury Fair i,slue Foreign exchange Other KD 000 s

356 - (79,755) - (6,327) 4,246 - Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLDATED FINANCIAL STATEMENTS At31 December RESERVES (continued) KD 000 s Statutory Voluntary Retained Employees share Treasury Fair tlve Fort ign exchange Other resent earnings options resnv shares reserve reserve irons!afion itsenr recen c Total ram Balance at I January (22,658) 238, , ,224 4,246 7,078 4,493 (54,310) (8,920) 537,315 Pmfit for the year , ,841 Otha-comprthaisiveincomeQoss) 13,236 (35,894) TotalcomprehensiveincameQoss) - 145, ,236 (35,894) - 123, Zakat paid (6,327) - - Tnnsfcrtoreiainalcamings Dtxonsolidation of a subs,tha,y - PrnpnsMissucofbonusshnrn(Nnte2S) - Proposal sh dividaids (Notc 25) - Acquisition of non-controlling interests - Pmfitonsaleofarasutysiiares - (4246) (7,029) - (47,650) (7,029) (47,650) (14.616) - (79,755) (14,676) Balanccat3l December , , ,579-7,084 17,729 (97,233) (23496) 505,

357 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December RESERVES (continued) In the ordinary and extraordinary general assembly meeting or the shareholders of Bank the held 2005, on 14 March the ordinary general assembly resolved to suspend transfers of profit for attributable of the year to the shareholders the Bank to statutory reserve in excess of 10%. In accordance with the articles of association of ordinary the Bank, the general assembly of the shareholders of the Bank can approve an increase in the transfer of of profit for 10% cacti the the year attributable to the shareholders of the Bank to statutory and voluntary reserves, appropriate, ifproposed by as the board of directors of the Bank Only that pan of the statutory reserve in excess of 50% of paid-up share capital is freely distributable and usable at the discretion of the ordinary general assembly in ways that may be deemed beneficial to the Bank Distribution of the balance of the statutory reserve is limited to the amount required to enable the payment of dividend of of paidup share capital to be made in years when accumulated profits arc not sufficient payment for the of of a dividend that a 5% amounl mc ordinary general assembly meeting of the shareholders of the Bank held on 16 March 2015 approved to restrict the balance of statutory reserve and voluntary reserve up to 50% of the paid-up share capital and transfer amounts in excess of 50% of the paid-up capital from statutory reserve and voluntary reserve retained to earnings. Voluntary reserve is available to be distributed to shareholders at the discretion of the general assembly in ways that may be deemed beneficial to the Bank, except for the amount of KD 48,824 thousand (2015: KU 50,173 thousand) which is equivalent to the cost ofpurchasing treasury shares, and is not available distribution throughout holding for the period of the treasury shares (Note 24). The sham premium balance is not available for distribution. Fair value roserve, foreign currency translation reserve and other reserve attributable are both to shareholders and deposit account holders. 24 SHARE CAPITAL AND TREASURY ShARES The ordinary general assembly of the shareholders of the Bank held on 21 March 2016 approved Q Yo bonus shares on outstanding shares amounting to lcd 47,650 thousand for the year ended 31 December 2015 (Note 25). Share capita! 1W 000 s Authorized, issued and flihy paid in cash: 5241, (2015:4,765,035,998) shares of 100 Ills each 524, ,504 The movement in ordinary shams in issue during the year was as follows: Number of shares in issue 1 January 4,765,035,998 4,331,850,908 Bonus issue 476,503, ,185, F-135 Number of shares in issue 31 December 5,241,539,597 4,765,035,998

