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PROSPECTS FOR THE DEVELOPMENT OF ISLAMIC FINANCE
Khamzaev Shodiyor
Department of International Financial Institutions
Joint Stock Commercial Bank "Business Development Bank"
ORCID: 0009-0009-1166-4543
Abstract.
This article examines the concept and essence of Islamic finance, consistent with
the principles of Sharia, and its practical application, the development of the Islamic economy, the
donation of international financial institutions and Islamic banks in the formation of banking
resources. The role and importance of the development of Islamic finance in the process of
transformation of the financial and banking system are also considered. The perspective of the
development of Islamic finance and its role in the development of the country's economy is
considered. Suggestions and recommendations on the implementation of the principles of Islamic
finance are given.
Keywords:
Islamic bank, donation, credit resources, international financial institution,
Islamic finance, Sharia principles.
ИСЛОМИЙ МОЛИЯЛАШТИРИШНИ РИВОЖЛАНТИРИШ ИСТИҚБОЛЛАРИ
Хамзаев Шодиёр
“Бизнесни ривожлантириш банки” Акционерлик тижорат банки
Халқаро молия институтлари билан
ишлаш департаменти
Аннотация
.
Ушбу мақолада шариат тамойилларига мос келадиган исломий
молиялаштириш тушунчаси ва моҳияти ва унинг амалий қўлланилиши, исломий
иқтисодиётининг ривожланиши, банк ресурсларини шакллантиришда халқаро молия
институтлари ва исломий банкларнинг
донорлиги
кўриб чиқилган. Молия
-
банк тизимини
ўзгартириш жараёнида исломий
молиялаштиришни ривожлантириш роли ва аҳамияти
ҳам кўриб чиқилган. Исломий молиялаштиришни ривожлантириш истиқболлари ва унинг
мамлакат иқтисодиётини ривожлантиришдаги роли кўриб чиқилган. Исломий
молиялаштириш тамойилларини амалга ошириш бўйича таклиф ва тавсиялар берилган.
Калит сўзлар:
исломий банк, донорлик, кредит ресурслари, халқаро молия
институти, исломий молиялаштириш, шариат тамойиллари.
UO
‘
K: 336.01
VI SON
—
IYUN, 2024
96-102
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ПЕРСПЕКТИВЫ РАЗВИТИЯ ИСЛАМСКОГО ФИНАНСИРОВАНИЯ
Хамзаев Шодиёр
Департамент по
работе
c
международными
финансовыми институтами
Акционерный коммерческий банк «Банк развития бизнеса»
Аннотация
.
В данной статье
рассмотрены понятие и сущность исламского
финансирования, соответствующая принципам шариата, и её практическое применение,
развитие исламской экономики, донорство международных финансовых институтов и
исламских банков в формировании банковских ресурсов. Также рассмотрены роль и
значимость развития исламского финансирования
в процессе трансформации финансово
-
банковской системы. Рассмотрена перспектива развития исламского финансирования
и
его роль в развитии экономики страны. Даны предложения и рекомендации по
внедрению
принципов исламского финансирования
.
Ключевые слова:
исламский банк, донорство, кредитные ресурсы,
международный
финансовый институт, исламское финансирование
,
принципы шариата.
Introduction.
To date, an important component of the development of the banking system is Islamic
finance, which is most in demand in Islamic countries. The emergence of Islamic banks and
financial institutions has led experts in the field to search for a suitable model by which
accounting standards could be developed and implemented in the practical activities of
companies in order to provide adequate, reliable and relevant information about financial
statements to users.
Islamic financial institutions (IFIs) in the Middle East (Qatar, Kuwait, Bahrain, Saudi Arabia,
etc.) are particularly popular. Similar financial institutions operate in Jordan, Malaysia, Sudan,
Lebanon, Indonesia, etc. "Accounting and reporting standards at the international level are
developed by the Organization for Accounting and Auditing in Islamic Financial Institutions"
(Umarov, 2014).
