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Volume 04 Issue 01-2022
The American Journal of Political Science Law and Criminology
(ISSN
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2693-0803)
VOLUME
04
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SSUE
01
Pages:
109-114
SJIF
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(2020:
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(2021:
5.
952
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OCLC
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1176274523
METADATA
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7.659
Publisher:
The USA Journals
ABSTRACT
This article analyzes the implementation of Islamic financial services in the Republic of Uzbekistan based on the
characteristics of Islamic financial products and the positive impact of these financial products on the entire economy
of the Republic of Uzbekistan.
KEYWORDS
Sharia, principles of Islamic finance, riba, garar, maysir, risk sharing, law.
INTRODUCTION
For decades, there has been a steady increase in the
volume of Islamic financial services around the world.
Islamic financial products are actively being introduced
in the USA, Great Britain, Germany, France and other
non-Islamic countries. Major financial groups led by
multinational banks are evaluating the benefits of
Islamic financial products and are taking steps to
create appropriate structures to offer their services in
this fast-growing segment of the financial market.The
Republic of Uzbekistan, whose leadership firmly
adheres to the course of creating a modern market
economy, has great potential for the development of
Islamic finance in its territory. More than 90% of the
population of the republic are Muslims and there is a
real need in the country for the introduction of Islamic
financial products. Most banks and other financial
Research Article
PROSPECTS FOR THE IMPLEMENTATION AND LEGAL REGULATION
OF ISLAMIC FINANCIAL PRODUCTS IN THE REPUBLIC OF
UZBEKISTAN
Submission Date:
January 09, 2022,
Accepted Date:
January 20, 2022,
Published Date:
January 30, 2022
Crossref doi:
https://doi.org/10.37547/tajpslc/Volume04Issue01-16
Bozarov Shavkat Tadjibaevich
Philosophy Doctor in Law, Leasing Association of Uzbekistan, Lawyer, Uzbekistan
Journal
Website:
https://theamericanjou
rnals.com/index.php/ta
jpslc
Copyright:
Original
content from this work
may be used under the
terms of the creative
commons
attributes
4.0 licence.
110
Volume 04 Issue 01-2022
The American Journal of Political Science Law and Criminology
(ISSN
–
2693-0803)
VOLUME
04
I
SSUE
01
Pages:
109-114
SJIF
I
MPACT
FACTOR
(2020:
5.
453
)
(2021:
5.
952
)
OCLC
–
1176274523
METADATA
IF
–
7.659
Publisher:
The USA Journals
institutions, such as insurance and leasing companies,
are ready to offer their services based on the principles
of Islamic finance, if an appropriate legal and
regulatory framework is created.
Highly assessing the potential of Islamic financial
products for the further development of the financial
system and ensuring its stability due to the real nature
of Islamic financial products, and responding to the
high demand of society for Islamic financial products,
the President of the Republic of Uzbekistan in his
message to the Oliy Majlis of the Republic of
Uzbekistan noted that the time has come for creating
a legal framework for the implementation of Islamic
financial products with the involvement of experts
from the Islamic Development Bank and other
international financial institutions [1].
The lack of a legal framework is the main barrier to the
introduction of financial instruments based on the
principles of Islamic finance. However, before
considering the issue of adopting legislation and
creating
a
regulatory
framework
for
the
implementation of Islamic financial products and the
functioning of Islamic financial institutions, let us
consider the essence of Islamic financial products and
their distinctive features from financial services
offered by the so-called "traditional" financial
institutions.
Any institutional sector functions only if there are rules
and regulations that are designed to regulate it. The
rules governing the way of life of Muslims, including in
the field of business and financial activities, are
contained in the set of rules and principles of Islamic
law - Sharia.
These rules and principles have the following four
sources.
The first source is the holy book of the Koran as a true
and unchanging source of spiritual knowledge for all
Muslims. The Koran consists of Divine revelations,
which are a guide for all followers of the Prophet
Muhammad.
The hadith is the second source of these rules and
regulations. They form the basis of the Sunnah and are
short stories about episodes from the life of the
Prophet Muhammad, about his sayings and actions in
various life situations.
The third source of Sharia is “ijma” as a set of decisions
worked out by authoritative Islamic scholars -
mujtahids on specific issues and cases from the life of
the faithful for a specific issue or case.
