Banking on Islam: Central Asia’s future in the world of Islamic finance

Unsur­pris­ingly, things changed in Cent­ral Asia after the end of the USSRLike Rus­sia, industry was privat­ised and mar­ket cap­it­al­ism embraced. How­ever a less obvi­ous trans­ition is the uptake in Islam­ic fin­ance (IF) facil­it­ies, both as a com­mer­cial source of invest­ment and liquid­ity, and private bank­ing ser­vices.

The fin­an­cial dis­trict in Almaty, Kaza­kh­stan, where Islam­ic has its first foothold in Cent­ral Asia.

Accord­ing to Reu­ters, Islam­ic fin­ance growth world­wide has been double-digit since 2000, and this trend is mani­fest­ing in Cent­ral Asia with the emer­gence of new facil­it­ies and incor­por­a­tion into wider glob­al IF net­works. Islam­ic fin­ance is struc­tured by, and com­plies with, sharia law — espe­cially in con­sid­er­a­tion to the goods and ser­vices it funds (for example, pork or alco­hol) and the pro­hib­i­tion of par­tic­u­lar forms of interest. These insti­tu­tions have grown in tan­dem with a glob­al reviv­al of Islam­ic iden­tity since the late twen­ti­eth cen­tury, and a dis­il­lu­sion­ment with ‘west­ern’ bank­ing forms and the per­ceived reg­u­lar­ity of their fail­ure to suc­cess­fully under­write risk. In tan­dem, the Soviet policy of reli­gious sup­pres­sion once enforced in Cent­ral Asia was lif­ted after inde­pend­ence, cre­at­ing a region­al renais­sance of Islam­ic obser­va­tion and expres­sion across this Muslim major­ity region, which fur­ther facil­it­ates the enthu­si­ast­ic embrace of IF.

To vary­ing degrees oth­er Cent­ral Asi­an nations have embraced Islam­ic fin­ance (most not­ably Kyrgyz­stan), but Kaza­kh­stan leads the way in the devel­op­ment of IF. In 2009 Kaza­kh­stan became the first former-Soviet nation to issue IF guidelines, and in 2010 the first Islam­ic fin­an­cial insti­tu­tion — Al Hilal Bank — was gran­ted a license to trade through an inter­gov­ern­ment­al agree­ment between Kaza­kh­stan and Abu Dhabi. Since then, a pre­vi­ously con­ven­tion­al bank — Zaman — became an inter­na­tion­ally recog­nised Islam­ic Fin­ance insti­tu­tion, and in 2015 the gov­ern­ment out­lined its policy object­ives for the future of IF, with optim­ist­ic tar­gets set for 2020. Kaza­kh­stani gov­ern­ment­al sup­port for Islam­ic Fin­ance has included grow­ing mul­ti­lat­er­al cooper­a­tion with more estab­lished IF reg­u­lat­ory bod­ies, includ­ing the Islam­ic Fin­an­cial Ser­vices Board (IFSB), the Account­ing and Audit­ing Organ­isa­tion for Islam­ic Fin­an­cial Insti­tu­tions (AAOIFI), and the Inter­na­tion­al Islam­ic Fin­an­cial Mar­kets (IIFM). Fur­ther­more the Islam­ic Devel­op­ment Bank (IDB) has com­mit­ted to fin­an­cing invest­ment in infra­struc­ture and indus­tri­al pro­jects val­ued at $1.5 bil­lion, demon­strat­ing the impact of glob­al IF net­works.

