This report provides a comprehensive analysis of the current status and prospects of Islamic finance globally and in Central Asia, comprising Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The report makes practical recommendations and strategic considerations tailored to the specific dynamics of the region, addressing regulatory harmonisation, capacity building, product innovation, and awareness campaigns. The research demonstrates that the region offers a unique opportunity for the growth of Sharia-compliant financial products and services, due to its rich cultural heritage, significant Muslim population, and rising demand for investments.

The region of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) is dynamically changing, and its role in Eurasia and the world needs to be reassessed. The population of Central Asia is 80 million people. This is a 40% increase since 2000. It keeps growing at 2% per year. In 2024, the aggregate GDP of the Central Asia countries was $519 billion. Over the last two decades, it grew nominally at 6.4% on average.  Foreign trade turnover has increased almost ninefold since 2000. Foreign direct investments have increased 17 times. For over 20 years, Central Asia has been growing faster than developing countries on average. 

Sharī‘ah-compliant financing, as a relatively new (more than 30 years old) and fast-growing segment of the global financial system, plays an increasingly important role in the sustainable development of the Central Asian states. All governments of the region are paying special attention to the development of Islamic finance. Islamic finance offers a unique opportunity for Central Asia to promote inclusive growth, financial stability, and sustainability. Overcoming challenges such as regulatory inconsistencies and talent shortages will require coordinated efforts and innovative solutions. By capitalizing on its strategic advantages, the region can position itself as a key player in the global Islamic finance industry.

The region of Central Asia currently has 11 Islamic banks and 11 non-banking financial institutions, as well as Islamic banking windows. Other institutions include takaful operators, microfinancing, investment companies, Ijara or leasing companies, and Islamic FinTechs such as digital banks and wealth management platforms. Islamic capital market instruments such as ṣukūk are developing more slowly than Islamic financial institutions, however.

Islamic finance assets in Central Asia amount to USD 699 million at the beginning of 2024. According to the Islamic Finance Development Report 2024, Kazakhstan ranks 19th in the world in terms of Islamic finance development in 2024 (i.e., above the global average) and leads the Central Asian market.

In the next ten years, there is a perspective for significant growth and development in the Islamic finance industry in the region, driven mainly by the Islamic banking sector and the ṣukūk asset class (Energy, Transport & Logistics, Industry, Food Security, and Social Infrastructure are priority areas of investment). A baseline scenario based on the growth of financial intermediation and an estimate of the change in the share of Islamic finance in the financial sector structure was used to project the increase in Islamic finance assets in the region.

This approach assumes an increase in Islamic banking assets in Central Asia to the level of USD 2.5 billion in 2028 and USD 6.3 billion in 2033. Given the favourable demographics, strong economic growth, and the substantial size of the banking industry in each of the five Central Asian nations, Kazakhstan is expected to be the leader, followed closely by Uzbekistan. The region’s Ṣukūk market is also expected to witness significant expansion: the baseline forecasts suggest that the Ṣukūk market is anticipated to grow to USD 2.05 billion by 2028 and USD 5.6 billion by 2033.

Figure – Islamic Finance Market Outlook for Central Asia

The Islamic finance industry faces challenges such as a lack of standardisation and the need for robust risk management frameworks. For that reason, regulatory harmonisation across Central Asian countries is crucial to attract foreign investment and facilitate cross-border transactions.

The report stresses the need for cooperation of the multilateral financial institutions and International Islamic banks on creating Sharia-compliant products and services tailored to the specific needs of Central Asian markets, including development of “Islamic windows” in conventional financial institutions as a sustainability milestone and innovative solutions for microfinance, agriculture financing, and renewable energy financing. International Islamic banks from more mature Islamic finance jurisdictions, such as the Gulf countries and Southeast Asia, can help build capacity in Central Asian Islamic banking ecosystems and can enable knowledge transfers in Central Asian countries to enhance the levels of Islamic finance technical expertise they can draw upon.