358 Kuwait Finance Rouse LS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SHARE CAPITAL AND TREASURY SHARES (continued) Treasury shares and treasury share reserve, The Group held the following treasury shares at the year-end: Number of treasury shares Treasury shares as a percentage of total shares in issue Cost of treasury shares (1(D) Market value of treasury shares (1(D) ,473,239 73,537, % 1.54% 48,823,661 50,173,113 42,915,549 39,710,225 The balance in the treasury share reserve account is not available for distribution. An amount of 1W 48,824 thousand (31 December 2015: KD 50,173 thousand) equivalent to thc cost of purchase of the treasury shares have been earmarked as non-distributable from voluntary reserve throughout the holding period of treasuxy shares. The weighted average market price of the Bank s shares for the year ended 31 December 2016 was 487 (2015: 651) fils per share. 25 PROPOSED CASH DIVIDENDS, BONUS SHARES, AND DIREa0RS FEES The Board of Directors of the Bank has proposed a cash dividend of 17% for the year ended 31 December 2016 (2015: 17%) and issuance of bonus shares of 10 % (2015: 10%) of paid up share capital as follows: Proposed cash dividends (per share) Proposed issuance of bonus shares (per 100 shares) Total I? Ills 87, shares 52,415 Xl) 000 s Total 17 Ills 79, shares 47,650 This proposal is subject to the approval of the ordinary general assembly of the shareholders of the Bank and completion of legal formalities. Proposed dividends are shown separately within equity. The Board of Directors of the Bank has proposed Directors fees of 1W 772 thousand (2015: KD 610 thousand), (Note 28) are within the amount permissible under local regulations and am subject to approval by the annual general assembly of the shareholders of the Bank, 26 CONTINGENCIES AND CAPITAL COMMITMENTS At the reporting date, there were oticstand mg contingencies and commitments entered into in the ordinary course of business in respect of the following: KD 000 s Acceptances and letters of credit Letter of Guarantees Contingent liabilities 146, ,603 1,675,716 1,513,029 1,821,871 1,656,632 KD COO s Capital commitments 399, , b-13b

359 NOTES TO THE CONSOLIDATED FINANCIAL S±ATEMENTS - Kuwait Finance House K.S.C.P. and Subsidiaries A131 December CURRENCY SWAPS, PROFIT RATE SWAPS, FORWARD FOREIGN EXCRAI1GE AND FORWARD COMMODITY CONTRACTS ( ISLAMIC DERIVATIVE FINANCIAL INSTRUMENTS ) In the ordinary course of business the Group enters into currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts ( Islamic derivative financial instruments ) to mitigate foreign currency and profit rate risk, Currency swaps and forward commodity cootnct,s are based on Wa ad (promise) sncure between two parties to buy a specified Shareea a compliant commodity at an agreed price the on relevant data in finure, It is a conditional promise to purchase a commodity through unilateral purchase undertaking. Currency swap structure comprises profit rate swap and currency swap. For profit tale swaps, counterpanies generally exchange fixed and floating rate profit paymcnts based on a notional value in a singlc currency. For currency swaps, fixed or floating payments as well as nofionai amounts are exchanged in different currencies. The currency swaps, profit tate swaps, forward foreign exchange and forward commodity contracts being used nrc to hedge the foreign currency risk of thc finn commitments. Embedded swaps and profit rate contracts are balances with banks and financial institutions with rates of return tied to changes in value of precious mctals. The table below shows the positive and negative thir values of these instruments, which are equivalent to the market values, together with the notional amounts. The notional amount is the amount of currency swap instruments underlying asset, reference rate or index and is the basis upon which changes in the value of these instruments are measured. The notional amounts indicate the volume of transactions outstanding at the year cud and not arc indicative of the credit risk, KD 000 s Positive Negative Notional fair value fair value amount 31 December ,017 1, , ,591 Forward contracts Profit rate swaps 7,665 21, ,847 uiency swaps ,872 Embedded precious metals 10,012 22, ,188 K!) 000 s Positive Negative National fair value fair value amount 31 December2015 1,681 1, II 3,021 16, ,626 17,337 Forward contracts Profit raw swaps 541,893 Currency swaps , F-13T Embedded precious metals 5,329 17, ,567

360 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO ThE CONSOLIDATED FTNANCL&L STATEMENTS At31 December CURRENCY SWAPS, PROFIT RATE SWAPS, FORWARD FOREIGN EXCHANGE AND FORWARD COMMODITY CONTRACTS ( ISLAMIC DERIVATIVE FINANCIAL INSTRUMENTS ) (continued) In respect of currency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts the notional amount represents the gross cash flows. However, the amounts may be settled net. The following table shows the net cash flows: XV 000 s Notional Within 3 to 12 More than amount 3 months months 12 months 31 December 2016 Cash inflows 980, , ,014 62,958 Cash outflows (745,823) (512,285) (133,450) (100,088) Net cash flows 234, ,931 84,564 (31,130) 3! December 2015 Cash inflows 811, , ,983 92,399 Cash outflows (744,380) (507,236) (133,310) (103,834) Net cash flows 67,187 (1,051) 79,673 (11,435) 28 RELATED PARTY TRANSACTIONS Certain related parties (directors and execntive employees, otlicers of the Group, their families, associated companies and companies of which they are the principal owners) were depositors and financing facilities customers of the Bank, in the ordinary course of business. Such transactions were made on substantially the same terms, including profit rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties and did not involve more than a normal amount of risk. These transactions are approved by the ordinary general assembly of the shareholders of the Bank Transactions with related pasties included in the consolidated statement of income are as follows: LV 000 s Total Board Associates Members and Other Major & joint executive related shareholders ventures Officers party Financing income - 3, Fee and commission 4,217 5,382 income Finance costs 20,742 1,005-4,199 25,946 20,237 Balances with related parties included in the consolidated statement of financial position are as follows: XE 000 s Total Board Associates Members and Other Major &jotht executive related shareholders ventures Officers party Financing receivables - 110,356 7,329 Due to banks and 16, , ,786 financial institutions 1324,112 10, ,335,174 1,305,034 Depositors accounts - 75,652 6,146 16,637 98, ,467 Contingencies and capital commiunents 436 8,891 Investment managed 2 5,472 14,801 47,563 byrelatedparty ,108 34,108 33, bll-3r

