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

Unsurprisingly, things changed in Central Asia after the end of the USSR. Like 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.