“One of the EDB’s strategic priorities is to become a platform for Islamic finance in Central Asia. The further development of Islamic finance in Central Asia will expand financial inclusion and connect local businesses to the global Islamic market, contributing to regional economic growth. With the Islamic Development Bank Group’s support, EDB has started to develop an “Islamic Window” for financing projects by Sharia principles. The priority areas of investments will be energy, transport, social infrastructure, food security, and industry”, says Nikolai Podguzov, EDB Chairman.

In a message published in the report, Chairman of the IsDB Group, H.E. Dr. Muhammad Al Jasser, said, “The Islamic Development Bank Group is committed to supporting the advancement of Islamic finance in Central Asia and beyond. Our collaboration with Eurasian Development Bank demonstrates how development banks can work together to create inclusive and resilient financial systems.”

The report concludes that Islamic finance holds immense potential to contribute to economic development, financial inclusion, and foster good governance practices in Central Asia. By capitalizing on the region’s unique opportunities and addressing existing challenges through collaborative efforts, Islamic finance can emerge as one more source of sustainable growth and prosperity in the region.

The report “The Future of Islamic Finance in Central Asia” is accessible on the IsDBI website here: https://isdbinstitute.org/product/future-of-islamic-finance-in-central-asia/

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Dr. Sami Al-Suwailem, Acting Director General of IsDBI, warmly received the UPU delegation and expressed the Institute’s willingness to work together in developing innovative financial solutions that align with the needs of IsDB member countries (MCs). The discussions centered on leveraging Islamic finance principles to enhance postal financial services and developing operational models that can serve customers in both urban and rural areas.

The UPU is keen to explore Islamic finance as a complementary business model for postal financial services, acknowledging its potential to enhance financial inclusion, diversify income avenues for postal operators, and provide ethical financial solutions to underserved populations. These aspirations align closely with the Digital Postal Islamic Financial Services Project, which aims to leverage postal networks and digital platforms to offer Shariah-compliant financial services, particularly in regions with limited access to traditional banking.

As a specialized agency of the United Nations, the Universal Postal Union (UPU) plays a key role in promoting international cooperation among postal operators and advancing the global postal sector in its 192 Member Countries. The Islamic Development Bank Institute (IsDBI), the knowledge and innovation arm of the Islamic Development Bank (IsDB), is committed to developing and promoting Islamic financial solutions that contribute to sustainable economic development in its 57 Member Countries.

The visit marks a significant step towards fostering a strategic partnership between IsDBI and UPU, with the aim of developing innovative, inclusive, and technology-driven financial solutions that will benefit postal operators and the communities they serve.

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This collaboration aims to launch two innovative programs: the Entrepreneurial Mindset Development Program and the Strategic Business Leadership Program. These programs integrate Islamic finance values and instruments to foster economic growth in Member Countries. The programs will be hosted by MBSC and delivered jointly by both institutions.

Dr. Sami Al-Suwailem, Acting Director General of IsDBI, and Dr. Zeger Degraeve, Dean of MBS College, signed the agreements during a ceremony at the IsDB Headquarters in Jeddah on 29 January 2025.

The Entrepreneurial Mindset Development Program is designed to equip participants with the essential skills, knowledge, networks, values, and training needed for successful entrepreneurial ventures. The Strategic Business Leadership Program aims to develop the key attributes of entrepreneurial success: personal attributes, including behavior, personality, and capabilities, as well as business attributes such as its structure, goals, and performance management.

Both programs will include a series of interactive workshops, mentorship sessions, and real-world projects. Participants are expected to gain valuable insights into innovative thinking, business planning, and effective problem-solving.

In his comments on this occasion, Dr. Sami Al-Suwailem said, “We are very excited about the partnership with the MBS College. As the knowledge beacon of the IsDB Group, we hope that the joint programs with MBSC will create a new breed of business leaders and entrepreneurs who successfully capitalize on the principles of Islamic finance to stimulate economic progress in their communities. Human capital is our greatest resource, and we must equip our youth with the right tools and skills to face the emerging challenges of the future.”

