The Senate of the Oliy Majlis (the upper house of Uzbekistan’s parliament) has approved a law amending existing legislation to introduce Islamic banking in the country. According to the Senate press service, the innovation is expected to support the development of the republic’s financial system in line with international experience.
The statement notes that there is a growing need to expand the financial sector by offering alternative banking services on the market. Senators cited this as the rationale for adopting the law.
In particular, the document establishes a special type of license granting the right to conduct Islamic banking. Credit institutions that receive such authorization may retain their “traditional activities” alongside the new line of business.
A state duty is предусмотрена for obtaining a license—0.1 percent of the minimum charter capital of the bank being established.
Organizations operating under Islamic banking principles are entitled to:
— finance clients or attract funds into investment deposits under profit-sharing arrangements;
— provide funds or attract investment deposits on the basis of agency agreements;
— sell goods in installments;
— make advance payments for goods;
— participate in partnerships or in the charter capital of legal entities;
— transfer property under Islamic leasing arrangements with a right of redemption.
To coordinate the work of such financial institutions, an Islamic finance council will be created at the Central Bank of Uzbekistan.
Given the specifics of Islamic banking, a number of amendments will also be made to the country’s Tax Code. A separate chapter will regulate the taxation of relevant financial operations. In particular, markups charged by financial organizations on goods sold to clients will be exempt from value-added tax (VAT).
In the senators’ view, the approved law will help expand access to financial services for the public and entrepreneurs, improve the competitive environment, and attract new strategic investors to the banking sector.
Islamic banking is banking activity that complies with Sharia principles, which prohibit charging interest or fees for lending. Instead of conventional loans, installment, leasing, or equity-participation schemes are used. Only halal investments are permitted, meaning funds cannot be invested in businesses that provide goods or services contrary to religious norms. For example, Islamic banks are prohibited from financing alcohol production or gambling.
Islamic banks already operate in other Central Asian countries, including Kazakhstan, Kyrgyzstan, and Tajikistan.
