Azerbaijan, Baku, Sept. 20 / Trend I.Khalilova /
Azerbaijan may become a regional hub for Islamic finance and promote cooperation in Islamic banking within the Persian Gulf and Central Asia, the team leader for the introduction of Islamic banking at the International Bank of Azerbaijan (IBA), Behnam Gurbanzade, told Trend.
"Our market analysis confirmed the demand of corporate and private individuals in the products and services of Islamic banking in Azerbaijan," Gurbanzade said.
However, today Azerbaijani legislation does not allow the use of most Islamic banking products. Islamic banking principles focusing on the real sector are particularly restricted by Azerbaijani law.
Some of country's believers want to invest their savings. Others use resources in accordance with the principles of Islamic banking.
"In this regard, the IBA has changed its strategy and decided to intensify activities by initially introducing Islamic banking products and services within the local market. The next step would be to develop these activities in the UAE and the Gulf countries through subsidiaries," Gurbanzade said.
He said that proposals will be developed with the Central Bank of Azerbaijan (CBA) for the regulation of banking activities on Islamic principles, in accordance with the law. The banking activities are reflected in the second phase, which will be designed for long term implementation.
"Practices show that a year is required to develop a regulatory framework and adopt new changes," he added.
Based on studies, if the IBA specialized structure begins operation in 2012, the portfolio will be $25-$30 million over three years. The calculations were made taking into account current legislation.
"If the bill is received, the portfolio may increase up to $200-$300 million. Calculations were carried out according to the demands for Islamic products in Baku, as one of the major cities of the republic, Ganja, and Sumgait," he said.
"Islamic finance can be widely developed in the country's regions, since so many products are available to finance trade and agriculture," Gurbanzade said.
In the future, he said, Azerbaijan can become a regional center for cooperation in the field of Islamic finance between Turkey and Central Asia, where Islamic banking has the greatest development ranking. Azerbaijan can also enter the Russian banking market.
The IBA will launch Islamic banking services in 2012, becoming the first to implement them in the country's banking market. "The bank offered these activities at the expense of the Islamic Development Bank's (IDB) resources. Today $10 million was invested in Islamic finance.
Nikoil Bank also began providing Islamic banking services in 2011. It plans to expand its activities in this direction in all 14 branches. Previously, Amrahbank, Turanbank, and Texnikabank announced the intention to provide Islamic banking services.
In addition, the IBA has many opportunities to expand Islamic finance outside of Azerbaijan, in particular within Arab markets.
IBA was the first among foreign companies to open its representative office not in the Dubai's free economic zone, but in the common market.
IBA has held offices in London since 2002, in Frankfurt-on-Meine since 2005, and in Luxemburg since early 2008. On July 31, IBA was the first among Azerbaijani banks to receive permission from the Board of Directors of the Federal Reserve System of the United States to open an office in New York.
IBA prepares to open a subsidiary bank in the international financial zone of Qatar. The subsidiary in Qatar will be the third subsidiary bank of the IBA financial group. The first bank subsidiary IBA-Moscow began in 2002. Now this financial institute has 12 offices and branches in Moscow, St. Petersburg, and Yekaterinburg. In November 2006, IBA founded its second subsidiary beyond Azerbaijan, in Georgia.
IBA was established in 1992 as the successor of the Azerbaijani branch of Vnesheconombank.
IBA has a dominant position in the banking sector. The state share in charter capital of the bank is 50.2 percent. The remaining shares are distributed among private businesses and individuals.