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COMPARATIVE MODELS AND METHODOLOGIES FOR THE INTRODUCTION OF
ISLAMIC FINANCE IN NON-ISLAMIC ECONOMIES: A SYSTEMATIC ANALYSIS OF GLOBAL
PRACTICES
Abdul Jalil Mahama
National University of Uzbekistan named after Mirzo Ulugbek
ORCID: 0000-0002-8622-1714
Abstract.
This study explores how Islamic finance can be effectively introduced in non-
Islamic economies, with a focus on Uzbekistan’s legal and economic environment. Through
examining global models such as dual banking, hybrid systems, regulatory sandboxes, and
institutional frameworks couple with case studies from the UK, Malaysia, Bahrain, Singapore, and
Nigeria, the research highlights how diverse jurisdictions have adapted to Shariah-compliant
finance. Using a qualitative methodology, it emphasizes the need for regulatory innovation and
alignment with Islamic principles. The study offers policy recommendations to support inclusive,
ethical, and sustainable financial development, positioning Islamic finance as a strategic tool for
economic diversification in Uzbekistan.
Keywords:
Islamic finance, regulations, sandbox model, financial inclusion, Uzbekistan,
secular economies.
ISLOM MOLIYASINI IQTISODIYOTRGA JORIY ETISH BO‘YICHA TAQQOSLAMA
MODELLAR VA METODOLOGIYALAR: JAHON AMALIYOTLARINING TIZIMLI TAHLILI
Abdul Jalil Mahama
Mirzo Ulug‘bek nomidagi O‘zbekiston Milliy universiteti
Annotatsiya.
Ushbu tadqiqot islomiy moliyani islom bo‘lmagan iqtisodiyotlarda, xususan
O‘zbekistonning huquqiy va iqtisodiy muhiti sharoitida samarali joriy etish imkoniyatlarini
o‘rganadi. Dunyo bo‘yicha qo‘llanilayotgan ikkilik bank tizimi, gibrid tizimlar, “regulyator qumloq
modeli” (sandbox), institutsional yondashuvlar va Buyuk Britaniy
a, Malayziya, Bahrayn, Singapur
hamda Nigeriyadagi tajribalarni tahlil qilgan holda, tadqiqot turli yurisdiktsiyalarning Shariatga
muvofiq moliya tizimiga moslashuvini yoritadi. Sifatli (qualitative) metodologiyadan
foydalangan holda, tadqiqot islomiy tamoyillar bilan moslashgan tartibga solish
innovatsiyalarining zarurligini ta’kidlaydi. Ishda O‘zbekistonda iqtisodiyotni diversifikatsiya
qilish vositasi sifatida islomiy moliyani ilgari suruvchi, inklyuziv, axloqiy va barqaror moliyaviy
rivojlanishni qo‘lla
b-quvvatlashga oid siyosiy tavsiyalar ilgari suriladi.
Kalit so‘zlar:
islom moliyasi, tartibga solish, qumdon modeli (sandbox), moliyaviy
inklyuzivlik, O‘zbekiston, iqtisodiyot.
UO‘K:
336.763
V SON - MAY, 2025
14-26
00
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СРАВНИТЕЛЬНЫЕ МОДЕЛИ И МЕТОДОЛОГИИ ВНЕДРЕНИЯ ИСЛАМСКОГО
ФИНАНСИРОВАНИЯ В НЕИСЛАМСКИХ ЭКОНОМИКАХ: СИСТЕМАТИЧЕСКИЙ АНАЛИЗ
МИРОВОЙ ПРАКТИК
Абдул Джалил Махама
Национальный университет Узбекистана имени Мирзо Улугбека
Аннотация.
Данное исследование изучает возможности эффективного внедрения
исламских финансов в неисламских экономиках, с акцентом на правовую и экономическую
среду Узбекистана. Анализируя мировые модели —
такие как дуальное банковское
обслуживание, гибридные системы, регуляторные песочницы и институциональные
подходы —
а также используя кейсы из Великобритании, Малайзии, Бахрейна, Сингапура
и Нигерии, исследование показывает, как различные юрисдикции адаптировали
шариатское финансирование. Используя качественную методологию, подчеркивается
необходимость регуляторных инноваций и соответствия исламским принципам.
Исследование предлагает рекомендации по политике в поддержку инклюзивного,
этичного и устойчивого финансового развития, позиционируя исламские финансы как
стратегический инструмент диверсификации экономики Узбекистана.
Ключевые слова:
исламские финансы, регулирование, модель песочницы,
финансовая инклюзия, Узбекистан, светские экономики.
