Uzbekistan is preparing to introduce Islamic banking after the Senate approved legislation creating a legal framework for Sharia-compliant financial services, a move authorities say could broaden financial access and attract new investment into the country’s economy.
The law sets out licensing requirements, taxation mechanisms and supervisory structures for Islamic financial institutions, allowing banks to operate fully under Islamic principles or offer specialised “Islamic windows” alongside conventional products. Officials expect the reform to support the development of the digital economy, expand financing options for businesses and improve inclusion for citizens who avoid conventional banking for religious reasons.
Islamic finance is based on principles derived from Islamic law, which prohibit interest-based lending and speculative transactions. Instead of earning profit through interest, financial institutions generate returns through asset-backed trade, partnerships and risk-sharing arrangements.
Several key models are outlined in the new legislation:
• Murabaha – a cost-plus financing model in which a bank purchases goods and resells them to a client at an agreed profit margin, often used in trade and consumer financing.
• Mudaraba – a profit-sharing partnership where one party provides capital and another manages the business, with profits divided according to a pre-agreed ratio.
• Musharaka – a joint investment structure in which both the bank and client contribute capital and share profits and risks.
• Wakalah – an agency arrangement allowing a financial institution to manage investments on behalf of a client.
• Salam – a forward-sale contract frequently applied in agriculture, where payment is made in advance for goods delivered later.
Authorities say these mechanisms could help diversify Uzbekistan’s financial market and provide alternatives to interest-based loans, particularly for small and medium-sized enterprises.
The Central Bank will establish a specialised Islamic finance council to oversee compliance with Sharia standards and coordinate regulation across the sector. Amendments to the Tax Code introduce a dedicated regime for Islamic financial operations, including VAT exemptions on certain transactions, aimed at reducing costs and encouraging market entry.
Officials estimate that Islamic banking could unlock up to $5 billion in annual financing potential once fully operational. A survey conducted by the United Nations Development Programme (UNDP) found that 68% of Uzbekistan’s population and 60% of businesses prefer financial services aligned with religious principles, highlighting significant unmet demand.
The reforms follow earlier efforts by the Central Bank to align national legislation with international standards and draw on the experience of countries such as Malaysia, Türkiye and the United Arab Emirates. Uzbekistan joined the Islamic Financial Services Board in 2025 to strengthen regulatory cooperation and attract strategic investors from Islamic finance markets.
Analysts say the introduction of Islamic banking could mobilise both foreign capital and domestic savings, supporting long-term growth in sectors such as infrastructure, trade and entrepreneurship. If regulatory procedures move forward as planned, experts expect the first Islamic banking products to appear within six to twelve months.
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