Standarization and Shariah Regulations Building Trust & Projects at Scale

Salam alalayikum distinguished guests, your excellencies. Good afternoon and welcome to the Islamic Finance Summit of the Abu Dhabi Finance Week 2025. My name is Osama Ali from ADGM Academy where we focus on advancing financial education and regulatory excellence. It is my privilege today to moderate this session titled standardization and Sharia compliance and Sharia regulations building trust and projects at scale. As Islamic finance advances and expands internationally, the need for consistent regulatory and Sharia frameworks is more important than ever.

Harmonization doesn't just help investor confidence. It also helps with a crossber collaborations and innovation of products. So today we are here with a great group of panelists, global leaders in the Islamic finance landscape. Mr. Azamat Tulibi the senior managing director of Eurasian Development Bank overseeing major projects.

Mr. Reinard Victrov, the governor of the Astana International Financial Center, leading Kazakhstan's role in Islamic Finance. And last but not least, we have Aria Allah, who's the senior assistant governor of the Central Bank of the Philippines, advancing regulatory frameworks in Islamic finance. So today we'll explore how harmonization of those regulations will help build trust and projects at scale. Let me start with Mr.

Azamat. I have a question for you with regards to development banks. Now development banks are known for their role in growth, market growth. But I want to focus today on standardization of Sharia regulations and how development banks help that cause.

Yeah, thank you very much. Uh and asalam alaikum to everyone. Uh this is the great honor to be here. Uh first of all, let me express my gratitude to the postest organizers for having such event and I'm really proud to be part of this dialogue. Uh from our experience, I am the managing director at the Russian Development Bank.

So I oversee the project team in central Asian countries. Therefore I will speak from the project experience of the bank. So what we experience in irration development bank the uh the projects that we do in Russian development bank for example let's assume in gastan this becomes one of the successful cases for the for other countries we operate. So this is actually becomes standard in terms of where let's assume we made the project energy sector and this becomes standard for all other countries for all upcoming projects for all other sponsors. This way we are actually standardizing the Sharia compliant uh principles for all our projects where we operate.

The second one that I want to express that the uh all MDBs actually has their internal rules in terms of the risk compliance and charia frameworks and this actually becomes uh as the standard for all the participants in the in the deal. Let's assume we have another project where all these uh stakeholders come up and the once the bank has internal policies this is getting applied for all the stakeholders when we are doing the deal. This is the point where actually the MDBs uh put their internal policies as a standardization for their tools. And the second and the third one uh this is the most interesting that the MDB does the large infrastructure projects especially when the the there is a crossber projects uh there is a syndication is format once we have this indication and EDB has different projects with EBRD IFC is development bank and other reputable organizations and what we do and what we experience that we all the MDBs actually enrich themselves in the syndication bill once they do the the deal over time it becomes the rule for their internal policies and they enrich by by themselves implementing the the the experience in the projects where they operate in the member countries. Therefore this is the uh this is the crucial role key key role of MDBs putting the standardization for cross border projects especially for the Islamic finance.

Thank you Aamat. It is really good to see how the link between development banks and those regulations. So if I move on to reinat and basically touching on the same point but from a slightly different perspective. So what I will look at is how the international financial center sta promote those unified governance frameworks um especially with projects at scale.

Thank you. Thank you everyone. It's my pleasure to be actually on this Islamic summit second year in a row and discuss the development of Islamic finance. For those who don't know, AANA International Financial Center is the ADGM in Kazakhstan. Basically, common law-based jurisdiction in a civil law-based country where eight years in operation, home for more than 4,800 companies registered.

And one of the areas that we focus is definitely Islamic finance development as the there is a very big growing population of practicing Muslims not just in Kazakhstan but in the countries nearby like central Asian countries like the south of Russia, Tatarstan and etc. So there is definitely a demand because we're starting to feel that big chunk of the population is getting unbanked. They don't have a fair access to the financial services and etc. And to take it further because we had a Sharia governance rules it was like an open architect. So every market participant have have their own uh Sharia advisory board and etc because you don't want to make the regulation too strict.

But now we made a step further. We created an Islamic finance advisory board. Yesterday here actually in Abu Dhabi had an inaugural meeting of our advisory board with the participation of such scholars as u Dr. Alm Dr. Adnan Ahmed Ysu Dr.

