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🇰🇬 Kyrgyzstan /Economy & Trade

Islamic Financing Gains Traction in Kyrgyzstan Beyond Religious Lines

From 24.kg · () Russian

Translated from Russian, summarized and contextualized by DistantNews.

At a glance

News Sources not specified Context piece
  • Islamic financing in Kyrgyzstan is gaining popularity as an alternative to traditional banking.
  • It operates according to Sharia standards, prohibiting interest and certain industries, and uses profit-sharing or sales markup mechanisms.
  • The model is accessible to everyone, regardless of faith, with one full Islamic bank and five commercial banks offering Islamic windows in Kyrgyzstan.

Islamic financing is steadily growing in popularity in Kyrgyzstan, offering an alternative to conventional banking services.

The main difference of Islamic financing lies in the approach to service provision. It operates in accordance with Sharia standards. Interest is prohibited in Islamic banking.

— Kubanych ToguzakovHead inspector of the Islamic financial products department at the National Bank of Kyrgyzstan, explaining the core principles of Islamic finance.

This financial model adheres to Sharia standards, which fundamentally prohibits the use of interest. Instead, it employs mechanisms like profit margins on sales transactions or participation in business partnerships. Furthermore, it forbids financing activities deemed unacceptable, such as the production of alcohol, tobacco, weapons, and involvement in gambling or lotteries. All banking operations and contracts undergo scrutiny and approval by a Sharia council.

No. Islamic financing is a universal model and is available to all citizens regardless of their faith and religious views.

— Kubanych ToguzakovResponding to whether only Muslims can use Islamic financing.

Contrary to a common misconception, Islamic financing is not exclusive to Muslims. It is presented as a universal model accessible to all citizens, irrespective of their religious beliefs. Customers have the autonomy to choose between traditional banking services or those based on Islamic principles.

Murabaha is a sale transaction with a predetermined markup. For example, if a client needs a car, the bank buys it from the seller and then sells it to the client at an agreed price. The final price is known in advance and does not change.

— Kubanych ToguzakovDescribing the Murabaha transaction, a popular Islamic financing product.

Currently, Kyrgyzstan hosts one fully-fledged Islamic bank and five commercial banks that operate "Islamic windows." The number of financial institutions providing these services is on a gradual increase. Among the most prevalent Islamic financing products in Kyrgyzstan are Murabaha (cost-plus sale), Mudarabah (profit-sharing investment partnership), and Ijarah (leasing with a subsequent purchase option, akin to financing leases).

Mudarabah is an investment partnership. The bank finances a business project, and the client manages it. Profits are distributed between the parties according to a pre-agreed proportion.

— Kubanych ToguzakovExplaining the Mudarabah investment partnership model.
DistantNews Editorial

Originally published by 24.kg in Russian. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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