Azerbaijan may soon become a regional Islamic financing center and play a significant role in boosting cooperation in Islamic banking with Persian Gulf and Central Asian countries.
Islamic financing is one of the fastest growing segments of the global financial services industry worldwide. At the same time, interest in Islamic finance as a source of investment is high in our country. Many countries' interest in Islamic finance is associated with different factors, the foremost of which is the desire to attract liquid resources from the Middle East and Southeast Asia and a certain demand for financial products in accordance with Sharia law by local Muslims.
Today, Azerbaijan actively introduces Islamic financing. The independent authority of the International Bank of Azerbaijan (IBA) on Islamic banking will start its work in March, which plans to present six Islamic banking products to the market during the first phase.
The Islamic Corporation for the Development of the Private Sector (ICD) is also in talks to create the first Islamic insurance company in Azerbaijan, Takaful, which is popular in Europe, particularly in the UK. European and Central Asian countries are considered experts in Islamic financing. Most of Takaful's customers are non-Muslims in countries where the Islamic insurance market is the most developed in the world.
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Ansar Leasing, organized on Islamic principles and established by the ICD, has successfully operated in Azerbaijan for three years. During this period, the company has formed a portfolio worth $15 million and the company plans to draw about $6-$7 million from its founder to expand operations. Some Azerbaijani private banks are also starting to expand the range of Islamic financing tools, introducing Ijarah (leasing) and Murabaha. One such bank is TuranBank, which plans to introduce these tools with the financial support of the Islamic Corporation.
Another bank, Nikoil, is actively introducing deposit products, which include Wadia yad Daman.
Evidently, Azerbaijani banks' interest in Islamic products is growing gradually. The amount of money that enters the market through this channel is very small in Azerbaijan, since many issues related to Islamic financing have not been yet addressed. Therefore, the successful development of Islamic finance on the domestic market will depend on the further improvement of legislation, regulatory prudential norms, and supply and demand. In the near future, it may become a subject of debate.
By developing Islamic financial infrastructure, Azerbaijan may indeed attract investments and financing from the Islamic capital market, not only from Arab countries. Alternative financial tools can be provided for Azerbaijani investors in this way. Also, the number of practicing Muslims who cannot and do not want to use traditional financial services is growing in Azerbaijan. Islamic financial tools can become the channel through which their assets can be involved in the economy.