Understanding Islamic Banking in Kazakhstan

Islamic banking in Kazakhstan is a growing industry that offers a unique approach to finance. It's based on the principles of Shariah law, which prohibits the collection and payment of interest.

Kazakhstan's Islamic banking system was introduced in 2013, and since then, it has been gaining popularity among the country's population. The system is designed to be more equitable and transparent than traditional banking.

The Islamic banking system in Kazakhstan is based on the concept of mudarabah, which is a form of partnership between the bank and the customer. The bank provides the capital, and the customer provides the expertise and effort to generate profits.

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Islamic banking in Kazakhstan has been on the rise since 2007, when the Kazakh regulator introduced Islamic securities called sukuk (interest-free bonds) in the local currency, the tenge.

The Kazakh government's development plans aimed to finance projects using Islamic financial instruments, in cooperation with the Islamic Development Bank (IDB). Kazakhstan became the second country, after Malaysia, to introduce IDB-issued Sharia-compliant securities denominated in national currency.

In 2009, Kazakhstan passed legislation about Islamic finance, making it the first CIS country to do so, and international and local institutions began operating in Almaty and Astana.

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Islamic banking in Kazakhstan has a relatively short history, dating back to 2002 with the establishment of the first Islamic bank, Al Hilal Bank.

The country's Islamic banking system is based on the principles of Sharia law, which prohibits the collection and payment of interest.

Kazakhstan has a unique approach to Islamic banking, allowing for the use of sukuk, or Islamic bonds, to finance infrastructure projects.

The Kazakh government has been actively promoting Islamic banking, with the aim of increasing financial inclusion and reducing poverty.

The country's largest bank, Kazkommertsbank, has been at the forefront of Islamic banking in Kazakhstan, offering a range of Sharia-compliant products and services.

Kazakhstan's Islamic banking system is still in its early stages of development, but it has shown significant growth in recent years, with the number of Islamic banks and financial institutions increasing steadily.

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Kazakhstan has a well-defined regulatory framework for Islamic banking, which was established in 2009 when the country became the first CIS country to pass legislation about Islamic finance.

The legislation prohibits Islamic banks from engaging in unIslamic business ventures, such as pornography, and from charging interest.

Each Islamic bank in Kazakhstan must have an independent "Council on the principles of Islamic finance" to make decisions on policies and transactions.

Deposit insurance is not available for Islamic banks in Kazakhstan.

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Islamic banking in Kazakhstan is a growing industry, with the National Bank of Kazakhstan (NBK) overseeing both Islamic and conventional banking. There are currently 2 Islamic banks operating in Kazakhstan, Al Hilal Bank and Zaman Bank, which were previously commercial banks but converted to Islamic banks in 2016.

The NBK issues Islamic banking licenses, which allow banks to conduct interest-free operations such as accepting demand deposits and financing commercial operations through the purchase or sale of goods. This is a significant departure from traditional banking, where interest is a key component.

In 2016, the Development Bank of Kazakhstan implemented the first project related to the Ijarah product, which is a form of Islamic leasing. This marked a significant milestone in the development of Islamic finance in Kazakhstan.

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Islamic banks in Kazakhstan are also allowed to offer Islamic insurance products, known as Takaful, which is a system of mutual protection where one policyholder pays to reimburse the losses of another policyholder. Takaful must be carried out by Kazakh Takaful operators only.

The Astana International Financial Center (AIFC) is working to create a favorable legislative and regulatory framework for the development of Islamic finance in Kazakhstan. This includes the establishment of the International Expert Council for Islamic Finance and the Central Council of the AIFC on the principles of Islamic finance.

The AIFC aims to become a regional hub for Islamic finance, and has set a target of achieving 5-7% of Islamic banking assets by 2025. The government of Kazakhstan is supporting this effort, and the country is making progress in developing its Islamic finance market.

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Kazakhstan's financial sector is making strides in Islamic finance, with a focus on developing a robust infrastructure. The country has recognized Islamic securities, which certify the right of their holders for a portion of material assets and the right to dispose of such assets.

Islamic securities in Kazakhstan include shares and units of Islamic investment funds, Islamic lease certificates, and Islamic participation certificates. These securities are recognized as Islamic securities by Kazakh law.

Kazakh Islamic securities may only be paid in cash, and their prospectus must be approved by a council on the principles of Islamic finance. This ensures that Islamic securities in Kazakhstan adhere to Islamic finance principles.

The Development Bank of Kazakhstan issued a RM240 million Sukuk Murabahah facility in 2012, but it was issued on a cross-border basis and governed by foreign law. This facility was later annulled by the bank's board of directors in 2017.

The government of Kazakhstan plans to place sovereign Sukuk on the AIFC exchange in the next two years. This move will be a significant step forward for Islamic finance in Kazakhstan and a sign of the government's interest in the sector.

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Kazakhstan has been actively working to become the Islamic financial center of the Eurasian Economic Union and Central Asia. In 2009, 2011, and 2015, the country adopted three sets of legislative amendments to support this goal.

The Astana International Financial Centre (AIFC) was established in 2018 and has developed a Master Plan (Roadmap) for the development of Islamic finance in Kazakhstan. This plan provides measures for developing Islamic finance activities through further legislative changes.

Two fully operating Islamic banks, Al Hilal Bank and Zaman Bank, are currently present in Kazakhstan. Zaman Bank was previously a commercial bank but received permission from the National Bank of Kazakhstan (NBK) in 2016 to convert into an Islamic bank.

In addition to these banks, several other Islamic financial institutions have been established in Kazakhstan, including an Islamic leasing company, Kazakhstan Ijara Company, and an Islamic mutual insurance company, Mutual Insurance Company Takaful.

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