Dr. Zeger Degraeve, Dean of MBSC, said, “This partnership underscores MBSC’s dedication to fostering entrepreneurial leaders who can contribute to Saudi Arabia’s ambitious Vision 2030 and beyond. By integrating Islamic finance principles with practical business strategies, these programs will empower participants to address real-world challenges and drive sustainable economic and social value, both within the Kingdom and across IsDB Member Countries.”

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The two-day conference, scheduled for 3-4 November 2024, will be held at Crowne Plaza, Kingdom of Bahrain. This year’s conference is themed: “Leveraging Islamic Finance to Build a Sustainable, Efficient, and Resilient Halal Ecosystem for Muslim Economies”.

Considered one of the most significant gatherings in the Islamic finance industry, the conference this year will host Shari’ah scholars, policymakers, and decision-makers to discuss pressing matters in the Islamic finance industry globally. The conference will be supported by a variety of partners and sponsors, including Islamic banks and financial institutions, academic institutions, technology companies, and other support service providers and knowledge-sharing platforms.

H.E. Shaikh Ebrahim Bin Khalifa Al Khalifa, Chairman of AAOIFI Board of Trustees remarked on this occasion: “We are honored to once again host our annual conference in Bahrain. We eagerly anticipate engaging in discussions on vital issues and Islamic finance-based approaches and solutions that can be leveraged to build a sustainable, efficient, and resilient Halal ecosystem for Muslim economies. We extend our profound appreciation to the Central Bank of Bahrain and the Islamic Development Bank for their unwavering support to AAOIFI and its pivotal initiatives, encompassing this important conference. In sha Allah, we look forward to welcoming all AAOIFI stakeholders to Bahrain”.

The two-day conference will feature keynote addresses from distinguished dignitaries and policymakers, along with seven-panel discussion sessions. These discussions will explore how Islamic finance can build a sustainable Halal ecosystem, covering topics such as transitioning from Halal finance to a Halal economy, enhancing supply chains, and addressing governance and transparency in Islamic finance, among other relevant topics.

Khalid Al Hamad, Executive Director of Banking Supervision at the Central Bank of Bahrain, also commented on this occasion: “The Central Bank of Bahrain is pleased to support this conference, which underscores our ongoing commitment to the advancement of Islamic finance both locally and globally. This conference provides a valuable opportunity for stakeholders to examine the evolving dynamics of Islamic finance and its broader economic implications. It is essential that we continuously evaluate and refine our strategies to address the diverse needs of the stakeholders. We believe the insights gained from this conference will play a crucial role in shaping and improving economic and financial practices worldwide”.

Dr. Sami Al-Suwailem, Acting Director General of IsDB Institute, also commented on this occasion: “The Islamic Development Bank is committed to showcasing how Islamic finance can build a more sustainable, efficient, and resilient Halal ecosystem. Our focus is on leveraging innovative financial strategies and practices rooted in Islamic principles, rules, and values, as well as AAOIFI standards, to drive economic efficiency, financial stability, and long-term growth in Muslim economies. This conference provides a vital platform to address current economic, financial, and environmental challenges, showcasing our commitment to upholding the broader goals of Shari’ah”.

In conjunction with the conference, AAOIFI is also organizing the 2nd edition of Capacity Building Week, which will commence on 2 November 2024 and continue from 5-8 November 2024. This event is expected to draw over 200 participants from more than 30 countries, who will engage in over 20 concurrent workshops, facilitated by 20 AAOIFI trainers.

For registration and more information about the conference, please click this link: https://bit.ly/3Tx6ojI

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Prof. Asutay, the Director of the Durham Centre for Islamic Economics and Finance at Durham University Business School, was awarded the prize in recognition of his significant contributions to shaping Islamic finance to promote sustainable development and human welfare within the Islamic moral political economy paradigm.

