Regulatory initiatives across several Central Asian countries since the start of 2026 and increasing engagement with GCC investors and Islamic multilateral institutions are likely to support the Islamic finance industry’s growth potential in this region, Fitch Ratings says. Unlocking this potential would require sustained policy support, equal tax treatments, and greater public awareness and confidence, in Fitch’s view, as the Islamic finance industry is still underdeveloped across the region, with fragmented progress.
Kazakhstan and Kyrgyzstan are poised to drive regional expansion over the next few years, while Azerbaijan and Uzbekistan are building early foundations. However, Fitch expects Islamic banks’ domestic market share in Kyrgyzstan, Kazakhstan, and Tajikistan to stay below 1.5% of banking sector assets at end-2026. Enabling regulations, and significant unbanked populations, could catalyse growth. Islamic banking could enhance financial inclusion in central Asia, where a significant portion of the population remains unbanked: Tajikistan (45%), Azerbaijan (44%), Uzbekistan (40%), Kyrgyz Republic (28%), and Kazakhstan (13%) as of 2024, according to the World Bank.
Few entities in GCC countries, including the Saudi Arabia-headquartered Islamic Development Bank (IsDB) Group, are involved in developing Islamic finance in Central Asia. IsDB funding to Central Asian countries exceeded USD10 billion as of April, with Uzbekistan, Kazakhstan, Turkmenistan, and Kyrgyzstan receiving the largest shares. Closer links with GCC countries could foster industry growth, as seen with GCC investors’ support for the Islamic finance industry in the UK, Turkiye, Malaysia, and Kazakhstan.
Public awareness and confidence are limited, and sharia sensitivity varies, despite being Muslim-majority countries. Supply-side challenges include regulatory gaps, a lack of product options, underdeveloped branch and digital networks, lack of a viable and profitable business models, limited product competitiveness beyond religious appeal, and few Islamic investors and other stakeholders.
Kazakhstan’s new banking law, enacted in March 2026, expanded the scope of Islamic banking by allowing conventional banks to open Islamic windows. Islamic banking in Kazakhstan had previously been limited to standalone institutions. The new banking law could broaden Islamic product availability and support consumer confidence through established brands and networks. Islamic windows may also offer cost efficiencies. For example, ADCB Islamic Bank JSC (BBB+/Stable) in Kazakhstan is transitioning to a conventional bank with an Islamic window.
The first retail sukuk was listed on the Astana International Exchange (AIX) in 2025, alongside the registration of a sukuk programme and the launch of Central Asia’s first sharia-compliant index ETF. The Islamic Corporation for the Development of the Private Sector issued the first tenge-denominated sukuk in 2023 (A+).
Uzbekistan introduced new Islamic banking legislation in March 2026, which could help create an enabling environment to set up Islamic banks. Uzbekistan’s Strategy 2030 targets Islamic products in three state-owned banks by 2030. Development of Islamic finance is also part of the National Bank of the Kyrgyz Republic’s 2025-2030 plans, and Kyrgyzstan’s Cabinet of Ministers adopted a resolution approving the requirement for takaful in March 2026.
In Azerbaijan, the central bank plans to implement Islamic banking through the Islamic window model in the near-term, while standalone Islamic banks may be considered later. Two conventional banks began offering Islamic products in 1H26 as part of the central bank’s regulatory sandbox, with testing scheduled in 2026-2027. Azerbaijan’s central bank has sought assistance from the Islamic Development Bank Institute to create an enabling environment to introduce sukuk.
Fitch estimates the total Islamic finance market in Central Asia was over USD600 million at end-2025 (excluding Islamic multilateral financing), driven mainly by Islamic banking. Takaful is largely absent, and the sukuk market is nascent, although sukuk activity in Kazakhstan is growing. ///nCa, 12 May 2026 (cross post from Fitch Ratings)