Islamic finance represents a complete financial industry with a global turnover exceeding 3 trillion dollars, operating in dozens of countries, including Malaysia, the UAE, the UK, and Germany. It is important to understand that it is neither religious money nor charity.
The Philosophy of Earning in Islamic Banking
The main difference between an Islamic bank and a traditional one lies in the methodology of generating income. A conventional bank earns money by using the difference between deposit and loan rates, making the monetary circulation itself a product. An Islamic bank, however, derives income from real transactions: it engages in buying and reselling goods, leasing property, investing in client businesses, and sharing profits and losses.
In this system, money acts merely as a tool, and income is always tied to a real asset—be it a car, an apartment, equipment, or an operating business. The entire system is based on three prohibitions: Riba (the prohibition of earning income from lending, i.e., interest, because money should not grow by itself), Gharar (the prohibition of excessive uncertainty, such as selling a non-existent item), and Maysir (the prohibition of gambling).
Furthermore, there is an ethical filter: an Islamic bank does not finance the production of alcohol or tobacco, nor gambling or any other activities classified as forbidden (haram) by Sharia. The fundamental principle of Islamic finance is the joint bearing of risks and reliance on real assets.
Comparison of Banking Models
Consider the example of purchasing a car worth 300 million soms. In the conventional banking scenario, the bank issues a loan, and the client repays the debt over five years with interest. If the interest rate changes, the payment also changes, and late fees become bank income. In the Islamic banking scenario (Murabaha), the bank first buys the car from the dealer and then sells it to the client in installments with a pre-agreed markup, for example, for 360 million soms over five years. This amount is fixed and does not increase. The bank acts as a seller, not a lender, and bears the risk regarding the goods until they are transferred to the buyer. According to the rules, late fees cannot remain with the bank but must be directed to charity. Nevertheless, it should be noted that payments in an Islamic bank are not free, as there is a markup, and the total cost may be comparable to the loan interest rate, but the key difference lies in the nature of the transaction and the distribution of risks, as well as the fact that the client knows the final amount from the beginning.
Instruments of Islamic Finance
Uzbekistan's legislation allows banks to use six types of Islamic operations. Among them are:
- Murabaha: Installment sale, where the bank purchases goods and resells them to the client with a fixed markup, used for cars, household appliances, housing, and business goods.
- Ijarah: Lease or leasing, where the bank buys property and leases it to the client, often with the option of subsequent purchase.
- Mudarabah: Trust partnership, where one party provides funds and the other provides labor; profit is shared by agreement, and the investor bears the losses.
- Musharaka: Joint venture, where the bank and the client jointly invest in a project and share profits and losses proportionally to their shares.
- Salam: Advance payment for goods, where the bank pays for the goods in advance, for example, to a farmer for a future harvest.
- Wakalah: Agency contract, whereby the client entrusts the bank with managing funds for a commission.
There are also Sukuk—the Islamic equivalent of bonds, allowing an investor to finance a specific project and receive a share of the income—and Takaful—Islamic insurance based on mutual assistance through a common fund of participants.
Debunking Myths About Islamic Banking
There are several misconceptions about this system. Firstly, an Islamic bank is a commercial organization that makes money; it just uses a different method. Sanjar Nosirov, Deputy Chairman of the Central Bank, emphasized that many mistakenly consider Islamic finance to be completely free, confusing it with social aid; in reality, the markup in Murabaha or the rental fee in Ijarah represents the real cost of financing.
Secondly, a client of an Islamic bank can belong to any religion or have no religion. In London, one of the western centers of Islamic finance, many clients of such banks are not Muslims, attracted by transparency, fixed payments, and ethical filters.
Thirdly, the law has created a dual model: traditional banks continue to operate as before, while Islamic services have become a supplement, implemented either through separate Islamic banks or through 'Islamic windows' within existing institutions. Global experience shows the coexistence and competition of these two systems over decades.
Legal Framework and New Structures
Law ZRU-1126 was adopted on March 27, 2026, and signed by President Shavkat Mirziyoyev. It amends nine acts simultaneously, including the Civil and Tax Codes, as well as the laws 'On the Central Bank' and 'On Banks and Banking Activities,' forming the legal basis for the new industry.
