According to Mordor Intelligence, Islamic finance has been on the rise in recent times, with belongings managed by Shariah-compliant monetary establishments surpassing $4.2 trillion in 2022 (a 93 p.c improve from 2015). S&P Global Ratings forecasts progress of roughly 10 p.c in 2023, and belongings are anticipated to achieve $6 trillion by 2026.
Islamic finance refers to a monetary system that operates in accordance with the ideas of Islamic legislation, referred to as Shariah. It prohibits curiosity (usury) and promotes moral and socially accountable monetary transactions. Instead of conventional interest-based lending, Islamic finance makes use of varied buildings equivalent to revenue sharing, asset-backed financing, and risk-sharing mechanisms to create monetary merchandise that adjust to Shariah ideas.
In Uzbekistan, there’s a important demand for Islamic finance. A 2020 UNDP research confirmed that 56 p.c of people and 38 p.c of companies surveyed in Uzbekistan don’t take loans as a result of non secular beliefs. However, based on the identical survey it was discovered that greater than 60 p.c of people and companies shouldn’t have a full understanding of how merchandise of Islamic finance work.
Promotion of Islamic Finance
In Uzbekistan, steps are being taken to draw Islamic finance, bilateral agreements with Islamic finance establishments are being concluded, and work is underway to introduce Islamic home windows into conventional business banks.
In order to develop Islamic finance, Bank Ipak Yuli, Alokabank, Trustbank, Invest Finance Bank, Kapitalbank, Asakabank, Turonbank, Uzpromstroybank, Khamkorbank, and Asia Alliance financial institution have signed a cooperation settlement with the Islamic Corporation for the Development of the Private Sector. The financing is principally within the type of offering banks with ensures on Murabaha ideas. Referred to as cost-plus financing, Murabaha is an Islamic financing construction by which the vendor and purchaser comply with the associated fee and markup of an asset. Simultaneously, a number of firms – equivalent to Iman Invest, Alif Nasiya, and Uzum Nasiya – have additionally began working beneath Islamic finance ideas.
In 2021, Uzbekistan’s Central Bank chair, Mamarizo Nurmurodov, acknowledged that work is underway to open Islamic home windows in 14 banks within the nation. In the identical 12 months, the forty sixth annual assembly of the Board of Directors of the Islamic Development Bank (IsDB) was held in Tashkent, the place 30 monetary agreements price $1.2 billion have been signed between the IsDB and 10 associate nations. It was agreed that $330 million shall be spent on the pursuits of Uzbekistan.
One of the constructive modifications for Islamic banking is the Uzbekistan 2030 technique, which offers for the introduction of Islamic finance standards and procedures in a minimum of three business banks.
Challenges for Islamic Finance in Uzbekistan
However, the shortage of laws regulating Islamic monetary services and products is a significant impediment.
The Deposit Guarantee Fund ensures that deposits are protected in conventional banks solely, which make it tougher to draw financing to Islamic banking. In addition, the shortage of crucial infrastructure in business banks for mutual settlements and utility of Islamic ideas in accounting additionally hinders the event of this space. It is vital to notice that Islamic finance requires a separate accounting strategy from conventional banking practices. In order to make the most of loans based mostly on Islamic finance, it’s crucial to draw sources which can be given on Shariah ideas; loans with curiosity on deposits should not according to these ideas.
In addition to this, there isn’t any Islamic finance legislation. For instance, a financial institution can use the money balances of Islamic firms in present accounts in interest-bearing transactions opened with that financial institution. Companies working beneath Islamic finance norms are compelled to cope with conventional banks beneath the Tanazul precept (the precept of exclusion as an alternative of not coping with Islamic finance in any respect). The similar will occur with the introduction of single home windows. The accounts of the 2 programs ought to be separated, and Islamic home windows shouldn’t be financed from the earnings or deposits of business banks.
Effects of the Introduction of Islamic Finance
The introduction of Islamic banking in Uzbekistan may set off a multifaceted surge in financial exercise. The attraction for traders from the Islamic world is clear, probably attracting international traders and stimulating native infrastructure growth tasks. Estimates by the Islamic Development Bank recommend an annual influx of as much as $10 billion into Uzbekistan by way of Islamic banking.
