Islamic finance in Kazakhstan: Progress and future prospects

Islamic finance in Kazakhstan continues to develop rapidly, showcasing significant potential for future economic growth and sustainability. Since the adoption of the initial legislative initiatives in 2009, the country has made substantial progress in establishing a legal framework that enables Islamic financial institutions to operate and expand both domestically and internationally.

The establishment of Al Hilal Bank, the first Islamic bank in Kazakhstan, in 2010 was a major milestone that marked the nation’s integration into the global Islamic financial system (recently renamed ADCB Islamic). Following this, the development of supporting legislation facilitated the entry of other Islamic financial entities, such as Kazakhstan Ijara Company, Al Saqr Finance, and the Islamic bank Zaman. 

In 2012 the Development Bank of Kazakhstan (DBK) raised MYR240 million (about $80 million) with the placement of a debut issue of a five-year sukuk. Kazakhstan investors bought 38% of the sukuk, and Malaysian the remaining 62%.

In 2023, the Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank (IsDB) Group, printed its first sukuk denominated in Tenge, raising KZT 2 billion ($4 million) with an auction of a five-year amortized sukuk. The sukuk, rated 'A+' by Fitch Ratings, was the first-ever KZT sukuk globally, the first in the national currency of one of the Commonwealth of Independent States (CIS) and the first KZT sukuk from an international development institution.

The role of AIFC in advancing Islamic finance
Today, the Astana International Financial Centre (AIFC) plays a pivotal role in promoting Islamic finance within the region. The AIFC offers a conducive environment for Islamic banks, asset management companies, brokers, and takaful (Islamic insurance) providers. With support from international bodies, including the IsDB, the Asian Development Bank (ADB), IFSB, AAOIFI, and CIBAFI, the AIFC has built a legal and regulatory foundation that aligns with global best practices.

In September 2024, the Islamic Finance Country Report, prepared with support from the IsDB and CSQ Law, was presented. It offers an in-depth analysis of the Islamic finance industry in Kazakhstan, a significant milestone for the nation.

To attract more companies, the AIFC has reduced the minimum capital requirements for Islamic financial institutions until May 2026. Currently, the requirement for Islamic banks is $6 million, and $100,000 for Islamic finance companies. Additionally, licensed financial services regulated by the AIFC, including Islamic banking, non-banking financial institutions, and takaful providers, are exempt from corporate income tax and VAT.

Islamic banks, financial companies, and takaful operators within the AIFC can offer their services to residents of Kazakhstan, both corporate and individual, in any currency, including the Kazakhstani tenge.

Since its establishment, the AIFC has become a platform for attracting key international players in Islamic finance from countries such as Malaysia, Bahrain, Pakistan, and Tatarstan. A notable development was the licensing of Alif Islamic Bank in December 2022, which actively provides financing to retail and corporate clients, including micro businesses. The bank has extended over KZT 3.6 billion ($7.3 million) in corporate funding and KZT 870 million ($1.76 million) for microbusinesses.

Another significant event was the launch of the Association of Islamic Finance and Business in September 2024. This association aimed to unite professionals and stakeholders in Kazakhstan’s Islamic finance industry and foster new opportunities for cooperation and growth.

New opportunities for issuers and businesses
The AIFC continues to support the development of a viable and competitive Islamic capital market.

In 2023, the rules for subsidising coupon payments on bonds issued under the national entrepreneurship development project were amended to include Islamic securities. This change opens up opportunities for Kazakhstani issuers to raise funds through sukuk issuance, creating a level playing field for Islamic and conventional securities.

A major event in the capital markets was the sukuk listing issued by the IsDB on the AIX official list. In June 2022, the first Shariah-compliant exchange-traded notes, including the iX Gold ETN, which received Shariah compliance certification, were listed on AIX.

These notes are available to retail investors via the AIFC’s Tabys app.

Additionally, in August 2023, the International Trading Platform (ITS) launched the ITS Shariah Index, which includes the 30 largest Shariah-compliant companies.

Islamic investment funds represent additional focus for the AIFC, responding to the rising demand for Shari’ah-compliant investment options in Kazakhstan. This demand is partly fueled by the scarcity of Islamic financial products within the local market. Although there are currently no officially listed Islamic funds, one firm is actively working on setting up an Islamic fund within the regulatory framework provided by the AIFC.

The AIFC has a lineup of potential sukuk issuers, including local and regional corporate entities. Recognising the significance of sukuk issuance for market development, the AIFC actively supports these initiatives. The expectation is that sukuk will be issued by the end of the year or during the first quarter of 2025.

Why it matters
The potential volume of Islamic retail financing in Kazakhstan, including mortgage, instalment plans, and auto financing, is estimated at KZT 3.9 trillion ($7.9 billion), with corporate sector demand exceeding KZT 760 billion ($1.54 billion).

These figures underscore that Islamic finance can become a key driver of sustainable economic growth in the country. With a robust legislative framework, support from international organisations, and the dynamic development of the AIFC, Kazakhstan is strengthening its position in the global Islamic finance arena.

Developing Islamic finance is a tool for sustainable economic growth and an opportunity for Kazakhstan to become a hub for attracting investments from various regions worldwide.

The country has the potential to solidify its role in the global Islamic economy and continue to create innovative, Shari’ah-compliant financial solutions.

Madina Tukulova is the head of Islamic finance at the Astana International Financial Centre and the chairperson of the Association of Islamic Finance and Business Development