A special license from the Central Bank is required to conduct Islamic banking, which is perpetual and non-transferable. Both fully established Islamic banks and 'Islamic windows' within traditional banks can operate in the country, and a licensed bank can run both lines in parallel. Sanjar Nosirov, Deputy Chairman of the Central Bank, called the entry into force of the law a historic event for the financial system of Uzbekistan.
On July 15, 2026, the Central Bank established the Council for Islamic Finance. This collegial body is responsible for coordinating the development of Islamic finance, establishing unified standards for banks, microfinance organizations (MFOs), and other organizations operating on Islamic principles. The Council consists of five members, headed by Saidjamol Masaitov from the Fatwa Center at the Muslim Council of Uzbekistan. Council members, including Muhammadayibkhon Komidov, Hikmatill Toshmerov, Abdullatif Tursunov, and Akhrorjon Saidullaev, develop national standards that comply with international requirements, advise banks, and represent the Central Bank in AAOIFI.
A legislative innovation is the permission for Islamic banks to engage in trade, establish companies, and acquire shares and stocks, enabling operations such as Murabaha and Musharaka. Furthermore, the Tax Code includes a separate chapter on Islamic operations, ensuring tax neutrality so that Islamic products do not lose out to loans from the outset. Penalties directed to charity can be accounted for as bank expenses.
Historical Development Path
The path to implementing Islamic finance took about twenty years. In 2003–2004, Uzbekistan joined the Islamic Development Bank (IsDB), which began providing initial projects for Uzbek banks. In 2018, an attempt was made to seek assistance from ICD to launch 'Islamic windows,' but the resolution project was not adopted. In 2020, a UNDP–IsDB study showed that 61% of entrepreneurs and 75% of the population were ready to use Islamic finance.
In April 2022, the law on non-bank credit organizations allowed MFOs to offer Islamic finance. In 2023, the development of Islamic finance was declared a state goal under the 'Uzbekistan-2030' strategy. In 2024, the Central Bank approved rules for Islamic MFOs regarding Murabaha, Ijarah, Mudarabah, Musharaka, and Salam operations. In 2025, the draft law was submitted for public discussion, during which MFOs provided services worth 21 billion soms, and a Central Bank project office was established. Law ZRU-1126 entered into force on June 29, 2026, officially opening Islamic banking.
Plans Until 2030
The reform is unfolding in three stages, as noted by Sanjar Nosirov, Deputy Chairman of the Central Bank, at TIIF-2026.
Stage 1: Microfinance (2022–2026)
MFOs served as a pilot platform for testing regulation, standards, and supervision. Today, about 12 microfinance organizations offer Islamic instruments, one of which operates exclusively under the Mudarabah model and has financed over 300 women entrepreneurs.
Stage 2: Islamic Banking (from 06/29/2026)
The opening of full-fledged Islamic banks and 'Islamic windows' has begun. Timur Ishmetov, Chairman of the Central Bank, reported that more than ten banks have started preparations, and a phased expansion of Islamic instruments is expected. Four or five foreign banks have expressed readiness to enter the market, and in June, the Central Bank discussed cooperation with MBK Holding from Qatar.
Stage 3: Capital Markets and Sukuk (Upcoming)
The creation of a legal framework for Islamic securities is planned. Provisions on Sukuk will be integrated into the developing capital markets law, providing a dedicated chapter for this instrument. Sukuk will allow investors to raise funds to finance specific projects, such as infrastructure, energy, and real estate.
Islamic finance should become a strategic priority, not just one of the options for Central Asia.
Economic Effect of the Reform
The economic goal of the reform is to attract funds currently outside the financial system. According to UNDP/IsDB, 38% of entrepreneurs and 56% of the population avoided bank lending for religious reasons. Initial funds have already appeared: the EEFU fund of 100 million dollars is designated to finance SMEs through Islamic instruments with the support of the IsDB Group, the Saudi Fund for Development, and the FRD of Uzbekistan. SEAF Director Yan Cherim noted a steady growth in interest in Islamic products in Uzbekistan.
What This Means Personally for the Client
For depositors, a new type of deposit is available—an investment deposit. Instead of a guaranteed rate, the depositor receives a share of the bank's profit, which is not promised in advance but is earned by the bank based on real transactions. When purchasing a car or housing, the alternative to a loan is Murabaha (installment plan with a fixed final price) and Ijarah with the right of repurchase. The practical advantage here is predictability, as the final amount will not change.
