ASTANA, Kazakhstan, January 15. The development of the Islamic financing sector in Kazakhstan will remain slow in the coming years without further efforts by authorities, Trend reports, with reference to Moody's review.
As the Moody's noted, government initiatives could help Islamic financing in Kazakhstan to expand further.
The country introduced a regulatory framework for Islamic financing in 2009 to become one of the first in the CIS region to make such a move, paving the way to an establishment of full-fledged Islamic banks. However, the expansion of the sector has been limited due to a lack of an additional push from the government.
Among other hindrances to the development of the sector, Kazakhstan does not allow conventional banks to operate Islamic windows. As the Moody's believed, that leaves two full-fledged Islamic banks and three Islamic microcredit companies as the only institutions that provide Sharia compliant financing.
Further, they mainly focus on corporate clients, which limits their business growth.
"We estimate that Islamic financing assets in the country accounted for about 0.2 percent of total banking assets as of the end of September 2023," said Moody's, adding that creation of the Astana International Financial Centre (AIFC) in 2018 provided some boost to the development of the Islamic financing market in Kazakhstan.
Islamic financing is one of the key focus areas for the financial hub. It was the first in the CIS region to provide businesses with systemic access to Islamic financing. Also, with technical assistance from multilateral institution Islamic Development Bank (IDB) – which works with central banks in CIS countries to develop legal frameworks for Islamic financing – the AIFC has formulated plans to boost the share of Islamic financing assets in total financing assets to 3-5 percent by 2025. In addition, the AIFC is offering an exemption for income tax and value-added tax for asset purchases and resales and has reduced minimum requirements for authorized capital for Islamic financial institutions.
In 2022, the AIFC introduced Sharia-compliant financing products for retail investors.
However, Moody's emphasized that the development of Islamic financing in Kazakhstan will be limited without government efforts to further reduce regulatory and legal hurdles.