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THE HISTORY OF THE DEVELOPMENT OF ISLAMIC FINANCE IN BANKS
WORLDWIDE AND IN THE REPUBLIC OF UZBEKISTAN
Yuldasheva Madinaxon Mamasadikovna
Master of the Banking and Finance Academy of the Republic of Uzbekistan
https://doi.org/10.5281/zenodo.15340375
Abstract
The thesis discusses the history and stages of the development of Islamic finance in the
world and in the Republic of Uzbekistan.
Keywords
Islamic finance, Islamic banking, Islamic financial products, Islamic financial institutions,
Banking system, Shariah
Annotatsiya
Tezisda Islom moliyasining dunyoda va O’zbekiston Respublikasida rivojlanish tarixi va
bosqichlari muhokama qilinadi.
Kalit so’zlar
Islom moliyasi, Islomiy bank ishi, Islomiy moliya mahsulotlari, Islomiy moliya
institutlari, Bank tizimi, Shariat
Introduction
Today the Islamic finance sector is one of the fastest-growing industries in the world,
encompassing innovative financing mechanisms. And its history goes back many years.
Islamic finance is growing rapidly not only around the world but also in Uzbekistan. For
countries with a predominantly Muslim population, the development of this sector is
especially important and relevant.
The history of the Islamic banking system in the form we know today began to develop
in the second half of the last century. The successful development of the Islamic banking
system started with the establishment of the Mit Ghamr savings bank in Egypt and the
establishment of the Tabung Haji Lembaga in Malaysia in 1963. The Mit Ghamr Savings Bank,
located in the Nile Delta, offered banking services such as savings accounts, equity
participation in capital, direct investments, and social services.
In the second half of 1967, the National Bank of Egypt and the Central Bank took on the
responsibility of the bank's functions. Tabung Haji Lembaga is Malaysia's leading financial
institution, registered in 1963. The institution has 50 years of experience in handling deposits,
providing Hajj-related services, and managing financial transactions and investments. In
1963, the institution initially managed the savings of only 5,000 pilgrims, and its staff
consisted of 13 specialists.
The true development of the global Islamic finance industry began in the middle of
1970s. The intergovernmental Islamic Development Bank (IDB) was officially established in
1975, with its founding members being 22 state governments. At the same time as the IDB,
the Dubai Islamic Bank was registered in 1975. In 1977, three more Islamic banks began their
operations: the Egyptian Faisal Islamic Bank, the Sudanese Islamic Bank, and the Kuwait
Finance House. By the 1970s and early 1980s, a total of 16 Islamic financial institutions had
been established.
The history of the modern Islamic banking system can be divided into
4 main stages:
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Stage 1: Establishment
1950s
Islamic scholars and economists began introducing the Islamic banking and financial
system with the aim of offering a real alternative to the traditional interest-based banking
system.
The concept of "Mudaraba" was proposed as a tool for Islamic banking.
1960s
The fundamental principles of Islamic financing began to be implemented.
The operational mechanism of Islamic financial institutions was simplified for the first
time.
Between 1963 and 1967, the Mit Ghamr Savings Bank developed and was later
discontinued.
In 1963, the Lembaga Tabung Haji was established in Malaysia.
Stage 2: Widespread Expansion
1970s
Islamic banks and non-bank Islamic institutions were established.
Scientific activities were organized.
Research institutions were founded.
The "Mudaraba" financial mechanism was approved.
The Islamic Economic Research Center was established in Jidda.
Books on Islamic banking began to be published, covering topics such as leasing,
mudaraba, and profit and loss sharing.
The Dubai Islamic Bank opened in 1975.
The Islamic Development Bank opened in 1975.
The first International Islamic Economic Conference took place in Mecca in 1976.
In 1979, the first Islamic insurance companies began operations in Sudan and the UAE.
1980s
The government began to participate in the promotion of Islamic banks.
A large number of private banks were established.
Various Islamic banking products were introduced, including in Western countries (the
United Kingdom, the USA and Switzerland).
Interest in Islamic banking grew among Western scholars and financial groups.
Traditional banks started offering Islamic banking products through Islamic "windows."
The number of specialized training programs and research initiatives increased.
The number of Islamic indices and trust funds grew.
Pakistan, Sudan, Iran, Malaysia, and other countries attempted to reform their banking
systems or officially began implementing Islamic financial systems.
The IMF published articles and documents on Islamic banking. Articles and research on
Islamic economics increased.
The Islamic Fiqh Academy and other Fiqh councils were established under the OIC
(Organization of Islamic Cooperation).
The Research and Training Institute for Islamic Economics (IRTI) was founded under
the IDB (Islamic Development Bank).
Islamic trust funds were established worldwide.
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1990s
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
was established for Islamic financial institutions.
In 1990, for the first time in history, the Shell MDS Sdn Sukuk Company was established
in Malaysia.
In 1999, the Dow Jones Islamic Index was launched in Bahrain.