In addition, empirical proof emphasizes the constructive correlation between funding and GDP progress, particularly in nations with important Muslim populations. According to Ledhem and Mekidiche, analyzing the Turkish expertise, a rise of 1 p.c in Islamic finance median worth will improve GDP by 4.97 p.c within the median worth. Research by Naz and Gulzar based mostly on empirical calculations in nations with massive Muslim populations reveals {that a} 1 p.c improve in Islamic financial institution financing can improve actual GDP by 4.1 p.c.
Analysis based mostly on the vector autoregression mannequin reveals that in the long run the implementation of Islamic investments can improve the GDP of Uzbekistan by 16.3 p.c and thereby probably create greater than 2 million jobs. The Ministry of Investment, Industry and Trade estimates that the introduction of Islamic finance may improve finances revenues by $100 million.
In addition to profit-based merchandise, the Islamic monetary system also can provide such providers as sadaqa (voluntary charity), zakat (obligatory tax levied on Muslims), and waqf (donation) to cut back poverty and international debt.
Foreign Experience: Strategies and Regulations
Many nations all over the world are implementing efficient steps to broaden Islamic finance by way of growth methods and authorities rules. The total purpose is to make use of Islamic finance as a instrument to extend the general financial exercise of the state.
Kazakhstan adopted an Islamic finance Master Plan for 2020-2025. The grasp plan consists of 9 strategic initiatives, every of which is connected to motion plans. The purpose is to extend the share of Islamic finance belongings in whole monetary belongings to 3-5 p.c by 2025. In Kazakhstan, the typical annual progress of Islamic banks’ belongings amounted to 30.3 p.c in opposition to 12 p.c of conventional banks.
Under Saudi Arabia’s Financial Sector Development Program, a part of its Saudi Vision 2030 financial plan, the authorities goal to make Riyadh the world capital of Islamic finance by 2030. Saudi Arabia goals to draw $100 billion in international direct funding by 2030 as a part of its financial diversification plans.
Islamic finance is likely one of the key areas talked about in Malaysia’s twelfth Economic Plan (2021-2025). In specific, it focuses on the regulation and supervision of Islamic monetary establishments. The Central Bank’s Five-Year Financial Sector Blueprint 2022-2026 mentions the event of value-based finance by way of Islamic finance governance.
To help liquidity administration of home Islamic banks, the Bank of England launched the Alternative Liquidity Facility (ALF) in December 2021. The ALF allowed British Islamic banks to carry an account with the central financial institution to be used as a high-quality liquid asset. It is estimated that the ALF will additional improve competitors within the U.Okay. banking sector, and additional strengthen the nation as a world monetary heart for Islamic finance outdoors the Muslim world.
According to The Banker, banks in Central Asia are already among the many prime 205 based mostly on Islamic finance. In specific, banks in Kazakhstan (with Al Hilal Islamic Bank at one hundred and seventy fifth place and Zaman Bank at 189th place), Kyrgyzstan (Eco Islamic Bank at 191st place) and Tajikistan (Tawhidbank at 202nd place) are already absolutely or partially functioning organizations on the ideas of Islamic finance. In Central Asia, Shariah-compliant belongings are rising by 12.7 p.c per 12 months.
Conclusion
In conclusion, in gentle of the escalating instability of the worldwide financial system and the intensifying competitors for monetary sources, Islamic finance presents a promising different for attracting investments, selling enterprise actions, facilitating worldwide commerce, and addressing poverty. However, for Uzbekistan to totally harness the potential of Islamic finance, it’s crucial to introduce authorized changes that facilitate its implementation. Additionally, establishing academic applications for bachelor’s and grasp’s levels in Islamic finance is essential, as experience on this discipline is presently missing. By making these strategic strikes, Uzbekistan can successfully leverage Islamic finance to realize financial progress and prosperity.
Source web site: thediplomat.com
