Regional Growth Potential Despite Current Underdevelopment

Central Asia stands on the brink of significant Islamic finance growth, according to a comprehensive joint report published in May by the Eurasian Development Bank, Islamic Development Bank, and London Stock Exchange Group. Despite having an estimated 90% Muslim population across the region, Central Asian countries have historically lagged behind other Muslim-majority regions in developing their Islamic finance sectors.

Massive Untapped Market Despite Limited Current Presence

The region currently hosts only 18 Islamic banks and 14 Islamic nonbanking financial institutions, representing a mere $699 million in total Islamic finance assets—just 0.01% of the global total. This stark underrepresentation occurs despite Central Asia’s substantial Muslim population and the worldwide Islamic banking sector’s growth to over $2 trillion in assets since the Global Financial Crisis.

Research from the OSCE Academy highlights this paradox, noting that Central Asian states have experienced minimal Islamic investment growth in their capital markets despite frequent government pledges to introduce Islamic banking and their acute need for fresh capital.

Ambitious Growth Projections for Coming Decade

The joint report forecasts dramatic expansion over the next decade, predicting Islamic banking assets in Central Asia will reach $2.5 billion by 2028 and $6.3 billion by 2033. The Sukuk market, Shariah-compliant securities serving as alternatives to conventional bonds—is expected to grow even more substantially, reaching $2.05 billion by 2028 and $5.6 billion by 2033.

Priority investment areas identified include energy, transport and logistics, industry, food security, and social infrastructure, all sectors critical to the region’s economic development.

Kazakhstan and Uzbekistan Lead Regional Development

Kazakhstan has emerged as the frontrunner in establishing regulatory frameworks for Islamic finance, with the government setting ambitious targets for a 3-5% market share by the end of 2025. The country has actively amended regulations to enable conventional banks to establish Islamic windows, while JSC Otbasy Bank plans to introduce Islamic mortgages this year.

The Astana International Exchange plays a crucial role by facilitating Sukuk issuances and cross-listings, while the Eurasian Development Bank’s planned Islamic window and Sukuk issuance for 2025 demonstrate continued momentum.

Kyrgyzstan Shows Strongest Current Penetration

Despite its smaller economy, Kyrgyzstan currently leads the region in Islamic finance penetration, operating one full-fledged Islamic bank and four Islamic windows. The country achieved remarkable 49.3% growth in Islamic financing during 2024, significantly outpacing the overall banking sector’s 32.2% growth rate.

Fitch Ratings identified Kyrgyzstan’s relatively liberal regulatory environment as a key factor fostering Islamic finance growth and attracting investors to the market.

Uzbekistan Prepares Strategic Entry

While currently limited to nonbank financial institutions offering Shariah-compliant leasing and insurance, Uzbekistan is positioning itself for expansion. The Central Bank has approved regulations for microfinance organizations and plans to introduce Islamic finance products to conventional banks, leveraging the country’s large population and growing economy as potential market advantages.

Regional Challenges and Political Considerations

Historical political instability has previously hindered Islamic finance development, with countries like Kazakhstan and Tajikistan initially showing interest during the 2007-2008 financial crisis but retreating when political regimes faced threats. Central Asian governments have traditionally been cautious about social innovations that might create instability.

Gulf Cooperation Council Support Expected

Fitch Ratings anticipates significant funding from Gulf Cooperation Council countries and Islamic multilateral institutions to support Central Asia’s Islamic finance growth, alongside efforts to diversify financial sectors and promote greater financial inclusion across the region.

The convergence of favorable demographics, economic growth, substantial banking industries, and increasing regulatory support suggests Central Asia may finally be ready to unlock its considerable Islamic finance potential after decades of underdevelopment.

Original Article:

Haidar, A. (2025, August 19). Central Asia poised for boom in Islamic finance, new report finds. The Astana Times. https://internationalbanker.com/banking/is-central-asia-primed-for-an-islamic-finance-boom/