Almighty Astana

Islamic Finance Ambitions in Kazakhstan

After years of work to develop its Islamic finance sector, Kazakhstan is launching its first local sukuk in 2018, and there are plenty more developments in store.

A bird flies above the logo of National Bank of Kazakhstan at the bank’s headquarters in Almaty, Kazakhstan May 24, 2017. REUTERS/Shamil Zhumatov

Speaking at the Global Islamic Finance Awards in September 2017 in Astana, Kazakhstan’s President Nursultan Nazarbayev announced the country was anticipating a landmark sukuk issuance worth USD300 million.

Expected in 2018, the sukuk will mark the first such offering since the Development Bank of Kazakhstan successfully issued five-year Islamic independent bonds to the tune of USD57 million in 2012, albeit in Kuala Lumpur with Malaysian investors representing 62% of the subscribers.

Having since developed the Islamic finance market in Kazakhstan beyond recognition, himself picking-up the “Global Leader in Islamic Finance Award” in 2014, Kazakhstan’s President felt conditions were ripe for a fresh, over-five-fold-larger sukuk to be issued locally in 2018. Nazarbayev explained that, “in the development of Islamic financing and banking […] today, 23 projects worth USD500 million have been implemented from Kazakhstan’s bank loans, and another 12 new projects worth USD900 million are planned to be implemented.”

Perhaps the most notable development in this field throughout 2017—at least from street view in Kazakhstan’s commercial capital of Almaty—is the launch of retail banking operations of Abu Dhabi-based Al Hilal Bank.

Under an agreement between the governments of Kazakhstan and the UAE in 2010, Al Hilal became the first Islamic bank to enter the local market and the CIS region as a whole, taking several years to assess conditions before pouncing on the retail segment.

Speaking to TBY, Al Hilal Bank Kazakhstan’s CEO, Gordon Haskins, explained; “the first few years for Al Hilal were investment years, where we set up the business, hired people, developed processes, and built our client base. Retail banking has been part of the strategy for the bank for a while. Our ambitions were clear, though it was a matter of finding the right opportunity and window, which have emerged in recent times.”

Shortly after Al Hilal’s retail launch in August 2017, commercial lender Zaman Bank announced that it had received a license from the National Bank of Kazakhstan to become the country’s second Islamic bank.

Originally stating its plans to turn sharia-compliant back in 2014, Zaman’s conversion took three years to complete due to a complicated regulatory process, which has been notably eased by the National Bank as a result of clear, strategic objectives from the government.

As noted by Daniyar Uspanov, CEO of Islamic payment card provider Al Saqr Finance, the government’s priority to establish the necessary financial and legal processes in recent years has created “a fantastic response from private companies looking to make use of these new opportunities.”

This includes Al Saqr, which became a “multifunctional Islamic financial organization providing a wide range of Islamic finance services to corporate and retail sectors,” in 2016, as well as Kazakhstan Ijara Company (KIC), which is the country’s only Islamic leasing provider, with a wide-portfolio of SME funding across the country.
And still, the industry’s brightest days are likely yet to come as doors open on the Astana International Finance Centre (AIFC) in early 2018.

Situated on the site of the 2017 Expo, AIFC has introduced six strategic directions for development, including capital markets, asset management, fintech, private banking, green finance, and crucially, Islamic finance.

Aiming to become regional hub for Islamic finance, AIFC and Kazakhstan plan to tap into the predominantly Muslim ~70-million population of Central Asia.

The country bridges the five main Islamic finance markets of Malaysia, Saudi Arabia, Iran, the UAE, and Kuwait, accounting for 80% of the worlds Islamic finance market. Given its strategic advantages, the AIFC’s regional ambitions are well founded.

In the local market, the AIFC’s much-anticipated launch is having a profound effect on the industry, propelling new opportunities. According to Uspanov, “the current trend (of emerging Islamic finance players) can clearly be related to the opening of AIFC,” unlocking the vast potential of the industry and creating more awareness about Islamic finance.

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