During the lecture, Prof. Asutay focused on the barriers to accessing resources, and the emergence of new moralities, such as sustainability and ethical business and finance.

He emphasized that true sustainability can only be achieved by fundamentally altering conventional assumptions to ensure equal access to resources. He highlighted the Islamic moral political economy’s perspective on emancipation and empowerment through resource accessibility, guided by the concept of Ihsan, which refers to agile and optimal governance.

The prize laureate also identified the need for an authentic methodology for sustainability and explained why it is imperative to disrupt conventional assumptions through the Islamic cognitive system or Islamic moral political economy paradigm, leading to new imaginaries.

The Islamic Moral Political Economy movement emerged to develop an understanding of an embedded system of economy that fosters an extended stakeholder development strategy with an extended stakeholder governance model. The multifaceted nature of Islamic economic development can be addressed through ijtihad, which is the base of Islamic moral political economy, beyond the Islamization of the neo-classical economy.

Prof. Asutay underpinned the key essence ontology of Islamic moral political economy as being just, sustainable, and imperative. Based on this philosophical foundation, the Islamic moral economy within the Islamic worldview can be outlined as:

• Being complementarity nature of all the stakeholders to reach unity (tawhid)
• Being within the balance (Mizan)
• Recognizing and provisioning of an opportunity space for the development path for each stakeholder to reach their perfection (rububiyah)
• Harmonizing the growth of each stakeholder with other stakeholders (tazkiyah)
• leading to inter-and-intra generational justice (adalah)
• ensuring the equilibrium-based (ihsani) governance

Prof. Asutay concluded the lecture by noting that it is an opportune time for the emergence of healing and ihsani leadership and governance in civil society.

Prof. Asutay also granted a one-on-one interview at the IsDB Institute, where he ‎highlighted the significance of winning the IsDB Prize and how his contributions will help shape the landscape of Islamic economics and finance knowledge. The interview is available on YouTube here.

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The IsDB Group, comprising the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the Islamic Corporation for the Development (ICD), and the International Islamic Trade Finance Corporation (ITFC), leverages its diverse tools to support member countries in achieving their development goals.

The PSF 2024 Awards honors exceptional achievements, groundbreaking innovations, and impactful initiatives by market practitioners driving positive change through Shariah-compliant financial instruments in the areas of trade finance, export credit, and private sector development, in six categories:

ICIEC:

Export Credit Agency of the Year: Kazakh Export

The ICIEC cooperated with Kazakh Export, for the export of locomotives to Azerbaijan Railways by providing insurance support for a US$29.8 million lease finance facility of 10 ‘Evolution – Type’ diesel locomotives to Azerbaijan Railways for 10 years while supporting intra-OIC trade and meeting SDG 9 of the UN.

 Most Innovative Investment Development Initiative of the Year: African Development Bank (AfDB)

The ICIEC has signed a risk-sharing arrangement with the African Development Bank (AfDB) to support financing dedicated to ESG projects in Côte d’Ivoire. The ICIEC has provided an insurance capacity of EUR194 million (US$210.13 million), backstopping the EUR400 million (US$433.25 million) partial credit guarantee (PCG) issued by the AfDB against the non-payment risk associated with a facility of EUR533 million (US$577.31 million) extended by Standard Chartered Bank to the government of the Côte d’Ivoire.

ICD:

Most Impactful Islamic Financial Institution of the Year: Kazakhstan’s JSC Leasing Group

ICD issued last year a Tenge-denominated Sukuk which was rated “A+” by Fitch. With a size of KZT 2 billion, this is the first sukuk in the national currency of one of the Commonwealth of Independent States (CIS).

The sukuk proceeds were used to support Kazakhstan’s JSC Leasing Group’s on-lending activities. The ultimate beneficiaries are mostly small and medium-sized enterprises. With the volatility in currency markets representing a major risk for companies with revenues in local currency, ICD provided a local currency financing solution to Leasing Group.

