Islamic Finance as an Alternative Tool for Financing Projects in Kazakhstan During the Covid-19 Pandemic

Islamic Finance, a viable alternative to conventional financing, is becoming an important growth driver in Central Asian economies. During periods of economic and financial crises, the Islamic financial sector in most parts of the world remained largely unscathed from any major financial difficulties. On record, no Islamic bank required a bailout with a magnitude of those witnessed in developed markets. Islamic financial assets and investments were not exposed to the highly leveraged sub-prime products that led traditional asset and fund managers into severe financial difficulties.

The Shariah prohibition on Riba (interest-based transactions), Gharar (contractual uncertainties / excessive risk), Maysir (zero-sum risk transferring mechanisms), Jahala (ignorance of investing parties) and the mandatory requirement of real assets to structure financial products ensured that Islamic financial institutions were free from exposure to subprime portfolios. The emphasis of Shariah to ensure transactions are linked to the real sector enables productive economic activities that generate income and wealth.

As a result, the Islamic financial system gained widespread global attention given that its philosophy is able to prevent build-up of a highly leveraged financial sector, multiplied several times over the real value of the underlying tangible assets. Subsequently, Islamic financing facilities significantly expanded in Central Asia and beyond. A growing number of countries initiated regulatory amendments and/or conceptual exploration of the possibility to enable the Islamic financial sector to take root in their jurisdictions. In Central Asia, countries exploring Islamic finance include Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

In Central Asia, Kazakhstan arguably has the most enabling environment for Islamic banking and finance transactions. Following the passing of Kazakhstan’s Islamic finance law in 2008, the regulation underwent multiple amendments in 2011, 2013 and 2015. Islamic Finance Amendments and introduction of new legal provisions for Sukuk, Takaful and Ijarah, as well as Tawarruq, became effective since 2015.

Islamic banking activities in Central Asia are limited, although there has been significant growth in recent years with conventional players expressing keen interest to spin off Shariah operations or convert their business model to comply with Islamic law. In Kazakhstan, Abu Dhabi’s Al Hilal Bank is its sole fully-fledged Islamic bank while Zaman Islamic Bank, in partnership with the Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank Group (IsDB), transformed its operations and became the country’s second Shariah financier. Aiming to accelerate development of the industry, Kazakhstan formed ties with established Islamic finance markets from GCC countries with which it intends to create a joint Islamic bank or fund to finance projects in Kazakhstan.

ICD is very active in this important journey through its close collaboration with private sector players in Kazakhstan and in Central Asia. Over the last 20 years, ICD has substantially expanded its operations across the world. The Central Asia region represents 19% of approvals among member countries since ICD inception.

ICD has established Ijarah leasing companies in Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan and Kyrgyzstan in the last decade. The Islamic leasing market in Central Asia countries is most developed in Kazakhstan, and the country’s Ijarah leasing company ( ) was established in April 2013, as the country’s first Islamic leasing company. The business pipeline for the ICD-backed leasing company in Kazakhstan is promising. The scope of the companies covers all areas, including healthcare, pharmaceutical, transportation, and logistics.

ICD has a dedicated team focused on advising Governments and Corporations in our member countries on Sukuk issuance. The ICD team is driven by the conviction that Sukuk is appealing to member countries because it offers an alternative source of capital and diversifies the country investor base. Building on the Group’s accumulated experience in Islamic debt issuance, the ICD Sukuk & Capital Market Program facilitates development of the Islamic capital market by:

  • Assisting Member Countries to tap the international Islamic Capital Market
  • Helping Member Countries to complement T-bills with short-term Sukuk
  • Advising on Corporate Sukuk Issuances

The Sukuk & Capital Markets Program aims to further diversify its product offering in the future to have a greater impact on the Islamic Capital Markets by considering:

  • ICD issuance of local currency Sukuk to support its ongoing activities in member countries (first issuance will be in Kazakhstan Tenge)
  • Facilitating access by blue chip companies in our member countries to local and international capital markets by acting as an anchor investor
  • Project finance Sukuk (construction of hospitals, PPP, infrastructure)


by Samir Taghiyev

ICD Head of Unit, CIS and Europe Countries