Introduction.
The introduction of Islamic banking and finance into non-Islamic economies necessitates
a thorough understanding of the foundational Shariah principles that underpin Islamic financial
practices. These principles, which are considered non-negotiable in every financial transaction,
include the prohibition of riba (interest), gharar (excessive uncertainty), and maysir
(speculation or gambling), as well as the requirement for asset-backed transactions and the
promotion of profit-and-loss sharing models such as Mudarabah and Musharakah. Legal
systems and regulatory frameworks in secular economies must reconcile these principles with
existing laws and market norms, requiring a nuanced approach informed by both
jurisprudential insight and practical policy adaptation.
Several prominent scholars have laid the groundwork for understanding how Islamic
finance can be ethically and legally integrated into non-Islamic financial systems. Siddiqi (1983)
emphasized the moral and ethical paradigms of Islamic finance as a counterpoint to the
interest-driven obligations of conventional markets, particularly in contexts where high
interest rates exacerbate social and economic inequalities. Chapra (1992) further argued for
equity-based financing models as instruments of economic justice and inclusive growth.
Building on these foundations, El-Gamal (2006) and Mia, (2019) highlighted the role of legal
and regulatory reforms
—
such as tax neutrality for Sukuk and the establishment of Shariah-
compliant windows within conventional banks
—
as necessary steps toward operationalizing
Islamic finance in secular jurisdictions. These insights contributed to the adoption of Islamic
financial instruments in countries such as the United Kingdom, Singapore, and South Africa,
where ethical finance gained prominence as a viable alternative to conventional practices.
Equally important in this discourse is the diversity of Islamic legal thought (madhāhib),
which provides both flexibility and rigor in the interpretation and application of Shariah
principles. The Shafi’i school, for example, adopts stricter interpretation
s of riba and gharar,
offering comprehensive procedural guidelines for compliance (Alhejaili, 2025). This has
informed regulatory design in jurisdictions aiming for high Shariah fidelity. In contrast, the
Hanafi School is known for its pragmatism in contractual arrangements, thereby facilitating
hybrid financial models where Islamic and conventional systems coexist (Ibrahim, 2015). The
Maliki school's emphasis on maslahah (public interest) has encouraged the development of
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ethical financial products that appeal to both Muslim and non-Muslim markets (Kamali, 2008)
(Moghul and Safar-Aly, 2014).The Hanbali School, with its literalist approach, has contributed
to the creation of financial instruments that adhere strictly to traditional Shariah standards,
minimizing reputational and compliance risks for Islamic financial institutions (Usmani, 2021).
The Ja’afari school, widely followed by Shia communities, emphasizes justice and fairness in
economic transactions values increasingly aligned with global trends in socially responsible
and ethical investing (Visser, 2019).
These jurisprudential perspectives have had practical implications in shaping the
regulatory responses of non-Islamic countries. For instance, legal frameworks in the UK and
Malaysia have drawn on the Shafi’i and Hanbali traditions to ensure strict Shariah
compliance
while maintaining compatibility with existing financial legislation (Alduaij, 2020). The
adaptability of the various madhāhib has thus allowed Islamic finance to be tailored to diverse
socio-economic and legal contexts without compromising its religious foundations.
Furthermore, understanding the theoretical and legal diversity within Islamic
jurisprudence is essential for addressing both regulatory and operational challenges in non-
Islamic economies. A comparative and systematic analysis of these models offers valuable
insights for policymakers, regulators, and financial institutions seeking to introduce Islamic
finance in secular settings. By aligning consumer expectations with legal requirements and
Shariah compliance, stakeholders can promote the sustainable and effective adoption of Islamic
finance across different jurisdictions.
Literature review.
Synthesis of Theoretical Views and Models
Islamic finance is fundamentally underpinned by Shariah law, which mandates
compliance with ethical and moral principles in all financial transactions. Central to its
implementation in non-Islamic economies is the application of theoretical models that ensure
Shariah adherence while adapting to secular regulatory environments. Two dominant
theoretical paradigms Shariah-based finance and the Maqasid al-Shariah (objectives of Islamic
law) provide the foundational framework. The Shariah-based approach emphasizes key
prohibitions, including riba (interest), gharar (excessive uncertainty), maysir (gambling), and
Zulm (exploitation), while promoting permissible (halal) business activities backed by tangible
assets (Abdullah and Chee, 2013). Maqasid al-Shariah, in turn, highlights broader objectives
such as the protection of life, property, intellect, religion, and progeny (Lamido, 2016), thereby
positioning Islamic finance as a vehicle for social justice and economic stability.
