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ISLAMIC FINANCING IN UZBEKISTAN: CURRENT TRENDS, CHALLENGES AND
PROSPECTS
Nazarov Nodirjon Namoz ugli
PhD researcher, teacher
Tashkent state university of economics
e-mail:
https://orcid.org/0009-0007-3584-6988
Abstract:
This paper examines the development of Islamic financing in Uzbekistan, a country
undergoing significant financial reforms. It explores the institutional, legal, and market
developments that have shaped the Islamic financing landscape, analyzes current challenges, and
discusses future opportunities. The study aims to contribute to the academic and policy-oriented
discourse on integrating Shariah-compliant financial instruments into Uzbekistan's conventional
financial system.
Keywords:
Islamic financing, Uzbekistan, Shariah-compliant, Murabaha, Sukuk, financial
reform
Introduction.
Islamic financing has emerged as a viable alternative financial system rooted in
Shariah principles that prohibit interest (riba), excessive uncertainty (gharar), and unethical
investments. With Uzbekistan's majority-Muslim population and ongoing economic
liberalization, interest in Islamic financing has grown significantly. This study investigates the
institutional and legal foundations, market dynamics, and prospects for Islamic financing in
Uzbekistan.
The development of Islamic financing in Uzbekistan is also influenced by the broader trends in
the global Islamic financial services industry. As of 2024, Islamic financial assets globally
surpassed USD 3.5 trillion, with leading markets in the Middle East, Southeast Asia, and
increasingly in Central Asia. Uzbekistan's strategic location, young population, and religious
demographics make it a natural candidate for growth in this sector.
Literature review.
Scholars have highlighted the rise of Islamic financing globally, particularly
in countries like Malaysia, Saudi Arabia, and the UAE. Theoretical frameworks emphasize risk-
sharing, ethical investing, and social justice. In Central Asia, research on Islamic financing is
nascent, though studies suggest substantial demand and cultural alignment. Existing Uzbek
literature is limited but growing, focusing on adaptation challenges and regulatory gaps.
Contemporary Islamic financing literature includes works by Siddiqi (2006), Chapra (2008), and
Khan (2010), who emphasize the socio-economic justice embedded in Shariah-compliant
financing. They argue that Islamic financing promotes financial inclusion and ethical standards
that are often absent in conventional systems. In Uzbekistan, emerging studies by local scholars
such as Nazarov (2024) delve into the compatibility of Islamic financing with the nation’s
transition economy. However, a comprehensive regulatory framework remains a key gap noted
in most analyses.
Main part.
Uzbekistan currently lacks a comprehensive Islamic financing law. However, the
government has initiated several reforms:
Presidential decrees supporting Islamic financing development;
Establishment of the Center for Islamic Banking and Finance under the Ministry of
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Finance and Economics;
Cooperation with international institutions such as the Islamic Development Bank (IsDB);
In 2022, the Ministry of Justice of Uzbekistan began drafting preliminary regulations for Islamic
financial institutions. The absence of a dedicated Islamic financial regulatory authority poses
significant implementation challenges. A unified Shariah board at the national level could ensure
compliance and harmonize practices across institutions.
The role of the Central Bank of Uzbekistan is also pivotal. Currently, it regulates all banking
activities under a secular law framework, which complicates the implementation of Shariah-
compliant contracts. Efforts are underway to establish a sandbox environment where banks can
test Islamic financing products without violating existing laws.
While full-fledged Islamic banks are not yet operational, several Shariah-compliant products
have been introduced in pilot programs:
Murabaha (cost-plus financing): Used primarily for trade finance and consumer goods;
Ijara (leasing): Applied in real estate and equipment financing;
Mudarabah (profit-sharing): Considered for SME development programs;
Musharakah (joint venture): Suitable for equity-based projects, especially in agriculture;
Sukuk (Islamic bonds): Under consideration for financing infrastructure projects;
In 2021, the Islamic Corporation for the Development of the Private Sector (ICD) partnered with
local financial institutions to test the feasibility of sukuk issuance in Uzbekistan. These
instruments are particularly attractive due to their asset-backed structure and alignment with
public infrastructure needs.