361 Remuneration ofchairman and board members includes special compensation for additional contributions related Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AU1 December RELATED PARTY TRANSACTIONS (continued) Details of the interests of Board Members and Executive Officers are as follows: The nuniher of KD 000 s Board Afembers or The number of &ecigtive Offlce, related parties ) ) Board Members Finance fcilities ,033 39,581 reditcan1s Deposits ,021 13,349 Collateral against fmancing thcillties I 15,190 9,104 Executive officers Finance facilities ,360 2,702 Crethtcards Deposits ,171 1,690 Collateral against financing facilities ,549 4,885 The transactions included in the consolidated statement of income are as follows: 1W 000 s Total Board Members Finance income 132 2g4 Executive officers Finance incomc Salaries, allowances and bonuses of key management personnel and remuneration of chainnan members and board are as follows: KD 000 s Total Salaries, allowances and bonuses of key management personnel 16,273 17,201 Termination bcncfits of key management personnel Remuneration of chairman and board memben* 1,536 1,821 18,762 20,01)9 to participation in the aecuhve committees ni accordance wit/i board ofdirectors decisions. The remuneration of chairman and board members arc subject to the approval of the Annual General Assembly. 50

362 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SEGMENflL ANALYSIS himavy segment information For management purposes, the Group is oqanized into three major business segments. The principal activities and services under these segments are as follows: Treasury: Investment Banking: Liquidity management, murabaha investments, cxchange of deposits with banks and financial institutions and international banking relationships. Managing direct equity and real estate investments, investments in subsidiaries and associates, and international leasing. Providing a range of banking services and investment products to corporate and individual customem, providing commodity and real estate murabaha flnnncc, local leasing, wakala and istisna a facilities. 31 December 2016 hi) 000 s Treasury Investment Banking Other Total Total assets 5,410,812 1,803,976 8,358, ,126 16,499,353 Total liabilities 3,051,720 99,294 10,662, ,246 14,460,528 Operating income 23,070 80, ,662 32, ,650 Provisions and impairment (835) (39,464) (49,756) (50,573) (140,628) Profit (loss) for the year 17,411 17, ,279 (197,231) 161, December 2015 lcd 000 s Treasury Jrn estment Banking Other Total Tothlassets 5,524,693 2,067,541 8,116, ,583 16, rotal liabilities 3,031, ,566 10,833, ,995 14,439,195 Operating income 11, , , , ,943 Provisions and impaintent (466) (56,598) (75,609) (50,888) (183,561) Profit (loss) forthe year 6,901 29, ,484 (121,164) 189, b-14u

363 The Group is exposed to liquidity risk, credit risk, concentration risk, profit retam risk, equity price risk and currency risk. 52 F-141 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December SEGMENTAL ANALYSIS (continued) Secnndory segment information The Group operates in different geographical areas. A geographical analysis is as follows: Kb COO S Contingencies and capital Assets commitments Geographical areas: Middle East 11,101,762 10,761,616 1,079, ,834 Europe 4,220,156 4,241,242 1,103,123 1,161,744 Other 1,177,435 1,491, ,829 16, ,494,684 2,220,929 2,006,407 1(9000 s Inca! International Total Operating income 270, , , , , ,943 Profit for the year 63,497 90,849 98,442 98, , , RISK MANAGEMENT Risk management is an integral pan of the decision-making processes in the group. It is implemented under the governance process that confirms the existence of an independent risk assessment and control, control and surveillance carried directly by the Board of Directors and senior management. The Group works continuously on upgrading the capabilities of risk management in the light of business sector developments, also in the light of banking system instructions developments, stock cxchnnge regulations and the best practices applied in risk management including the three lines of defense. First line of defense is the business units, which manages the relationship with the clicnt rts responsibility lies in understanding the customer s requirements to reduce the risk of mitigating customer defaults or risk of early withdrawal of deposits. Business units are also responsible to maintain the processes through which the Group serves the customer in order to mitigate any operational risk and reputation risk The functions of risk management and financial control represent the second line of defense, It is responsible for the development of frameworks for risk management and financial control, ft is responsible for conducting and directing an independent assessment of risk management and cnnuol activities. The third line of defense contains the fanctions of affirmation and security, which is a policy to comply with laws and regulations and anti-money laundering as well as the internal audit process. This line is responsible for ensuring compliance with regulatory as well as internal policies and to identify weaknesses so that corrective actions can be taken by management.

