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Islamic finance

Uzbekistan Establishes Islamic Finance Council as New Banking Law Takes Effect

The Central Bank of Uzbekistan has established an Islamic Finance Council to coordinate the work of banks, microfinance organizations, the Deposit Guarantee Agency and other institutions operating under Islamic financial principles. The council was created weeks after Uzbekistan’s new Islamic banking law took effect on June 29. It will prepare national standards, issue regulatory and supervisory recommendations, advise financial institutions and represent the Central Bank in its work with international standard-setters. Building an Islamic Finance Framework Islamic finance prohibits interest and generally requires financing to be linked to assets, trade, leasing or risk-sharing. Common structures include murabaha, in which a bank buys and resells an asset at an agreed markup, and ijara, which operates broadly like leasing. Sharia Specialists Form Council Majority The council has five members: four specialists from the Fatwa Center under the Muslim Board of Uzbekistan and one financial-sector expert. Saidjamol Masayitov, a chief specialist at the Fatwa Center, will chair the council. Muhammadyubkhon Khomidov, also a chief specialist at the center, will serve as deputy chairman. The other members are Fatwa Center specialists Hikmatilla Toshtemirov and Abdullatif Tursunov, along with Akhrorjon Sadullayev, managing partner of Orient Audit Group. Sadullayev has more than 20 years of experience in banking, finance and auditing. The council is intended to combine Sharia expertise with financial regulation. It will report annually to the Central Bank’s board. From Legislation to Implementation Uzbekistan has been developing an Islamic finance framework for several years. Legislation adopted in 2022 allowed microfinance organizations to provide services based on Islamic principles, while detailed regulations introduced in 2024 covered instruments including mudaraba, murabaha, musharaka, ijara and salam. The Central Bank is also preparing a national Islamic finance roadmap for 2026-2030 with assistance from the Islamic Financial Services Board. The work covers banking, capital markets, insurance, professional training and the wider legislative framework. Law No. O’RQ-1126, signed on March 27, established a dual banking model. Stand-alone Islamic banks can operate alongside Islamic “windows” within conventional commercial banks. The law also created a special licensing system and defined permitted Islamic financial operations. Uzbekistan had previously planned to introduce its first Islamic finance services through a commercial bank in 2027, with at least three banks expected to offer them by 2030. Licensing Rules Approved The Central Bank has now amended its licensing regulations for Islamic banks and Islamic windows. The changes were registered by the Ministry of Justice on July 17 and took effect upon official publication. Applicants must submit Sharia-compliance policies, information about their institution-level Islamic finance council, evidence of dedicated internal oversight and audit systems, and a three-year business plan. Existing conventional banks will require a separate license to open an Islamic window. Council candidates must receive Central Bank approval and meet education and professional-experience requirements. At least one member must hold a certificate from the Accounting and Auditing Organization for Islamic Financial Institutions, or AAOIFI. Certification will become mandatory for all council members from July 1, 2027. Adopting International Standards The Central Bank joined AAOIFI as a regulatory...

