Islamic finance is a fast-growing and promising segment in the world which is known for its sustainability in the market. The volume of this segment in the world is US$3.6 trillion, and it is growing annually by 15%. Kazakhstan was one of the first CIS [Commonwealth of Independent States] countries in 2009 to introduce Islamic finance legislation. After the first amendments to the legislation, the first Islamic bank was opened in the country.
Today, Kazakhstan has developed Islamic finance legislation covering Islamic banking, Takaful, Ijarah and Sukuk markets. In addition, several Islamic financial institutions provide Islamic financial services in Kazakhstan.
The Astana International Financial Centre (AIFC) is a financial hub in Kazakhstan. Geographically, it is a large defined zone within the city of Astana wherein the center’s participants may be located and, from there, carry on their business activities. Islamic finance is one of the core pillars of the AIFC.
With the support of international organizations such as the IsDB, Asian Development Bank, IFSB, AAOIFI and the General Council for Islamic Banks and Financial Institutions, the AIFC has established a regulatory framework following Islamic financial practices and standards.
Review of 2022
Kazakhstan’s demand for Islamic finance products and services is increasing every year. Therefore, the AIFC is developing an Islamic finance ecosystem. Islamic banks, Islamic financial companies, Islamic asset management companies, Islamic brokerage dealer companies and Islamic insurance companies (Takaful and re-Takaful) can become AIFC participants. The AIFC provides favorable conditions for Islamic financial institutions.
Thus, until November 2023, the minimum requirements for the authorized capital for Islamic financial institutions have been reduced. In addition, the AIFC provides an exemption from corporate income tax and value-added tax for licensed financial service providers, including Islamic banking institutions, Islamic non-banking institutions and Takaful and re-Takaful companies.
Moreover, recently adopted rules on currency regulation and provision of information on currency transactions in the AIFC allow Islamic banks, Takaful companies and companies managing a restricted profit-sharing investment account based on Islamic financial contracts to provide financial services to residents of Kazakhstan (individual and corporate) in any currency.
As of 2022, the AIFC registered several Islamic financial and non-financial organizations from Malaysia, Bahrain, Qatar, the UK and the US. The list of companies includes Islamic banks, non-banking financial institutions, Shariah consulting companies, Islamic fintech and crowdfunding companies. The AIFC continues to support the development of a viable and competitive Islamic capital market.
In 2022, the AIFC developed products for retail investors, such as Islamic exchange-traded notes (ETNs) and gold ETNs that comply with the principles of Islamic finance.
Financial literacy in the field of Islamic finance is critical. Therefore, the AIFC carries out several Islamic finance activities and events with international partners during Astana Finance Days, World Investor Week and such.
As a result, according to the Global Islamic Economy Report 2022, Kazakhstan has entered the top 15 countries with a developed market for Islamic finance.
According to the Global Islamic Fintech Report 2022, Kazakhstan has increased its position from 27th to 24th. Kazakhstan has been leading the CIS countries in the development of Islamic finance since 2017.
Preview of 2023
Islamic finance is a fast-growing segment; the percentage of annual growth of Islamic financial assets in the world is 15–20%. The AIFC is actively establishing the Islamic finance industry for Kazakhstan and Central Asia.
The AIFC was identified as an economic platform connecting the countries of the Central Asian region, as well as with foreign investors.
The financial regulators of Central Asia (the regulator of the AIFC — Astana Financial Services Authority, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) adopted a joint declaration confirming the possibility of using the potential of the AIFC for the joint development of the financial system.
The AIFC implements recommendations of the Islamic Finance Master Plan, developed with the support of the IsDB. For example, the AIFC plans to expand the global and regional base of investors and market players at the AIFC and increase the number of local Islamic financial institutions.
The arrival of new players in the Islamic finance sector will provide more investment and partners for existing players.
The Islamic securities market is also gaining popularity. The Astana International Exchange is ready to welcome Sukuk and expects regional and local issuances.
The AIFC continues to increase awareness of Islamic finance via different events (seminars, lectures and webinars).
Conclusion
In conclusion, it is essential to mention that for Kazakhstan, the development of the Islamic market is significant due to the rising demand. The Islamic finance industry in the AIFC, offering various financial and business solutions for the domestic market and the Central Asian region, will improve the competitiveness and dynamism of the financial center.
Madina Tukulova is the head of the Islamic Finance & Business Hub at Astana International Financial Centre. Ulzhan Issakhova is the senior manager at the Islamic Finance & Business Hub at Astana International Financial Centre. They can be contacted at [email protected] and [email protected] respectively.