364 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December RISK MANAGEMENT (continued) a) Risk management structure The Group has an independent process whereby risks are identified, measured and monitored. The risk management unit is responsible for this process. The head of risk management has independent access to the Bank s Board of Directors. Board ofdirectors The Board of Directors of the Bank is responsible for the overall risk management approach and for approving risk strategies and principles. The Board of Directors receives a comprehensive risk report once a quarter which is designed to provide all the neces.saiy information to assess and conclude on the risks olthe Group. Risk management co. nmittee The Bank s risk management committee has the overall responsibility for development of a risk strategy and implementing principles, frameworks policies and limits. it is responsible for ffindamental risk issues and manages and monitors relevant risk exposures. Risk management unit The Bank s risk management unit is responsible for implementing and maintaining risk related procedures to ensure an independent control process and includes monitoring the risk of exposures against limits. Credit Committee The Bank s Credit Committee conducts a review and take action on the determination of the Bank s credit risk while ensuring compatibility with the approved risk tendency. The committee also included in general compliance with all credit risk policies adopted with obtaining the necessary approvals and exceptions. Assets and Liabilities Committee the Bank s Assets and Liabilities Committee is responsible of the effective supervision of liquidity risk management and finance, adoption of frameworks, and follow-up implementation in its regular meetings. Treaswy Treasury is responsible for managing the Bank s assets and liabilities, and the overall financial position. it is also responsible for funding and liquidity management. b) Risk management and reporting systems The risk management committee is responsible fnr managing and monitoring risk exposures. The risk management unit measures risk through the use of risk models and provides reports to the risk management Committee. The models use probabilities based on historical experiences adjusted to reflect the economic environment. Monitoring and controlling risks are managed through limits set by the Board of Directors. These limits reflect the business strategy and market environment of the Group as well as the level of risk that the Bank s Board of Directors is willing to accept. Risk mitigation As pad of its overall risk management, the Group uses cultency swaps, profit rate swaps, forward foreign exchange and forward commodity contracts to manage exposures resulting from changes in yields, foreign cunencics, equity risks and credit risks. The Group actively uses collateral to reduce its credit risks. Excessive risk concentration In order to avoid excessive concentrations of risk, the Bank s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective bedgine is used within the Bank to manage risk concentrations at both the relationship and indusby levels. In addition, each of the banking subsidiaries of the Bank has similar risk management structures, policies and procedures as overseen by the Bank s Board of Directors. 53

365 54 F-143 Kuwait Finance House K.S.C.P. and_subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December CREDIT RISK Credit risk is the risk that the Group will rncur a loss because its customers, clients or counterparties failed to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by moniloring exposures in relation to such limits. The Group has established a decentralized credit quality review process to provide early identification of possible changes in the creditwortltincss of counterpartics, including regular collateral revisions. Countexparty limils are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process allows the Group to assess the potential loss as a result of the risks Lo which it is exposed and take corrective action. Credit-related comnfltmenh risks The Group makes available to its customers guarantees which may require that the Group makes payments on theft behalf. Such payments are collected from customers based on the terms of the letter of credit They expose the Group to similar risks to finance facilities and these are mitigated by the same control processes and policies. Maximum exposure to credit risk without taking account of any collateral The table below shows the maximum exposure to credit risk for the components of the consolidated statement of financial position. The maximum exposure is shown gross (net of linpainnent), before the effect of mitigation through the use of master netting and collateral agreements. lcd 000 s Notes Balances with banics and financial institutions 1,242,950 1,352,997 Short-term murabaha 9 2,877,241 3,193,930 Financing receivables 10 8,175,789 8,095,492 II 1,099, ,544 Financial assets available for sale Trade and other receivables 354, ,167 Sukook Total 13,749,624 13,757,130 Contingent liabilities 26 1,821,871 1,656,632 Commitments , ,775 Total 2,120,929 2,006,407 Total credit risk exposure 15,970,553 15,763,537 Where financial instruments are recorded at fair value, the amounts shown above represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values. Risk coacentradous of the maximum exposure to credit risk Concentration of risk is managed by counterparty by geograplucal region and by industry sector. The maximum credit exposure to a singlecounterparty as of3l December 2016 was RD 184,555 thousand (2015: KU 126,840 thousand) before taking account of any collaterals.