Islamic accounting can be defined as an accounting model, the application of which allows
not only to provide reliable information in the format of various financial indicators, but also to
signal to interested parties that the company conducts business and fulfills its socio-economic
tasks in accordance with Sharia.
It is known that the implementation of the strategy for reforming the banking system for
2020-2025 and accelerating the transformation of commercial banks aimed at increasing the
share of the private sector in banking assets from 15 to 60 percent is of paramount importance.
"During the consistent reform of the financial sector, a number of measures have been
implemented, as a result of which the necessary legal conditions have been created for
conducting a progressive banking business and strengthening the competitive environment in
the sector"
32
.
International practice shows that Islamic finance can adapt to market demand in a short
time compared to traditional enterprise lending. The introduction of new Islamic products and
services and their effective implementation will have a faster impact on the bank's business.
The targeted placement of funds raised through Islamic financing is a measure of the bank's
success. The irony is that "it was the pursuit of maximizing the rate of return, the desire to get
the maximum possible income from lending to corporate clients, that led many well-known
banks to financial success" (Muradova, 2018).
32
Decree of the President of the Republic of Uzbekistan, dated May 12, 2020 No. UP-5992 "On the strategy of reforming the
banking system of the Republic of Uzbekistan
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There are some difficulties in the development of Islamic finance due to the lack of
professionals in the labor market in the field of development of Islamic products and services,
the high demand for specialists in the field of Internet banking, as well as the problems of
standardization of business processes and ways to optimize them, building on the conveyor at
the scale of bank branches. Foreign practice shows that with the determination of top managers
of banks and the allocation of appropriate resources for Islamic finance, it is possible to build a
service system in 2-3 years of hard work, and in a fairly short period to develop this area in all
branches of the bank.
Literature review.
As part of the banking system reform strategy, the main directions have been identified,
one of which is to increase the efficiency of the banking system by creating equal competitive
conditions in the financial market, lending exclusively on a market basis, reducing banks'
dependence on government resources, modernizing banking services, creating effective
infrastructure and automating banks' activities, as well as phasing out non-core functions of
banks (Decree of the President of the Republic of Uzbekistan 2020).
Islamic banking, also referred to as Islamic finance or Shariah-compliant finance, refers to
financial activities that adhere to Shariah (Islamic law). Two fundamental principles of Islamic
banking are the sharing of profit and loss and the prohibition of the collection and payment of
interest by lenders and investors (Evan Tarver 2023).
International financial institutions help banks expand their activities and conduct business
internationally. They create new opportunities for raising funds and developing banks' lending
activities, as banks develop and offer new products and services to meet international
requirements. All this also increases competition between commercial banks. Banks face
competition from local and foreign banks, which encourages them to develop and implement
new innovative solutions to attract and retain customers (Sultonmurodov, 2023).
Today, globalization processes have acquired such proportions that it is now difficult to
define clear boundaries between the national and international financial systems. Business
entities of various forms of ownership actively participate in export-import transactions,
international payments and other financial and economic relations. In particular, commercial
banks of Uzbekistan are actively carrying out operations to attract and actively place funds from
international financial institutions (Sultonmurodov, 2023).
Today, Islamic insurance is not so much different from traditional insurance. The ideal form
for an Islamic insurer in countries where Muslims are a minority is the Mutual Insurance Society
(MSA), which allows you to work in accordance with both Sharia and state legislation. Insurance
of the collateral object significantly reduces the level of losses of banking resources. The issues
of insurance of Islamic financing were considered in the scientific works of Abdurakhmanov
(2018-2023).
Research methodology.
The logical and structural analysis of theoretical and empirical data presented in the public
domain was used as a research method. There is also an analysis and synthesis that allows, on
the one hand, to identify certain areas of institutional development of the banking system, on the
other
–
trends and potential opportunities, as well as the role of Islamic finance. The study
revealed the special importance and role of Islamic finance in the economic development of the
country.
