Tashkent, June 20, 2023 – The Ministry of Investment, Industry and Trade of the Republic of Uzbekistan and Foreign Investors Council under the President of Uzbekistan have organized a meeting to discuss Islamic banking opportunities and establishing legal framework for Islamic finance in Uzbekistan. The meeting was attended by representatives of the Central Bank, Ministry of Finance, relevant business entities, banks and academia.

The Islamic finance industry is emerging as a powerful catalyst for economic development in several countries, as evidenced by recent data. Islamic banks have experienced a growth rate of 1% in their assets, surpassing conventional banks’ growth rate of 0.04%. Furthermore, the Islamic finance sector has significantly contributed to increased credit provision to the private sector in countries such as the Gulf Cooperation Council (GCC) member states, Malaysia, and Indonesia. The development of Islamic finance has led to an additional credit volume of $258 billion in these countries between 2004 and 2013.

One of the key challenges faced by businesses today is the scarcity of financial resources. With annual interest rates on commercial loans averaging 24%, businesses encounter significant obstacles. It is worth noting that countries such as Russia (12%), Kyrgyzstan (16%), and Uzbekistan (24%) have some of the highest interest rates globally. These conditions adversely impact business profitability and result in increased prices, directly affecting the population.

Additionally, the financial services provided by commercial banks do not always align with the best interests of individuals and entrepreneurs. The absence of a direct link between the success of loan projects and the banks’ financial gains has led to higher financial risks for the business sector.

Moreover, predominantly Muslim-populated countries face challenges in fully benefiting from traditional banking and financial systems. Therefore, the establishment and development of the Islamic finance system, aligned with conventional banking practices, aims to mitigate these risks and foster rapid growth.

Islamic financial products and services are now available to both individuals and legal entities in various countries, including the United Kingdom (4.4% Muslim population), Singapore (14%), Switzerland (5.2%), France (9%), and Russia (15%). Furthermore, countries such as Kazakhstan, Kyrgyzstan, and Tajikistan have passed legislation to establish Islamic finance systems, with Islamic financial institutions already operating in these regions.

Over the past decade, the global Islamic finance industry has witnessed an impressive annual growth rate of 15% for its assets, with a projected total volume of $5.9 trillion USD by 2026 (compared to $4 trillion USD in 2021). Research indicates that a significant Muslim majority in Uzbekistan expresses high demand for Islamic financial products and services. In line with our commitment to developing the private sector, the Islamic Development Bank is collaborating with nine commercial banks to introduce “Islamic Finance Accounts.”

A joint survey conducted by the United Nations’ Development Programme and the Ministry of Finance of the Republic of Uzbekistan in 2020 revealed that 38% of business representatives and 55% of individuals reported not utilizing traditional credit facilities. Furthermore, 61% of entrepreneurs and 75% of individuals expressed their desire to benefit from Islamic financial products and services. Participating banks in the survey emphasized the importance of introducing new types of financial services, including Islamic finance, to enhance competition in the financial market.

The Islamic banking and financial system will provide several opportunities to our country’s economy based on a legal framework:

Attracting domestic investments into the economy: The establishment of a legal foundation for the Islamic financial system allows individuals and businesses who do not use traditional banking systems due to personal beliefs to redirect their funds to the official financial system. This is estimated to attract additional investments of approximately UZS 125 trillion (USD 10 billion) to the Republic’s banking system and economy (25% * UZS 500 trillion – the total value of Uzbekistan’s banking assets).

Expansion of the deposit base: Banks compliant with Islamic finance principles will increase the amount of funds deposited in Islamic banks by individuals who refrain from depositing their money in traditional banks due to religious reasons.

This is estimated to attract deposits from the public in the amount of approximately UZS 50 trillion (USD 4.4 billion) that are in line with Islamic finance principles, based on existing financial statements.

Increase in foreign investments: The functioning of the Islamic banking and financial system creates opportunities for attracting foreign investments and encourages the establishment of foreign Islamic financial institutions, investment organizations, joint ventures, and the formation of investment projects. Prominent examples include Indonesia, which attracted 2.5 billion USD in investments in 2016, and Bahrain, which received 3 billion USD in investments in 2017.

Establishment of a legal framework for Islamic finance: The creation of a legal foundation for Islamic finance promotes the growth of the population’s and entrepreneurs’ economic activities, the creation of new jobs, an increase in tax revenues, and contributes to the development of the domestic production of halal products.

In light of the above, several proposals have been put forward:

 • Allow Islamic finance providers, who operate based on Islamic financial principles, to engage in regulated trade activities in accordance with existing legislation.
 • Establish a Special Supervisory Board as an additional component of the general corporate governance system to ensure the compliance of Islamic banking providers with internal rules and regulations related to Islamic finance.
 • Recognize the distinction between traditional banking and Islamic banking and establish additional tax obligations for Islamic finance providers to create equal legal conditions for the activities of conventional banks and Islamic banks, particularly in terms of taxation (profit tax, income tax, etc.).
 • Develop guidelines, definitions, and regulations related to the services provided by Islamic finance providers, including aspects such as beneficial ownership.

Once approved, the prepared draft Law (to be supplemented and submitted for discussion with relevant ministries and agencies, including amendments to the Civil and Tax Codes of the Republic of Uzbekistan and the Law “On Banks and Banking Activities”) will undergo further coordination.

The Islamic finance industry’s positive impact on economic growth is evident through its contribution to increased credit provision, its ability to address the challenges faced by businesses, and its alignment with the preferences and demands of a significant Muslim population. By embracing Islamic finance, countries can unlock tremendous potential for attracting investments, expanding the deposit base, and promoting economic development.