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Kazakhstan - Islamic Finance & Banking Arrives in Kazakhstan

Eight months after Kazakhstan's law on Islamic finance and banking was adopted, several international and local Islamic institutions have opened in Kazakhstan’s two main cities (principally in Almaty). Kazakhstan has started working with the Islamic Development Bank (IDB) to draft a roadmap on Islamic finance and economic development. This roadmap will form a central part of the IDB's strategy in Kazakhstan, and is expected to be announced in early 2010.

Islamic finance has strong support from Kazakhstan’s President Nazarbayev, who was the driving force behind the adoption of the new law - which is backed by other senior government officials and the Regional Financial Centre Almaty (RFCA). In essence, the new law is part of Kazakhstan's efforts to develop its financial infrastructure and further establish Almaty as the country’s dynamic financial centre.

Fattah Finance, Kazakhstan's first brokerage specializing in Islamic finance, commenced operations in March this year - just one month after the law was adopted. The firm has a team of 15 professionals with real experience in the stock market, and Islamic finance and banking. Although Fattah Finance still works with traditional finance and banking instruments, its main purpose today is Islamic finance.

Research carried out by Fattah found that institutional investors, pension funds, insurance companies and Kazakh individuals would be interested in buying sukuks. (one sentence explanation is needed for for sukuks are) "The pension funds are increasing their activities, and would like to start buying sukuks to diversify their investment portfolios," said Fattah chairman Aidos Demeshev. "Individuals are also interested. It's not just Muslims; other people are attracted because Islamic financial products are connected to something real, and all risks and profits are shared."

In an interview with BusinessNewEurope, Mr Demeshev stressed that sukuks must be issued in Kazakhstan if the new law is to have a real effect on the economy. Under the current law, only wholly owned state companies - those within the Samruk-Kazyna and KazAgro groups - and Islamic banks can issue sukuks. As yet, none have been issued in Kazakhstan, although some are understood to be in the pipeline. "We want and we are ready to work with other actors in the market to start this process," said Mr Demeshev.

Al Hilal Bank, from the United Arab Emirates, is already present in Kazakhstan, and is planning to open two branches - in Almaty and Astana - by the end of the year to focus on industry, agriculture, real estate and tourism.

In May, Qatar Islamic Bank and Bahrain's Ithmaar Bank announced plans to enter the Kazakh market and Kausar Consulting, the first Kazakh consultancy focused on Islamic finance, has already started operations in Almaty.

Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application in Islamic economics. Sharia prohibits the payment of interest fees for the lending of money for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles.

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