These theoretical frameworks are grounded in core Islamic ethical principles, including
Tawhid (recognition of God’s sovereignty), Adl (justice), Rahma (compassion), and Maslahah
(public interest). Their application promotes inclusivity through mechanisms like Zakat
(obligatory charity), Sadaqah (voluntary charity), and Qard Hasan (benevolent lending).
Additionally, operational models such as Mudarabah (profit-sharing), Musharakah (joint
venture), Ijarah (leasing), Murabaha (cost-plus financing), Sukuk (Islamic bonds), and Takaful
(Islamic insurance) offer practical alternatives to conventional finance. These instruments are
notable for their risk-sharing features and ethical investment orientation, making them suitable
for adoption in diverse financial systems.
Another key framework relevant to non-Islamic contexts is Socially Responsible
Investment (SRI), which overlaps significantly with Islamic finance principles. SRI in Islamic
finance involves ethical screening to exclude industries like alcohol, gambling, and tobacco,
while promoting investments aligned with environmental, social, and governance (ESG)
standards (Setiawan, 2013). Mechanisms such as positive screening, impact investing, and
sectoral targeting such as renewable energy or poverty alleviation allow Islamic financial
models to gain traction within global sustainability frameworks. Institutions such as the Dow
Jones Islamic Market Index, MSCI Islamic Index, and SandP Shariah Index serve as global
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benchmarks, while Shariah Supervisory Boards and ESG integrative bodies help ensure
compliance, transparency, and impact measurement (Efunniyi et al., 2024).
In practical terms, models like the dual banking system and institutional economic theory
have proven instrumental for integrating Islamic finance into non-Islamic economies. The dual
banking model, which facilitates the coexistence of Islamic and conventional financial
institutions within a single regulatory framework, has been successfully implemented in
countries like the UK, Malaysia, Singapore, and South Africa. This hybrid model encourages
foreign direct investment (FDI), increases market competitiveness, and accommodates
consumer diversity. The institutional economic theory particularly the path-dependency
approach explains how existing legal and financial structures may resist new financial
paradigms, such as Islamic finance. Overcoming these structural barriers requires coordinated
efforts from policymakers, regulators, and financial institutions to align formal legal
frameworks with Shariah principles. This strategic alignment is critical for countries like
Uzbekistan, where the successful introduction of Islamic finance hinges on systemic reforms
and institutional readiness.
Synthesis of Islamic Schools of Thought and Their Contributions to Islamic Finance
The Shafi’i school of thought, predominantly followed in Southeast Asia, has played a
foundational role in shaping Islamic finance frameworks in countries such as Malaysia,
Indonesia, Brunei, and the Philippines. Known for its strict interpretations of key Shariah tenets
especially the prohibitions of riba (interest) and gharar (excessive uncertainty) the Shafi’i
tradition significantly influenced the architecture of Islamic financial products, including Sukuk
(Islamic bonds), Takaful (Islamic insurance), a
nd Ijarah (leasing). Singapore’s Islamic finance
sector, embedded Shariah principles into its regulatory models, ensuring both compliance with
Shariah and compatibility with secular finance laws. The collaboration between Shafi’i scholars
and the Islamic Financial Services Board (IFSB) further bolstered efforts to standardize Islamic
finance practices while ensuring regulatory clarity across jurisdictions (Venardos, 2012).
In the Gulf Cooperation Council (GCC) and wider Middle East, the Hanbali school of
thought known for its textual rigor and conservative interpretations has had a significant
impact, especially in Saudi Arabia, the UAE, and Qatar. This school advocates for
uncompromising Shariah compliance, leading to the prevalence of structures such as Murabaha
(cost-plus financing) and Ijarah. The Hanbali approach has also been instrumental in
integrating philanthropic financial mechanisms like Waqf, particularly when paired with Maliki
influences. Meanwhile, in Shia-
majority countries such as Iran and Iraq, the Ja’afari school,
though distinct, complements Hanbali perspectives by emphasizing social justice, equity-based
finance, and the ethical imperatives of wealth distribution prioritizing Mudarabah and
Musharakah over debt-based models (Rafay et al., 2017).
