Due to the increasing interest in Islamic finance, the government of the Republic of Kazakhstan adopted the ‘Roadmap of Development of Islamic Finance until 2020’, which is currently in the process of active implementation. In addition, the National Bank of Kazakhstan has set a goal to establish Almaty as a regional Islamic financial hub of Central Asia. This goal is materializing with joint activities directed to enhance institutional support, support of human capital initiatives in Islamic finance and development of international linkages with foreign investors and global Islamic finance infrastructure supporting institutions.
In February 2015, following the goals of program implementation, the National Bank of the Republic of Kazakhstan has signed a memorandum of long-term cooperation with the Association for Development of Islamic Finance (ADIF). It covered several areas, such as: education and public awareness programs; facilitation and implementation of Islamic finance products and services; initiation of legislative changes in the Islamic finance industry; and representation of Kazakhstan among potential investors. As of today, ADIF has launched a seven-month education program titled ‘Islamic Finance Professional’ and conducted a few other notable education events inside and outside of Kazakhstan.
Another highly expected event happened on the 9th May 2015, when several legislative Acts on insurance and Islamic financing law came into force after the Republic modified and added provisions to accommodate changes of the growing industry. Specifically, the amendments to the law introduced Islamic insurance to the system of obligatory insurance of employees. It also created favorable conditions for the appropriate functioning of Islamic banks, helping them to develop a fully-fledged Islamic financial system in Kazakhstan.
The next important event was held on the 20th-21st May 2015, where Islamic finance regulators and industry leaders met in Almaty for the 12th Annual Summit of the IFSB. It was an honor for Kazakhstan to host such a highly reputable international event. The theme of the event was ‘Core Principles for Islamic Finance: Integrating to the Global Regulatory Framework’.
From a practical perspective, in 2015, ADIF undertook multiple attempts to introduce several Islamic banking products into conventional institutions. Although current regulations do not authorize conventional banks to open Islamic windows for clients, the banks are allowed to provide Islamic products to customers on a pilot basis. As a result, a few institutions were shortlisted to launch Islamic financial products that are currently under development. It is an important step forward, because it will provide a clear picture of the level of customer demand for retail Islamic financial products, such as Islamic deposits and home financing.
At the beginning of 2016, Kazakhstan’s Finance Ministry is expected to propose a bill to regulate the first sovereign Sukuk issue. The anticipated legislation change is also due to the joint efforts of the National Bank of Kazakhstan and the IDB in preparation of a stand-alone Islamic finance law that will cover every aspect of the Islamic finance industry in detail including banking, Takaful and the capital market.
Being a secular state, Kazakhstan government bodies by law are not allowed to have any Islamic entities in their structure. That is why the National Bank of Kazakhstan has decided to establish a Central Shariah Board under the auspices of ADIF. With strong support from AAOIFI, the IFSB and the IDB, the Central Shariah Board in Kazakhstan will be launched soon in line with best international practice and standards.
Due to the fact that educating human resources in Islamic finance, especially in new markets is crucial, market players are most likely to send their staff for certification and training in globally recognized institutions. In this regard, ADIF, in collaboration with the Academy of Regional Financial Center of Almaty, has announced its desire to work closely with the Finance Accreditation Agency of Malaysia in order to get international recognition of education programs in 2016.
This initiative will set standards for the preparation of human capital in Islamic finance, not only in Kazakhstan, but in other Central Asian states. In addition, leading educational institutions, such as INCEIF (Malaysia) and CIBAFI (Bahrain) support the realization of other initiatives. For example, beginning from 2016, INCEIF, being one of the leading universities in the world, will commence the Masters in Islamic Finance Practice degree program for professionals in Kazakhstan.
Chapter 71 of the recently announced presidential address titled ‘100 Concrete Steps to Implement Five Institutional Reforms’ clearly states that the government must focus on the development of the Islamic finance industry in Kazakhstan. This statement is supported by several ongoing activities, such as the establishment of the Astana International Financial Center that prepares a favorable tax and legal environment for Islamic financial institutions to attract foreign investors in the coming years.
Timur Rustemov is the deputy chairman of the Association for Development of Islamic Finance (ADIF). He can be contacted at [email protected].