Why is this important
The expansion of Islamic financing to the non-bank sector opens access to Shariah products for small businesses and individuals who do not have access to banking services. This increases financial inclusion and creates competition in the alternative financing market.
What happened
- Microfinance organizations, pawnshops, and factoring companies were granted the right to provide Islamic financial services;
- Available financing types: Islamic lease (ijara), mudaraba, murabaha, musharaka and salam;
- The capital adequacy ratio must be at least 10% (previously, the requirement was only for MFOs);
- Organizations are required to report monthly to the Central Bank on Islamic services;
- Hopeless assets must be written off against reserves within three business days.
Types of Islamic financing
- Ijara — Islamic lease;
- Mudaraba — financing with profit distribution between the investor and the manager;
- Murabaha — trade financing with deferred payment and agreed markup;
- Mushoraka — partnership financing with profit and loss sharing;
- Salam — prepayment financing of agricultural products.
Context
The Central Bank has amended the “Regulations on the Coordination and Regulation of the Activities of Microfinance Organizations and Pawnshops”, extending its effect to factoring companies. This unifies the regulation of the non-bank financial sector.
Earlier, licensing of Islamic banks began in Uzbekistan. Now Islamic products are becoming available through MFOs that work with small businesses and individuals in the regions. This is especially important for religious entrepreneurs who avoid interest-bearing loans.
The capital adequacy requirement (10%) is aimed at increasing the financial stability of organizations when working with new products. Increased reporting to the regulator will allow the Central Bank to monitor the development of Islamic financing in the country.
