Can Islamic Finance Drive Banking Sector Growth in Uzbekistan? – The Diplomat

In accordance with Mordor Intelligence, Islamic finance has been on the rise lately, with belongings managed by Shariah-compliant monetary establishments surpassing $4.2 trillion in 2022 (a 93 % improve from 2015). S&P World Scores forecasts progress of roughly 10 % in 2023, and belongings are anticipated to succeed in $6 trillion by 2026.

Islamic finance refers to a monetary system that operates in accordance with the ideas of Islamic legislation, referred to as Shariah. It prohibits curiosity (usury) and promotes moral and socially accountable monetary transactions. As an alternative of conventional interest-based lending, Islamic finance makes use of numerous buildings corresponding to revenue sharing, asset-backed financing, and risk-sharing mechanisms to create monetary merchandise that adjust to Shariah ideas. 

In Uzbekistan, there’s a important demand for Islamic finance. A 2020 UNDP examine confirmed that 56 % of people and 38 % of companies surveyed in Uzbekistan don’t take loans as a result of spiritual beliefs. Nonetheless, based on the identical survey it was discovered that greater than 60 % of people and companies should not have a full understanding of how merchandise of Islamic finance work.

Promotion of Islamic Finance

In Uzbekistan, steps are being taken to draw Islamic finance, bilateral agreements with Islamic finance establishments are being concluded, and work is underway to introduce Islamic home windows into conventional industrial banks.

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In an effort to develop Islamic finance, Financial institution Ipak Yuli, Alokabank, Trustbank, Make investments Finance Financial institution, Kapitalbank, Asakabank, Turonbank, Uzpromstroybank, Khamkorbank, and Asia Alliance financial institution have signed a cooperation settlement with the Islamic Company for the Growth of the Personal Sector. The financing is especially within the type of offering banks with ensures on Murabaha ideas. Known as cost-plus financing, Murabaha is an Islamic financing construction wherein the vendor and purchaser conform to the price and markup of an asset. Concurrently, a number of corporations – corresponding to Iman Make investments, Alif Nasiya, and Uzum Nasiya – have additionally began working beneath Islamic finance ideas.

In 2021, Uzbekistan’s Central Financial institution chair, Mamarizo Nurmurodov, said that work is underway to open Islamic home windows in 14 banks within the nation. In the identical yr, the forty sixth annual assembly of the Board of Administrators of the Islamic Growth Financial institution (IsDB) was held in Tashkent, the place 30 monetary agreements value $1.2 billion had been signed between the IsDB and 10 accomplice international locations. It was agreed that $330 million will probably be spent on the pursuits of Uzbekistan.

One of many optimistic modifications for Islamic banking is the Uzbekistan 2030 technique, which gives for the introduction of Islamic finance standards and procedures in at the least three industrial banks.

Challenges for Islamic Finance in Uzbekistan

Nonetheless, the dearth of laws regulating Islamic monetary services and products is a serious impediment. 

The Deposit Assure Fund ensures that deposits are protected in conventional banks solely, which make it tougher to draw financing to Islamic banking. As well as, the dearth of crucial infrastructure in industrial banks for mutual settlements and software of Islamic ideas in accounting additionally hinders the event of this space. It is very important notice that Islamic finance requires a separate accounting strategy from conventional banking practices. In an effort to make the most of loans primarily based on Islamic finance, it’s crucial to draw sources which are given on Shariah ideas; loans with curiosity on deposits will not be consistent with these ideas. 

Along with this, there isn’t a Islamic finance legislation. For instance, a financial institution can use the money balances of Islamic corporations in present accounts in interest-bearing transactions opened with that financial institution. Corporations working beneath Islamic finance norms are pressured to take care of conventional banks beneath the Tanazul precept (the precept of exclusion as an alternative of not coping with Islamic finance in any respect). The identical will occur with the introduction of single home windows. The accounts of the 2 techniques must be separated, and Islamic home windows shouldn’t be financed from the revenue or deposits of economic banks.

