Islamic Finance Law Set to Transform Uzbekistan's Economy

Tashkent, Uzbekistan (UzDaily.com) — The global Islamic finance market has surpassed US$4 trillion. Sukuk are drawing sovereign wealth from Gulf states.

And Uzbekistan — a country of 38 million people where just five percent of the population has ever held a bank account — is preparing to bring its first Islamic banking law into force.

Against this backdrop, one of the most substantive sessions at the Tashkent International Investment Forum brought together regulators, investors, entrepreneurs, and diplomats to examine a central question: how does Gulf capital actually reach developing economies, and what does it take to keep it there?

A Historic Turning Point for Uzbekistan

Sanzhar Nasirov, Deputy Chairman of the Central Bank of Uzbekistan, opened by describing the country's journey through three distinct phases.

The first began with microfinance: from 2024, non-banking organisations have been permitted to offer Sharia-compliant contracts — Murabaha, Salam, Mudaraba, and Musharaka.

By 2025, eight microfinance organisations were active under these contracts, with total financing of around 21 billion soums, approximately US$1.7 million. Murabaha dominated with 63 percent of volume, though Musharaka and Mudaraba were growing. One organisation went further, building its entire model around Mudaraba contracts with a deliberate focus on financing women entrepreneurs, having funded more than 300 women to date.

The second phase is arriving now. A dedicated Islamic banking law is due to take effect on 29 June 2025, introducing both full Islamic bank licences and Islamic windows within conventional banks. Critically, the law establishes a two-tier Sharia governance system: a national Islamic finance council at the central bank, responsible for setting standards and coordinating across the sector, and Sharia boards at the level of each licensed bank. Seven standards are planned for the current year.

The third phase — Islamic capital markets, including a sukuk framework — is already under development. A new standalone capital markets law contains a dedicated chapter on sukuk, developed in line with international best practice with support from the Islamic Development Bank, Bank Negara Malaysia, and the International Monetary Fund.

"Regulatory certainty is one of the most important factors influencing investment decisions," Nasirov said. "Our goal has been to create a transparent and predictable legal environment." The Central Bank also joined AAOIFI in 2026 and is working with the IFSB on a long-term development roadmap.

Gulf Capital: From Liquidity Source to Strategic Partnership

Ramona Mănescu, a former Foreign Minister and Transport Minister of Romania, approached the question from the perspective of economic diplomacy and offered what was perhaps the broadest vision of the day.

"We used to speak of Gulf capital as a source of liquidity," she said. "That perspective has changed. We now speak of strategic partnership, connectivity, economic diversification, and technology transfer."

In her view, infrastructure remains the primary investment case — not as construction projects, but as the institutional and physical fabric that connects regions. Energy corridors, logistics routes, and digital infrastructure all represent long-term assets that naturally align with the evolving mandates of Gulf sovereign wealth, which increasingly look beyond short-term financial returns toward geopolitical anchoring and regional influence.

For Uzbekistan specifically, Mănescu argued that the country's recent reform trajectory had materially changed its investment profile.

"Uzbekistan occupies a unique strategic position at the intersection of multiple economic and geopolitical vectors," she said. "The reforms of recent years have raised the country's attractiveness to foreign investors — particularly Gulf capital."

Her conclusion was direct: long-term capital follows trust, not opportunity alone. Governments that align political vision with economic strategy, sustain reforms through reliable institutions, and build credibility with partners will attract patient capital.

Those that do not will compete only for short-term money — and lose it quickly.

The Gulf Investment Record — and What Comes Next

Alisher Jumanov, Managing Partner of AD Wealth and a veteran of Credit Suisse First Boston, Lazard, and PricewaterhouseCoopers, brought the most detailed historical perspective to the discussion. He argued that precedents established in Türkiye and Pakistan offer a reliable roadmap for what lies ahead in Uzbekistan.

In Türkiye, Gulf-backed bank participation began in the mid-1980s: Al Baraka Bank of Bahrain established Albaraka Türk in Istanbul in 1984, followed by Kuwait Investment House, which launched Kuveyt Türk in 1989. Four decades later, those two institutions are the number one and number two Islamic banks in the Turkish market.

In Pakistan, Meezan Bank — established as an investment bank with support from the Islamic Development Bank and Kuwait Investment Authority in the late 1990s and converted into a full Islamic bank in 2002 — today holds 30 percent of the entire Pakistani Islamic banking sector, with assets of US$15 billion.

"The evidence suggests that Gulf investors have a strong track record in new markets and new jurisdictions," Jumanov said.

He noted that Gulf institutions including Noor Bank and Meezan had already held several meetings with the Central Bank of Uzbekistan and local market participants — a sign that due diligence was already well advanced.

His forecast was bold: "By 2035, Uzbekistan will show the fastest Islamic finance growth in the world from the moment the law enters into force." The argument rests on a combination of a supportive regulator, banks ready to operate Islamic windows, a growing fintech ecosystem, and simply the scale of an underserved population with a cultural affinity for Islamic finance principles.

On investor concerns, Jumanov was equally direct. Gulf investors want regulatory certainty, no policy reversals, and confidence that the operating environment does not discriminate against foreign institutions relative to domestic players. "These are the key considerations," he said.