Undoubtedly, the com­par­at­ively recent rein­sti­tu­tion of Islam across Cent­ral Asia has con­trib­uted massively to the uptake of Islam­ic fin­ance, a new reli­gi­os­ity (not neces­sary con­fined to Islam) equally per­vad­ing the pop­u­la­tion and the insti­tu­tions that uphold these society’s struc­tures. How­ever more prag­mat­ic inter­pret­a­tions of IF’s rise in the region have been mooted by for­eign schol­ars. Sebasti­an Peyrouse high­lights the poten­tial polit­ic­al bene­fits accrued by estab­lished Islam­ic states (includ­ing the Gulf States and Malay­sia) through the use of IF as a vehicle for closer eco­nom­ic, polit­ic­al and religious/ideological rela­tions. On the oth­er hand Dav­in­ia Hog­garth at Chath­am House high­lights IF as part of a wider ‘multi-vec­tor’ strategy which, in Kaza­kh­stan espe­cially, seeks to reduce eco­nom­ic reli­ance on any single for­eign part­ner by embra­cing invest­ment from a max­im­um num­ber of sources. Although cur­rent estim­ates sug­gest that Islam­ic fin­ance is of min­im­al scale in Cent­ral Asia, the con­sequences of its growth undeni­ably are not lim­ited to com­mer­cial and fin­an­cial interests, and IF’s growth will surely be tracked intently by inter­na­tion­al busi­nesses and gov­ern­ments alike.

Observ­ers must be real­ist­ic when not­ing this upwards IF trend. After all, even as the Cent­ral Asi­an nation with the deep­est rela­tion­ship with Islam­ic fin­ance, Kazakhstan’s tar­get for total IF bank­ing assets by 2020 is only 3 – 5 per­cent of the nation­al , while IF assets today make up only one per­cent. How­ever Reu­ters’ out­look for Islam­ic fin­an­cial invest­ment ranks Astana as a top rank des­tin­a­tion, with mul­tiple inter­na­tion­ally trad­ing banks includ­ing Al Baraka and May­Bank show­ing interest in Kazakhstan’s bour­geon­ing Islam­ic fin­ance mar­kets. The major­ity-Muslim pop­u­la­tion of Cent­ral Asia is cur­rently an untapped cus­tom­er base for IF insti­tu­tions, while gov­ern­ments across the region are real­ising the invest­ment oppor­tun­it­ies of IF as an altern­at­ive to Rus­si­an and Chinese sources. Though young, Islam­ic fin­ance seems likely to expand through­out Cent­ral Asia in the com­ing years.

Fact File: Turkmenistan

Name Түркменистан
Pop­u­la­tion 5,662,544
Cap­it­al city Ashgabat
Offi­cial lan­guage Turk­men (offi­cial), Rus­si­an
Reli­gions Islam (89%), East­ern Ortho­dox (9%), oth­er
Life expect­ancy 65.74 years
Pop­u­la­tion growth 1.7%
GDP $36.18 bil­lion (2016)
HDI 0.692 (2015) (111th)
Gini 0.41
Pres­id­ent Gur­b­an­guly Ber­dimuhamedow

The ‘Doors to Hell’ — a col­lapsed Soviet oil rig — has been burn­ing for over 40 years, far longer than the anti­cip­ated few weeks.


Bordered by Kaza­kh­stan, Uzbek­istan, Afgh­anistan, Iran, and the Caspi­an sea, present-day Turk­menistan has been at a cross­roads of world civil­iz­a­tions for a mil­len­ni­um. The city of Merv was one of the great Islam­ic cit­ies, and until the fif­teenth cen­tury was an import­ant stop on the Silk Road, a trad­ing route that con­nec­ted Europe, Asia, and Africa. This region of cul­tur­al milieu was fur­ther emphas­ised by a his­tory of dif­fer­ent rulers, includ­ing Alex­an­der the Great’s Per­sians, Islam­ic rulers, Turks, Mon­gols, and finally Rus­si­ans in the eight­eenth cen­tury. Des­pite fig­ur­ing prom­in­ently among regions opposed to Bolshev­ism, Turk­menistan became a Soviet repub­lic in 1924 and only gained inde­pend­ence at the break-up of the USSR in 1991. A recent his­tory of Rus­si­an rule has meant that like oth­er cent­ral Asi­an states, Rus­si­an lan­guage has remained the Lin­gua Franca post-inde­pend­ence.


