ISLAMIC FINANCE

Kazakhstan 2018 | FINANCE | B2B

As the government moves to encourage more Islamic financing and appetite for Islamic finance products grows organically outside of Almaty and Astana, huge opportunities are underway in the years to come.

Daniyar Uspanov
DANIYAR USPANOV
Al Saqr Finance
Chairman of the Board
Yusuf Karsi
YUSUF KARSI
CEO
Kazakhstan Ijara Company (KIC Leasing)

What have been some of your major achievements in recent years?

Daniyar Uspanov Al Saqr Finance's history in Kazakhstan dates back to 2000. The company was established as a leasing company and in a short period of time received recognition on the local leasing market. We are now among the top-five leasing companies in Kazakhstan according to Expert RA, a credit rating agency, and international companies and institutions such as ORIX and IFC are among the company's shareholders. The company also attracted funding from international organizations such as EBRD, DEG, FMO, and RBS. Crucially, in 2016 the company made a decision to transform itself from a conventional leasing company to multifunctional Islamic financial organization providing a wide range of Islamic finance services to the corporate and retail sectors. As a part of this process, Al Saqr Finance chose the Shariyah Review Bureau in Bahrain as its sharia board, an international organization that is a leading consultant in the sphere of Islamic finance. The conversion was completed in record-breaking time and without external advisers, which is a unique case in the Kazakhstani market. Since completing this transformation in early 2017, Al Saqr Finance today performs financing according to sharia standards and principles. In addition, we launched a new product—Islamic payment cards—as we identified that despite the recent surge in Islamic financing in Kazakhstan, there were a number of products still missing from the local market, and payment cards were an ideal way to introduce the benefits of Islamic banking to the wider population.

Yusuf Karsi Over the last four years, KIC has been doing extremely well and has visibly increased its efficiency and management capacity; this is one of the objectives of the shareholders invested in KIC. In 2017, we achieved our targets in growth ratio, along with contributing directly to SMEs in Kazakhstan. Being the first Islamic leasing company here brings a serious responsibility to increase awareness of Islamic banking instruments across the country. Because when we go out into regions other than Astana or Almaty, we see a strong appetite for such products from local entrepreneurs seeking sharia-compliant products. Though in the first years there were some barriers to entry, today our products are well known in the country and in strong demand. From an Islamic banking point of view, our mission continues, for there are still certain regions and segments of the economy to be tapped into with Islamic leasing. Customers do understand the difference between Islamic and conventional leasing; however, when they get the investment and see how the product is working, it gains added value and makes business sense.

What do you make of the recent surge in Islamic finance solutions across Kazakhstan?

DU We support every initiative of the government to develop Islamic finance in Kazakhstan. The issue of independent bonds will be a great benchmark for the entire local market, as it will raise awareness from both local investors and foreign institutions looking at Kazakhstan as a potential sukuk hub in the future. In 2012, the first sukuk issue by a local institution was offered by the Development Bank of Kazakhstan for MYR240 million on Bursa Malaysia. The first issue of independent tenge-based sukuk will almost certainly be on the Astana International Financial Centre (AIFC), which will promote the development of the entire Kazakhstan Stock Exchange and attract particular attention for foreign investors. As a company, we have huge hopes for the AIFC, which has made Islamic financing as one of its key strategic pillars. Indeed, once the AIFC becomes operational in early 2018, we plan to issue our own sukuk.

YK It is often pointed out that the market share of Islamic banking in Kazakhstan is less than 1% of the total market, which is relatively small compared to other Muslim countries. For some, this represents a challenge; for us, this is an excellent opportunity to help the industry grow to new heights. We should bear in mind that the growth pace of Islamic banking worldwide, compared to any other conventional banking product, is the fastest in terms of demand. If we consider this global tendency, then it is impossible to say that Kazakhstan has no market for Islamic banking. It is simply a case of a need for organizing a healthy regulatory structure and advanced market conditions for providers to thrive. In the past three to four years there have been great opportunities to get large funds from the Islamic world to Kazakhstan to support the economy, since behind the banking crunch there was a liquidity shortage. After a long journey, today Islamic banking legislation is almost in place and ready to attract Islamic funds to invest in Kazakhstan.