Results of the Introduction of Islamic Finance

The introduction of Islamic banking in Uzbekistan may set off a multifaceted surge in financial exercise. The attraction for buyers from the Islamic world is clear, doubtlessly attracting international buyers and stimulating native infrastructure improvement tasks. Estimates by the Islamic Growth Financial institution recommend an annual influx of as much as $10 billion into Uzbekistan by way of Islamic banking. 

As well as, empirical proof emphasizes the optimistic correlation between funding and GDP progress, particularly in international locations with important Muslim populations. In accordance with Ledhem and Mekidiche, inspecting the Turkish expertise, a rise of 1 % in Islamic finance median worth will improve GDP by 4.97 % within the median worth. Analysis by Naz and Gulzar primarily based on empirical calculations in international locations with giant Muslim populations reveals {that a} 1 % improve in Islamic financial institution financing can improve actual GDP by 4.1 %. 

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Evaluation primarily based on the vector autoregression mannequin reveals that in the long run the implementation of Islamic investments can improve the GDP of Uzbekistan by 16.3 % and thereby probably create greater than 2 million jobs. The Ministry of Funding, Business and Commerce estimates that the introduction of Islamic finance may improve funds revenues by $100 million.

Along with profit-based merchandise, the Islamic monetary system also can provide such companies as sadaqa (voluntary charity), zakat (obligatory tax levied on Muslims), and waqf (donation) to cut back poverty and international debt.

Overseas Expertise: Methods and Laws

Many international locations world wide are implementing efficient steps to develop Islamic finance by way of improvement methods and authorities rules. The general objective is to make use of Islamic finance as a device to extend the general financial exercise of the state.

Kazakhstan adopted an Islamic finance Grasp Plan for 2020-2025. The grasp plan consists of 9 strategic initiatives, every of which is hooked up to motion plans. The objective is to extend the share of Islamic finance belongings in complete monetary belongings to 3-5 % by 2025. In Kazakhstan, the common annual progress of Islamic banks’ belongings amounted to 30.3 % in opposition to 12 % of conventional banks.

Beneath Saudi Arabia’s Monetary Sector Growth Program, a part of its Saudi Imaginative and prescient 2030 financial plan, the authorities goal to make Riyadh the world capital of Islamic finance by 2030. Saudi Arabia goals to draw $100 billion in international direct funding by 2030 as a part of its financial diversification plans.

Islamic finance is without doubt one of the key areas talked about in Malaysia’s twelfth Financial Plan (2021-2025). Particularly, it focuses on the regulation and supervision of Islamic monetary establishments. The Central Financial institution’s 5-Yr Monetary Sector Blueprint 2022-2026 mentions the event of value-based finance by way of Islamic finance governance.

To help liquidity administration of home Islamic banks, the Financial institution of England launched the Various Liquidity Facility (ALF) in December 2021. The ALF allowed British Islamic banks to carry an account with the central financial institution to be used as a high-quality liquid asset. It’s estimated that the ALF will additional improve competitors within the U.Ok. banking sector, and additional strengthen the nation as a world monetary middle for Islamic finance exterior the Muslim world. 

In accordance with The Banker, banks in Central Asia are already among the many high 205 primarily based on Islamic finance. Particularly, banks in Kazakhstan (with Al Hilal Islamic Financial institution at a hundred and seventy fifth place and Zaman Financial institution at 189th place), Kyrgyzstan (Eco Islamic Financial institution at 191st place) and Tajikistan (Tawhidbank at 202nd place) are already absolutely or partially functioning organizations on the ideas of Islamic finance. In Central Asia, Shariah-compliant belongings are rising by 12.7 % per yr.


In conclusion, in mild of the escalating instability of the worldwide financial system and the intensifying competitors for monetary sources, Islamic finance presents a promising various for attracting investments, selling enterprise actions, facilitating worldwide commerce, and addressing poverty. Nonetheless, for Uzbekistan to totally harness the potential of Islamic finance, it’s crucial to introduce authorized changes that facilitate its implementation. Moreover, establishing instructional applications for bachelor’s and grasp’s levels in Islamic finance is essential, as experience on this area is at present missing. By making these strategic strikes, Uzbekistan can successfully leverage Islamic finance to realize financial progress and prosperity.


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