Tashkent, Uzbekistan (UzDaily.com) — Rating agency Moody’s has published a commentary on new measures aimed at supporting business and developing Islamic finance in Uzbekistan.

On 20 August 2024, President Shavkat Mirziyoyev announced a series of initiatives to support small and medium-sized enterprises, including expanding the range of Islamic finance products that Uzbek banks will be able to offer under the new legal framework.

In May 2024, a draft law was developed in Uzbekistan allowing banks to provide financial services in accordance with Sharia principles. The Central Bank of Uzbekistan is expected to submit this draft law to Parliament for approval by the end of the current year.

In their analysis, Moody’s experts noted that the new legal framework would positively impact the creditworthiness of Uzbek banks and the development of the Islamic banking sector in a country where 97% of the population are Muslims.

Analysts believe this will enable banks to attract new clients and offer Sharia-compliant products to an audience that was previously not fully covered, opening new business opportunities and positively affecting banking operations.

The introduction of this framework will also ease banks' access to international Islamic finance markets, allowing them to diversify their funding sources.

In announcing the new measures, President Mirziyoyev highlighted that a recent survey showed 38% of Uzbek entrepreneurs are interested in obtaining financial resources based on Sharia principles. In July, the Central Bank of Uzbekistan approved regulations for Islamic finance for microfinance organizations.

Moody’s emphasized that currently, only non-bank institutions in Uzbekistan offer Islamic finance services, with only a few providing leasing and insurance products based on Sharia principles. The country lacks Islamic banks and traditional banks with "Islamic windows" — specialized units for offering Sharia-compliant products — due to the absence of a corresponding legal framework. Banks can only act as intermediaries or agents, distributing funds to end-users of Islamic finance.

“If the new law is enacted this year, we expect traditional banks to begin opening 'Islamic windows,' which will promote the growth of the Islamic banking sector in Uzbekistan in 2025, as the existing banking infrastructure will give them an advantage in promoting Sharia products,” Moody’s noted.

The agency also reminded that about half of Uzbek banks are already collaborating with the Islamic Corporation for the Development of the Private Sector to create the infrastructure necessary for "Islamic windows," allowing them to offer Islamic financial products.

Shavkat Mirziyoyev emphasized that Islamic finance could become an important new source of funding for the economy. According to him, the launch of Islamic finance will create an additional financial resource of US$5 billion.

Moody’s noted that as part of the economic development plans through 2030, the government of Uzbekistan views Islamic finance as a way to strengthen investment ties with dynamically developing countries in the Gulf region and Asia, where a significant Muslim population resides and substantial capital is concentrated.

The government of Uzbekistan is also working with international consultants on developing a legal framework for issuing sukuk, Moody’s analysts added.