Although there have been attempts to homo­gen­ise Turk­men iden­tity since the 1930s, cul­ture still has dis­tinct unique clan-based char­ac­ter­ist­ics, each with their own dia­lect and style of dress. As a nation, Turkmenistan’s most famed cul­tur­al export is its Turk­men rugs (often known as Bukhara rugs in the rest of the world). Through­out Turk­men mater­i­al cul­ture, clan dif­fer­ences can be observed in the styles and col­ours employed, most obvi­ously in cloth­ing, jew­elry, and domest­ic dec­or­a­tions. Anoth­er dis­tinct­ive mani­fest­a­tion of Turk­men cul­ture are the large black sheep­skin ‘Telpek’ hats often worn by men, some­what resem­bling an afro hair­style. Although the nation­al cuisine of Turk­menistan pos­sesses strong con­tinu­ity with the rest of Cent­ral Asia, one unique ele­ment is the elev­ated pos­i­tion of mel­ons; once the major sup­pli­er to the Soviet Uni­on, mel­ons are a sub­ject of nation­al pride, and are com­mem­or­ated dur­ing the Mel­on Day hol­i­day.

A woman dis­plays a series of intric­ate car­pets at a mar­ket in Balkanabatt. Car­pet weav­ing forms such an import­ant part of Turk­men cul­ture, that car­pet design is even fea­tured on the nation­al flag.


Des­pite elec­tions tak­ing place in 2012 and 2017, it is widely agreed that Turk­menistan is an auto­crat­ic single party pres­id­en­tial repub­lic, demon­strated by cur­rent pres­id­ent Berdimuhamedow’s abil­ity to win over 97% of the vote. A con­sti­tu­tion­al amend­ment in 2016 allows life­time pres­id­ency. Human Rights Watch have des­ig­nated Turk­menistan as ‘among the world’s most repress­ive and closed coun­tries’, where the ‘pres­id­ent and his asso­ci­ates have total con­trol over all aspects of pub­lic life’. This includes access to inform­a­tion, where the state con­trols all print and elec­tron­ic media, and where journ­al­ists who attempt to pub­lish mater­i­al con­trary to gov­ern­ment sen­ti­ment are at risk of impris­on­ment and/or viol­ence. Polit­ic­al dis­sid­ents are com­monly incar­cer­ated or forced into exile, and even in exile, there is risk of gov­ern­ment repris­als for con­tin­ued open gov­ern­ment dis­sent. A supreme legis­lat­ive body known as the Halk Mas­la­haty, com­prised of up to 2,500 del­eg­ates (some of whom are elec­ted by pop­u­lar vote) is entirely made up of mem­bers of the Demo­crat­ic Party of Turk­menistan, and is chaired by the pres­id­ent for a life term.

A giant golden statue to Turkmenistan’s first pres­id­ent — Sap­ar­mur­at Niyazov — stands over­look­ing Ashgabat.


Extens­ive nat­ur­al gas reserves, the fourth largest in the world, mean that since 1993 cit­izens have received elec­tri­city and nat­ur­al gas free of charge by the gov­ern­ment. These vast reserves also dic­tate the country’s inter­na­tion­al rela­tions. A pipeline con­nect­ing China and Turk­menistan has ensured China is the nation’s most import­ant eco­nom­ic part­ner, how­ever plans for a trans-Caspi­an pipeline that would carry gas to Europe and a pipeline head­ing towards South Asia are demon­strat­ing a desire to expand exports bey­ond Iran, Rus­sia, and China. Des­pite these ambi­tions, and a pos­it­ive bal­ance of trade, Turk­menistan is still con­sidered a par­tic­u­larly isol­a­tion­ist state. How­ever, Turk­menistan remains one of the fast­est-grow­ing eco­nom­ies in the world, and has become one of the top ten glob­al pro­du­cers of cot­ton in an attempt to diver­si­fy. Cent­ral­ised state own­er­ship of the eco­nomy per­vades most large indus­tries includ­ing fin­ance and nat­ur­al resources, how­ever since Turkmenistan’s inde­pend­ence there has been a move­ment towards privat­isa­tion in trade, cater­ing, and con­sumer ser­vices, and private sec­tor own­er­ship forms the major­ity in agri­cul­ture, trade, and trans­port.