Islamic finance in Kazakhstan is gradually moving beyond the boundaries of a niche segment. New legislative initiatives, including the introduction of the “Islamic window” model, are opening up additional opportunities to scale the market and attract new participants. At the same time, key issues remain regulation, compliance with Sharia principles, and building trust among investors and clients.
Dauren Salimbayev, Deputy Chairman of The Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market, spoke to our publication about the current state and future prospects of Islamic finance in Kazakhstan, as well as the changes expected in the coming years.
– Kazakhstan was one of the first in the region to introduce Islamic finance. Why does the market remain relatively small?
– Kazakhstan was indeed a pioneer of Islamic finance in the region. The legislative framework for Islamic banking was established in 2009. The previous version of the Law “On Banks and Banking Activity” allowed for the establishment of Islamic banks and the conversion of conventional banks into Islamic ones. It also defined a list of Islamic banking operations compliant with Sharia principles.
However, the market developed more slowly than expected. The main reason lies in the institutional model. Islamic financial services could only be provided by specialized Islamic banks, which significantly limited scalability.
Establishing a separate bank is a capital-intensive and time-consuming process. As a result, despite the legal framework, the market remained niche.
Today, the state is effectively transitioning from a model of “Islamic banks” to a broader “Islamic financial ecosystem,” allowing Islamic products to be integrated into the existing banking system.
– What changes has the new banking law introduced?
– The key innovation is the introduction of the “Islamic window” model.
Conventional banks can now offer Islamic banking operations, provided they obtain a separate license for such activities. This means Islamic products are no longer limited to specialized banks.
Global practice shows that the “Islamic window” model accelerates the development of Islamic finance markets. For example, in Malaysia, a significant share of Islamic assets was formed using this model in the early stages. In the United Arab Emirates and Bahrain, Islamic windows continue to be used as a tool for rapid product scaling without the need to create separate infrastructure.
For Kazakhstan, this model significantly lowers entry barriers for banks, accelerates the launch of Islamic financial products, and makes them accessible through existing branch networks. As a result, competition increases, product offerings expand, and Islamic finance moves beyond a niche segment, integrating organically into the broader banking system.
In essence, this represents a shift from an institutional approach (creating separate banks) to a product-based approach (offering Islamic products within existing banks).
Doina Gherban's Images
– Why is the Islamic window model considered more effective?
– It addresses several key structural limitations of the market.
First, banks can leverage existing infrastructure, including branch networks, digital channels, IT systems, and customer bases.
Second, it reduces entry barriers. Instead of establishing a new bank, institutions only need to implement the necessary organizational and technical measures, develop a dedicated product line, and obtain the relevant license.
Third, Islamic products become accessible to a broader audience. Clients can access Islamic finance services through banks they already use, which is especially important in the early stages of market development.
– How is compliance with Sharia principles regulated?
– This is one of the core elements of regulation. The new requirements for risk management systems introduce, for the first time, the concept of Sharia non-compliance risk. This is defined as the probability of financial losses, reputational damage, or adverse legal consequences arising from Islamic banking operations or services that do not comply with Islamic finance principles.
Banks are also required to implement internal control procedures. This includes establishing dedicated compliance and internal audit units focused on adherence to Islamic finance principles.
Thus, Islamic finance becomes not just a product line, but a fully integrated system of risk management and compliance.
finratings.kz
– What role does the Sharia Board play in this system?
– The Sharia Board is a central element of the Islamic financial architecture.
Its responsibilities include reviewing and issuing opinions on whether transactions, operations, and internal documents comply with Islamic finance principles, analyzing changes in transaction terms, monitoring compliance, reviewing the work of compliance and internal audit units, and providing recommendations to address identified violations. It also contributes to the development of IT infrastructure to ensure separate accounting of Islamic and non-Islamic assets and liabilities.
The new requirements significantly strengthen criteria for board members in terms of professional qualifications, independence, and their role in corporate governance.
This is crucial, as trust in Islamic financial products largely depends on their undergoing proper religious and legal review.
– What are the strategic goals for the development of Islamic finance in Kazakhstan?
– There are several key strategic objectives.
The first is diversification of the financial system. Islamic financial instruments are based on risk-sharing and financing of real assets, which enhances overall system stability.
The second is attracting international capital. The global Islamic finance market exceeds $3 trillion, and Kazakhstan has the potential to become one of the key centers of Islamic finance in Central Asia.
The third is expanding financial inclusion. For part of the population, Islamic financial products are more preferable due to religious considerations.
Ulysmedia
– Can Islamic finance become a significant part of Kazakhstan’s banking sector?
– Islamic finance will not replace the conventional banking system, but it can become an important complementary segment of the financial market. International experience shows that with a flexible and effective regulatory environment, the share of Islamic financial assets can reach 10–20% of the banking sector.
In Kazakhstan, the introduction of the “Islamic window” mechanism is seen as one of the key tools for scaling the market. It enables rapid expansion of product offerings and their integration into the existing banking system.
If implemented effectively, Kazakhstan has strong potential to develop a full-fledged Islamic finance ecosystem, including Islamic banks, investment instruments, and a market for Islamic securities.