Tax Policy

Uzbekistan Bank Data Plan Sparks Privacy and Tax Debate

A draft government resolution that would establish unified rules for information sharing between banks and tax authorities has triggered widespread public debate in Uzbekistan, with supporters describing it as a necessary step to combat the shadow economy while critics warn it could weaken constitutional protections for banking privacy. The proposal, published for public discussion by Uzbekistan’s State Tax Committee, aims to regulate how banks provide information to tax authorities. According to the committee, the document does not introduce new powers for tax officials or abolish bank secrecy. Instead, it seeks to define the procedures, deadlines, formats, and electronic methods for exchanging information already permitted under existing legislation. The proposal attracted significant attention after some media reports suggested it would allow tax authorities to gain broad access to citizens’ bank accounts and deposits. Responding to the growing discussion, the State Tax Committee issued a public explanation, arguing that these interpretations do not accurately reflect the draft’s content. “The draft does not grant tax authorities new powers, does not abolish bank secrecy, and does not provide free access to the bank accounts of citizens or businesses,” the committee said. It stressed that banks would continue to provide information only in cases established by law. The committee pointed to Article 134 of the Tax Code and the Law on Bank Secrecy, which already allow banks to share information related to taxation with state tax authorities under specific legal procedures. It also emphasized that any information received by tax authorities is itself protected as tax secrecy and cannot legally be disclosed or used for purposes other than tax administration. Officials further argued that similar information-sharing mechanisms exist in many countries, including members of the Organisation for Economic Co-operation and Development (OECD). Uzbekistan has also joined the Global Forum on Transparency and Exchange of Information for Tax Purposes, requiring the country to develop clear and transparent rules in this area. Despite these assurances, the proposal quickly became one of the country’s most discussed regulatory initiatives. One of the most controversial provisions concerns peer-to-peer (P2P) transfers. Under the draft, banks would report cases where an individual’s bank card or electronic wallet receives transfers totaling at least 500 times the base calculation amount during a calendar month from people other than close relatives. The measure is intended to identify cases where personal bank cards are allegedly being used for unregistered commercial activity. Economist Otabek Bakirov criticized the proposal, arguing that it contradicts constitutional guarantees protecting banking secrecy. Referring to Article 41 of Uzbekistan’s Constitution, he noted that the confidentiality of bank operations, deposits, and accounts is guaranteed by law. Bakirov also recalled that previous attempts to introduce similar monitoring of P2P transactions had been abandoned following constitutional reforms. “I hope this attempt will also fail,” he wrote, calling on parliament, the Central Bank, the Ministry of Justice, the Ministry of Economy and Finance, journalists, and the public not to remain silent during the discussion. Public comments submitted during the consultation have echoed many of these concerns. According...

EU Sanctions

EU Removes Three Tajik Banks from Sanctions List

The European Union has removed three financial institutions in Tajikistan from its sanctions list. The decision was adopted on April 23, as part of the EU’s 20th sanctions package, according to the National Bank of Tajikistan. The move concerns Spitamen Bank, Dushanbe City Bank, and Commercebank of Tajikistan, which had previously been subject to restrictions introduced on November 12, 2025. “As a result of productive dialogue and cooperation between the relevant authorities of the Republic of Tajikistan and European partners, a favorable basis has been created for reviewing previously imposed restrictions,” the National Bank said. The National Bank also noted that the decision reflects strengthened cooperation between the regulator, government ministries, and the European Commission, as well as the consistent implementation of international compliance standards and improvements in anti-money laundering systems. “The adoption of this decision is viewed as a direct result of expanded cooperation with the European Commission, the consistent implementation of international compliance standards, and the strengthening of mechanisms to combat money laundering,” the statement said. The regulator believes the move will provide a strong boost to the development of the banking sector, increase investor confidence, and expand financial services in the country. The sanctions against the three Tajik banks had originally been introduced under the EU’s 19th package of restrictions against Russia. According to the Council of the EU, the measures included a ban on transactions with certain banks and companies from third countries suspected of facilitating sanctions circumvention. At the time, Brussels considered these institutions potential channels for bypassing restrictions imposed on Russia. The list also included financial entities from Kyrgyzstan, Kazakhstan, the United Arab Emirates, Hong Kong, China, and India. However, specific cases or transaction volumes that led to the sanctions were not disclosed. The wording remained general, referring to “assistance in sanctions circumvention” and “support for the Russian economy.” In response, Tajik authorities worked to secure the removal of the restrictions, providing additional guarantees and information to the EU demonstrating that the banks’ financial operations comply with international standards. For its part, the EU showed readiness to reconsider the measures, taking into account changes in the banks’ financial practices and Tajikistan’s efforts to strengthen domestic financial regulation.

