Islamic finance is a system of financial transactions conducted in accordance with Sharia principles. It prohibits the receipt of interest (riba) and is built instead on the equitable sharing of risk and profit between the provider and the client. Active discussion of introducing Islamic finance services in Uzbekistan began in 2018, and since then a series of legislative acts have been adopted that lay the groundwork for an expanding Sharia-compliant credit market.
01Legislative Framework
The primary instruments governing Islamic finance in Uzbekistan are:
- Law of the Republic of Uzbekistan 'On Non-Banking Credit Organisations and Microfinance Activities' dated 20 April 2022, No. ЗРУ-765.
- Presidential Decree 'On Additional Measures to Increase the Role and Share of Microfinance Services in Entrepreneurship Development' (Decree of the President).
- Presidential Decree 'On Measures for the Further Development of the Capital Market' dated 13 April 2021, No. С6207.
- Central Bank Resolution 'On Approval of the Regulation on the Procedure for the Provision of Islamic Finance Services by Microfinance Organisations' dated 19 July 2024, No. 23/4.
02Who May Provide Islamic Finance Services
Islamic finance services in Uzbekistan are currently provided exclusively by microfinance organisations (MFOs). The maximum amounts are capped at the micro-loan threshold — 300,000,000 UZS for businesses and 100,000,000 UZS for individuals.
The detailed procedure for providing Islamic finance services is developed by the Central Bank of the Republic of Uzbekistan. The Resolution of 19 July 2024 establishes which instruments MFOs may offer and the operational conditions they must observe.
Under the Resolution, MFOs are authorised to provide the following Islamic finance instruments:
- Ijara Muntahiya Bittamlik — a lease arrangement with an option for the client to purchase the leased asset at the end of the term.
- Islomiy Ijara — the transfer of property (acquired by the MFO at the client's request, or already on the MFO's balance sheet and not in use) to the client for temporary possession and/or use for an agreed period and at a fixed fee.
- Murabaha — financing by selling goods to the client on a deferred-payment basis at a pre-agreed price and mark-up.
- Mudaraba — financing in which the MFO provides capital for the client's commercial activity; profit is distributed between the parties in pre-agreed proportions.
- Musharaka — a partnership based on profit-and-loss sharing, in which the MFO engages in business activity jointly with one or more clients or participates in the charter capital of legal entities.
- Salam — financing by way of the MFO pre-paying in full the price of goods to be delivered by the client (supplier) at a future date.
A mandatory condition for providing Islamic finance services is the establishment of a Special Council for the Coordination of Islamic Finance Issues. The Special Council is responsible for ensuring that the MFO's Islamic finance activities comply with applicable legislation and the requirements of the Regulation.
The Special Council is established by the participants (shareholders) at a general meeting and must consist of at least five members. Alternatively, an MFO may, by resolution of the general meeting, engage on a contractual (outsourcing) basis a Special Council formed under a specialised association or union, provided it meets the composition requirements set out in the Regulation. At least one member must hold a higher education degree in Islamic law, one must hold a higher legal education degree, and the remaining members must each hold an international certificate in Islamic finance.
03Principles of Islamic Finance
In Islamic finance, money is treated not as a commodity for sale but as a medium of exchange and a measure of value. The subject matter of a transaction between a provider and its client must be real goods, property, or a partnership in which each party bears corresponding risks.
Prohibition on Riba (Interest)
Islamic finance prohibits income in the form of guaranteed interest on the placement or attraction of funds. Instead, an MFO operating under Islamic finance principles earns income through the resale of goods and other assets, the leasing of assets with a subsequent buyout option, and investment in business.
Linkage to the Real Economy
All Islamic finance transactions must be linked to specific assets, goods, or services. Funds are provided for real economic activity, not for monetary speculation.
Shared Risk and Responsibility
Unlike conventional lending — where the client bears the entire burden regardless of business outcomes — Islamic finance is built on the principle of partnership and joint responsibility. Neither party to a transaction is insulated from the economic result of the underlying activity.