Azan Hassan and some other prominent experts in the field. So there are few models as we discussed there are countries who have again more open model decentralized where market participants have their own chario advisory boards like Singapore like AFC then there are centers or regulators who have kind of two tier you have your own advisory board but there is also centralized kind of um Sharia the board that oversees the jurisdiction and sets or certain signals or does the explanation Uh I think uh Turkey is like that. Uh and then the the the I think also more open and then there are more centralized where everything is like like a central regulator in traditional finance sets and explains all the standards. So these three different models with their own benefits from more clear regulation to more open we are somewhere in between uh because we the Islamic finance in our region is very new. So you don't want to uh impose yet certain hard regulations and you want rather the market to find its ways.

But again the same discussion that happened yesterday the harmonization of uh governance of rules explaining them we should get at some point there and it's not just only the on jurisdictional level but even internationally right in traditional finance like in capital market we have that has kind of trying to harmonize the rules uh in many countries we have um basel and etc that kind of on the banking so I think in the future we will get there but the problem is that all these jurisdictions especially in Islamic finance are in different phases. Some had we had only like few years of history of developing and having more structured Islamic finance. Uh but we are committed to it so far. We have already in uh last few years first pure Islamic bank for retail. We have uh issued finally last year uh the end of year first pure AFC originated at Suk.

Um it took us eight years as I said uh last year we were just discussing the potential of happening but it's finally happened. So we're making this small steps and what we're lucky with is to convince our traditional regulators on kind of mainland of the Kazakhstan to carve out Islamic banks from the uh regulation that restricts banks in AFC to work with the local currency and to work with the retail. uh it may sound in UAE different because you have like different amirates and they can do their own rules but in Kazakhstan where it's unitarian one country to convince central bank to give us that access wasn't easy so again we harmonization is good but also we cannot choke the market and give more uh freedom to come up with the solutions

great thank you in fact there's a specific point that you mentioned about the centralization which really leads me to the question that I wanted to ask to um Aria. Uh so from your perspective um not so much focusing on the centralization but I want to know some of the lessons learned from uh Philippines advancement in Islamic regulations especially for a non-Muslim majority country.

Yeah, thank you very much for that question. Asalamu alaykum. It's my pleasure to be here in the Islamic finance summit. You know, our experience in the Philippines has proven once again that Islamic finance can flourish even in a non-Muslim jurisdiction like the Philippines if the vision is clear and the commitment is firm. Um, in my view, the three key lessons is are the following.

First one is there has to be a legal framework um a strong legal framework in place. For the longest time, as you may know, we have one of the oldest Islamic banks in the Philippines, which is the Alammana Islamic Investment Bank of the Philippines, which has been established since 1973, but it has not really uh become a full-fledged Islamic bank because of lack of legal framework. And we had that law in n uh in 20 in 2019. Uh when that law was passed, it it practically opened the financial system of the Philippines to other players. Before the enactment of that law, we cannot allow other Islamic banking players to operate in the Philippines.

But with that law, um the system now is uh open to other players, whether domestic banks uh or foreign banks. Um the um of course the the law is a short one, but it's complete. It also mandates the government to do capacity building on Islamic banking and finance. It also provided for tax neutrality. Um the second lesson is uh there's a need to collaborate with other uh stakeholders.

So we did um hold of government approach. We create an Islamic finance coordination forum which is chaired by the central bank of the Philippines. We have members um from the Securities and Exchange Commission, from the Insurance Commission, the Deposit Insurance um corporation, even accounting and auditing standard setting bodies um in the Philippines because we want to ensure that the that the implementing regulations are synchronized. Um we know if we want to establish an Islamic finance ecosystem, you also need to develop the Islamic capital market and the takaful um industry all uh alongside the convention of the Islamic banking system. So we have that in place.

And the third one is you had to link this to a national agenda. We have a financial inclusion agenda in the Philippines. Um about 10% of the ma the population are Muslims. They are in the southern part of the Philippines. And we wanted the national government would like to provide them the financial products and services that they have been longing for.

And this is the way that the national government has has has made that and um uh now we have three Islamic banking players and takul operators. So I I'll stop there.

Excellent. Excellent. Great. So thank you very much for that uh account. Now what I want to do is I have a question for all of you.

Um but um we'll we'll stick with Aria. Um basically if you can take us through some of the barriers that will come in the way of ensuring consistency in Islamic regulations interpretation uh from your perspective and maybe how collaboration can help overcome that. Well, in my view, I think it is inherent uh because there are I think at least four school of thoughts in terms of interpreting Sharia. So we I mean it's quite difficult to have really an internationally uniform uh standards. So what we need to do is to have at least a consistent national approach on what is Sharia compliant and not Sharia compliant.