The fourth source – “qiyas” is a judgment by analogy
and the development of new decisions by the
mujtahids on the basis of the precedent described in
the Quran or hadith
The provisions of the Sharia, based on the Qur'an and
hadiths, contain the absolute truth and the undeniable
fundamental doctrine of Islam, their reliability is not
subject to doubt under any circumstances. Ijma and
qiyas, also known as “furu”, are offshoots of Sharia
law.
Based on the provisions contained in these four
sources, Muslim economists and legal scholars over
the past few decades have formulated, and
government bodies almost throughout the world have
adopted rules for conducting financial activities that
meet the requirements of Sharia. There is a general
consensus among Islamic (and traditional) scholars
that Islamic finance should be based on the following
principles.
1.
Ban on riba. According to A.R. Rakhmanov, today
one of the main issues of international Islamic
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Volume 04 Issue 01-2022
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04
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01
Pages:
109-114
SJIF
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MPACT
FACTOR
(2020:
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453
)
(2021:
5.
952
)
OCLC
–
1176274523
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IF
–
7.659
Publisher:
The USA Journals
financial forums is the ban on charging interest
surcharges due to the fact that in the 21st century
there is not a single Muslim country that does not
carry out credit transactions with non-Muslim
states [2].
The Islamic financial system prohibits riba (surplus),
which is understood as any unjustified capital increase
in a loan or in the implementation of a trade
transaction. In other words, any predetermined rate
that depends on the terms and size of the loan and
does not depend on the success of the investment is
called riba and is prohibited.
Most Islamic scholars refer to the concept of riba not
only as high, usurious, but also any loan interest. This
prohibition is justified by the notions of social justice,
equality and property rights. Islam encourages profit,
but condemns the use of interest for profit, since such
activity does not lead to the creation of a product and
cannot increase the welfare of society. Social justice
requires that borrowers and lenders receive
compensation or losses on an equal footing and that
the process of accumulation and creation of wealth in
the economy reflects the real contribution of economic
agents to economic development.
It should be noted that riba as an unreasonable
increase in money capital has been condemned by
mankind since ancient times. M.Z.Gibatulin and
T.M.Vakhitov, having studied the economic views of
the ancient Greek philosophers, note that “The general
feature of the economic thought of the Ancient world
is the desire to preserve the priority of the natural
economy, to condemn trade and usurious operations
from the standpoint of morals, morality and ethic” [3].
2.
Sharing risk. Due to the prohibition on charging
interest, those who offer money on credit become
investors, not creditors. The owner of financial
capital and the entrepreneur share the risks in
order to share the benefits. Any financial
institution operating on the basis of Sharia
principles must be prepared to share with a partner
both future gains and profits, as well as losses and
losses. An Islamic bank is always ready to assume
the risks that arise when their clients use the
financial resources presented to them. A leasing
company that provides services in “Ijarah” cannot
transfer to the lessee all the risks associated with
the operation of the leased object, as provided for
in the leasing legislation governing traditional
leasing.
3.
Prohibition of garar. Garar is traditionally
understood as the uncertainty of the main terms of
the deal. Honest and fair business activity involves
full clarification of all the key points of the
transaction. Although the current civil legislation of
most modern states, including Uzbekistan,
contains provisions regarding the essential
conditions of almost all agreements encountered
in practice, there is a potential for a transaction to
be recognized as not complying with the principles
of Islamic finance due to garar, which requires a
careful analysis of the Islamic financial product,
especially before it implementation.
4.
Money as “potential” capital. Money is considered
as “potential” capital, that is, it becomes real
capital only when it is invested in production
activities. Moreover, money cannot be regarded as
a commodity. Sharia condemns hoarding and
endorses the constant use of free money in trade
and production.
5.
Prohibition of speculative behavior, “maysir”. The
Islamic financial system prohibits activities
characterized by great uncertainty (for example,
gambling). Due to the existence of “maysir” in the
Islamic financial system, it is extremely difficult to
112
Volume 04 Issue 01-2022
The American Journal of Political Science Law and Criminology
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VOLUME
04
I
SSUE
01
Pages:
109-114
SJIF
I
MPACT
FACTOR
(2020:
5.
453
)
(2021:
5.