Leasing Group is listed on the Kazakhstan Stock Exchange.

Most Impactful ICD Investee Company of the Year: Tunisia’s Wifak Bank

Tunisia’s Wifak Bank made the transition to a fully-fledged Shariah-compliant bank in 2016, while the ICD participated in the capital increase reserved for strategic partners including the Tunisian sovereign wealth fund and other Tunisian investors. In line with ISO 26000 standards, Wifak is quantifying its carbon footprint and is attempting to reduce it while also making progress on SDGs 5, 8, 9, and 17. Wifak’s Fitch rating outpaces the sovereign rating as it provides 55,000 individuals/SMEs with access to financial resources and employs over 300 local talents while collaborating with a fintech company to introduce digital payments.

ITFC:

Trade Finance Deal of the Year: Turk Eximbank

ITFC has awarded Türk Eximbank the “Trade Finance Deal of the Year” award. This recognizes their long-standing partnership and Türk Eximbank’s key role in expanding ITFC’s private sector initiatives in Turkey. Since 2009, ITFC has provided Türk Eximbank with approximately US$3.5 billion in financing, with an impressive US$3.2 billion mobilized from external sources.  This collaborative effort has significantly impacted Turkey’s trade landscape, with a particular focus on SMEs and the textile sector.

Outstanding Contribution to Intra-OIC Trade Development: Foreign Trade Training Centre (FTTC)

ITFC has awarded the Foreign Trade Training Centre (FTTC) the “Outstanding Contribution to Intra-OIC Trade Development” award.  This recognizes the FTTC’s dedication to boosting Egypt’s global trade position and its successful partnership with ITFC. Founded by the Egyptian Ministry of Trade & Industry, the FTTC plays a vital role in developing export professionals and strengthening trade ties within the OIC.  Through ITFC-supported programs like TREE and STEP, the FTTC has trained hundreds of new exporters and entrepreneurs, contributing to Egypt’s goal of reaching USD 100 billion in exports within five years.

The winners were announced and awarded on Sunday, April 28^th during the 2024 Private Sector Forum at the InterContinental Hotel in Riyadh.

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Led by Dr. Sami Al-Suwailem, Acting Director General of IsDBI, the meetings explored a broad spectrum of collaboration opportunities. Discussions focused on capacity building, legal and regulatory framework development, product structuring, and support for financial inclusion, sustainable finance, and economic development.

Additionally, innovative ideas were explored for technology adoption – including solutions for achieving Sustainable Development Goals (SDGs), building smart economic cities, fostering climate and green finance action, and driving human capital development. Notably, the discussions addressed the growth and development of the social finance and non-profit sectors.

Bilateral partners included member country delegations led by IsDB Governors, senior representatives from Ministries, Central Banks, UN Agencies, International Organizations, Multilateral Development Organizations, and other Financial Institutions.

The meetings yielded concrete action plans for 2024 and beyond. These plans leverage the unique strengths of each partner organization. Key areas for collaboration include promoting skills development, strengthening the legal and regulatory ecosystem, developing social safety nets, mainstreaming Islamic finance within the global financial architecture, and accelerating the achievement of SDGs. Several discussions highlighted the potential of innovative solutions involving artificial intelligence, blockchain, and other digital technologies.

The 2024 IsDB Annual Meetings concluded with a positive outlook for the IsDB Institute. The bilateral meetings enabled in-depth discussions with stakeholders and plans for Islamic economics and finance to play a vital role in supporting the sustainable development of the IsDB member countries and Muslim communities worldwide.

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The Capital Markets Authority is responsible for regulating capital market activities in the State of Kuwait and aims to create a vibrant Islamic capital market based on fairness, competitiveness, and transparency. It also works for developing the financial markets, diversifying and developing investment tools, striving to comply with international best practices, educating the public about securities activity and the benefits, risks, and obligations associated with investing in securities, and encouraging its development.

