Bridging the Capital Road: CIS & GCC

[Music] thank you very much for the kind introduction ladies and gentlemen thank you for being here with us today where we discuss what is one of the most interesting Emerging Markets when it comes to Islamic Finance which is the Central Asian region as many of us know Islamic Finance has grown tremendously you know Islamic Finance assets crossed $4.9 trillion at the end of 2023 projected to grow to 7.5 trillion and it has become a truly Global industry with over 1,980 Islamic financial institutions that operate in over 80 countries around the world and more than 57 countries that have Islamic Finance regulations but as the industry starts to mature in some of the more established and older Islamic Finance markets when we look ahead we see that the growth is going to come from a number of emerging and Frontier markets markets like Central Asia with a strong local Muslim population with developing economies with expanding trade links and with a developing financial sector the Central Asian regions are very well positioned to develop a local Islamic Finance industry that can serve their economic and social development agenda today we see Islamic Finance Assets in the Eurasia region at approximately half a billion dollars and we see the landscape consisting of 10 Islamic Banks or Windows and another 18 non-banking institutions which include taka companies financing and leasing companies fintech institutions digital institutions and the other interesting thing is that most of the in fact all of the Muslim majority countries in the Eurasia region are have either implemented Islamic Finance regulations or in the process of implementing Islamic Finance regulations to Foster this growth the Europe the Eurasia Development Bank the leading Regional development institution in Eurasia has entered into a strategic partnership with Islamic Development Bank on the promotion development of Islamic Finance in the region they have recently launched an Islamic banking window and as part of the partnership they are working on launching a research report that looks at the future of Islamic Finance in the region provides an assessment of the quantitative and qualitative considerations and also provides policy recommendations and strategic direction for the industry going forward so it's a very interesting area of discussion and with that I'm delighted to have this esteemed panel who can talk about the potential of Islamic Finance in the region what are some of the challenges the opportunities and how we achieve uh the growth that we want to and for that I would like to start with your Excellency Nikolai um you know as as representative of the leading Regional Development Bank you know it's great to see the steps that you've taken towards the development of Islamic Finance the launch of the Islamic banking window the upcoming report and so on can you please elaborate on your plans for the development of Islamic Finance in Central Asia and the focus of facilitating in particular Capital flows between the region and other Islamic Finance markets like the GCC southeast Asia and so on um good morning uh ladies and gentlemen uh thank you U Mustafa for for opportunity uh to talk about uh uh future of Islamic Finance in Central Asian uh region uh it's a great pleasure and honor to speak here today um I would like to thank our partners uh for cooperation in moving these uh projects first of all Islamic Development Bank Islamic Development Bank Institute and uh London uh London Stock Exchange uh group uh I would like to start with a few words about uh EUR asan Development Bank EUR Asian development bank is 18 years old Bank uh established in Kazakhstan in 2006 uh since then we executed almost 300 projects uh across the Eurasian uh region and Central Asia uh with a total amount of Investments of around $15 billion and EUR asan develop velopment bank is a leader of U um non Sovereign financing uh in the in the region uh and our main area of operations is Central Asia uh Central Asia is rapidly growing region and its role in the world and in EUR Asia uh should be uh reassessed the population of Central Asia is growing rapidly at least it keeps the pace of 2% uh growth rate of populations dur during last 20 years it is now 80 million people and the aggregate GDP is around uh $458 billion as of end of 20 23 and we expect it to approach half a trillion dollars as soon as end of uh this year the average pace of growth is 6.4% during last decades Which is far uh higher places compared to uh developed World and Other developing uh countries and since uh 2000 the trade to NOA increased uh 20 times direct Investments increased 17 times and uh uh Central Asia uh grows rapidly but the gap between uh developed countries and develop in countries remain U quite substantial and we need some to do anything to catch up and what can be done and I think that Islamic Finance uh development is one of instruments which will come which will help to uh uh to shorten this Gap the Eurasian Development Bank intends to become a platform for Islamic Finance in Central Asia uh the bank is currently working on creating necessary institutional and administrative Solutions right now we are at the beginning of our Islamic Finance Journey with the Islamic development band group support uh EDB has started to develop an Islamic window for financing projects in accordance with Sharia principles the Sharia advisor of launching edb's Islamic wind is D Syria a subsidiary of Dubai Islamic Bank and we have started to work on two pilot projects in transport and uh leing sectors uh the priority areas of investments will be energy transport social infrastructure food security and Industry our plan is to develop uh Banks uh Islamic Finance policy and procedures in 2024 and to launch uh fully full operational Islamic window as soon as meet 2025 we propose enhancing our cooperation with other stakeholders in development of Islamic Finance in Central Asia and according to our study um the market cap for Islamic Finance could be as much as uh 2.2 billion uh dollars by uh 2028 and it could reach as high as three three uh uh $6.