Banking

Kyrgyz Banks Hold $1.3 Billion in Liquidity, but Businesses Lack Long-Term Financing

Kyrgyzstan’s banking sector holds a substantial volume of liquidity, yet small and medium-sized enterprises (SMEs) continue to face a shortage of development financing, according to a report by the Asian Development Bank. The ADB estimates that the system has accumulated around $1.3 billion in excess liquidity. At the same time, more than 45% of bank loans, and a similar share of microloans, are directed toward consumer needs, while lending to industry has steadily declined. Representatives of the banking sector say they are familiar with the report’s findings but consider them only partially accurate. “Commercial banks in Kyrgyzstan do indeed have sufficient funds, but the bulk of these deposits are short-term. The figures mentioned in the report mainly refer to balances on corporate accounts that are not time-bound, they are demand deposits and can be withdrawn at any moment. As for long-term funding for large-scale projects in industry and agriculture, banks lack such resources,” Anvar Abdraev, President of the Union of Banks of Kyrgyzstan, told The Times of Central Asia. According to Abdraev, this helps explain the perception that banks are reluctant to lend to industry and SMEs. He added that large businesses generally do not face financing constraints, as they tend to secure funding from international financial institutions and intergovernmental funds on concessional terms, often bypassing commercial banks. Banking sector representatives also point to structural challenges on the borrowers’ side, including underdeveloped business plans, which increase credit risk. In addition, a significant share of applications comes from startups, which banks classify as high-risk projects. Another limiting factor is the lack of sufficient liquid collateral among entrepreneurs. Banks also emphasize that non-performing loans in their portfolios are maintained at around 5-6%, prompting stricter borrower assessment criteria. As a result, the loan approval process for businesses can be lengthy, and rejection rates remain high. “The growth rate of consumer lending does indeed exceed the volume of loans directed toward business development. This is primarily because consumer loans are much easier to obtain today. This has largely been made possible by new banking technologies. Consumer loans can be issued online using remote identity verification. Moreover, the average size of such loans is significantly smaller than that of business loans,” Abdraev added. Thus, despite the high level of liquidity in the banking system, the shortage of long-term funding, combined with borrower-related risks, continues to constrain lending to Kyrgyzstan’s real sector.

TCA Interviews

Kyrgyz Minister Sydykov Courts Investment in Washington

On the occasion of the annual IMF/World Bank meetings in Washington this week, the Prime Minister of Kyrgyzstan, Adylbek Kasymaliev, led a delegation to Washington D.C. for World Bank and IMF meetings, the Department of State Annual Bilateral Consultations, a meeting with Secretary of State Rubio, Deputy Secretary Landau and Under Secretary Hooker, as well as a number of other constructive dialogues and engagements with scholars, researchers, and authors. This trip marks the second high-level U.S. visit in a year, signaling Washington’s strategic interest and Kyrgyzstan’s willingness to deepen cooperation. Bakyt Sydykov, Kyrgyzstan’s Minister of Economy and Commerce, accompanied the Prime Minister. The delegation’s visit to Washington reinforces President Sadyr Japarov’s statement to President Donald Trump during the November 2025 C5+1 Summit, “I am confident that this event will provide an excellent opportunity for U.S. businesses to expand cooperation in sectors such as agriculture, e-commerce, information technology, transportation and logistics, tourism, and banking.” Following Japarov’s lead, Sydykov is actively engaging private and multilateral partners; state and Commerce meetings are meant to keep things moving and steady investor confidence. This shift towards deeper diplomatic, investment, and development ties is striking and certainly welcome in Washington. The shift reflects both an evolving Central Asian geopolitical landscape, post-Afghanistan dynamics, economic needs, diversification goals, and troubles in West Asia. Deeper engagement is also driven by ambitions to enhance regional transport and logistics integration. Kyrgyzstan’s approach departs from zero-sum logic, prioritizing win-win pragmatism and mutual gains. Minister Sydykov In an interview with The Times of Central Asia, Minister Sydykov said that this visit builds on the International Monetary Fund’s (IMF) recent official mission to Bishkek (March 18–April 1, 2026) and that “our banking sector is strong and well capitalized, as affirmed by the IMF, and we are well prepared against risk, enhancing oversight in the context of global volatility.” Commenting on the government’s fiscal management following the IMF’s guidance, Sydykov said: “To expand fiscal flexibility, we are mobilizing revenue across a range of standard taxation measures and raising expenditure efficiency with responsible internal wage policies, rationalized energy subsidies, and public investment management. We are pinpointing more prudent debt management measures, enhancing risk oversight, and rolling out tracking metrics to uphold long-term sustainability and credibility.” ⁠Looking forward, Sydykov noted that Kyrgyzstan is monitoring outlook risks related to external volatility, while also insisting that “we are working to hold down domestic inflation – always a challenge with rapid economic growth – and lower fiscal pressures. We assess that these endogenous variables remain manageable, even with increased exposure to cross-border trade and capital flows. While external volatility lies beyond our direct control, Kyrgyzstan is working with the IMF, other multilaterals, and domestic banks to maintain and build resilience. We are therefore strengthening buffers, recalibrating policies, and advancing accounting reforms to support performance and sustainable growth.” Responding to the ADB’s latest forecasts, Sydykov said Kyrgyzstan’s economy is moving toward greater stability and growth. After an 11.1% surge in 2025, growth is expected to slow to 8.9% in 2026 and 8.4%...