The Hanafi school of thought, noted for its legal adaptability, has facilitated the adoption
of Islamic finance in diverse secular contexts such as Europe, Asia, and Africa. In the UK and
Luxembourg, Hanafi jurisprudence enabled the structuring of flexible Sukuk instruments and
laid the groundwork for ethical banking systems, helping to establish London as a major Islamic
finance hub (Hajjar, 2019). Tax-neutrality measures and supportive legislation were inspired
by Hanafi pragmatism. Similarly, Pakistan and Bangladesh have aligned their Islamic financial
systems with Hanafi doctrines to ensure both authenticity and operational viability. In South
Africa, Hanafi principles underpinned the creation of inclusive financial products compatible
with dual banking systems, which integrate conventional and Islamic finance in a legally
cohesive manner (Ahmed and Sukdaven, 2021).
In North America and Canada, the combination of Hanafi and Ja’afari traditions has
supported the emergence of ethical Islamic finance tailored for Muslim minorities within
secular legal frameworks.
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Table 1.
Adoption of Islamic Finance Instruments in Islamic and Non-Islamic Economies
Country
Institutions
Islamic Finance Products
References
Bahrain
Islamic Banks (Al Baraka, Al
Salam)
Sukuk, Mudarabah, Ijarah, Islamic
Investment Funds, Murabaha, Waqala,
Musharakah
(Alkhan, 2020;
Shinkafi and Ali,
2018)
Australia
National Australia Bank’s
Islamic Banking Division
Sukuk, Islamic Superannuation Funds,
Ijarah, Murabaha
(Farrar, 2011)
Brunei
Bank Islam Brunei
Darussalam
Sukuk, Mudarabah, Takaful,
Musharakah, Ijarah, Islamic Mutual
Funds
(Shahid Ebrahim
and Kai Joo, 2001)
Canada
Islamic Bank of Canada
Sukuk, Islamic Investment Funds,
Murabaha, Ijara
(Graham, 2014)
Indonesia
Bank Mandiri Syariah, Bank
BNI Syariah
Sukuk, Mudarabah, Ijarah,
Musharakah, Murabaha, Islamic
Mutual Funds
(Hermala et al.,
2025; Komijani and
Taghizadeh-Hesary,
2018)
France
Banque Populaire’s Islamic
Banking Division
Sukuk, Islamic Investment Funds,
Murabaha, Ijarah
(Mauro et al., 2013)
Iran
Bank Melli Iran, Bank Sepah
Sukuk, Mudarabah, Murabaha,
Musharakah, Ijarah, Istisna
(Nili, 2014;
Komijani and
Taghizadeh-Hesary,
2018)
Germany
Kuwait Turkish Bank’s
German Branch
Sukuk, Islamic Investment Funds,
Ijarah-Sukuk
(Mauro et al., 2013)
Kuwait
Kuwait Finance House,
Boubyan Bank
Sukuk, Mudarabah, Ijarah,
Musharakah, Islamic Funds
(Tawari, 2014)
Hong Kong
HSBC Islamic Banking
Division
Sukuk, Islamic Investment Funds
(Wong and Bhatti,
2019)
Malaysia
Maybank Islamic, CIMB
Islamic
Sukuk, Murabaha, Mudarabah, Takaful,
Islamic Investment Funds, Istisna, Bai'
al-Inah
(Gungoren, 2014)
Singapore
Maybank Islamic Singapore
branch
Sukuk, Islamic Investment Funds,
Murabaha, Ijarah
(Abdullah and Saiti,
2016)
Pakistan
Meezan Bank, Dubai Islamic
Bank Pakistan
Sukuk, Mudarabah, Takaful, Murabaha,
Ijara
(Ahmad et al., 2011)
Nigeria
Islamic Mutual Funds, Sukuk
(FitchRatings, 2023)
Qatar
Qatar Islamic Bank, Masraf
Al Rayan
Sukuk, Mudarabah, Takaful, Ijarah,
Islamic Investment Funds, Istisna,
Murabaha
(Moustapha and
Nadir, 2023)
Luxembourg
Luxembourg Based Islamic
Investment Funds
Sukuk, Islamic Investment Funds,
Ijarah, Murabaha
(de Rosmorduc and
Stainier, 2013)
Saudi Arabia
Al Rajhi Bank, Islamic
Development Bank
Sukuk, Mudarabah, Takaful, Ijarah,
Islamic Investment Funds, Murabaha
(Khokhar and Sillah,
2014)
South Africa
Al Baraka Bank South
African Branch
Sukuk, Islamic Investment Funds,
Murabaha
(Muhammad, 2014)
UAE
Dubai Islamic Bank, Abu
Dhabi Islamic Bank
Sukuk, Mudarabah, Takaful, Ijarah,
Islamic Investment Funds
(Omran, 2009; Duqi
and Al-Tamimi,
2019)
United
Kingdom
Al Rayan Bank, Ummah
Finance
Sukuk, Islamic Investment Funds,
Ijarah, Mudarabah, Musharakah
(Ali, 2011)
Turkey
Albaraka Türk Participation
Bank
Sukuk, Murabaha, Ijarah, Musharakah
(Gungoren, 2014)
Philippines
Al Amanah Islamic
Investment Bank
Murabaha, Mudarabah
(De Castro, 2022)
Oman
Bank Nizwa, Sohar
International and Ahli Bank
Sukuk, Murabaha, Ijarah, Istisna,
Musharakah, Mudarabah, Takaful
(Rengasamy, 2020)
United States
HSBC and Fardows Islamic
Bank
Ijarah, Mudarabah, Musharakah,
Takaful, Murabaha, Sukuk
(Thomas, 2010)
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Source:
authors construct (2025).