3 billion um as soon as 20 uh 33 and it is a substantial volume and it will help uh for Central Asia to grow thank you very much thank you very much your Excellency and I think that you know it's great to see the policy and Sharia infrastructure that has been put in place to help facilitate the development of the industry and also uh in particular the projections that showcase so much potential for growth in the region uh your Excellency renat I would like to come to you um obviously aana International Financial Center was very proactive in Central Asia when it came to Islamic finance a few years ago you launched your Islamic Finance strategy you've always played a role in promoting the development of Islamic Finance in the region from your perspective you know kazakistan we also recognized as obviously one of the largest countries and largest markets for Islamic Finance potential in the region as well how do you see Islamic Finance developing in Kazakhstan in particular but also what role do you see aifc playing as a regional h hub for the development of Islamic Finance in the broader uh Central Asia region thank you for inviting me here to speak so first of all AFC aana International Financial Center it's a special economic zone with common law something similar to adgm but in Kazakhstan we open doors in 2018 and now home for over 3,500 companies in terms of Islamic Finance first I think uh the trend is we'll see more sukuks in 2012 I was part of the devel Bank of Kazakhstan team who actually did the first ever sukuk for from CIS region but it was structured in Malaysia so it was in Malaysian ringid and just few days ago on 5th of September 12 years after we have listed first sukuks kazakhstani sukuks on our exchange Asana International Exchange which is structured within AFC a small amount on TW only $20 million but I think that's just only the start because when few years ago four years actually in 2020 when listed first green Bond it was only $2 million and now the overall Market is over $2 billion and we've seen some issues over $200 million us actually from same Kazakhstan Development Bank so I think this Market is going to go hugely second is of course retail uh we as his Excellency mentioned there is a huge population who are practicing uh Muslims and they I feel like they are unbanked they don't have access to simple instruments like deposits and then the mortgages so that market is definitely going to grow we have done our survey Islamic Finance survey even within uh the our population we see that the demand for deposits can be potentially 6 billion US do third I think we will see more institutions International institutions and especially from the region to come to Kazakhstan uh already Abu Dhabi Commercial Bank has an uh subsidiary in Kazakhstan as part of when they acquired alhilali in 2021 so they're going to revise the strategy and hopefully some emphasis given will be given to Islamic finance and some of you may know this year Lea Bank from Qatar also closed the transaction and now they have subsidiary B Bank in Kazakhstan as well so there is huge potential again on this side I have met with the CEOs and headquarters of these Banks and propos them to develop the Islamic finance and within the AFC so that's my three points on how this going to develop what AFC does is first of all of course the regulatory framework creating the market and uh as you said there are number of Institutions who do takao and Etc they all register in AFC and they licensed by AFC which is the ground where they can start their doing business in the whole region we will be improving we work with the Islamic Development Bank with actually am money advisers to improve our regulatory framework second of course capacity building again we've done number of researches on the potential of the market and we'll be keep on doing it and uh raising the level of uh knowledge about the potential in the market and marketing whole region uh for the in institions who provide this kind of uh services and third is a regional cooperation we're ready to share our knowledge and actually help to build the capacities for our uh neighbors as we have done again with green and sustainable Finance uh we have helped to develop same Frameworks and approve their taxonomies for green projects in kistan in usbekistan in aeran uh with that help this year for example aani Bank issued first ever green bond in aeran so we're going to follow that path and use that model for Islam Finance no that that is a fantastic answer I think you correctly touched upon all the key points the role of capital markets and sukuk and the potential for growth there the retail example we have seen in many markets Islamic Finance become an instrument for financial inclusion for many consumers and I think that you know most importantly the fact that International institutions from the GCC are you know taking a presence in kazakistan taking