Building an Ecosystem from Scratch

Rustam Rahmatov, Founder and Chief Executive Officer of IMAN Holding, offered an entrepreneur's perspective — and it was a striking one. IMAN was founded in 2018 with five interns and a specific thesis: rather than building a population dependent on consumer credit, Uzbekistan could build one that accumulates capital and lives on dividends.

"We asked ourselves: how do you create a country where at least one million people live on dividends rather than credit, starting from ten dollars?" Rahmatov said.

Seven years later, IMAN has around 200,000 clients, approximately US$100 million in annual turnover, and 400 employees. Half its users are investors; half are financing recipients.

But Rahmatov identified three areas of urgent unmet demand. First, sukuk: many Uzbek companies are capital-ready — they have assets, financial statements, and viable projects — but are constrained by a narrow set of existing Islamic finance lines. Sukuk would open a structurally different channel. Second, takaful: Islamic insurance is, in his words, an almost non-existent market in Uzbekistan. Once the relevant legislation is in place, he expects demand worth billions of dollars to be unlocked. He noted that during a parallel session of the forum's Foreign Investment Council, a proposal to develop takaful legislation — facilitated by the Islamic Development Bank — had been put forward for consideration at the presidential level.

Third, the broader capital market infrastructure needed to support investment products beyond basic deposits.

SEAF and the Economic Empowerment Fund

Salome Svanadze, Vice President of SEAF (Small Enterprise Assistance Funds), described how the organisation's current vehicle in Uzbekistan — the Economic Empowerment Fund for Uzbekistan, a US$100 million fund — illustrates precisely the cross-currents discussed throughout the session.

The fund's anchor sponsors include the Islamic Development Bank, the Uzbekistan Reconstruction and Development Fund, the Saudi Fund for Development, and ACWA Power — a direct expression of strategic Gulf interest channelled into Uzbekistan's small and medium enterprise development through Islamic finance structures. In its first year of operation, SEAF committed more than 80 percent of fund capital to local partner financial institutions, which reported strong demand from small businesses.

"Small businesses are the engines of growth in developing economies," Svanadze said. "This is where jobs are created and where innovation takes root." SEAF's approach combines financing through local banks with direct technical support to both the institutions and the underlying borrowers — small businesses — helping firms become investment-ready.

On the question of whether Islamic finance links financial returns with development impact, her answer was nuanced. The fund is structured to deliver market-rate returns — it is not concessional financing. And Islamic products reaching end borrowers are not necessarily cheaper than conventional equivalents. "But they are perceived as fair and more directly tied to the requirements of specific projects," she said. "At the entrepreneur level, there is a higher degree of comfort." That perception, she argued, is itself economically significant — it stimulates demand and builds trust in the financial system.

Difficult Conversations: Risk, Courts, and Equity Culture

The audience question period produced the session's most candid exchange. A practitioner from Jordan — the chairman of a large mining company — described his repeated failure to obtain financing from Islamic banks despite strong collateral and established relationships with their senior management.

In his account, banks had become structurally risk-averse, concentrating almost exclusively on Murabaha and avoiding the profit-and-loss sharing instruments — Mudaraba and Musharaka — that define the theoretical distinctiveness of Islamic finance.

He also raised a critical operational problem: when his company used an Ijara (leasing) structure with a bank fifteen years ago and later encountered repayment difficulties, the court treated the contract as a conventional loan and applied interest charges. The judge had no specialist understanding of Islamic contracts. His demand was unambiguous: without dedicated judicial capacity — courts or chambers with Sharia expertise — Islamic finance would remain legally fragile.

Jumanov agreed with the diagnosis but pushed back on the remedy. "These financial institutions are not equipped to take on the risks that Musharaka-type contracts would entail. The way to overcome this is not to try to turn bankers into venture capitalists." His prescription: deepen capital markets and build an equity culture. "In the United States, 65 percent of households own equities. Equity is risk-sharing. That is precisely the direction we need to move in." He pointed to venture capital as Islamic finance in its purest historical form — the model that financed ancient trading caravans — and noted that Uzbekistan had grown from roughly one venture fund two years ago to around fifteen today.

A representative of the Kazakh stock exchange reinforced the capital markets argument, calling for Sharia-compliant firm screening, halal indices, and Islamic ETFs — infrastructure that would allow retail investors to participate in Islamic capital markets at scale, rather than solely through banking products.

Nasirov responded at the regulatory level: the new law references at least nine or ten Islamic products and explicitly permits banks to use additional Sharia-compliant contracts as demand arises. The national Islamic finance council will also be empowered to provide recommendations to courts in disputed Islamic finance cases — a step toward addressing, if not fully resolving, the judicial gap raised by the Jordanian questioner.

Conclusion: Trust Before Capital

The session arrived at a shared conclusion from several different directions. The growth of Islamic finance in Uzbekistan — and in developing markets more broadly — will not be determined primarily by the sophistication of product structures or the volume of Gulf liquidity available. It will be determined by the depth of the institutional ecosystem surrounding those products: a clear regulatory framework, competent courts, Sharia governance capacity, financial literacy, and the policy consistency that converts short-term investment interest into long-term strategic commitment.

As Mănescu put it: "Capital follows opportunity. But long-term capital follows trust."

With the Islamic banking law days from taking effect, a sukuk framework in development, and Gulf institutions actively conducting due diligence in Tashkent, Uzbekistan has a serious claim to being the next chapter in that story.