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What are prospects of Islamic banking in Azerbaijan?

Analysis Materials 20 September 2011 19:18
Today, when the world's largest banks open "Islamic windows", which, in essence, is proof of the growing interest in the Islamic banking, the process of introducing Islamic banking in Azerbaijan is becoming increasingly important and relevant.
What are prospects of Islamic banking in Azerbaijan?

Azerbaijan , Baku, Sept. 20 /Trend /

Trend Analytical Center expert Leyla Abdullayeva

Today, when the world's largest banks open "Islamic windows", which, in essence, is proof of the growing interest in the Islamic banking, the process of introducing Islamic banking in Azerbaijan is becoming increasingly important and relevant.

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, said. "Our market analysis confirmed the demand of corporate and private individuals in the products and services of Islamic banking in Azerbaijan," Gurbanzade added.

The Islamic banking has great investment potential, Islamic banks have long been demonstrated their capabilities to the world. Therefore, attraction of more investment in Azerbaijan's banking sector and their subsequent infusion into the economy, of course, is one of the most important incentives for the government and banks of Azerbaijan.

Azerbaijan is a country where most of the population adheres to the Islamic principles. Therefore, the presence of banks coordinating the existing norms in the country with Sharia law will lead to that part of the population, who did not trust their funds to the usual commercial banks, will trust the Islamic bank .

Financing of the entrepreneurship activity was carried out at the expense of depositors, after which the bank and the entrepreneur share the profits. Thus, the need for loan interest falls away. In turn, depositor and bank's receiving remuneration will depend only on the profitability and success of entrepreneurial activity, which has been invested.

However, the relevant legal basis is required for full funding of the Islamic banking in Azerbaijan, so today the Azerbaijani banks interested in the Islamic banking products have a task to develop proposals and submit them to the country's central bank.

Yet Azerbaijan lacks legal framework governing the development of this direction. The Central Bank of Azerbaijan (CBA) continues to explore issues of implementing the Islamic banking principles, which is scheduled to be considered within the overall strategy of the banking system and estimate in relation to how it is beneficial to the Azerbaijani economy.

In addition, one of the most important factors for the Azerbaijani market is a factor of the championship. Being the first, a bank will receive a number of advantages and it will considerably approve its position on the market. The main difference between these banks and commercial banks is that their activities adhere to the requirements of Islam, under which lending under a loan interest is prohibited. Islamic Bank gets profits from its activities, but at the same time uses such financial instruments for its reception, which can meet this condition. This mechanism works at the expense of the investment fundamentals of business of an Islamic bank.

In turn, depositor and bank's receiving remuneration will depend only on the profitability and success of entrepreneurial activity, which has been invested.

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