Second, we need to align with international setting bodies. the more nations um would adopt those standards, the more crossborder um consistency can be achieved. And and the third one is we need to um do capacity building so that the nation uh the different stakeholders, the players, the customers of the financial institutions are well aware about the Sharia principles.

Great. So Reinat from a international financial settlement perspective what would those challenges be?

Well first of all uh the different phase of or maturity of the Islamic finance market in uh the countries and then again for countries with the restrict small capital like ours you want to bring international capital but then you want the international investors to believe to trust in your regulation and understand it. Yeah. So exchanging ideas at least harmonizing the regulation I think is key. Another challenge is the lack of human resources or scarcity again in the new jurisdictions like ours. Um that just you need time and you also need uh experience sharing with more mature jurisdictions.

Fantastic. Azamat from a development bank perspective. Yeah, from from our perspective actually we are totally in line with what Reinat said and the just to add from from our side that the um what what we experience that uh regulators and the and and the the Sharia board can actually they they work in parallel. Uh so but the business itself and the projects they they need to move forward they have their timelines deadlines and they need to go forward. That's that's why MGBs actually can step in here and be the the the translator for for for the Sharia board and the for the regulators have understanding both languages and finding the right solutions and have and can be the the the platform for all the stakeholders to to to have that uh solution for for the project.

For the for the second maybe uh for the second point that I want to emphasize that uh MDBs can actually have their funds. Some of the MDBs have their own funds. They can provide the grant basis for the projects to make it bankable. For example, at EDB we have special funds that can can we can use on the grand basis and prepare the projects on the bankable basis. And here this seems actually like like a technical stuff but one when it when it comes to the project this actually reduces transaction cost.

This is makes creates the certain certain certainty for the investors and they actually come up for the project even though for especially for crossber projects when there is different jurisdictions they understand how it might work actually and the third one is the that I want to emphasize that the MDBs are not uh under the pressure of the benefit or the profit from the project. They don't they are not about the profit from the project. they are not looking for the for the interest rates but the they can be the every project has some contradictions in the stakeholders. So what what's what we experience that the MDBs might be the the platform to come up all the stakeholders and find the right solution. They are not about the interest for the especially for the crossber projects for the n for the national interest of the specific country.

They are for the benefit of the project. They are for the they are based on the risk profile. So they find the solution where we can actually fit for the project and for the stakeholders of all parts. So from from our experience that we see that the uh crossber projects is not about the rules it's about repeating finding specific projects that has been already installed and once we install such projects in different countries we can actually define the standards that we can move forward in terms of sharia compliance.

Great. So I'm going to follow that up with you um Azamat and uh if you can briefly tell us

how collaboration can reduce contradictions or duplication um in standards.

So that that that's what I meant uh like in my first actually answers that the MDBs they work in several countries. So once for example like uh we have set up uh let's assume bakalab project or the or or any other Islamic finance product let's assume inkistan this will be the standard for the kirus projects that we operate or vice versa once we have the kirus project we can operate inbakistan and this actually will contradict have the same view for all countries that we were operating

okay great thank you thank you very much so let's move back to Reinat from an international financial center perspective and look specifically how how the integration between conventional and Islamic finance um systems be aligned and and how can we ensure to maintain Sharia integrity?

Yeah, the first thing we've again talked about it is a lot is the harmonization of regulation and Sharia governance, right? It's still like again capital has to be able to flow freely between the jurisdictions countries right but for that the capital should feel comfortable understand the rules again this is a huge challenge other ideas I think we need to find bridges between other areas of finance for example sustainable finance all these ESG it complies with like it is so close to Sharia so as the growth in sustainable finance in ESG standards this is definitely that uh Islamic finance can work in in the same space. So I think we have to uh use and we are so you can issue like a sustainable Sharia compliant bond for example right so I think this is a good area another I think in accessibility and democratization of finance for retail is fintex has played great role so I think in Islamic finance as well this is the great pass and fintex think a little bit different the put the client in the middle right and then the demands and the interests of the client and etc. So I think the fintech development of fintech can really give boost uh in terms of the retail uh proliferation among retail of Islamic finance. But there is a big problem and we again discussed that or that needs res resolution for institutional clients.

It's uh infrastructure and especially liquidity management. This is a huge problem and like all those who studied finance conventional finance we all know TVM right time value of money. That concept kind of drives the whole treasury and money market and etc. which is not directly I guess applicable in Islamic finance but we have to come up with an alternative because again liquidity management managing your uh risks and treasury this is a huge area and if the regulation ensures resolve we can resolve it I think that can give a huge boost to institutional participation.

