The Development of Islamic Finance in Emerging Markets: The Republic of Kazakhstan

Abstract

The growth in Islamic Finance in many regions of the world during the last decade has been both significant and rapid, and has provided both individuals and businesses with the possibility of raising capital on a risk-shared basis rather than the more conventional debt finance. The chaotic and aggressive credit growth that partially led to the global economic crisis of 2008 has turned the attention of academicians and regulators to alternative lending methods, including Islamic Finance. According to The Banker, about USD 144BN was issued globally under Islamic finance instruments in 2012, with an annual growth rate of 20-25% and expected another USD 100BN in 2013, which totals to USD 400BN in Islamic bonds outstanding. Kazakhstan, along with other Central Asian countries has also experienced significant growth in Islamic Finance, both at personal and business level, and the stage is set for Islamic Finance to grow and to diversify into a major form of development finance. Some experts predict that the potential market size for Islamic financial instruments can easily reach USD 10BN within several years, but this requires much effort and aggressive promotion of products. This paper summaries the recent growth in Islamic Finance in the Republic of Kazakhstan and assesses the prospects for future growth of this form of finance in both Kazakhstan and the Central Asian Region.

Keywords: Islamic Finance, risk-sharing, capital, sukuk, sharia.

JEL Classification: F34, G15, G23, G29, N25, O16, O53