Institutions such as Manzil and Eqraz Mortgage exemplify this hybridization by
incorporating Islamic principles like Murabaha and Ijara while ensuring compliance with
national financial regulations. These models not only cater to the needs of religiously observant
clients but also appeal to broader ethical investment trends (Hotiana, 2007; Solomon et al.,
2020). In West and North Africa, the Maliki school of thought with its emphasis on maslahah
(public welfare) has been instrumental in pioneering microfinance and Takaful schemes. These
community-oriented financial products demonstrate how Maliki jurisprudence responds to
socio-economic realities, promoting financial inclusion without compromising Shariah
compliance (Lydon, 2005).
Research methodology.
This paper adopts a qualitative design suited to exploring the complex, context-specific
integration of Islamic finance into secular economies, emphasizing on legal and institutional
frameworks. Additionally, cases were purposefully selected based on jurisdictional diversity
(Geographically and economically diverse non-Islamic countries across Europe, Asia, Africa,
and North America), model variation (Inclusion of countries adopting sandbox models, hybrid
models, dual banking systems, or institutional approaches to Islamic finance), policy
relevance(Cases with explicit regulatory, institutional, or legal reforms to accommodate Islamic
financial instruments or services), and data availability based on specific non-Islamic countries.
The study relied on secondary data sources such as legal texts from state legal and regulatory
authorities, academic literature, and institutional reports from bodies like IFSB and IsDB, the
study examines diverse regulatory and institutional approaches to understand how Islamic
finance is adapted across different financial systems. Countries selected for detailed analysis
include the United Kingdom, Singapore, Malaysia, Nigeria, Kenya, Canada, Luxembourg, and
South Africa, each representing a different path or model toward integrating Islamic finance.
The analytical framework employed include a comparative institutional analysis
complemented by a Shariah compliance filter. The framework consists of Institutional
Dimension where I evaluated how formal and informal institutions (legal systems, religious
councils, supervisory boards) shape Islamic finance implementation alongside regulatory
dimension employed to analyze the legal amendments, tax reforms, financial guidelines, and
supervisory mechanisms introduced to support Islamic finance.
Comparative Models of Islamic Finance Introduction in Non-Islamic Economies
The global expansion of Islamic finance has prompted numerous non-Islamic economies
to explore its integration as a strategy for diversifying financial systems, fostering inclusivity,
and attracting investments from Muslim-majority countries. Grounded in Shariah principles
that emphasize ethical conduct, risk-sharing, and the prohibition of interest (riba), Islamic
finance offers a distinct alternative to conventional financial systems. Recent developments in
Asia, Europe, and Africa illustrate that successful integration requires tailored approaches that
align with local regulatory environments, economic structures, and societal norms. This
chapter examines the regulatory and hybrid models adopted across key regions such as the
United Kingdom, Malaysia, Singapore, Sub-Saharan Africa, and North America offering insights
that may inform Uzbekistan’s strategy for introducing Islamic finance.
Regulatory Models
To accommodate Islamic finance within secular legal systems, non-Islamic countries have
introduced a range of regulatory models, including dual frameworks (separate regulations for
Islamic and conventional finance), unified frameworks (a single regulatory structure for both),
and sandbox approaches that facilitate innovation, particularly in fintech. The United Kingdom
stands out for its proactive stance introducing tax neutrality on Sukuk, establishing equal
regulatory treatment for Islamic financial institutions, and positioning London as a global
Islamic finance hub (Ercanbrack, 2013). Singapore has adopted an integrated model that
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permits Islamic banking windows within conventional banks, enhancing market inclusivity. In
Sub-Saharan Africa, countries such as Nigeria and Kenya have implemented dedicated laws and
guidelines to facilitate the growth of Islamic finance (Ndung'u, 2010; Ali, 2016). In Latin
America, Brazil’s strategic partnerships with Gulf Cooperation Council (GCC) states have paved
the way for the creation of Shariah-compliant investment funds and ongoing legal
harmonization efforts (EUREKAHEDGE, 2014). Nonetheless, legal disputes involving Islamic
finance remain a challenge in jurisdictions dominated by conventional legal principles,
underscoring the need for Shariah-based arbitration mechanisms (Oseni and Hassan, 2015).
