**With Faith in Fact**
The issue of attracting investment has remained one of the key topics on the agenda of countries around the world for years. Industrial and agricultural development, the construction and renovation of infrastructure, support for small businesses, and the creation of new jobs largely depend on how quickly and affordably financing can be secured. This topic holds a particularly important place in the life of Central Asian countries, which are striving to capitalize on the opportunity that has opened up in recent years to strengthen their positions in the global economy and accelerate modernization. Therefore, Islamic financial instruments, which allow for the attraction of funds from the Persian Gulf and Southeast Asia, are generating noticeable interest among Central Asian states.
It should be noted that the modern system of so-called Islamic finance (IF) began to take shape back in the 1970s, and in 1975, Dubai Islamic Bank, considered the first Islamic commercial bank, began operations in Dubai. Over time, representatives of financial institutions from Muslim countries began appearing not only in the Middle East, Asia, and Africa, but also in Europe. As a result, by 2025, Islamic financial institutions and capital markets were already operating in approximately 90 countries worldwide, with their total assets reaching nearly $6 trillion. According to analysts' forecasts, these assets could grow to $7.5 trillion by 2028.
At its core, IF represents financial services and transactions that comply with Sharia principles. It is based on the prohibition of receiving interest on monetary loans (*riba*), the restriction of excessive uncertainty in transactions (*gharar*), as well as the refusal to finance prohibited activities and a closer tie between financial transactions and real assets and economic activity. Key IF instruments include *murabaha*—financing the purchase of goods through their acquisition by a financial organization followed by resale to the client; *ijara*—property leasing; *musharaka*—a profit-and-loss sharing partnership; *takaful*—an insurance model based on mutual assistance among participants; and *sukuk*—certificates referred to as a kind of Islamic equivalent of bonds, which are linked to assets or rights to income derived from them. Thus, unlike classical lending, Islamic financing involves commercial transactions, property leasing, and the distribution of entrepreneurial risks among transaction participants.
Today, the Central Asian market looks like a small but very promising direction for IF structures. This is explained by constant population growth in the region, the need for large-scale modernization of the economies of the Central Asian republics, and the open interest of local authorities in attracting any foreign investment. Moreover, the first Islamic financial institutions appeared here in the 1990s, which was largely tied to the Central Asian states joining the group of member countries of the Islamic Development Bank (IsDB). One of the first areas of focus at that time was cooperation with international financial institutions, which over time began to acquire a more meaningful and targeted character. However, development in this direction progressed unevenly across CA countries, and to date, the level of Islamic financing in Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan varies.
In recent years, Kazakhstan has confidently led the regional rating of Islamic finance development, becoming one of the first CA states to support IF at the legislative level. Thus, in 2009, the legal foundations for the activities of Islamic banks were laid here, and in 2012, the Development Bank of Kazakhstan was among the first in the post-Soviet space to arrange an issuance of *sukuk*. In 2025, the country launched Central Asia's first Sharia-compliant exchange-traded stock index. An important role in these developments was played by the established Astana International Financial Centre, which created a legal and institutional environment to attract investors and specialized consultants.
One of the most important steps toward expanding the use of IF instruments was the adoption of Kazakhstan's new law on banks, which came into effect in September 2026. It allowed traditional banks to provide IF services through so-called "Islamic windows" without creating a separate legal entity. At the same time, financial institutions must ensure separate accounting for operations and monitor product compliance with Sharia principles. Such a model may well accelerate the proliferation of Islamic services, which is precisely what the country's authorities are striving for. In total, by the beginning of 2026, three specialized banks with $600 million in assets were operating in Kazakhstan.
Like Kazakhstan, Kyrgyzstan has significant experience working with Islamic financial instruments, having been one of the first in the region to join the IsDB Group in the 1990s. The first specialized bank was founded here back in 2011, and currently, six institutions operating on IF principles provide services. At the same time, an important area is the use of "Islamic windows" in traditional banks, which is extremely important for small businesses, agriculture, and entrepreneurs who need rapid procurement financing, funds to purchase equipment, and the ability to replenish working capital.
Furthermore, the development of Islamic finance was included in the plans of the National Bank of the Kyrgyz Republic for 2025–2030, and in March 2026, the government passed a decree on mandatory insurance (*takaful*). Overall, the growth of the IF sector in the republic reached 125% by 2026, attaining a volume of $264 million.
For its part, Uzbekistan, which sits far behind Kazakhstan and Kyrgyzstan in the IF rankings, has also done a great deal in recent years to attract Islamic financing, including by shaping a legal and institutional framework. In particular, in March 2026, new legislation on Islamic banking was passed in the country, designed to create conditions for opening relevant financial organizations. Work in this direction includes creating conditions for licensing banks and "Islamic windows," setting up the tax regime, and developing mechanisms to monitor compliance with relevant principles. In May 2026, the Central Bank of Uzbekistan began discussing a draft roadmap for the sector's development for 2026–2030, and in July, the Uzbek regulator created an Islamic Finance Council.