a presence of Institutions there is a practical validation of what we say in the theoretic side for the potential of Islamic Finance in the region that they want to be involved and be a part of indeed Dr Helman I want to come to you and you know uh his Excellency Rath ended by talking about the importance of you know thought leadership and reports to create awareness and understanding of the potential and one of the Strategic outcomes of the partnership between Islamic Development Bank and Eurasia Development Bank is this upcoming report on the potential of Islamic Finance in Central Asian region um I know the report is intended to be launched soon but could you share some insights that have come out of that report for the benefit of the audience please thank you thank you brother Musta very good morning everyone Salam alikum and I think first of all I would like to acknowledge the presence of uh the chairman of the EDB management board Mr Nikolai uh this is the second time we are meeting in two weeks consecutively what a pleasure it's just the icing on the cake right a second Mr reat and uh welcome to Abu Dhabi although I'm not really from Abu Dhabi and Miss Maya yeah right um you know the research that has been going on for quite some times now uh to me and our team at the Islamic Development Bank Institute we have been feeling that this is the moment of Discovery because as you all know the central a region inherits a great civilization a great tradition and history and now we are getting into uh you can say trying to discover and unleash the ant potential within that region and and um this is obviously part and parcel of the grittle collaborative work as mentioned by the chairman Mr n earlier uh you know there is a plan to create Islamic window within idb and so that it can eventually spill over the other you know stakeholders within the regions to be part and parcel of the Islamic Finance or Islamic economy ecosystem within that part of spatial region and uh we did some qualitative and quantitative projection and uh I'm sure as part of the an it has been highlighted by Mr Nikolai as well that by 2033 we are expecting to uh witness nearly 6.5 billion of you know asset in terms of Islamic banking not to mention the great potential of suku but at the same time we also very mindful that the pecularities of the region is something that we have been taking into account because obviously if we try to create a mapping or overview of different regions we talk about Central Asia southeast Asia Indian subcontinent the M as well as the European countries those things will be giving us a set of menu so to speak with all the strength and weaknesses and let's let's let's be mindful that uh you know it's just a matter of time that uh we will be seeing a great uh you know the sleeping giant so to speak will be you know Awakening and uh in that respect I would like to summarize my uh our overview in three words you know istb of course I'm here not to talk about the Islamic Development Bank being the AAA rated uh MDB or Islamic MDB I would like to see or our impression about Central Asia Islamic Finance going forward into three letters and this happens to be AAA as well okay uh the first a is uh aptitude I.E the talent the great uh you know uh immense potential that uh the the region possesses is is is is great and uh it cannot be taken lightly the second one is the attitude right what we have been seeing and what we have been feeling so far with the colleagues and the counterparts within this part of the world is amazing we are welcoming we are open to new ideas despite certain challenges and the third one uh by looking into the future we will not be surprised if they will be reaching the new altitude people have been saying so far that the Middle East perhaps to some extent southeast Asia Malaysia being being one of the powerhouses in Islamic finance and then Indonesia coming forward as well nowadays they are the so-called darling of the Islamic Finance industry so in the future going forward you know uh interconnecting with the old tradition Rich tradition and Heritage if the central Asia region becoming the new Giant and they are reaching the new altitude so we have to be celebrating this moment Al together thank you so much thank you Dr Helman and um aptitude attitude and altitude a very nice way to showcase the talent the uh Outlook and the ambition for for the region sister Maya I want to bring you into the conversation and you know it's always the case that everybody is very optimistic about Islamic Finance you know people are on board they talk about the potential but then the real challenges come in the implementation and one of the biggest challenges all always the Sharia uh considerations putting in place the right framework putting uh you know getting things approved having appropriate legislation regulation to align with the uh Sharia standards and the requirements of