A New Stage in Islamic Finance: Central Bank Establishes New Council

Photo: Central Bank

An important step has been taken to regulate the Islamic finance system in Uzbekistan. An Islamic Finance Council has been established under the Central Bank, which will coordinate the activities of banks, microfinance organizations, and other participants in the sector.

Why is the new council necessary?

Islamic finance differs from standard banking services. It operates under specific rules regarding contracts, fundraising, financing, and risk-sharing.

For this reason, the sector requires regulation not just through general banking rules, but through specialized standards and interpretations.

The newly established council will perform exactly this task: it will coordinate the Islamic finance activities of banks, microfinance organizations, the Deposit Guarantee Agency, and other organizations under the supervision of the Central Bank that provide Islamic banking services.

Who are the members of the council?

The council consists of 5 members. Its composition includes experts in Islamic law and a technical expert.

The emergence of such a structure within the Central Bank system is considered an important step in the institutional regulation of the Islamic financial services market.

What functions does it perform?

Legislation stipulates that the Central Bank's Islamic Finance Council shall develop Islamic finance standards, assist the Central Bank in preparing draft regulatory legal acts, and provide interpretations and conclusions on controversial issues.

In practice, this council will work in the following areas:

• developing drafts of Islamic finance standards;
• harmonizing international standards with local conditions;
• providing recommendations to the Central Bank on regulation and supervision;
• providing methodological support to banks and microfinance organizations;
• preparing interpretations regarding controversial issues;
• participating in the development of draft regulatory legal acts.

Simply put, the council will participate in forming a "roadmap" and control criteria for the Islamic finance market.

What does this mean for banks?

For banks intending to launch Islamic financial services, a unified approach and standards are now of great importance.

For example, if a bank wants to offer an Islamic finance product, its contract, accounting, risk model, and internal control system must comply with established standards.

This is also important for customers, as it prevents the emergence of various and confusing products labeled as "Islamic finance" in the market.

Microfinance organizations also in focus

The Central Bank had previously established the procedure for providing Islamic financing services by microfinance organizations. It noted that microfinance organizations must keep separate accounts for activities related to Islamic financial services.

This requirement is crucial because traditional financial services and Islamic finance operations should not be mixed within a single organization.

The new council will serve to provide recommendations, offer methodological guidance, and ensure compliance for banks and microfinance organizations in these very processes.

Connection with international standards

The council is also expected to participate in AAOIFI meetings on behalf of the Central Bank. AAOIFI is one of the most important international organizations for Islamic financial institutions in the areas of accounting, auditing, and standards.

This means that the rules for Islamic finance in Uzbekistan will be formed not just through an internal approach, but in harmony with international experience and standards.

For the market, this is a serious signal: the Islamic finance direction is being developed systematically, not as an experiment.

What changes might there be for customers?

For the public and entrepreneurs, this decision may pave the way for new financial products in the future.

If Islamic financial services are properly established, customers will have alternatives to traditional credit products.

This may be particularly interesting for segments of the population and entrepreneurs who do not wish to use interest-bearing loans.

The most important question — trust

One of the most fundamental factors in Islamic finance is trust. The customer must be confident that the product offered by the bank or microfinance organization truly complies with the established standards.

The establishment of the council is aimed at strengthening this trust at an institutional level.

The issue here is not just about new products. It is about creating an environment of transparency, clear rules, and responsible oversight in the financial market.

A new page in the Uzbek financial market

The establishment of the Islamic Finance Council under the Central Bank shows that the infrastructure for Islamic finance is taking shape in Uzbekistan.

Now the main task is not to leave the standards on paper, but to use them correctly in practice. If clear, understandable, and reliable mechanisms are created for banks, microfinance organizations, and customers, this direction could occupy an important place in the financial market.

In your opinion, how high will the demand for Islamic financial services be in Uzbekistan?