The Islamic Development Bank Institute (IsDBI), a member of the Islamic Development Bank Group, seeks to be a beacon of knowledge for the IsDB Group, and a pioneer in developing innovative, knowledge-based solutions to support the sustainable development of member countries and Muslim communities worldwide, guided by the principles of Islamic economics and finance.

The IsDB Institute and the CMA Kuwait wish to expand areas of cooperation, strengthen coordination, and exchange experience in relevant areas of mutual interest. Both parties realize that coordination and cooperation will increase the effectiveness of activities and efforts, aimed at developing Islamic financial institutions and supporting socio-economic development.

The strategic plan of the Capital Markets Authority includes the initiative to develop the Islamic capital market in Kuwait, which aligns with the IsDBI’s mandate to lead the development of innovative, knowledge-based Islamic finance solutions to support sustainable development for IsDB Member Countries and Muslim communities worldwide.

Accordingly, the two parties signed a memorandum of understanding to facilitate and coordinate technical cooperation between the two parties in areas of common interest. In particular, the collaboration involves conducting the necessary studies to analyze the current status of the Islamic financial industry, benchmarking with the best international practices, and formulating a road map for the development of a vibrant Islamic capital market in the State of Kuwait, as well as benefiting from the capacity building programs provided by the IsDBI.

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Titled “Applications of Agent-Based Simulation in Islamic Finance”, the book is an edited collection of papers authored by students who graduated from the Islamic Financial Engineering Laboratory based in Rabat, Morocco. The Laboratory was established in 2013 by Mohammed V University in Rabat and the Islamic Development Bank (IsDB). Former heads of the Laboratory, Prof. Rajae Aboulaich, and Prof. Mohamed Tkiouat, edited the new book.

The book explores the different aspects of Islamic finance and modeling, highlighting the importance of agent-based modeling and mathematical modeling in the context of Islamic finance. It also examines the growing role of fintech and its impact on financial inclusion within the Islamic framework.

The objective of the book is to provide an in-depth perspective of the theoretical foundations and practical applications of agent-based and mathematical modeling in the field of Islamic finance. By exploring the different models and approaches, the authors highlight the advantages and limitations of these methodologies while emphasizing their relevance for decision-making and risk management in the Islamic context.

Dr. Sami Al Suwailem, Acting Director General of IsDB Institute, said: “The book is a result of close collaboration between the professors and graduate students of the Lab and experts from the IsDBI. The support of the IsDB has helped IFE Lab students in the development of the modeling of complex problems and the structuring of innovative financial products using high-performance simulation approaches such as agent-based modeling, discussed in this book.”

Prof. Rajae Aboulaich, one of the book editors, said: “This book is the fruit of research carried out over the past eight years within the IFE Lab at Mohammed V University in Rabat. It presents selected research carried out as part of the theses produced within the IFE Lab. The book documents also some of the success stories of the IFE Lab, and so, we hope it will serve as a reference for future generations to lead the development of Islamic finance to the next level”.

The book is available for purchase on IsDB Institute’s website here.

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This MoU focuses on leveraging ICIEC’s insurance solutions to facilitate ZTE’s supply of telecom network equipment and training to major telecom operators within ICIEC member states. ICIEC has a proven track record of facilitating critical telecom equipment supply through its specific transaction insurance solutions, as demonstrated by its successful collaboration with operators like Uzbektelecom in Uzbekistan. We are confident that this MoU will further enhance our ability to provide cutting-edge telecom infrastructure and connectivity to our member states.

Oussama Kaissi, CEO of ICIEC, stated: “We are thrilled to announce the expansion of our partnership with ZTE, a leading global provider of telecommunications equipment and network solutions. Through the signing of this MoU, we aim to further our joint efforts in bolstering the telecommunications infrastructure within ICIEC member states. Our collaboration will leverage ICIEC’s insurance solutions and ZTE’s expertise in the supply of telecom network equipment and knowledge transfer, to provide our member states with access to cutting-edge technological solutions that meet their evolving needs.”

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