Court Cases

Minister Sydykov on the Bakai Bank Verdict and Kyrgyzstan’s Economic Path Forward

On April 13 in Washington, D.C., The Times of Central Asia’s Javier M. Piedra spoke with Kyrgyzstan’s Minister of Economy and Commerce, Bakyt Tolomushevich Sydykov, regarding the April 7 verdict in the “Bakai Bank vs. Open Dialogue Foundation” case before the Enterprise Court of Brussels - an important legal win for Kyrgyzstan and its stance in international financial markets. In a verdict with international implications for Kyrgyzstan and the region, the Enterprise Court of Brussels sided with Bakai Bank, a Kyrgyz financial institution, in connection with a high-profile defamation case between Bakai Bank and Open Dialogue Foundation (ODF) – finding that ODF published allegations about the bank’s financial conduct without sufficient evidence. The judgment marks a significant development in a cross-border reputational and financial dispute, setting a visible bar for accountability and offering a more balanced snapshot of Kyrgyz efforts to cultivate transparency and compliance in its banking sector. Kyrgyz government officials responded to the ruling with a practical and positive outlook, acknowledging that the country has prioritized policy, monitoring, and enforcement steps to bolster integrity and trust in its institutions. This ruling is expected to reinforce public confidence and strengthen the long-term resilience of Kyrgyzstan’s governance framework. In Washington D.C. this week, Sydykov told TCA that, “We welcome this decision not just as an affirmation of Bakai Bank, but also for our broader financial system. It helps to convey our message to policymakers, diplomats, investors, and partners that Kyrgyzstan is open for business – and a ready contributor to regional and international trade. Our financial institutions operate in line with international standards, compliance expectations, and responsible governance. We are glad to move forward with strengthening our banking system and growing Kyrgyzstan’s economy for the benefit of its citizens.” Case background The proceedings were brought before the French-speaking Enterprise Court of Brussels (Tribunal de l’entreprise francophone de Bruxelles) after Bakai Bank challenged a series of publications issued by the Open Dialogue Foundation in 2023. The NGO had alleged that Bakai Bank was involved in facilitating financial transactions linked to sanctions circumvention and networks connected to Russian capital flows following the expansion of Western sanctions in early 2022. Bakai Bank rejected these allegations as unsubstantiated and damaging to its international reputation and access to financial markets. It subsequently filed a civil action in Belgium, where the ODF is active and publishes much of its advocacy material. Court proceedings and findings In its judgment, the Brussels court examined whether the Open Dialogue Foundation had sufficient factual grounds to support its published claims. The court found that the NGO’s statements were presented as factually assertive allegations rather than opinion or conjecture, thereby requiring a higher evidentiary threshold. The court concluded that the ODF had failed to provide adequate supporting evidence for its assertions regarding Bakai Bank’s alleged involvement in illicit financial activity. As a result, the court determined that the publications were unlawful in their form and impact, particularly in relation to reputational harm inflicted on the bank. The ruling ordered the ODF...