Moody’s: Uzbekistan’s New Legal Framework for Islamic Banking to Boost Sector Growth

Tashkent, Uzbekistan (UzDaily.com) — Uzbekistan’s parliament has approved the draft law on Islamic banking in its first reading, a move that Moody’s Ratings believes will stimulate the development of Islamic finance in the country, where around 97% of the population adheres to Islam.

According to the Central Bank of Uzbekistan (CBU), the law will officially allow the creation of legal entities of Islamic banks, enable conventional banks to open Islamic banking windows, and permit Islamic microfinance institutions to provide households and businesses with alternative financial services.

The legislation introduces legal definitions of key concepts such as “Islamic bank,” “financial transactions and standards,” and “investment deposit,” while outlining major Islamic financial products and contracts including Murabaha, Mudaraba, Musharaka, Wakalah, and Salam. It also envisions amendments to the Tax and Civil Codes and eight other laws, eliminating previous legal inconsistencies.

“The law will allow banks to offer financial services compliant with Sharia principles, opening access to segments of the population previously excluded from banking,” Moody’s Ratings noted. According to UNDP, 68% of Uzbekistan’s population and 60% of businesses avoid conventional banking services for religious reasons, highlighting a sizeable untapped market.

The law would also allow banks to tap into the international Islamic finance market and diversify funding sources, potentially increasing liquidity and lowering borrowing costs. Issuance of Sharia-compliant products would reduce reliance on interest-based lending, prohibited under Islamic finance principles.

Currently, Islamic financial services in Uzbekistan are provided mainly by non-bank institutions offering a limited range of Sharia-compliant products such as Islamic leasing and Islamic insurance. Banks typically act as intermediaries or agents in channeling funds to end-users of Islamic finance.

If the new legislation comes into effect by late 2025 or early 2026, conventional banks will be able to establish Islamic windows, gradually fostering the sector’s growth. Experts note that the country’s existing banking infrastructure would give lenders an advantage in promoting Islamic finance products.

Nearly half of Uzbekistan’s banks are already cooperating with the Islamic Corporation for the Development of the Private Sector (a subsidiary of the Islamic Development Bank) to establish the infrastructure for Islamic windows.

Under the Uzbekistan 2030 economic development strategy, the government views Islamic finance as a tool to strengthen investment ties with rapidly growing Gulf Cooperation Council (GCC) countries and Asian nations with large Muslim populations and significant capital. Work is also underway with international advisors on creating a legal framework for sukuk issuance.