366 Kuwait Finance House K.S.C,P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December CREDIT RISK (continued) Risk concentrations of the maximum exposure to credit risk (continued) The Group s fmancial assets, before taking mto account any collateral held can be analysed by the following geographical regions: KD 000 s Middle East Europe Other 8,599,763 4,045,521 1,104,340 13,749,624 8,787,095 3,869, ,135 13,757,130 An industry sector analysis of the Group s financial assets, before taking into account collateral held is as follows: 2016 KU 000 s 2015 Trading and manufacturing 3,882,095 3,666,703 Banks and financial institutions 5,146,473 5,215,333 Construction and real eslate 2,580,134 2,573,518 Other 2,140,922 2,301,576 13,749,624 13,757,130 Credit quality per class of financial assets The table below shows the credit quality by class of asset for consolidated statement of financial position lines: KU 000 s Weither past due nor inipaired High grade Standard grade Past due or impaired Total 31 December2016 Balances with banks and fmanciai institutions Short-term munbaha (Note 9) Financing receivables (Note 10) Financial assets available for sale sukook (Notel I) Trade and other receivables 1,242,950 2,877,241 5,619,614 1,025, ,041-1,242, ,877,241 1,957, ,165 8,175,789 73, ,099, ,041 11,119,205 2,030, ,821 13,749,624 KD 000 s Neither past due nor impaired grade Standard grade Past due or impafreci Total jh 31 December 2015 Balanccs with banks and financial institutions Short-term mumbaha (Note 9) Financing receivables (Note 10) Financial assets available for sale sukook (Notel I) Trade and other receivables 1,352,997 3,193,930 4,832,336 2,601, , ,167-1,352,997-3,193, ,052 8,095,492 72, , ,167 10,420,432 2,673, ,732 13,757, F-144

367 56 F145 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December CREDIT RISK (continued) Aging analysis of past due but not impaired finance facifides by class of financial assets: s Less than 3Odays 3ltoó0days 6lto9Odays Total 31 December 2016 Financing receivables 288, ,089 64, , December2015 Financing receivables 248,082 78, , ,974 Rescheduled facilities (before impairment, net of deferred and suspended profit) amounted to KD 213,280 thousand (2015: lcd 241,944 thousand). These represent financing receivable which arc not impaired, however as required by regulations, group has recorded specific provision against these facilities. It is the Group s policy to maintain accurate and consistent risk ratings across the credil portfolio. This facilitates focused management of the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of financial analytics, combined with processed market information to provide the main inputs for the measurement of counterparty risk MI internal risk ratings arc tailored to the various categories and are derived in accordance with the Bank s rating policy. The attributable risk ratings are assessed and updated regularly. Collateral The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines established by the Bank s risk management and credit committee an implemented regarding the acceptability oftypes of collateral and valuation parameters. The main types of collateral accepted include real estate, securities, cash and bank guarantees. The Group also obtains guarantees from parent companies for finance flicilities extended lo their subsidiaries. Management monitors the fair value of collateral and requests additional collateral in accordance with the underlying agreements when necessary. The fair value of collateral that the Group holds relating to finance facilities individually determined to be impaired at 31 December 2016 amounts to lcd 102,819 thousand (2015: KD 165,535 thousand). The ffifr value of collateral that the Group holds relating to finance fficilities past due but not impaired as at 31 December2016 was 1(0 182,045 thousand (2015: lcd 181,694 thousand). The collateral consists ofcash, securities, sukook, letters of guarantee and real estate assets.

