The Eurasian Development Bank (EDB) is moving into Central Asia’s small but growing Islamic finance sector, with plans to open an Islamic banking window in 2025. 

The regional development bank’s chairman Nikolai Podguzov told journalists during the EDB annual meeting and business forum in Almaty on June 27 that the bank sees “great demand” for Islamic finance in Central Asia, where its members include Kazakhstan, Kyrgyzstan and Tajikistan. 

“Our focus is to establish an Islamic window in the Eurasian Development Bank. This is not an easy process, but I hope all the preparations will be finished by the end of the year and next year we will be able to start producing our first instruments,” he said. 

He anticipates that the bank could deploy as much as $100mn of Islamic finance in 2025, though admits “this is a bumpy road”. 

EDB deputy chairman Ruslan Dalenov told journalists that as an international development bank, the EDB can open up Islamic banking access, while commercial banks cannot currently do this under Kazakh law. 

The bank also announced its first pilot project in the area — a $5mn murabaha project — on June 27. It plans to launch several additional pilot projects, after which it will embark on larger investment projects. 

To finance the larger Islamic finance projects, the bank will issue a sukuk (Islamic bond). 

Dalenov told bne IntelliNews that the location for the bond issue has yet to be decided — it could opt either for one of Kazakhstan’s stock markets, the Astana International Exchange (AIX) or the Kazakhstan Stock Exchange (KASE), or use an international stock exchange such as Dubai or Malaysia. 

Cooperation agreements

The EDB will work alongside the Islamic Development Bank (IsDB) to support the development of Islamic finance in its countries of operation in Central Asia. 

The two development banks signed a memorandum on cooperation on Islamic finance development in Central Asia in Almaty on June 27. 

“The memorandum extends our cooperation, and promotes our activity and our plans to open an Islamic window in Central Asia for our bank,” said Podguzov at the signing ceremony. 

“We need to build trust and a new environment for Islamic finance to be spread across Central Asia for the benefit of all people which live in the region,” he added. 

“It is our honour and delight to sign this agreement on cooperation between the Islamic Development Bank Group institute and the Eurasian Development Bank,” said Dr. Sami Al-Suwailem, acting director general of the Islamic Development Bank Institute. 

“We share our commitment to serve our member countries to create prosperity for communities — both Muslim and other faiths. Islamic finance is for everyone.” 

A separate agreement was signed between the EDB and Ammar Ahmed, CEO of Dar Al Sharia, which Podguzov described as an important practical step enabling the two organisations’ work together. 

Ahmed said Dar Al Sharia is proud to be working with the EDB, initially to set up its Islamic window. 

“We all know Kazakhstan is the leader in Islamic finance in Central Asia, and we believe this relationship will form the anchor for the Eurasian Development Bank to act as a catalyst to spread Islamic banking and Islamic finance across various [parts of] Central Asia and beyond.” 

Gradual development 

While the IDB first became active in Central Asia in the 1990s, national governments in the region only started development of their banks in the late 2000s and 2010s. 

Dalenov commented at a panel on Islamic finance at the bank’s business forum on the rapid growth expected in the global Islamic finance sector. 

“Only electric cars has better development prospects,” he said. 

However, he acknowledged that Islamic finance is still relatively small in Central Asia, where it accounts for less than 1% of the banking sector by assets. He noted the small number of banks and non-bank financial institutions, as well as the low awareness of the population, especially in rural areas. 

Expanding Islamic finance in Central Asia would bring "new investments, greater strength of the financial system and mobilisation of financial resources”, he added. 

Kazakhstan’s Vice-Minister of Finance Dauren Kenbeil welcomed the EDB’s plans to open an Islamic window, telling the panel “it is very nice to see this sector is developing”. 

Olzhas Kizatov, deputy chairman of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market, said Kazakhstan is currently reviewing legislation in cooperation with foreign partners, specifically with plans to enable conventional banks to open Islamic windows. 

“Islamic banking is one of the priorities of the agency along with the government. That is why we will continue the work to develop Islamic banking,” he said. 

Al Hilal bank was the first Islamic bank to launch in Kazakhstan back in 2009. Its deputy chairman Aidyn Tairov told the panel that after a slow start the bank is growing and has shown good profit lately.

Al Hilal’s entry to Kazakhstan was followed by the conversion of long-established Zaman-Bank to an Islamic bank in 2017.