PARIS: It’s still very early days for Islamic finance in Kazakhstan, and there are some important roadblocks to remove to enable its gradual growth, said Standard & Poor’s Ratings Services in a credit FAQ published on Monday “Islamic Finance Slowly Unfolds In Kazakhstan.”
“We think product offering is insufficient, market demand is still to be estimated, and the industry needs regulatory fine-tuning,” Standard & Poor’s credit analyst Mohamed Damak, said.
Kazakhstan rolled out Islamic finance regulation in 2009, becoming the first member of the Commonwealth of Independent States (CIS) to do so. At that time, the State Agency for Regulation and Regional Financial Center of Almaty predicted that by 2020, Islamic finance would account for 10% of Kazakhstan’s GDP. Yet, five years down the road, Islamic finance hasn’t really taken off despite the country’s strong investment pipeline and its predominantly Muslim population.
“With total assets of less than $200 million at year-end 2013, by our estimate, Kazakhstan’s Islamic finance is still embryonic. One Islamic bank is active, and we understand that a few other Sharia compliant finance companies have established very small operations as Islamic finance players.
“We think that the potential of Islamic finance will closely hinge on banks’ ability to offer competitive products compared with conventional finance products.
“In our view, there is room for some improvement to the current regulatory environment that would remove growth impediments. For instance, regulation does not authorize conventional banks to create Islamic windows, which has left them behind in the race to create Islamic product offerings.
“Islamic finance could help Kazakhstan to access a new class of investors looking for Sharia compliant products and contribute to widening banking penetration,” Damak, added. “The country has a substantial investment pipeline and could use sukuk to attract external financing.”
“If this growth materializes, Kazakhstan might over time become a regional Islamic finance hub.
“For Islamic finance to develop in a given market, we see the following as key success factors securing the political and business community’s willingness and support; establishing a central Sharia supervisory body; pricing competitively; introducing liquidity management instruments, and educating human resources on Islamic finance specificities.