Picture 1. Implementation level of islamic financial products in Uzbekistan1
The bar chart titled “Implementation Level of Islamic Financial Products in Uzbekistan”
illustrates the varying degrees to which different Shariah-compliant financial instruments have
been introduced or piloted within the Uzbek financial system. The data suggests that Murabaha
is the most implemented product, with an estimated 80% level of adoption. This is likely due to
its simplicity, ease of integration with conventional banking practices, and strong demand for
trade and consumer financing.
1 Done by author
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Ijara, or Islamic leasing, follows with a 60% implementation level. It has found practical
application in asset financing, particularly through institutions like Taiba Leasing, which focus
on providing Shariah-compliant leasing services to small and medium-sized enterprises (SMEs).
In contrast, Mudarabah and Musharakah, which are equity-based profit-and-loss sharing
instruments, show lower implementation levels at 30% and 25% respectively. These products are
still in the experimental or pilot phase and face challenges such as legal uncertainties, a shortage
of trained personnel, and limited public awareness.
Finally, Sukuk, or Islamic bonds, has the lowest implementation level at 10%. Although plans
exist for sovereign sukuk issuance to finance infrastructure projects, practical implementation
has not yet occurred due to the absence of a supporting legal and regulatory framework.
Overall, the chart highlights that while some Islamic financing products are gaining momentum
in Uzbekistan, especially debt-based instruments like Murabaha and Ijara, others—particularly
those requiring more complex legal and institutional arrangements—are still in early
developmental stages.
To illustrate the global growth trajectory of Islamic financing, here's a line chart depicting the
total assets from 2019 through 2024:
2019–2023: The Islamic financing industry experienced steady growth, with total assets
increasing from $2.88 trillion in 2019 to approximately $3.3 trillion by the end of 2023. This
growth was driven by factors such as increased demand for Shariah-compliant financial services,
expansion of Islamic banking, and rising sukuk issuances.
The industry is estimated to reach around $3.69 trillion in total assets by 2024, reflecting
continued growth momentum.
Islamic Banking: Constitutes approximately 70% of total Islamic financing assets, with
significant contributions from countries like Saudi Arabia, Iran, and Malaysia. Sukuk Market:
Global sukuk issuance is expected to hover between $160 billion and $170 billion in 2024,
supporting asset growth. Takaful (Islamic Insurance): The takaful industry accounts for about
2% of global Islamic financing assets, with expectations of growth from $33.14 billion in 2024
to $51.75 billion by 2028. Digitalization and Fintech: The adoption of digital technologies and
fintech solutions is enhancing accessibility and efficiency in Islamic financial services,
contributing to market expansion. The Islamic financing industry continues to exhibit robust
growth, driven by strong demand for Shariah-compliant products, supportive regulatory
environments, and technological advancements. With projections indicating assets reaching
approximately $3.69 trillion in 2024, the sector is poised for further expansion in the coming
years.
Surveys and pilot studies show increasing demand for Islamic financial services, especially
among SMEs and rural populations. However, general awareness of Islamic financing remains
low. Educational campaigns and university-level courses are gradually filling this gap.
The National Bank of Uzbekistan has conducted pilot projects and customer satisfaction surveys
indicating strong interest in interest-free loans and ethical investment instruments. A 2023 study
by the Uzbekistan Banking Association found that over 65% of the population would prefer
Islamic financial products if they were available.
Universities like Tashkent State University of Economics and the University of World Economy
and Diplomacy have begun offering specialized courses and certifications in Islamic financing.
International collaborations with institutions such as INCEIF (Malaysia) and Durham University
(UK) have also been instrumental in building local academic capacity.
Challenges include:
Lack of dedicated Islamic banking law;
Shortage of trained professionals and Shariah scholars;
Weak integration with global Islamic financial markets;
Low financial literacy among the population.
Additionally, the duality of law creates a grey area for enforcement. For example, the legal
enforceability of Islamic contracts like mudarabah and musharakah is unclear under existing civil
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codes. The lack of standardized documentation and dispute resolution mechanisms further
exacerbates the situation.
On the human capital side, there is a critical shortage of Islamic financing experts who
understand both Shariah and Uzbek legal contexts. Existing professionals are often trained in
conventional banking with limited exposure to Islamic jurisprudence. Developing bilingual
curricula and cross-border training programs is essential.
