Despite the fact that Islam is a major religion, the Islamic financial sector in Uzbekistan is still relatively underdeveloped compared to its neighbors, although the country has great potential for development. This has been acknowledged by experts from major international financial institutions (Islamic Development Bank Group (IsDB), Islamic Corporation for the Development of the Private Sector (ICD), Asian Development Bank, etc.). However, in recent years, some work has been done in this direction in cooperation with international financial institutions.
Small and medium-sized businesses provide 81% of employment in Uzbekistan, and over the past 10 years, they have contributed to the country’s gross domestic product (GDP) growth at an average annual rate of more than 5%. Uzbekistan is becoming the fastest growing economy in Central Asia. Given the need for Islamic finance by small and medium-sized businesses, Uzbekistan was admitted to the IsDB in 2003 and to the ICD in 2004. The mutually beneficial relationship between these organizations and the government has paved the way for Islamic finance to enter the Uzbek market and has taken the first step in this area.
According to a survey conducted by the United Nations Development Program in early 2020 on the analysis of Islamic financial products in Uzbekistan and a relevant survey, the main reasons for not using bank loans are religious beliefs, high-interest rates and the complexity of lending. If Islamic financial institutions are established in the country, the majority of respondents in the above survey noted that they can use the services of these institutions. Even traditional banks have expressed their views on the establishment of Islamic financial institutions in Uzbekistan, the emergence of fair and transparent competition in the financial sector, which will lead to an increase and diversification of investment flows into the country.
Given the high demand for Islamic financial services in the country, the ICD Advisory Group is currently working to open branches of Islamic financial services in 6 commercial banks of Uzbekistan, including Kapitalbank, Trustbank, Asia Alliance Bank, Agrobank, Qishloq Qurilish Bank and Ipak Yuli Bank. These branches are expected to be launched in early 2021. In addition, Aloqabank, People’s Bank, Universal Bank and Davr Bank are working to open branches as well.
Based on the above information, we believe that the comprehensive introduction of the Islamic financial services industry in Uzbekistan will open the following opportunities for the country:
- increasing and diversifying the volume of foreign investments;
- creation of fair and transparent competition in the banking sector and the opportunity to diversify the assets of the banking system;
- ensuring maximum participation of free funds of the population and businesses in the development of the economy;
- development and diversification of the capital market in the country;
- creating many new jobs;
- increasing the activity in the financial market by improving the financial literacy of the population;
- coordination and modernization of infrastructure in the country through the development of the Islamic financial services industry;
- establishment of new financial institutions;
- contributing to the implementation of the state program to combat poverty;
- creation of a training program in a new direction.
As a result of this work, Uzbekistan will undoubtedly become a leader in the field of Islamic finance among the CIS countries. To sum up, the Islamic financial services sector will be an important factor, and foundation for the bright future of Uzbekistan, which will increase the interest of foreign investors in the country, which reflects the deep roots of Islam in its culture, and the government will take full advantage of this opportunity.
Writing by Muzaffar Nizomiddinov
Translation by Oybek Kulmamatov
Editing by Doniyor Tukhsinov
