Tajikistan — Islamic Finance in 2021
Evolution or revolution
Before 1991 the concept of Islamic finance was a virtual “terra incognita” in the former Soviet Union. Several decades of the Communist Party rule had literally done away with the religious beliefs of generations of the Soviet people.
In 1992 Tajikistan joined the Organization of Islamic Cooperation with a view to develop closer relationships with Muslim countries outside of the scope of Moscow’s influence. The efforts to promote Islamic finance in the region was headed by the Islamic Development Bank which faced unpredictable and volatile politics as well as the lack of knowledge about the basic principles of Islam.
The newly elected Presidents of the Central Asian often faced conflicting political currents — on one hand, the adoption of Islamic finance principles had brought in promises of investment from the rich MENA countries; but on the other hand, many of the newly minted leaders remained suspicious that the Islamic finance was a mere outlet for opposition religious insurgents.
The Law of the Republic of Tajikistan “On Islamic Banking activities” was approved on July 26, 2014 This Law determined the legal and organizational basis of Islamic banking in the Republic of Tajikistan and was supposed to provide favorable conditions for conducting Islamic banking activities. And so, the 7 years went by….
Many of surveys conducted in Tajikistan have shown overwhelming support for Islamic finance and banking. Unfortunately, that the great majority of Tajikistan’s 9.5 million strong population still knows little about the principles of Islamic finance. It is not uncommon that a client comes to an Islamic finance institution and seeks “free” rather than “interest-free” loans.
Review of 2021
Currently there are 2 banks in Tajikistan that operate in a Shariah compliant way:
Tawhid Bank, the formerly conventional bank was transformed into an Islamic bank in 2019. Among the products offered are Murabahah, Mudarabah deposits, Debit cards and Ijarah. In 2021 Tawhid bank received Shariah compliant certificate for its Tawhid Pay banking app from AlHuda CIBE.
With the introduction of Tawhid Pay, a mobile application, the bank has effectively launched the Islamic finance sector of Tajikistan into a new era of digital banking. This service is absolutely essential since one in four families in Tajikistan has members working abroad, mainly in the Russian Federation.
In October 2021 Tawhid Bank was awarded with the certificate as the Best Islamic Bank in the CIS. Tawhid bank declared its international expansion ambitions but so far there had been no concrete details.
Alif Bank was founded in 2014 as microfinance institution, and by 2021 had become a leading fintech companies in the Central Asia. Now Alif Bank is in possession of a full banking license. Despite the fact that the bank is not considered an Islamic bank from the legal standpoint, it largely acts as a Shariah compliant financial institution.
Supported by its formidable IT department, Alif provides alif.mobi, the most widely used finance app in the country. Its B2C platform alif.shop is a leader in the POS financing. The remittances are very important for the migrant population of Tajikistan, and Alif Bank offers the most competitive solution in the country.
Aside from remittance services Alif Bank promotes Alif Jummah — a Murabahah-based program of consumer goods sale. The company is committed to leadership in Islamic finance and established its own technology academy that grows cadres for the bank and for fintech industry in Tajikistan.
In 2021 Alif Bank declared its ambitions to set up operations in the UK.
Preview of 2022
Unlike many established Islamic banks, both Tawhid Bank and Alif Bank do not have an issue with so-called “legacy Islamic assets” that come as a result of years of evolutionary development. This ”asset-light” model makes them more agile and technologically advanced.
The following developments are forecasted for the upcoming 2022:
1. International expansion. Tajikistan’s market is fairly small and underdeveloped. Both banks are thus looking north to Uzbekistan and the Russian Federation for expansion. The UK-based shareholders of Alif Bank are keen on bringing its high tech expertise to the UK, and perhaps, the UAE.
2. New cash products. The Shariah compliant population requires cash loans to serve their immediate financial needs. So, it is very likely that either one or both banks will launch a Tawarruq product within months.
3. The changes in tax law although highly expected are not likely to be passed in the upcoming 2022.
4. It is also unlikely that the dominance of the two banks will be challenged in 2022.
It is difficult to operate an Islamic finance institution in Tajikistan. The key problems include the lack of suitable legislation, the imposed double taxation (the thorny VAT issue) and also the fact that Islamic finance operations are still not treated as banking operations by the authorities. Thus, the traditional conventional banks have tremendous tax advantages before the institutions working in Shariah compliant ways.
But the development of Islamic finance in Tajikistan is fueled by the financial openness of the country’s population, the unhindered enthusiasm of the banks’ top management, as well as the Islamic banks’ technological advantages. In the country where until very recently the loans were issued to the “friends” and the “friends of the friends”, the above-mentioned advantages are essential.