Stage 3: International Recognition
2000-2009
The industry developed and continued to grow alongside risk-related issues.
The construction of Islamic financial architecture was completed.
Attention began to be focused on corporate governance and risk management.
Capitalization was achieved through the consolidation of Islamic banks.
A market for asset-backed securities was established.
In 2002, the Islamic Financial Services Board (IFSB) was established in Malaysia.
In August 2004, the Financial Services Authority of the UK granted permission to open
the first Islamic bank in England – the Bank of London and the Middle East (BLME).
In 2005, the International Islamic Rating Agency (IIRA) was established in Bahrain.
The Liquidity Management Centre (LMC) began operations.
The International Islamic Financial Market (IIFM) was established.
In 2006, the first Sukuk was issued by an American issuer (East Cameron Gas Company
deal).
Stage 4: Reassessing Views and New Prospects (Post-Crisis Era)
From 2009 to the present
Compared to the decline in the value of conventional bank assets, Islamic bank assets
have grown steadily. The global crisis had a limited impact on Islamic banks.
In 2010, the first Islamic bank in Germany was opened (Kuveyt Turk Participation
Bank).
In 2011, Thomson Reuters set the first interbank Islamic benchmark rate.
In 2012, Saudi Arabia and Turkey issued their first Sukuk.
In 2013, South Africa issued its first independent Sukuk.
In 2013, the IIFM issued interbank transaction standards.
The Prime Minister of the United Kingdom made a statement at the World Islamic
Economic Forum in October 2013, announcing plans to develop London as a global Islamic
financial hub.
Islamic financing for project implementation in Uzbekistan began in 2004, which is
linked to Uzbekistan's membership in the Islamic Development Bank (IDB) in September
2003. In 2004, the IDB used "ijara" and "murabaha" contracts to finance projects in the energy
and healthcare sectors. However, the IDB started its operations in Uzbekistan in the early
years of independence, and this was evident through the implementation of grant projects
under its program to support Muslim communities in non-member states. Indeed, the
direction of Islamic financing through waqf (endowment) began to spread in Central Asia
from the time Islam was introduced to the region, and waqf documents dating back to the
time of our ancestor Amir Timur have been preserved to this day.
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On July 26, 2024, the decision on the approval of the relevant regulation of the Central
bank board of the republic of Uzbekistan "Procedure for the provision of services related to
Islamic financing by micro financial organizations” was registered by the Ministry of Justice of
the Republic of Uzbekistan with the number 3536.
In 2010 International Finance Corporation - shareholder of Hamkorbank, beginning of
cooperation with the Asian Development Bank, with the Islamic Corporation for the
Development of the Private Sector.
In 2017 JSCB Hamkorbank and Islamic Corporation for Private Sector Development
(ICD) signed a financing document.
In 2018 a memorandum of understanding was signed between the Islamic Corporation
for the Development of the Private Sector and JSCB "Hamkorbank".
On May 2, 2024 within the framework of the III-Tashkent International Investment
Forum, Uzpromstroybank and the International Islamic Trade and Finance Corporation
signed an Agreement on training bank employees in the field of Islamic finance.
In January 2023, "Trustbank" JSC "Trust Muamalat" LLC started its activities.
In 2023 Uzum Group and the Islamic Corporation for Development of the Private Sector
(ICD) signed a Memorandum of Cooperation. The ICD Private Sector Forum – PSF 2023 was
held on May 11-13, 2023 in Jeddah, Saudi Arabia.
In concluding, attracting funds from banks, investment funds, and companies based on
Islamic financing in Muslim countries for the social and economic development of Uzbekistan
and supporting the private sector is highly relevant. To achieve this, it is essential to adopt a
new approach to the national banking system, meaning that, alongside traditional financing
mechanisms, the introduction of partnership-based financing mechanisms should be
researched and is of significant importance.
References:
Используемая литература:
Foydalanilgan adabiyotlar:
1.
Muhammad Taqi Usmani. An introduction to Islamic Finance. - Tashkent: Uzbekistan
2023. - 288 p.
2.
Baydaulet E. A. Islamic Finance Basics. - Tashkent: Uzbekistan 2019. - 529 p.
3.
The Law of the Republic of Uzbekistan "On Banks and Banking Activities" dated
November 5, 2019 ORQ-580 "Stages of Development of the Payment System in the Republic of
Uzbekistan". Central Bank of the Republic of Uzbekistan. www.cbu.uz.
4.
Ibrahim Warde. Islamic Finance in the Global economy. 2010- P.52.
5.
M. Iqbal et al. Advances in Islamic Economics and Finance. Volume 1. 2007
6.
Muhammad Umer Chapra, Tariqullah Khan. Regulation and Supervision of Islamic
Banks. – Jeddah: IsDB, IRTI, 2000. – 101p.
7.
A. M. Tiby. Islamic Banking: How to Manage Risk and Improve Profitability / A. M. Tiby –
J. Wiley & Sons – 2010.
8.
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10.
http://www.hamkorbank.uz/