952
)
OCLC
–
1176274523
METADATA
IF
–
7.659
Publisher:
The USA Journals
spread financial derivatives, transactions with
which are inherent in significant risk.
6.
The inviolability of contracts. Islam preaches the
fulfillment of contractual obligations as the most
important obligation of the parties to the
transaction. This principle is in line with the ancient
Roman principle of Pacta Sunt Servanta, according
to which a concluded contract is a law for two.
As correctly notes E.A.Baydaulet, unlike the traditional
financial system, the Islamic financial system has a clear
social orientation in accordance with moral and ethical
principles [4]. Islamic economics has been considered
by scholars and theologians of the Muslim East since
the heyday of the Caliphate (Al-Ghazali, Al-Farabi, Ibn
Taymiyyah) and is understood as part of a social order,
the laws of which were determined by a divine plan and
transmitted to mankind through a chain of prophets:
Abraham, Moses, Jesus and in the final teaching on the
universe of the Prophet Muhammad.
Social orientation presupposes the main goal of
economic development - ensuring social justice in the
distribution of the results of economic activity. The
means to achieve this goal are the development of the
real sector of the economy and socio-economic
progress. Along with this, theologians and economists
emphasize the special role of spiritual ethics and
morality, its inherent ability to protect economic
activity from abuse and lawlessness.
One of the most important characteristics of Islamic
finance is that it is real asset finance. The usual
traditional concepts of finance are that banks and
financial institutions only buy and sell money and
monetary obligations. And Islam does not recognize
money as a commodity. Money has no intrinsic value, it
is only a medium of exchange, it is the monetary
equivalent of a good or service. Profit is generated
when something of its own value is sold for money or
when different currencies are exchanged for one
another.
The profit received as a result of a credit and debt
operation with money (in the same currency) or with
securities replacing them is monetary value added,
therefore, is prohibited. Thus, unlike conventional
financial institutions, Islamic finance is always based on
real assets, in the process of circulation of which real
added value is formed. Let us consider this provision
using examples of certain Islamic financial instruments.
“Salam” and “istisna” financial advance financing
instruments serve to create real assets. The client of a
financial institution in the operation of salam uses the
received monetary resources in agriculture to grow the
crop, and after selling it, shares his profit with the
financier. In the case of istisna, financing is directed to
the production of infrastructure assets, and for the
delayed sale of them, the investor, along with his
money, receives a fixed profit.
“Ijarah” and “murabaha” instruments are also fully
asset-backed, and financing through these instruments
is clearly different from interest-based financing for
the following reasons:
In traditional financing, the financier gives money
to his client as an interest-bearing loan, after which
he has nothing to do with how the funds are used
by the client. In the case of murabaha, on the
contrary, the financier does not provide cash to the
client;
One of the main requirements for the validity of
murabaha is that the goods are purchased by the
financier, which means that he takes the risk of the
goods before selling them to the client. The profit
declared by the financier is a reward for the risk
that he takes on. Such a transaction is not an
interest-based loan;
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Volume 04 Issue 01-2022
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109-114
SJIF
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(2020:
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)
(2021:
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952
)
OCLC
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IF
–
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Publisher:
The USA Journals
With a loan that brings interest income, the
amount to be repaid by the borrower continues to
increase over time. In murabaha, on the other
hand, the sale price is fixed after negotiation. As a
result, even if the buyer (bank client) does not pay
on time, the seller (bank) cannot ask for a higher
price due to the delay in resolving fees. This is due
to the fact that there is no concept of time
measurement of money in Sharia;
Also in the case of leasing, financing is carried out
through the provision of operating assets that
have the right to use. Ijarah has a number of
differences from traditional leasing, which, in fact,
are predetermined by the principles of Sharia [5].
The risk associated with the purchase and further
lease of property is borne by the lessor/financier
throughout the lease term, in the sense that if the
leased asset is completely destroyed and without
the presence of facts of misuse or negligence on
the part of the lessee, then the financier/lessor will
bear the losses. The client, in this case, is jointly and
severally liable at the expense of the provided
material security.