Dual banking models represent a formalized coexistence of conventional and Islamic
banking systems under a single financial infrastructure. This model provides clients the
freedom to choose between interest-based and Shariah-compliant financial services, promoting
inclusivity and market competition. A leading case study is Malaysia, which institutionalized
the dual banking system through legislative and regulatory reforms. The Islamic Banking Act of
1983 allowed the establishment of full-fledged Islamic banks, while the Financial Services Act
of 2013 provided a harmonized legal framework for both banking sectors under the purview of
Bank Negara Malaysia (BNM) (Triyanta, Hassan, Abdulmuslimov, & Hassan, 2024). This
structure has resulted in robust parallel growth of both financial sectors, with Islamic banking
accounting for over 30% of total market share by 2022 (IFSB, 2022).
Consequently in Nigeria, dual banking has been introduced under the supervision of the
Central Bank of Nigeria (CBN), which issued the Guidelines for Non-Interest Banking in 2011.
Jaiz Bank, the first licensed Islamic bank in the country, operates alongside conventional
institutions (Sapovadia, 2017)
. Furthermore, Nigeria’s dual model continues to evolve,
supported by Shariah Advisory Councils and regulatory guidance that maintains compatibility
between secular law and Islamic jurisprudence (Mustapha, Kunhibava, & Muneeza, 2019). The
Nigerian example is particularly valuable for transition economies with religious diversity and
underbanked populations.
Hybrid Models
Hybrid financial models have proven to be effective mechanisms for introducing Islamic
finance into non-Islamic financial systems, allowing for the coexistence of both conventional
and Islamic banking operations. These models typically include Islamic subsidiaries, dedicated
Islamic branches, or Shariah-compliant product lines offered by conventional institutions. By
enabling financial institutions to deliver both interest-based and profit-and-loss-sharing
instruments, hybrid models promote inclusivity and market flexibility (Mirakhor and Krichene,
2009). Malaysia exemplifies the successful application of a dual regulatory framework,
supporting both systems in parallel while ensuring Shariah compliance (Ercanbrack, 2019).
Moreover, in Western economies such as the UK, Canada, and Australia, Islamic finance is often
integrated through specialized windows or partnerships that leverage existing financial
infrastructure.
In Australia, the hybrid model is emerging in institutions like Crescent Wealth, which
manages Shariah-compliant investment portfolios while adhering to national financial
regulations (Ahmad, Osmani, & Karim, 2010). Crescent Wealth collaborates with national
regulators, such as the Australian Prudential Regulation Authority (APRA), to ensure
compatibility between Shariah standards and domestic legal frameworks (Ahmad A. U., 2013).
While, In Canada, for example, the growth of institutions like Manzil and Al-Yusra has expanded
access to Islamic financial products for Muslim minorities, particularly in the home financing
sector (Manzil, 2025). Lastly, hybrid models also promote institutional learning, encourage
regulatory innovation, while contributing to the development of a diverse and resilient financial
ecosystem.
Sandbox Models
Regulatory sandbox models have emerged as effective tools for fostering financial
innovation by providing a controlled environment in which new products and services can be
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tested under regulatory oversight before large-scale implementation. This approach is
particularly significant for Islamic finance, where strict adherence to Shariah principles such as
the prohibition of riba (interest), avoidance of gharar (excessive uncertainty), and emphasis on
ethical and asset-backed transactions is mandatory (Furqani, Laldin, & Mulyany, 2016). Hence,
when governments provide an enabling environment where Islamic fintech startups could pilot
their innovations within a regulated but flexible framework, sandbox models cam facilitate the
iterative development of financial products that comply with both conventional financial
regulations and Islamic jurisprudence (Ajouz & Abuamria, 2023).
Furthermore, the sandbox environment allows for limited market exposure and ongoing
regulatory feedback, which is instrumental in identifying and resolving potential Shariah
compliance challenges. This iterative process enhances not only the regulatory soundness of
Islamic fintech solutions but also promotes financial inclusion by expanding access to ethical,
Shariah-compliant financial services (Mohd Haridan, Sheikh Hassan, Mohammed Shah, &
Mustafa, 2023). Additionally, sandboxes serve as incubators where Islamic fintech firms can
test their products in limited markets while receiving real-time feedback from regulators.