368 ,468 Kuwait Finance House LS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December LIQUIDITY RISK liquidity risk is the risk that the Bank will be unable to meet its payment obligations when they thu due under normai and auras circumstances. To limit this risk, management has arranged diversified funding seurtes in addition to its core deposit base, manages assets with liquidity in mind, and monitors future cash flows and liquidity on a daily basis. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if inquired. The Bank maintains a portfolio of highly marketable and diverse assets that can be easily liquidated in the event of an unforeseen interruption of cash flow. The Bank also has committed lines of credit that it can access to meet liquidity needs, The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress fuctors relating to both the market in general and specifically to the Bank. The table below summarizes the maturity profile of the Group s assets and liabilities. The maturity profile is monitored by management to ensure adequate liquidity is maintained. The maturity profile of the assets and liabilities at the year end are based on contractual repayment arrangement and planned exit dates. The maturity profile of assets and undiscounted liabilities at 31 December 2016 is as follows: ED 000 s Within 3 to 6 6 to cr 3 months months months one year Total Assets Cash and balances with banks and financial ir.sliuidons 1,459,959 1,917 2,855 29,926 1,494,657 Short-term murabaha 1,930, , ,687-2,877,241 Financing receivables 1,875, ,570 1,340,186 4,110,380 8,175,789 Trading pinpecties 28,836 2,430 15, , ,341 Investments 453,854 45,999 10, ,930 1,456,124 Investments in associates and joint ventures - 469,468 Investment properties - 590, ,801 Other assets 225,167 7,915 61, , ,652 Intangible assets and goodwill ,175 39,175 Property and equipment , ,212 Assets classified as held for sale 7, , ,893 5,981,456 1,951,291 1,770,885 6,795,721 16,499, ,492 Liabilities Due to banks and financial institutions 1,719, , , ,682 2,871,651 Depositors accounts 7,016, , ,588 3,163,625 10,662,140 Other liabilities 129,066 14,075 90, , ,245 liabilities directly associated with assets classified as held fo,-sale 3, ,416 8,868, , ,253 4,211,261 14,460, F-146

369 Kuwait Finance House KS.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED RNANCIAL STATEMENTS At 31 December LIQUIDITY RISK (continued) The maturity profile of assets and undiscounted liabilities at 31 December 2015 is as follows: K]) 000 s Wiihth 3(06 6to 12 After 3 months months months one year Total Cashandbalanccswithbanksand 1,567, ,454 1,599,712 financial institutions 3,193,930 Short-term murabtha 2,612, , ,999 - Financing receivables 1,809, ,948 1,284,410 4,055,377 8,095,492 Trading properties 6, ,425 37,957 43, ,362 Investments 395,318 8,957 29, ,202 1,314,756 Investments in associates and 534, , , l, ,928 joint ventures - 27,581 lnvesunentpropenies - Otherasses 76,356 36,821 23, , ,309 47,960-47,960 Intangible assets and goodwill - Property and equipment , ,l8L 179, ,627 Leasehold rights - 6,467,028 1,584,930 1,551,065 6,891,661 16,494,684 Liabilisies Due to banks and financial InstitutionS 1,754, , , ,177 3,052,947 Depositors accounts 6,943, , ,490 3,305,731 10,709,386 Other liabilities 88,603 45,068 93, , ,862 8,786, , ,232 4,146,888 14,439,195 The table below shows the contractual expby by maturity of Ihe Bank s contingent liabilities and commitments: Less than 3 to 12 Over 1W COO s On demand 3 months months Ito 5 years 5 years Total 2016 Contingent liabilities (Note 26) 922, , , ,932 9,952 1,821,871 Capital commitments 399, F-141 (Note26) 380,522 1,553 5,903 11,080 - Total 1,303, , , ,012 9,952 2,220,929