In addition, the "Uzbekistan–2030" strategy developed by the country's authorities envisages that the first services at the national level will appear in 2027, and by 2030 will cover at least three commercial banks. This indicates that Tashkent considers the process of attracting IF extremely important for developing the domestic market and satisfying the needs of local enterprises for new sources of financing. At the same time, many experts believe that if the new regulations are implemented consistently, Uzbekistan could well become one of the main growth centers for Islamic finance in Central Asia. (As we previously reported, last week the Central Bank of the Republic of Uzbekistan issued a license for Islamic banking activities for the first time. Open Bank became the first holder of such a permit, acquiring the right to provide financial services in accordance with Islamic banking principles — Ed.).
The situation in Tajikistan also looks quite promising. Here, the legislative framework was created earlier than in many other countries of the region: the law "On Islamic Banking Activity" was adopted on July 26, 2014. It provides for the operation of Islamic banks, non-bank credit and microfinance institutions, as well as the use of "Islamic windows" in traditional financial institutions.
At the same time, the IF sector in the country remains small, although over the past five years the volume of Islamic financing has increased by an average of a third per year. One licensed bank, several microcredit institutions, and the digital platform Alif, which focuses on Islamic fintech, operate in Tajikistan. By early 2026, their assets amounted to about $36 million. It should be noted that the republic's authorities are doing everything possible to develop the IF market. This is due to the fact that, owing to economic weakness, enterprises and the population have limited access to diverse sources of capital, and Islamic products, experts believe, could well complement existing services, especially in the sphere of small business and microfinance.
Today, Turkmenistan is at the earliest stage of IF development in Central Asia. According to a joint study by the Eurasian Development Bank (EDB), the Islamic Development Bank Institute, and the London Stock Exchange Group, the country still lacks a full-fledged special legal and regulatory system for Islamic banking. Therefore, further progress in this area will require the country's leadership to draft relevant rules, establish control mechanisms, and create practical conditions for the work of international financial institutions. Meanwhile, it is not yet known for certain how seriously the Turkmen authorities are interested in the widespread adoption of IF institutions in the republic, although work in this direction continues.
At the same time, despite the differences among CA countries, the challenges facing the development of Islamic finance in the region are largely shared. First, Central Asia lacks specialists who are well-versed simultaneously in banking, Sharia principles, and IF standards. Second, a significant portion of the population is unfamiliar with Islamic finance and mistakenly perceives it as a service system exclusively for Muslims. Third, due to significant differences in the national legislation of CA countries, cross-border operations are extremely difficult, which significantly hinders the entire process of integrating IF into the region's financial system. Additionally, constraints on the development of Islamic finance are imposed by the weak liquidity of capital markets, insufficient development of infrastructure for the issuance and circulation of *sukuk*, as well as currency risks and a number of other issues.
According to most experts, legislative changes, raising the financial literacy of the population, and active staff training alone are no longer enough to overcome the existing constraints. International cooperation is coming to the fore, without which there will be no breakthrough in the development of IF in Central Asia. And, judging by recent events, the countries of the region understand this perfectly well. In particular, a major event this year was a meeting in September 2026 between representatives of the EDB and the IsDB Institute, who discussed joint initiatives in the field of Islamic finance. The talks focused on creating a regional investment platform and expanding access to financing for small and medium-sized enterprises. In essence, this initiative proposes moving from general statements about the potential of IF to creating a mechanism for attracting and allocating capital in practice.
A continuation of this work was the Samarkand Forum on Islamic Finance, held on October 27–28, 2026. It was organized by the Central Bank of Uzbekistan jointly with INCEIF University of Malaysia and the consulting firm Al Muamalat Consulting. The agenda included issues regarding the development of Islamic banking and the capital market, regulation, risk management, personnel training, and raising financial literacy. The organization of such meetings is clear evidence of the region's countries transitioning from isolated national initiatives to a more systematic discussion of the future of Islamic finance in CA.
It should be noted that the development of IF in Central Asia is also of practical interest to Russia, as Islamic financial instruments are capable of expanding the pool of potential investors for joint projects with countries in the region. Furthermore, in the Russian Federation itself, the development of this area has already received a legal framework thanks to a law passed in August 2023 that launched a pilot program for partner financing in Tatarstan, Bashkortostan, Dagestan, and Chechnya. For Russia, this experience is important not only from the perspective of developing the domestic market, but also as a possible basis for cooperation with Islamic financial institutions of Central Asian countries and their partners from the Muslim world.
Overall, despite the current problems and limitations, the long-term prospects for the development of IF in Central Asia look significant. According to various forecasts, Islamic banking assets here are expected to grow to $2.5 billion by 2028 and to $6.3 billion by 2033. At the same time, the regional *sukuk* market could reach $2.05 billion and $5.6 billion, respectively. Granted, such a scenario is predicated on CA states continuing to refine their legislation, alter tax regimes and oversight, and local financial institutions expanding access to new products. Otherwise, all positive forecasts may remain on paper.
Thus, it must be stated that Islamic finance is gradually turning into one of the most important tools for the development of Central Asia. If the region's countries manage to resolve all existing issues, IF could become not merely an additional source of investment, but also the foundation for further modernization and the strengthening of economic ties not only within CA, but across the entire Eurasian space.