Importantly, sandbox models also serve as platforms for identifying gaps in regulation,
customer adoption, or product design, thereby encouraging continuous improvement and
refinement without compromising regulatory or Shariah standards (Zetzsche, Buckley,
Barberis, & Arner, 2017).
Foreign Experience of Sandbox Models
Malaysia is often cited as a pioneer in integrating sandbox models with Islamic financial
innovation. Through the Bank Negara Malaysia’s Financial Technology Regulatory Sandbox
Framework introduced in 2016, several Shariah-compliant fintech platforms have emerged,
including platforms such as Ethis Kapital and Wahed Invest, which provide crowdfunding and
robo-advisory services aligned with Islamic ethics (BNM, 2016; Ali, Hashmi, and Hassan, 2019).
These initiatives have not only promoted inclusive financial participation but have also
strengthened Malaysia’s reputation as a global leader in
Islamic fintech.
Similarly, Bahrain has leveraged sandbox experimentation under the Central Bank of
Bahrain’s FinTech Regulatory Sandbox launched in 2017, providing a conducive environment
for Islamic fintech startups such as Beehive and Rain to explore Shariah-compliant financing
and crypto-asset integration. Additionally, the sandbox system facilitates partnerships between
fintech and Islamic banks, enhancing operational compatibility and market scalability (AlJalal,
Al Mubarak, & Nasseif, 2023)
. Bahrain’s approach underscores the role of iterative compliance
in addressing challenges related to the digitization of Islamic finance.
Consequently, in the United Kingdom, the Financial Conduct Authority (FCA) has
incorporated Islamic fintech firms into its regulatory sandbox since 2016. Firms such as
Yielders a Shariah-compliant property investment platform located in London have utilized the
sandbox to validate product structures while aligning with both Islamic jurisprudence and UK
financial regulations. This dual compliance not only fosters consumer confidence but also
positions London as a viable hub for ethical finance, attracting capital from Muslim-majority
regions.
These sandbox experiences collectively demonstrate how structured regulatory
innovation can facilitate the development and adoption of Islamic financial services in non-
Islamic economies. Furthermore, they highlight the importance of iterative testing, stakeholder
engagement, and legal adaptability in reconciling Shariah principles with the conventional
regulatory systems. In this case of secular economy like Uzbekistan, which seek to introduce
Islamic finance into a non-Islamic legal and financial framework, the sandbox model provides
a strategic entry point that minimizes systemic risk while maximizing innovation and inclusion.
Institutional Model
This model embodies the amendments of Key legislative elements, followed by the
creation of Shariah supervisory boards, and the integration of Islamic financial standards into
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22
national legal and accounting systems. One of the most advanced institutional frameworks can
be found in Luxembourg, which has positioned itself as a European hub for Islamic finance.
Through legislative changes such as aligning Sukuk issuance with traditional bond structures
Luxembourg has attracted significant cross-border Islamic investment and registered multiple
Shariah-compliant funds (International Capital Market Association, 2024). The Commission de
Surveillance du Secteur Financier (CSSF) works in conjunction with Islamic financial
institutions to ensure regulatory compatibility without compromising Shariah principles.
Singapore has also implemented an adaptive institutional model through the Monetary
Authority of Singapore (MAS), which provides guidance for Islamic financial activities within
its overarching financial regulatory system. Without separate laws for Islamic finance,
Singapore promotes functional compatibility by supporting Ijarah and Murabaha structures
through tax neutrality and supportive monetary policy (Venardos A. M., 2010). The institutional
model is reinforced by close cooperation with the Islamic Financial Services Board (IFSB),
ensuring compliance with international Islamic finance standards.
Notwithstanding the above
,
in Sub-Saharan Africa, South Africa has also adopted a
regulatory reform strategy, leveraging the framework provided by its National Treasury. It
amended tax laws to accommodate Sukuk issuance and established policy frameworks that
permit conventional banks to open Islamic windows. The South African Reserve Bank supports
Shariah-compliant product development through consistent dialogue with religious scholars
and banking experts (Mia, 2019). This collaborative approach demonstrates the value of legal
harmonization and inclusive policymaking.