The government's financial sector reform plan (2020–2025) explicitly supports Islamic financing.
Opportunities include:
Issuing sovereign sukuk for infrastructure;
Developing Islamic microfinance for rural development;
Partnering with international Islamic banks;
Promoting fintech-based Islamic financial services.
Microfinance, in particular, represents a high-impact opportunity. Islamic microfinance models
such as Qard al-Hasan (benevolent loans) and Musharakah can provide vital capital to rural
entrepreneurs who are traditionally excluded from conventional banking.
Fintech innovations, such as mobile-based Shariah-compliant savings apps and blockchain-based
smart contracts for sukuk, are also emerging. Uzbekistan’s young, tech-savvy population is well-
positioned to adopt such innovations.
Uzbekistan can also benefit from regional cooperation. Countries like Kazakhstan and
Kyrgyzstan have made significant strides in Islamic financing and can serve as regional models.
Participation in global forums such as the Islamic Financial Services Board (IFSB) and the
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) can
accelerate the country’s regulatory harmonization.
Taiba Leasing Established in 2021, Taiba Leasing was Uzbekistan’s first fully Shariah-compliant
leasing company. It offers Ijara-based equipment leasing for SMEs and agricultural businesses.
In its first year, it financed over USD 2 million in assets with default rates below 2%.
In 2022, ICD signed a Memorandum of Understanding with the National Bank of Uzbekistan to
develop Islamic banking windows. The pilot Murabaha scheme facilitated the purchase of
industrial equipment for local manufacturers.
The Ministry of Finance and Economics, in collaboration with the IsDB, is preparing to launch a
sukuk bond to fund part of the Tashkent-Andijan highway. This would be the first sovereign
sukuk in Uzbekistan, backed by real estate assets along the route.
Comparisons with other emerging Islamic financing markets reveal important insights:
Malaysia: Strong legal framework and government support have enabled a diverse
Islamic financing ecosystem
Pakistan: Mixed success due to regulatory ambiguities, but successful in retail Islamic
banking
Kazakhstan: Launched the Astana International Financial Centre (AIFC) with a dedicated
Islamic financing court and legislation
Uzbekistan can learn from these models by establishing a dedicated Islamic financing authority,
encouraging public-private partnerships, and fostering international linkages.
Policy recommendations:
Draft and adopt a comprehensive Islamic financing law;
Establish a national Shariah board under the Central Bank;
Develop certification programs in Islamic financing in partnership with international
universities;
Launch public awareness campaigns through media and educational institutions;
Facilitate sukuk issuance through regulatory guidance and pilot projects;
Encourage fintech innovation for greater financial inclusion.
Islamic financing in Uzbekistan is at an early yet promising stage. With legal reform, capacity
building, and strategic partnerships, the country can build a robust Islamic financial ecosystem.
This development can contribute to inclusive growth, financial deepening, and alignment with
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the ethical values of the majority population. The way forward requires coordinated efforts from
the government, regulators, academia, and private sector. By embracing the principles of risk-
sharing, ethical investment, and social justice, Uzbekistan has the potential to become a regional
hub for Islamic financing in Central Asia.
References:
1.
Fundamentals of Islamic Finance and Banking. Syeda Fahmida Habib. 2018. 217-pp.
2.
Introduction to Islamic Banking and Finance. Brian Kettell. 2020
3.
Dourtmes, S., Andrikopoulos, A. (2021). The Impact of Social Banking on Economic
Development. Journal of Economics and Business, XXIV, 123.
4.
Namoz o'g'li N. N. ACTUAL ISSUES OF ISLAMIC FINANCING IN THE CONTEXT
OF REFORMS. (2024). Ustozlar Uchun, 1(4), 934-940
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Nazarov Nodirjon Namoz o’g’li, and Sayfullaev Abdulaziz Obid o’g’li. (2023).
Significance of islamic finance in financial market of uzbekistan. Academia Science Repository,
4(04), 132–139.
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Nazarov Nodirjon Namoz o’g’li. (2023). Islamic banking: problems, solutions and
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Nodirjon Nazarov, Barqaror rivojlanish konsepsiyasini amalga oshirishda islomiy va
ijtimoiy moliyaviy institutlarning roli https://green-eco.uz/index.php/GED/issue/view/34
