The report revealed that 80 percent of micro, small, and medium enterprises (MSMEs) are interested in Shariah-compliant financing, a market that could be worth up to $456 million for lenders.
Despite that potential, the study, Islamic Banking and Finance: Opportunities across MSMEs in the Kyrgyz Republic, found that Islamic finance was not widely available because of a lack of awareness and the high cost of structuring transactions. Yet Kyrgyz officials are working to overcome these challenges.
“The government has made efforts to strengthen the regulatory environment by way of amendments that laid down the key principles of Islamic banking,” says Lada Orozbaeva, Deputy Chairperson of the National Bank of the Kyrgyz Republic. “We have to continue developing a prudent and transparent Islamic financial services industry with appropriate standards and supervisory frameworks.”
The study was IFC’s first on Islamic Finance in the Kyrgyz Republic.
“Islamic Finance is one of the fastest growing segments of the global financial system,” says Martin Naegele, IFC Country Officer for the Kyrgyz Republic. “In this country, it has the potential to provide an additional source of financing for smaller businesses, promoting financial inclusion and addressing development challenges.”
Islamic finance refers to financial transactions that are consistent with Shariah, or Islamic law. It includes banking, takaful (Islamic insurance) and sukuk (Islamic financial certificates). Interest in Islamic finance has grown steadily, with estimates that Islamic banking assets globally will reach $1.6 trillion in 2020.
The IFC report highlights strategic measures that banks could undertake to tap into the demand for Islamic banking among the country’s MSMEs. The study was funded by the Government of Switzerland.