Fitch: Central Asia’s Islamic Finance Sector Poised for Growth Amid Reforms and GCC Interest

Fitch Ratings says regulatory reforms and growing interest from Gulf investors are expected to strengthen the growth potential of Islamic finance across Central Asia, although the sector remains underdeveloped throughout much of the region.

In a new commentary report, Fitch said countries including Kazakhstan and Kyrgyzstan are likely to lead regional expansion over the coming years, while Uzbekistan and Azerbaijan continue building regulatory foundations for Islamic banking and finance.

The agency noted that despite recent progress, Islamic banking still represents a very small share of the financial sector in the region, with market share in Kazakhstan, Kyrgyzstan and Tajikistan expected to remain below 1.5% of total banking assets by the end of 2026.

Fitch said the sector’s growth potential is supported by large unbanked populations across Central Asia. According to World Bank data cited in the report, around 45% of the population in Tajikistan remains unbanked, followed by 44% in Azerbaijan, 40% in Uzbekistan, 28% in Kyrgyzstan and 13% in Kazakhstan.

The report highlighted increasing involvement from Gulf-based institutions, particularly the Islamic Development Bank, which has provided more than USD10 billion in funding to Central Asian countries as of April 2026.

Fitch said closer economic and financial links with Gulf Cooperation Council countries could help accelerate industry development, similar to the role GCC investors have played in supporting Islamic finance growth in the United Kingdom, Türkiye and Malaysia.

However, the agency warned that the sector continues to face challenges, including limited public awareness, regulatory gaps, weak product diversity, underdeveloped banking infrastructure and a lack of competitive Islamic financial products beyond religious appeal.

Among the region’s major reforms, Kazakhstan introduced a new banking law in March 2026 allowing conventional banks to open Islamic banking windows, expanding access to Islamic products beyond standalone Islamic banks.

The country has also seen growing sukuk activity, including the listing of the first retail sukuk on the Astana International Exchange in 2025 and the launch of Central Asia’s first sharia-compliant index ETF.

In Uzbekistan, new Islamic banking legislation introduced in March is expected to support the establishment of Islamic banks, while the country’s “Strategy 2030” roadmap aims to introduce Islamic products within three state-owned banks by the end of the decade.

Meanwhile, Kyrgyzstan has incorporated Islamic finance development into its 2025–2030 national banking strategy and recently approved regulations related to takaful, or Islamic insurance.

In Azerbaijan, the central bank is preparing to introduce Islamic banking through the Islamic window model, with two conventional banks already offering Islamic products under a regulatory sandbox programme running through 2027.

Fitch estimates the total Islamic finance market in Central Asia exceeded USD600 million by the end of 2025, driven mainly by Islamic banking activity, while the region’s sukuk and takaful sectors remain at an early stage of development.