04Islamic Finance Instruments in Detail
Murabaha (Deferred-Sale Financing)
Murabaha is a form of Islamic financing in which the MFO purchases goods required by the client from a seller and then sells those goods to the client at a pre-agreed mark-up, with deferred payment. The price of the goods and the amount of the mark-up are fixed in the contract in advance and may not be linked to future or uncertain indicators. The client makes payment within the agreed schedule, including on an instalment basis. Money, foreign currency, crypto-assets, gold, and silver may not be the subject of a murabaha transaction.
Islomiy Ijara (Islamic Lease)
Islomiy Ijara is a form of financing in which the MFO acquires property and transfers it to the client for temporary use under a lease agreement. The arrangement is provided on the basis of the client's application, and the contract must specify the lease term, the payment schedule, and the amount of payments. For an asset to be provided under Islamic lease, the MFO must hold title to it.
The MFO bears liability for any defects in the leased property. Major repairs to the leased asset are at the MFO's expense, while routine maintenance and minor repairs are at the client's expense. To mitigate the risk of bad faith on the client's part, the MFO may require security (pledge, guarantee, or deposit). For example, if the client refuses to accept the Islamic lease, the deposit may be applied to cover the MFO's actual losses.
Ijara Muntahiya Bittamlik (Lease with Purchase Option)
An MFO and a client may enter into an Islomiy Ijara agreement under which the client acquires the right to subsequently purchase the leased asset. Title to the asset passes to the client only under a separate purchase agreement.
Salam (Advance-Payment Financing)
Salam is a form of Islamic financing in which the MFO pays the client the full amount in advance for goods that will be delivered in the future. This instrument is designed to support manufacturers and entrepreneurs who require working capital before production or delivery of goods. The subject of a salam transaction must be fungible goods that can be precisely defined by quantity and quality and are capable of being weighed, measured, or counted. Money, crypto-assets, gold, and silver may not be the subject of a salam transaction.
Mudaraba (Profit-Sharing Financing)
Mudaraba is a form of partnership in which the MFO (Rabbul Mal) provides capital for the client (Mudarib) to conduct business. Profit is distributed between the parties in pre-agreed proportions. If losses arise, they are borne by the MFO (up to the amount of capital contributed), except where those losses result from bad faith or a breach of obligations by the client. Capital may be provided in cash or in the form of tangible assets with a clearly determined value.
Musharaka (Profit-and-Loss Sharing Partnership)
Musharaka is a form of Islamic financing based on partnership. The MFO and the client jointly invest funds or assets in a project and share in both profits and risks. Profits are distributed in pre-agreed proportions; losses are distributed in proportion to each party's share of the capital.
Management of the project may be carried out jointly by all partners or delegated to one of them by agreement. After losses have actually arisen, a participant may voluntarily accept a greater share — or even all — of those losses. Each party has the right to withdraw from the partnership with advance notice to the other participants and to receive its share of the capital in the manner provided for in the contract. The withdrawal of one or more parties does not terminate the partnership relationship between the remaining participants.
05Penalties in Islamic Finance Contracts
The Central Bank Regulation permits MFOs to recover a contractual penalty (neustojka) where a client fails to perform its obligations. However, all amounts received as interest-equivalent must be held separately from the MFO's profit and directed exclusively to charitable purposes. This mechanism preserves the Sharia-compliant character of the arrangement while still providing the MFO with a measure of protection against client default.
06How Advizen Can Help
Members of the Advizen team bring hands-on experience with Islamic finance structuring in Uzbekistan from their prior careers — including work on the seed investment phase of an Uzbek-based Islamic fintech startup and participation in government-level advisory projects on integrating Islamic finance instruments into domestic legislation. We assist microfinance organisations and investors in assessing which instruments are appropriate for their business model, drafting Sharia-compliant contract documentation, establishing and advising Special Councils, and ensuring ongoing compliance with Central Bank requirements.