Uzbekistan to introduce Islamic banking to widen financial ambit, beckon investors 

Uzbekistan has approved a legislation to introduce Islamic banking, a move that will encourage financial inflows and booster competitions across the banking sector. 

The law was adopted at a plenary session of the senate of the Uzbekistan parliament. 

The Central Asian country has undertaken broad reforms to modernize its banking system and expand financial services in line with international best practices. Lawmakers emphasized the growing need to widen financial inclusion and introduce alternative banking instruments that comply with international Islamic finance standards.

The directive introduces new legal provisions into two codes and seven existing laws, establishing a regulatory framework for Islamic banking activities.

A dedicated license has been introduced that will authorise lender to offer Islamic banking services. Banks with valid licenses will be permitted to operate exclusively as Shariah-compliant lenders or offer conventional and Islamic services in tandem.

The legislation also provides for the creation and operation of Islamic financial councils to coordinate matters related to Shariah-compliant finance. 

Meanwhile, income streams derived from Islamic finance activities will be treated at a par to interest income for tax purposes. Mark-ups applied by banks and microfinance organizations on goods sold to clients under Islamic finance arrangements will be exempt from value-added tax. 

“With Shariah standards, a dedicated Shariah Council under the Central Bank, tax neutrality and guaranteed deposits, the country is opening a major new channel for savings and foreign investment,” Vladimir Norov, former foreign minister of Uzbekistan, said in a LinkedIn post.  

“This reform positions Uzbekistan to unlock a large, previously untapped segment of Muslim household savings and attract substantial capital flows from Islamic financial markets across the GCC and Southeast Asia.”