sharia contracts right as a representative of a leading Sharia adviser that operates in the central Asia region what do you see as some of the key challenges and opportunities for Islamic Finance in the market and more importantly what should governments and other leading institutions be doing to help enable and facilitate the Islamic Finance ecosystem alikum everyone thank you Mustafa um I think before I go to the to the challenges you've heard about the statistics in terms of the opportunities uh that are available uh in terms of economic growth and the size of population um in the CIS countries um and uh my Este panelists have also mentioned about you know the the intended growth I would say it's an intended growth of uh of Islamic finance and actually as Shia advisor where I cover the full spectrum of Islamic Finance in the middle of uh supply and demand this is actually the Tipping Point uh for for Islamic Finance uh the growth requires New Market and uh we look at uh CIS as a new World Market right um and between the GCC and CIS uh doesn't only represent you know a bridge between the East and the west but it's also a bridge between opportunity um and action and there is the shared uh roots in relation to sharah with the uh you know the large number of Muslim population um in the CIS country so there is that strategic alignment between uh the GCC uh with the capital uh and uh the CIS countries with the opportunities um and real economic activity because that is the Crux of Islamic Finance we need we we look into and uh you know we are attached to real economic uh activity and this will create new capital I think this is the the idea that we need to to look at in terms of uh framework I think the there there are a lot of reforms there's a lot of amendments uh being done um in the CIS countries um especially I think um let by uh aifc as a more structured you know infrastructure um over there um there are why I think this is uh this is important is because now as I mentioned this is a dynamic time and almost a golden age for Islamic Finance where you have Solutions in the market already so what we not starting from scratch you know there's harmonization in terms of standards in terms of principles there are many diversity in terms of products we need to match that and alhamdulillah sharah is very rich uh we can uh find the solution some solutions we have not found yet but that's not about sharah that's not that's about the awareness and the the expertise so I think um in terms of challenges there will be challenges um I can name you know in terms of awareness expertise uh conducive ecosystem but it's getting there uh but we have to wait we don't have to wait until the situation is ideal right because Islamic Finance is not about banking just about banking it's not just about uh Suk so we look at the opportunities in that country and work backwards private Equity VC um uh uh you know uh notes uh basically whatever that can work within the existing ecosystem and the existing legal tax framework while it is being reformed to be more conducive so we we we can work backwards and find those Solutions so the principles are there the contracts are there the standards are there uh secondly I think is um awareness uh the awareness is firstly we have to um take into consideration that the solutions the product structures Etc outside CIS may not work the same in the CIS countries because there are nuances and there are other um local uh considerations domestic considerations that we need to take into consideration so certain um customizations uh need to be put in place so I think it's very important for you know the CIS countries in addition to uh attracting uh capital from outside to also build the domestic market in terms of Islamic Finance so that can go in parallel um I I spoke at the asan Finance days uh uh Forum uh recently so I was proposing the idea of having a center of excellence in the CIS countries to actually look at the different pillars different streams uh to make up the whole Islamic economy within you know the the story of CIS countries the story of uh Eurasia and um and and I think that would uh give a better perspective of what can be prioritized now before you know the the ecosystem is ideal thank you no I think that is fantastic and as you mentioned obviously there are always local considerations things that need to be customized but you know my my my key take away from that and I want to end on that is that there is a lot of experience and expertise in different markets the Central Asian regions can learn from that they don't have to start from scratch so that they can take advantage of water is already there and accelerate the achievement of the potential for the industry in Central Asia with that I would like to take this opportunity to please uh to to end the session and please join me in thanking my fellow panelists for an excellent session thank you [Music]