Uzbekistan is taking a significant step toward diversifying its financial system by introducing a legal framework for Islamic finance, enabling banks to offer Sharia-compliant financial products alongside traditional banking services.
The reform marks the formal entry of Islamic finance into the country’s regulated financial sector.
Regulatory framework and role of the Central Bank
A key feature of the reform is the expansion of the regulator’s mandate to oversee Islamic finance.
The Central Bank is now empowered to:
- develop and approve Islamic finance standards for credit institutions;
- issue, reissue, and revoke licenses for Islamic banking activities;
- supervise compliance with Sharia-based financial principles.
This establishes a centralized regulatory model similar to leading Islamic finance jurisdictions.
Introduction of a dual banking model
Banks operating in Uzbekistan will be allowed to:
- conduct conventional banking operations; and
- simultaneously offer Islamic financial services, subject to licensing.
This creates a dual banking system, enabling financial institutions to diversify their product offerings and target new client segments.
Creation of the Islamic Finance Council
The reform also introduces a dedicated Islamic Finance Council under the Central Bank.
This body will:
- develop and interpret Islamic finance standards;
- participate in drafting regulatory acts;
- provide clarifications on Sharia-compliance issues;
- issue opinions on disputes related to Islamic finance activities.
The Council effectively functions as a central Sharia governance authority, ensuring consistency and credibility of the system.
Scope of Islamic banking operations
The framework formally recognizes a range of Islamic financial instruments, including:
- Mudaraba (profit-sharing investment arrangements);
- Wakala (agency-based financing);
- Murabaha (cost-plus sale financing);
- Salam (advance payment financing);
- Musharaka (partnership-based financing);
- Ijara (leasing with purchase option).
These instruments replace interest-based lending with asset-backed and risk-sharing structures, aligning with Sharia principles.
Expanded powers of Islamic banks
Unlike traditional banks, Islamic banks are granted broader operational flexibility, including the ability to:
- engage in direct trading activities;
- establish and invest in legal entities;
- acquire shares and participate in capital of companies without standard restrictions.
This reflects the nature of Islamic finance, which is more closely tied to real economic activity.
Tax and regulatory adjustments
The reform introduces adjustments across multiple areas, including:
- incorporation of Islamic finance provisions into tax legislation;
- recognition of specific tax treatment for Islamic financial instruments;
- extension of the framework to microfinance institutions.
These changes are critical to ensuring tax neutrality and operational viability of Islamic finance products.
Implications
The introduction of Islamic finance has several strategic implications:
- diversification of the financial sector and funding sources;
- increased attractiveness for investors from Islamic finance markets;
- development of alternative financing instruments for businesses;
- positioning Uzbekistan as a participant in the global Islamic finance ecosystem.
The reform represents a structural evolution of Uzbekistan’s financial system, moving toward a more inclusive and diversified model.
By combining conventional and Islamic banking, Uzbekistan is laying the groundwork for broader financial integration and access to new pools of capital.