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.