Written by Laylo Qarshiboyeva,

February 12, 2021

Image source: Kun.uz

Today, many financiers say that Islamic finance plays an important role in the development of the growth of the national economy, increasing the investment attractiveness of Uzbekistan. According to the survey conducted by the United Nations Development Program in early 2020 under the title of the “Analysis of Islamic Financial Products in Uzbekistan”, the main reasons for non-use of bank loans are, first of all, based on religious views. In addition, the high interest rates and the complexity of lending are shown as other causes behind the non-implementation of bank loans. Also, if Islamic financial institutions are established in the country, as the majority of respondents in the above survey noted, the Uzbek entrepreneurship would benefit from the services of these institutions. Islamic finance can have a strong impetus for the growth of the Uzbek economy and domestic investment. However, the Islamic financial sector in Uzbekistan is still relatively undeveloped in comparison to the other Central Asian neighbors, although the country has a great potential for development. This has been acknowledged by experts from major international financial institutions. While bearing the ideas above in mind, this post will be examining the current state of the development of Islamic financial sector in Uzbekistan, the expected challenges ahead, and the need for the introduction of a legal system for its successful functioning.

Current state of the development of Islamic financial sector in Uzbekistan

The analysis of the legal basis of Islamic finance activities indicates that the Islamic finance is a financial system based on Islamic jurisprudence. As with traditional finance, it includes banks, investment firms, fund insurance companies and other stakeholders. They are guided not only by legal norms laid down in the legislation of the country, but also the Sharia rules.

As for the analysis of current state of the development of Islamic financial sector in Uzbekistan, given the need for Islamic finance by small and medium-sized businesses, Uzbekistan became a member of the Islamic Corporation for the Development of the Private Sector(ICD) in 2003 and the International Islamic Trade Finance Corporation (ITFC) in 2004. The mutually beneficial relationship between these two organizations and the government paved the way for Islamic finance to enter the Uzbek market and took the first step in this direction.

Projects financed by ICD in Uzbekistan are implemented in accordance with the Resolution No. 371 from the Cabinet of Ministers of Uzbekistan as of August 27, 2003 and December 21, 2004. The ICD is the most widely-used murabaha (Islamic banks, using murabaha, provide their customers with financing by buying goods that their customers need, and then selling in return to their customers on a deferred payments basis).  In cooperation with Uzbekistan, the ICD has partnered with 15 commercial banks and 2 leasing companies in Uzbekistan, and to date Uzbek side has approved the allocation of $ 285 million in financing lines to banks. The ICD in its turn has also a total of $ 30 million in financing lines in partnership with Aloqabank, Asia Alliance Bank and Turonbank. The ITFC has provided a total of $ 32 million in financing lines to Asia Alliance Bank, Kapitalbank, Uzpromstroybank and Trustbank.

In order to ensure the implementation two Presidential decrees that were adopted in 2017, and 2019, on June 10, 2019, there was a meeting held with representatives of the ICD was held at the Private Joint-Stock Bank “Trustbank”. At the end of the meeting, a memorandum on mutually beneficial cooperation was signed between the Trustbank and the ICD.

Another important step in the introduction of Islamic financial services was the discussions, held on October 12, 2020, on the draft Presidential Decree “On measures to introduce securities based on the principles of Islamic finance.” The draft resolution stipulates that the pilot issue of sukuk securities in Uzbekistan in 2021 and the organization of its issuance should be completed by July 1, 2022. According to this Decree, the Capital Market Development Agency with the support of the Islamic Development Bank is developing a legal framework for the issuance of Islamic securities in Uzbekistan.

Moreover, on December 2, 2020, Ayman Amin Sejini, General Director of the ICD and Farhod Islamovich Salomov, Chairman of the Board of the National Bank of Uzbekistan, signed the Agreement on the opening of an Islamic window in the National bank.

It is also essential to mention that, the address of the head of state Shavkat Mirziyoyev to the Oliy Majlis (Parliament) on December 29, 2020 can be called a long-awaited historical event. In his address, the President announced that

“the time has come to create a legal basis for the introduction of Islamic financial mechanisms in our country. For this, experts from the Islamic Development Bank and other international financial institutions will be invited.”

Challenges ahead

First and foremost, Uzbekistan still lacks sophisticated legislation on Islamic finance. This is one of the main obstacles to the introduction of Islamic banking in Uzbekistan. Current legislation prohibits commercial banks from offering Islamic finance services. In particular, tax legislation, and banking legislation do not allow commercial banks to buy and sell products. In addition, in Islamic finance, there is no penalty for late payment or no interest for each day of delay. The calculation of a fine for any unpaid amount is usury (riba) and it is against the rules of Islamic law, and even if it is taken as a disciplinary measure, the money is credited to a separate account and used for charity. The inclusion of these funds in the income structure, their use for financial and investment purposes is strictly prohibited in Sharia law. However, the Civil Code, the Tax Code, the Law on the Activity of the Central Bank and other Banks, as well as other by-laws in Uzbekistan stipulate for the imposition of fines and penalties.

Another obstacle is in the lack of human resources in Uzbekistan. There is almost no experts working in this area. Because there is no separate higher educational institution and, let alone, a teaching programme in Uzbekistan dedicated to the training of specialists in Islamic finance. Formally, a training in this field began at the International Islamic Academy of Uzbekistan in 2018, but in 2019 there were no admissions into this programme. This in itself leads to the shortage of trained staff in this area, especially when there are a very few or no suitable candidates for Sharia councils. Meanwhile, the results of the survey conducted by the United Nations Development Program in early 2020 illustrates that 34% of the respondents cited the lack of higher educational institutions for training specialists in this field as one of the causes behind the underdevelopment of the Islamic financial system in Uzbekistan, and 45% of the population highlighted the lack of experienced specialists in this field.

Moreover, it is also important to increase Islamic literacy of the population, as people who do not have sufficient knowledge of Islamic finance will neither understand nor consider it as traditional financing. For instance, according to the survey conducted by the United Nations Development Program in early 2020, 28 percent of those surveyed said they had “no knowledge” about Islamic finance, 49 percent said they had a “general understanding,” and only 4 percent said they had “knowledge” about Islamic finance.


Summarizing the above analysis, it can be pointed out that the establishment of Islamic finance is an important factor in the development of the Uzbek economy. There must be a legal basis for the Islamic banks to start operating and carry out their activities at their fullest in Uzbekistan. Hence, as mentioned above, the activities of Islamic finance have their own characteristics and differ from traditional banks. The current legislation does not provide for Islamic finance. At the same time, it should be noted that after the address of the President Shavkat Mirziyoyev to the Oliy Majlis(Parliament) and laments that it is the high time to create a legal framework, Deputy Chairman of the Central Bank Bekzod Khamroyev informed at a press conference on January 11, 2021 that the new law “On non-bank credit institutions” will include the concept of Islamic finance. We can say that with the adoption of this long-awaited law in Uzbekistan, Islamic banks will have the opportunity to fully implement their activities . At present, officials should also keep in mind that the introduction of Islamic financial services in Uzbekistan will be carried out by parallelly solving a number of problems related to the lack of human resources, and the need on increasing literacy among prominent consumers.

Cite as: Laylo Qarshiboyeva, “The Introduction of Islamic Finance in Banks of Uzbekistan and the Legal Changes Ahead”, Uzbekistan Law Blog, 12.02.2021