It is therefore important to note that, in each of these jurisdictions, institutional strength
and regulatory adaptability have been critical to promoting credibility, investor confidence, and
Shariah compliance. Hence in Uzbekistan, adopting such models could involve establishing a
national Shariah supervisory board, amending banking laws to accommodate non-interest-
based contracts, and creating alignment with international bodies such as AAOIFI and IFSB.
These steps would help position Uzbekistan as a regional leader in inclusive and ethical finance.
Analysis and discussion of results.
Discussion
The global emergence of Islamic finance in non-Islamic economies reflects a growing
recognition of its ethical, inclusive, and risk-sharing principles rooted in Shariah law. Through
diverse institutional, regulatory, and financial models, many countries have approached the
integration of Islamic finance with varying degrees of innovation and alignment with domestic
legal and economic conditions. Therefore, the comparative analysis reveals that sandbox
frameworks in jurisdictions like the UK and Malaysia have provided a controlled, iterative
mechanism to develop Shariah-compliant fintech products while ensuring regulatory
compatibility. Hybrid models, as adopted in Singapore and Canada, demonstrate how
conventional financial institutions can offer Islamic finance through subsidiary structures,
effectively broadening consumer choice and enhancing financial inclusion. The dual banking
system, seen in Malaysia and parts of Sub-Saharan Africa, shows promise in allowing full
parallel operation of conventional and Islamic banks within the same regulatory space,
supporting both investor confidence and legal clarity.
At the institutional level, the role of Shariah supervisory boards, central banks, and
intergovernmental bodies such as the Islamic Financial Services Board (IFSB) and Accounting
and Auditing Organization for Islamic Financial Institutions (AAOIFI) has been critical in
maintaining uniformity, compliance, and trust. Regulatory reforms such as tax neutrality on
Sukuk in the UK or bespoke Islamic finance laws in Nigeria have further enabled these models
to thrive. However, challenges remain, including the need for harmonization of Shariah
interpretations, gaps in dispute resolution mechanisms, and limited human capital skilled in
both Islamic jurisprudence and financial regulation. The Uzbekistan could be seen as an
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23
aspiring adopter of Islamic finance in the near future, must learn from these models while
aligning them with its unique socio-economic and legal realities under the "New Uzbekistan"
policy framework.
Policy Recommendations
Based on the findings of the research, policymakers in Uzbekistan must consider the
recommendations below;
a.
Adopt a Phased, Dual-Track Strategy: Uzbekistan should begin with sandbox initiatives
to pilot Islamic fintech and microfinance innovations under the oversight of a national Shariah
advisory council, followed by gradual implementation of hybrid or dual banking systems.
b.
Legal and Regulatory Alignment: Amendments to the civil and banking codes are
necessary to accommodate Islamic finance contracts (e.g., Murabaha, Mudarabah, and Ijarah)
and ensure enforceability under national law, drawing from successful reforms in the UK and
Malaysia.
c.
Institutional Capacity Building: Establish a centralized Shariah Supervisory Board and
invest in training for regulators, bankers, and legal professionals on Islamic finance principles
and operational frameworks. Curriculum adjustments through the ministry of higher education
and innovation is deemed necessary to overcome the human capital gap in the finance sector.
d.
Leverage International Standards: Uzbekistan should align its frameworks with IFSB
and AAOIFI standards, while collaborating with the Islamic Development Bank and other
multilateral institutions for technical assistance and investment flows.
e.
Promote Financial Literacy and Public Engagement: A public education campaign is
vital to demystify Islamic finance principles, enhance trust, and promote voluntary
participation among consumers and financial institutions.
Conclusion and suggestions.
The integration of Islamic finance into non-Islamic economies is no longer a theoretical
proposition but a globally observed practice that demonstrates the adaptability of Shariah-
compliant financial principles across diverse legal and economic systems. This study has shown
that countries like the UK, Malaysia, Nigeria, Singapore, and Canada have adopted sandbox,
hybrid, dual, and institutional models to varying degrees of success. The key to effective
implementation lies in aligning regulatory structures with ethical finance principles, building
institutional capacity, and ensuring stakeholder engagement. For Uzbekistan, these lessons
offer a pragmatic blueprint. By drawing on comparative global experiences and aligning them
with domestic reforms under its evolving legal and policy landscape, Uzbekistan can establish
itself as a regional leader in Islamic finance, promoting financial inclusion, attracting
investment, and advancing sustainable economic development. The studies have been limited
by geographical proximity; hence, future research could focus on other secular economies in
the Global South that are in transition.
Acknowledgements:
I would like to extend my deepest appreciation to all colleagues that have helped proof
read and gave their objective criticisms towards making this paper a success.
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