As you can see from the above, each type of Islamic
finance creates real added value. Ordinary bank loans
create additional money supply, which multiplies
outside the real turnover of a smaller volume. This gap
between the money supply and the real sector
increases inflation, due to the mutual imbalance,
monetary units are devalued, which automatically
affects the rise in prices for raw materials and services,
expressed in increasingly cheaper “goods”, namely,
paper unsecured money.
Currently, in the current legislation of the Republic of
Uzbekistan, there are various gaps and obstacles that
make it impossible to provide Islamic financial services.
We are talking about both the lack of a legal
framework for key aspects in the activities of Islamic
financial instruments, for example, regulating the
activities of Sharia councils and Sharia experts on
giving an opinion on the compliance of a financial
product with the requirements of Sharia (fatfah) or the
audit of Islamic financial products, as well as on legal
norms, creating a barrier to Islamic financial products.
In particular, Article 22 of the Law of the Republic of
Uzbekistan “On Leasing” provides that lease payments
represent reimbursement of the value of the leased
object and the interest income of the lessor, which
directly contradicts the Riba prohibition principle, and
Article 19 imposes on the lessee all property risks
associated with the leased object, which also
contradicts the requirement of the Sharia principle on
the sharing of risks between partners [6]. Article 60 of
the Tax Code of the Republic of Uzbekistan also refers
to the interest income of the lessor (lessor) [7].
Therefore, the introduction of Islamic financial
products should be carried out on the basis of the
adoption of regulatory legal acts, which, firstly, create
a legal basis for certain types of activities inextricably
linked with the provision of Islamic financial services,
such as activities for the examination of the future
Islamic financial product according to the principles of
Sharia and Islamic audit, and secondly, remove existing
barriers to Islamic financial products.
For the above purposes, the author proposes the
adoption of a separate law on the fundamentals of
Islamic finance in the Republic of Uzbekistan, and on
the basis of this law (it is possible and at the same time
with this law), it is proposed to amend and supplement
existing normative legal acts, such as the Civil Code, in
Laws “On Banks and Banking Activities”, “On
Insurance”, “On Leasing”, etc.
The introduction of Islamic financial products will have
a positive impact not only in terms of meeting the
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VOLUME
04
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Pages:
109-114
SJIF
I
MPACT
FACTOR
(2020:
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)
(2021:
5.
952
)
OCLC
–
1176274523
METADATA
IF
–
7.659
Publisher:
The USA Journals
moral and ethical needs of the overwhelming majority
of the population of our country, but will also stimulate
the economic development of the country. As already
mentioned, due to the founding of Islamic financial
transactions on real assets, the Islamic sector of the
financial market is resistant to various financial crises
and shocks, not only of a national but also of an
international scale. In addition, the introduction of
Islamic financial products will stimulate many
international financial institutions and financial
institutions in modern Islamic states to invest large
financial resources in the economy of Uzbekistan. Also,
the creation of a legal framework will stimulate internal
investment processes.
Thus, for the introduction of Islamic financial products
in the Republic of Uzbekistan, the author proposes the
adoption of a special law of the Republic of Uzbekistan
on the foundations of Islamic financial activity and the
introduction of amendments and additions to the
existing sectoral regulatory legal acts. The introduction
of Islamic financial products will have a positive impact
on the stability of the republic's financial system, will
stimulate both the attraction of foreign investment
and domestic investment.
REFERENCES
1.
Message from the President of the Republic of
Uzbekistan Shavkat Mirziyoyev to the Oliy Majlis.
2020.https: //president.uz/ru/lists/view/4057.
2.
Rakhmanov A.R., Ruziev R.Zh., Rakhmanov A.R.
Islamic law. Textbook. BSPU. Ufa. 2010. P.224
3.
Gibadullin M.Z., Vakhitova T.M. Fundamentals of
Islamic economics: theory and practice of
management. Kazan. TGSPU. 2009. P.8.
4.
Baydaulet E.A. Fundamentals of Ethical (Islamic
Finance). Tutorial. Baydaulet. E.A. 2014. P.25.
5.
Mufti Muhammad Taqi Usmani. An introduction to
Islamic Finance. 2002. P.111-126.
6.
The Law of the Republic of Uzbekistan “On
Leasing”. Statements of the Oliy Majlis of the
Republic of Uzbekistan. 1999. No. 5 Art. 108.
7.
Tax Code of the Republic of Uzbekistan. T. Adolat.
2020.