Analysis and results.
There are more than 560 banks and over 1,900 mutual funds around the world that comply
with Islamic principles. Between 2015 and 2021, Islamic financial assets grew to about $4 trillion
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from $2.17 trillion and are projected to rise to roughly $5.9 trillion by 2026, according to a 2022
report by the Islamic Corporation for the Development of Private Sector (ICD) and Refinitiv
33
.
The Islamic Development Bank (IsDB), during its 344 Board of Executive Director’s
meeting of 13 February 2022, ap
proved Projects for Cote d’Ivoire, Guinea, and Senegal. The
Board of Executive directors of the Bank, at its 344th meeting held on 13 February 2022,
approved a total of EUR 297.67 million for 3 Member Countries under the Regional Hub of Dakar.
These are: EUR 35.14 million for Phase 3 of the Hydro-Agricultural Development Project in Upper
Sassandra and Fromager Regions in Cote d’Ivoire, EUR 24.30 million for Phase 2 of the
Development of Technical and Vocational Education Project, Guinea, and EUR 238.23 million for
the Construction of the Dakar
–
Tivaouane -
Saint Louis Highway/ Mékhé
- Saint Louis Project
34
.
The Islamic Development Bank Group has contributed to more than 57 projects under
implementation in Egypt with $3.8 billion and reaffirms its economic support to Egypt. IsDB
support to Egypt focuses on the achievement of eight Sustainable Development Goals (SDGs) that
cover poverty and hunger eradication, achieving good health, improving the quality of education,
providing clean energy and potable water, crating decent employment opportunities especially
for youth and women, creating sustainable infrastructures, assisting industry and the innovation
and creativity environment.
Furthermore, the IsDB institutions have also contributed to developing and encouraging
the trade and exports sector and supporting the private and the insurance sectors with
contributions amounting to more than $13.2 billion
35
.
Figure 1. Islamic Finance Development Indicators Value Score of Leading
Islamic Finance Markets
36
Malaysia ranks first in terms of the development of Islamic finance. Malaysia has developed
a comprehensive regulatory framework that supports the growth of Islamic banking and finance.
This includes the creation of Sharia-compliant financial institutions and instruments. Bank
33
Islamic Corporation for the Development of the Private Sector-Refinitiv. "Islamic Finance Development Report 2022,
https://icd-ps.org/uploads/files/ICD%20Refinitiv%20ifdi-report-20221669878247_1582.pdf
, Pages 2, 8.
34
https://www.isdb.org/news/the-islamic-development-bank-isdb-during-its-344-board-of-executive-directors-meeting-of-
13-february-2022-approved-projects-for-cote-divoire-guinea-and-senegal
35
https://www.isdb.org/news/the-islamic-development-bank-group-contributes-to-more-than-57-projects-under-
implementation-in-egypt-with-38-billion-and-reaffirms-its-economic-support-to-egypt
36
https://www.mordorintelligence.com/ru/industry-reports/global-islamic-finance-market
113
74
61
59
59
52
48
43
38
36
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31
29
27
27
0
20
40
60
80
100
120
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Negara Malaysia, the central bank of Malaysia, actively promotes Islamic finance. He presented
policies and initiatives to create an enabling environment for Islamic financial institutions.
Malaysia offers a wide range of Islamic financial products and services, including Islamic
banking, takaful (Islamic insurance), sukuk (Islamic bonds) and Islamic investment funds (figure
1).
In Uzbekistan, Islamic finance is represented by the projects of the Islamic Bank for the
Development of the private sector, which has been successfully cooperating with Ipak Yuli Bank
for a long period of time. Financing is carried out in the form of providing financing lines to banks
to provide guarantees according to the Murabaha principles. This is one of the most common
methods of working for interest-free transactions used by banks in Muslim countries. Murabaha
is an active client financing operation, and it is suitable for making a wide variety of purchases:
from equipment to business buildings.