Absolutely. So thank you very much for that. I think that leads us also uh to central banks. Now we know that international financial centers was would incentivize um financial institutions but I want to look at it from a central bank perspective. So if you Aria can tell us how central banks can incentivize um financial institutions to adopt uh Sharia compliance regulations voluntarily.

Well, you have to create an enabling environment. Um, our in in for the Philippines, our approach is really to provide level playing field for the Islamic banking institutions. So, we have uh provided tax neutrality. Without that tax neutrality, the products of Islamic banks would be more costly because it has higher tax implications and we have that in place. We have also um amended the respective uh charters of um central banks, the deposit insurance corporation.

So to give them uh authorities to design Sharia compliant facilities that will operate uh or support the operationalization of Islamic uh banking windows that will be established by um conventional uh banking system. It's also very important to increase awareness and um understanding of the players and the customers. Uh because in the Philippines when we have one of the oldest Islamic banks and knowledge on Islamic banking is very minimal and so the central bank has been hosting many briefings and workshops to educate short and increase understanding on Islamic banking and finance. And of course we provided some reliefs because there are birth pains in terms of operating Islamic banks in terms of reporatorial requirements. We've given them a period of time for them to familiarize themselves with the mapping of the Islamic banking transactions to the financial reporting package being uh submitted to the BS uh to the central bank.

And lastly, even in the way that um we're not also penalizing them um in case there are errors in the reports and even in the creation of their shar because our approach is we have pushed the responsibility of Sharia compliance to the financial institutions. So we've given them period of time within which to create the Sharia committee. We've given them a flexibility to just have one Sharia consultant for the first three year of operations because we recognize the difficulty of finding Sharia scholars within the the Philippines. So those are some of the initiatives that the central bank has taken.

Great. Now that leads me to uh our final question and this is more of a reflection question that would really like the audience also to have a think about from your own perspective. we'll we'll stick with you but we want a very brief oneliner uh input from every one of you and the question basically is what does uh success look like um in terms of what is the what sets the stage for the next phase of building trust in Islamic finance. So if we can have a very brief word from you.

Okay. I think there has to be um more of like regulatory alignment across different jurisdictions so that the um customers and even the financial institutions themselves would have um confidence in terms of predictability of the products and services that they are providing. Of course we all know that digital way of doing things is the fad now. So there has to be technologydriven transparency also allowing them like in the in the Philippines we've allowed sandbox um we have a framework for sandbox if if Islamic banks would like to do digital uh banking operations is also uh can be accommodated in the digital banking framework of of the Philippines and and lastly we should not stifle them from innovating um I mean we're doing this also for the conventional banking system as well So our approach is whatever is available for the conventional banking system it should also be made available for the Islamic banking institutions. Thank you.

Absolutely not.

Same uh I have to repeat I mean like what does we how do we build our trust right we by understanding that there are set of rules everyone knows them everyone understand them and everyone respects them obliges to them and if someone breaches it they will get punished right then and the system does not allow that. So same in the Islamic financing that we we discussed the difficulties but we uh to for it to boost and people to gain trust we kind of have to have at least the rules that everyone understands and agree to and it's a huge challenge and we've been discussing it for for for the last 30 minutes right so uh if we can as a global community or at least maybe starting regionally move into defining those uh governance rules that we all agree to and respect and then we test it by the transactions and etc. That's that's the building blocks necessarily for trust I believe.

Great last words.

Yeah, from from our perspective what we see that we all mentioned that like different currencies has different uh levels of developing the Islamic instruments. Some countries are well advanced, some are still are on the way they're building the ecosystems. what we just like announced it as irrational development bank like last year we announced that we are going to build inside the EDB the Islamic window department so we have built that after that we announced that we will adopt the internal rules for with Sharia compliance we did that after that we announced that we are going to make the first projects and move forward what I'm saying that here uh we all this was done with the Islamic with the support of Islamic development bank what I want to say that Once the initiative is there all the everyone who is in the market who actually all went like far away and has different experience they need to support such institutions such of initiatives of other who is are still on the way. I think this is the actually the the success to reaching for the for the for the for the Islamic instruments.

Great. Thank you. Well, thank you very much our distinguished panelists for a great discussion. Um we've learned a lot. I think we can conclude that harmonization and standardization of Sharia compliance regulations will pave the way for help investor confidence and crossber collaborations as well as innovation in projects.

These collaborations are very very important to build trust in Islamic finance and transform projects at scale. Thank you. Enjoy the rest of the day.