Some governments in the region are intensifying efforts to reduce regulatory hurdles and develop Islamic banking sector in line with global trends to meet the cultural and religious needs of their Muslim populations.
Sunday 18, August 2019
Moody’s said that Islamic banking will grow substantially in Commonwealth of Independent States (CIS) countries in the next five years from a very low base, driven by government initiatives to nurture the sector.
Svetlana Pavlova, AVP-Analyst at Moody’s, said, “Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan are set to lead this expansion of Islamic banking, these countries have large Muslim populations and are notable for their governments’ commitment and progress in establishing better legal and regulatory infrastructure for Islamic finance.”
Kazakhstan’s government plans to boost the share of Islamic banking assets to three per cent of total banking assets in the country by 2025 from the current 0.2 per cent, while in Kyrgyzstan, the national bank aims to expand the share to five per cent by 2021 from the current 1.4 per cent.
The rating agency stated that government support is critical for the development of Islamic banking because the business of providing Shari’ah-compliant financial services requires the establishment of comprehensive regulatory frameworks foremost.
Similarly, in Tajikistan, a law to lay out a foundation for Islamic banking took effect in 2014 and since then, the government has been working together to amend other existing laws and regulations to facilitate the development of the sector. Uzbekistan is also developing legislation to govern Islamic finance with support from the Islamic Development Bank.
Some CIS governments aim to foster the growth of Islamic banking because they see the development of Islamic finance as a way to foster investment ties with fast-growing economies in the Gulf and Asia that have large Muslim populations with large pools of capital.
Kazakhstan is the most advanced in establishing infrastructure for Shari’ah compliant finance, with the creation of the Astana International Financial Centre (AIFC) economic zone, signalling its strong commitment to expanding Islamic banking.
According to Moody’s, Kazakhstan has two Islamic banks in operation and has made the most headway in Sukuk issuance in the CIS region.
On the other hand, Kyrgyzstan has one Islamic bank, along with two conventional banks with Islamic windows, while Tajikistan's Sohibkorbank transformed a conventional bank into the country's first Islamic bank in July 2019.