Azernews.Az

It's still very early days for Islamic finance in Kazakhstan, and there are some important roadblocks to remove to enable its gradual growth, Standard & Poor's Ratings Services said in a credit FAQ "Islamic Finance Slowly Unfolds in Kazakhstan" published on June 9.

"We think product offering is insufficient, market demand is still to be estimated, and the industry needs regulatory fine-tuning," said Standard & Poor's credit analyst Mohamed Damak.

With total assets of less than $200 million at year-end 2013, by the estimate, Kazakhstan's Islamic finance is still embryonic. One Islamic bank is active, and the agency understands that a few other Sharia compliant finance companies have established very small operations as Islamic finance players.

"We think that the potential of Islamic finance will closely hinge on banks' ability to offer competitive products compared with conventional finance products," S&P said.

In S&P's view, there is room for some improvement to the current regulatory environment that would remove growth impediments. For instance, regulation does not authorize conventional banks to create Islamic windows, which has left them behind in the race to create Islamic product offerings.

"Islamic finance could help Kazakhstan to access a new class of investors looking for Sharia compliant products and contribute to widening banking penetration," added Mr. Damak. "The country has a substantial investment pipeline and could use sukuk to attract external financing."

Kazakhstan might over time become a regional Islamic finance hub if this growth materializes, S&P said.

For Islamic finance to develop in a given market, the agency sees the following as key success factors: securing the political and business community's willingness and support; establishing a central Sharia supervisory body; pricing competitively; introducing liquidity management instruments, and educating human resources on Islamic finance specificities.