Relationship of the Islamic Development Bank Group with the Republic of Uzbekistan. The
Islamic Development Bank will allocate funds for the comprehensive development of rural areas
of Uzbekistan.
In 2024-2028, the infrastructure of villages will be improved in 21 districts of the
Samarkand, Surkhandarya and Kashkadarya regions. To do this, a concessional loan of $ 260
million is attracted from the Islamic Development Bank for a period of 20 years.
The President of Uzbekistan signed a decree "On measures for the implementation of the
Integrated Rural Development Project (Stage 2) with the participation of the Islamic
Development Bank". A soft loan of $ 260 million is being raised from the Islamic Development
Bank for a period of 20 years. In 2024-2028, the infrastructure of villages in 21 districts of the
Samarkand, Surkhandarya and Kashkadarya regions will be improved at the expense of credit
funds. As part of the project, 20 schools (19 in Samarkand), 14 kindergartens, 10 family doctor's
offices (all in Samarkand) will be built, 200 km of drinking water networks, 368 km of power
grids will be laid, 53 transformers will be installed. About 330 kilometers of road infrastructure
will be improved, which will cost 717 billion soums.
Conclusion.
Islamic finance is developing dynamically in many Muslim countries. It is noteworthy that
even in such native non-Muslim countries as the United Kingdom, Germany, the Philippines,
Ethiopia, Nigeria and a number of others, Islamic finance has received a boost at the legislative
level.
Islamic finance came to Uzbekistan together with the projects of the Islamic Development
Bank group. However, the country still does not have legislation on Islamic banking and
regulation of the sphere of Islamic finance. At the same time, work is already actively underway
in this direction: the country's leadership is ready to introduce Islamic banking, relevant
legislation is being worked out in relevant ministries and departments, international experts and
consultants in the field of Islamic finance are involved in the work.
In order to introduce Islamic finance in Uzbekistan, it is necessary to carry out a huge
systematic educational work to increase the knowledge of the population and market players of
the principles, rules and nuances of the Islamic financial sector. It is important that both
financiers and ordinary people understand how Islamic financial institutions work, how
products are structured, how they differ from traditional instruments, etc.
There is no denying that with the introduction of Islamic finance, there will be a serious
outflow of finances and customers from traditional banks. This stereotype also has no solid
foundation. In the vast majority of countries, both the Islamic and traditional banking systems
function harmoniously. Moreover, despite the fact that Islamic finance has been successfully
operating in such native Muslim countries as Malaysia, Indonesia, Pakistan, and Bangladesh for
several decades, the share of traditional banking still prevails.
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Moreover, by legalizing Islamic banks, the country is able to attract very serious internal
resources: many people, because of their religious beliefs, do not take money to classic banks,
but keep it under mattresses. Uzbekistan is favorably distinguished for investors from Islamic
countries by its political stability, ongoing economic reforms, growing prosperity, a large and
young population, deep culture and entrepreneurial spirit of the population. These are excellent
ingredients for investors from the Persian Gulf and Southeast Asia.
Considering the above, it can be concluded that the competent organization of Islamic
finance is a necessary element of economic development and has a positive impact on the
standard of living of the population and the economic situation of the country. In order to
introduce and develop Islamic finance, it is necessary:
- the transition from product-oriented to customer-centric business models;
- focus on the customer experience as a whole, rather than on the individual characteristics
of each product;
- creation of infrastructure, regulatory framework;
- optimizing deposit protection;
- elimination of fiscal barriers;
- improving financial literacy among the population;
- the development of morality and ethics embedded in Islam;
- development of a mechanism to direct the amount of the penalty, which is insignificant,
to charity;
- refusal to finance the tobacco and alcohol industries.
Based on the above, it should be noted that the development of Islamic finance is important
for Uzbekistan and is extremely necessary in the socio-economic development of the country.
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