BAKU, Azerbaijan, February 20. Azerbaijan plans
to launch Islamic banking merchandise in 2026, with the primary
choices already coming into the market underneath the Central Financial institution’s
particular regulatory framework, whereas efforts proceed to strengthen
the nation’s authorized and regulatory framework for these providers,
Shahin Mahmudzade, Director Common of the Central Financial institution (CBA), mentioned
in an unique interview with Pattern.
He outlined the measures taken to introduce Islamic finance
merchandise to the Azerbaijani market, together with related legislative
amendments, incentive mechanisms, and worldwide
cooperation.
Mahmudzade defined that underneath the particular regulatory
framework, starting from 02.02.2026 for a interval of 1 12 months,
“Rabitabank” OJSC has begun providing merchandise based mostly on “Mudaraba,”
permitting authorized and particular person shoppers to speculate funds, that are
then used to finance companies by way of the “Murabaha” mechanism.
Moreover, beginning this 12 months, “Worldwide Financial institution of
Azerbaijan” will supply Murabaha-based financing for resident authorized
entities and particular person entrepreneurs for immovable and registered
movable property.
The Director Common famous that after legislative adjustments on
Islamic banking take impact, banks will be capable to supply numerous
financing fashions underneath an “various window” framework:
project-based contracts (Istisna), sales-based financing
(Murabaha), lease-based financing (Ijara, analogous to conventional
monetary leasing), profit-and-loss sharing (Mudaraba), and
deposit-like merchandise (Wadi’a). Non-bank credit score organizations will
present Istisna, Murabaha, and Ijara financing solely.
The CBA had deliberate to submit amendments to laws on
Islamic banking to the federal government by the tip of 2025. The Director
Common additionally elaborated on the continuing work associated to proposed
amendments to the Civil Code, the Legislation of the Republic of Azerbaijan
“On Banks,” and the Tax Code.
“This is without doubt one of the key priorities. The related draft
amendments to the Civil Code, the Tax Code, and the Legal guidelines of the
Republic of Azerbaijan ‘On Banks,’ ‘On Non-Financial institution Credit score
Organizations,’ ‘On State Responsibility,’ ‘On Credit score Bureaus,’ and ‘On
Privatization of State Property’ have been submitted for authorized
evaluation. The draft amendments are anticipated to be submitted to the
authorities within the close to future. Following their adoption, the subsequent
stage will contain establishing a prudential regulatory framework
to handle the dangers arising from the implementation of Islamic
monetary merchandise,” Mahmudzade emphasised.
The Director Common additionally addressed the problem of value-added tax
(VAT) remedy for Islamic monetary transactions. He famous that
monetary providers offered underneath various (Islamic) banking
operations are meant to be topic to the identical tax regime as
standard banking providers, thereby making certain tax neutrality
between standard and Islamic banking actions. In response to
Mahmudzade, this strategy is mirrored within the draft legislative
amendments at the moment underneath preparation and can be submitted to the
related state authorities shortly.
The introduction of Islamic banking merchandise by way of the
“Islamic banking home windows,” or “various window,” mannequin is
anticipated to boost monetary inclusion, appeal to new buyer
segments, and diversify product choices, thereby producing
extra income streams for banks. The enlargement of deposit
devices can be anticipated to strengthen banks’ liquidity
positions.
Mahmudzade reiterated that no banks at the moment function in
Azerbaijan in full compliance with Islamic banking ideas and
clarified the prospects for establishing fully-fledged Islamic
banks. “Choosing the suitable mannequin requires a phased strategy.
As famous, within the close to time period, Islamic banking can be applied
by way of the ‘Islamic window’ mannequin. The institution of standalone
Islamic banks could also be thought-about at a later stage, taking into
account the sensible outcomes of introducing Islamic monetary
merchandise and general market growth dynamics,” he mentioned.
He additionally outlined steps being taken to determine a regulatory
framework for sukuk issuance. With the assist of the Islamic
Growth Financial institution, the CBA is implementing a technical help
challenge to develop the authorized and regulatory framework for sukuk as
an Islamic monetary instrument.
“Not like standard bonds, sukuk doesn’t create a pure debt
obligation; reasonably, it represents an investor’s possession curiosity
in a particular asset or challenge, immediately linking financing to actual
financial exercise. This attribute makes sukuk an instrument
that may present extra monetary sources for enterprise
entities, strengthen investor confidence, and diversify entry to
capital markets. For small and medium-sized enterprises (SMEs),
sukuk can facilitate useful resource mobilization and enhance entry to
long-term financing by way of structured mechanisms applied through
monetary establishments.
Within the context of infrastructure growth, sukuk can function
an alternate financing channel in capital-intensive sectors such
as vitality, transport, business, and actual property by offering
long-term and steady funding. Worldwide follow demonstrates
that project-based sukuk constructions are extensively used to finance
large-scale infrastructure initiatives and assist diversify funding
sources whereas attracting investor curiosity,” Mahmudzade acknowledged.
He added that the potential emergence of a home sukuk market
may additional increase cooperation with worldwide monetary
establishments, significantly in strengthening regulatory and
institutional capability and selling technical data trade.
Within the medium to long run, this strategy may assist the gradual
enlargement of Azerbaijan’s capabilities in Islamic finance
devices throughout the area and contribute to constructing international
investor confidence.
Moreover, the CBA has recognized worldwide cooperation
as a precedence in creating Islamic finance. Mahmudzade famous that
Azerbaijan is learning regulatory fashions, Sharia supervisory
mechanisms, and capacity-building packages based mostly on the expertise
of nations corresponding to Türkiye, Pakistan, and Malaysia, in addition to
by way of cooperation with the Islamic Growth Financial institution.
“Alongside establishing the required regulatory and
institutional framework for the implementation and growth of
Islamic finance, constructing human capital with the required experience
on this subject is taken into account one of many important priorities. For this
objective, superior practices from Türkiye, Pakistan, and Malaysia
are being examined, and throughout the framework of cooperation with
the Islamic Growth Financial institution, common participation in data
trade {and professional} coaching packages is ongoing and can
proceed in subsequent levels,” he emphasised.