370 (Note 26) 724, ,99 187, ,969 13,140 1,656,632 (Note 26) 329,218 3,733 10,130 6,694 - Capital commitments Contingent liabilities On dcn,and Months Months ito 5 years 5 years Total KD000 s 32 LIQUIDITY RISK (continued) Less than 3 3 to 12 Over At31 December i5 59 BahrainiDinar , ,50S 317 U.S. Dollars -, I (95,385) 6, (16,816) 5,098 Change in Effect on Change in Currency rare profit reserve rate profit value reserve currency Effect on fair value currency Effect on Effect onfair i3 ED 000 s on the profit and the fair value reserve (due to the change in fair value of financial assets available for sale). non-trading monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a reasonably possible movement of the currency rate against the Kuwaiti Dinar, with all other variables held constant The tables below indicate the currencies to which the Bank had significant exposure at 31 December 2016 on its The Group nlso uses currency swap and forward foreign exchange contracts to mitigate foreign currency risk. necessary, matches currency exposures inherent in certain asscts with liabilities in the same or a correlated currency. Currency risk is managed on the basis of limits detenuined by the Bank s Board of Directors and a continuous assessment of the Group open positions, and current and expected exchange rate movements, The Group, wherever rates. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange Currency risk interest. Changes in interest rates may, however, affect the fair value of financial assets available for sale. values of financial instruments. The Group is not exposed to interest rate risk as the Bank does not charge or pay Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair Interest rate risk Non-trading market risk contractual rates of return to its depositors and other financing arrangements arc at fixed profit rate in accordance The Group is not exposed to any risk in terms of the repricing of its liabilities since the Group does not provide with Islamic Shareea a. managed on the basis of pre-detemfined asset allocations across various asset categories, a continuous appraisal of Market risk is the risk that the value of an asset will fluctuate as a result of changes in market prices. Market risk is market conditions and trends and management s estimate of long and short term changes in fair value. 33 MARKET RISK comniitments. The Bank expects that not all of the contingent liabilities or capital commitments will be drawn before expiry of the Total 1,054, , , ,663 13,140 2,006, ,775 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

371 34 CAPITAL MANAGEMENT The primary objectives of the Group s capital management are to ensure that the Group complies with regulatory capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders value. The Group actively manages its capital base in order to cover risks inherent in the business. The adequacy of the Group s capital is monitored using, among other measures, the roles and ratios established by the Basal Committee on Banking Supervision (BTS rides/ratios) and adopted by the Central Bank of Kuwait in supervising the Group. 60 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS At31 December MARKET RISK (continued) Non-trading market risk (continued) Equity price risk Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels ofequity indices and the value of individual stocks. The non-trading equity price risk exposure arises from the Group s investment portfolio. The Group manages this risk through diversification ofinvestments in terms of geographical distribution and industry concentration. The effect on fair value reserve (as a result of a change in the lair value of financial assets available for sale at 31 December) due to a reasonably possible change in equity indices, with all other variables held constant is as follows: ED 000 c (1)5 Change in Effect on fair Change in Effect an fair equity price value reserve equity price value resen e Market indices Kuwait Stock Exchange Other GCC indices Operational risk Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, hnve legal or regulatory implications, or lead to financial loss. The Bank cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Bank is able to manage the risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, including the use of internal audit. The Bank has a set of policies and procedures, which is approved by its Board of Directors and applied to identify, assess and supervise operational risk in addition to other types of risks relating to the banking and financial activities of the Bank. Operational risk is managed by the operational risk ftmction, which ensures compliance with policies and procedures and monitors operational risk as part of overall Bank-wide risk management. The operational risk function of the Bank is in line with the CEK instructions concerning the general guidelines for internal controls and the sound practices for managing and supervising operational risks in Banks. Country risk Country risk is the risk that an occurrence within a country could have an adverse effect on the Bank directly by impairing the value of the Group or indirectly through an obligor s ability to meet its obligations to the Hank. Generally, thesc occurrences relate, but are not limited to: sovereign events such as defaults orrestructthng; political events such as contested elections; restrictions on currency movements; non market currency convenibllity regional conflicts; economic contagion from other events such as sovereign default issues or regional turmoil; banking and currency crisis; and natural disasters.

372 Capital adequacy K!) 000 s 2/RB, RBA/336/20 14 dated 24 June 2014 (Basel III) are shown below: The Group s regulatory capital and capital adequacy ratios are calculated in accordance with CBK circular number 34 CAPITAL MANAGEMENT (continued) At31 December F-150 Fees and commission income include fees of MD 2,504 thousand (2015: Kr) 2,815 thousand) arising firm crust and fiduciary activities. KD 1,103,087 thousand (2015: M.D 1,184,836 thousand). The aggregate value of assets held in a trust or fiduciaq capacity by the Group at 31 December 2016 amounted to 36 FIDUCIARY ASSETS to manage the purchased debts without remuneration in conformity with thc terms oc the debt purchase agreement. In accordance with Decree 32/92 and Law 41/93 in respect of the financial and banking sector, the Bank is rcquired 35 MANAGEMENT OF PURCHASED DEBTS Financial leverage ratio 9.99% 9.90% Total exposure 18,554,168 18,280,293 Tier I capital 1,853,574 1,809, K!) 000 s circular number 2/RBA/343/201 4 dated 21 October 2014 is show,, below: The Group s financial leverage ratio for the year ended 31 December 2016 is calculated in accordance with CBK Total capital adequacy ratio 17.88% 16.67% Tier I capital adequacy ratio 16.25% 15.38% Total capital 2,040,366 1,960,959 Tici 2 capital 186, ,343 Tier I capital 1,853,574 1,809,616 Capital available Risk Weighted Assets 11,408,921 11,765,998 Capital required 1,711, ,580 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries

373 1,681-1,681 Derivative financial assets: - Forward contracts Profit rate swaps - Currency swaps - 3,021 3, Embedded precious metals - Non-financial assets: Investment Properties - 756, , , , ,385 1,934, F-151 Kuwait Finance House K.S.C.P. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At31 December FAIR VALUES The Group uses the following hierarchy for detennining and disclosing the fair value by valuation lechnique: Level 1: quoted (unadjusted) prices in active markets. Level 2: other techniques for which all inputs which have a significant e[fcct on the recorded fair value are observable, either directly or thdirecdy and Level 3: other techniques which use inputs which have a significant effect on the recorded fair value that are not based on obsewablc market data. The following table provides the fair value measurement hierarchy of the Group s assets and liabilities as at 31 December2016. KB 000 s Financial assets measured at [aft value: (Level 1) (Level 2) (Level 3) Total Venture capital at thir value through statement 58,230-58,230 of income (Note 11) - Financial assets available far sale (Note 11) 867,724 48, ,507 1,273,447-2,017 2,017 Den votivefinancial assets: - Forward contracts 330 Profit rate swaps ,665 Currency swaps - 7,665 Embedded precious metals Non-fwandal assets: 723, ,028 Investment properties - 867, , ,507 2,064,717 KB 000 s Financial liabilities measured at fair value: (Level I) aevel 2) (Level 3) Total Derivativefinancial liabilities; 1,540 - Forward contracts - Profit rate swaps Currency swaps 1,540-21,037 Embedded precious metals , ,639-22,639 - The following table provides the fair value measurement hierarchy of the Group s assets and liabilities as at 31 December KD 000 s Financial assets measured at fair value: (Level 1) (Level 2) (Level 3) Total Venture capital at fair value through statement - 132, ,030 of income (Note 11) - Financial assets available for sale (Note II) 698,113 76, , ,754

374 Embedded precious metals - Pmfltrateswaps - Fonvard contracts - 1,460 It 2-17,896 17,896 - Currency swaps - 16, ,460 It 16,423 2 Derivative financial liabilities. Financial liabilities measured at thir value: ftevel 1) (Level 2) (LevelS) Tore! KD 000 s 37 FAm VALUES (continued) At31 December FJST As at 31 December 357, ,385 Purchases, net 89,509 46,302 Re-measurement recognised in other comprehensive income 1, As at 1 January 266, , RD 000 s assets available for sale: The following table below shows a reconciliation of the opening and the closing amount ol level 3 financial During the year ended 31 December 2016, there were no transfers between Level I and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. investment properties, where market price per square meter and annual income arc significant inputs to the valuation. MI investment properties are valued using observable market inputs. Market comparable approach is used for all valued. The valuation reflects market conditions at the reporting date with gap of no more than two months. professional qualification and have recent experience in the location and category of the invesuuent properties being Investment properties have been valued based on valuations by valuers who hold a recognised and relevant FinCAD, etc). and quoted rate curves and spotlforward FX rates from recognised market sources (i.e. Reuters, Bloomberg, Instruments disclosed in Note 26 are valued by discounting all fiimre expected cash-flows using directly observable of financial position or the consolidated statement of income or the consolidated statement of changes in equity techniques include discounted cash flow models, observable market information of comparable companies, recent include discount rate, terminal growth rate, revenue and profit estimates. The impact on the consolidated statement investments were altered by 5%. equity investments are fair valued using valuation technique that is appropriate in the circumstances. Valuation would be immaterial if the relevant risk variables used for fair value estimates to fair value the unquoted equity sukook arc estimated using discounted cash flow method using discount rate (ranging from 1.8% 105.4%). Unquoted unquoted equity investments of KD 26,440 thousand (2015: lcd 29,598 thousand). Sukook included in this category represent sukook issued by sovereign entities, financial institutions and corpontes. The fair values of unquoted transaction information and net asset values. Significant unobservable inputs used in valuation techniques mainly Level 3 investments included unquoted sukook of KID 331,067 thousand (2015: KID 236,787 thousand) and are valued based on the reported NAVs. Investments classified under level I are valued based on the quoted bid price. Investments classified under level 2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Kuwait Finance House K.S.C.P. and Subsidiaries