Senate backs legal reforms to introduce Islamic banking in Uzbekistan

Senators in Uzbekistan have approved legislation paving the way for the introduction of Islamic banking, a move expected to broaden access to financial services, strengthen competition in the banking sector, and attract new strategic investors.

The law, titled “On amendments and additions to certain legislative acts of the Republic of Uzbekistan aimed at introducing Islamic banking activities,” was reviewed and adopted at a regular plenary session of the Senate of Oliy Majlis.

During the session, senators noted that Uzbekistan has in recent years undertaken wide-ranging reforms to modernize its banking system and expand financial services in line with international best practices. Against this backdrop, lawmakers emphasized the growing need to widen financial inclusion and introduce alternative banking instruments that comply with international Islamic finance standards.

To this end, the law introduces new legal provisions into two codes and seven existing laws, establishing a regulatory framework for Islamic banking activities. Among the key changes is the introduction of a dedicated license that authorizes the provision of Islamic banking services. Banks holding this license will be permitted either to operate exclusively under Islamic banking principles or to offer Islamic and conventional banking services in parallel.

The legislation also provides for the creation and operation of Islamic financial councils to coordinate matters related to Islamic finance. Such councils will be established within the Central Bank as well as in banks engaged in Islamic banking activities.

In addition, reflecting the specific nature of Islamic financial transactions, a separate chapter has been added to the Tax Code. Under the new provisions, income derived from Islamic financial activities will be treated as equivalent to interest income for tax purposes. At the same time, mark-ups applied by banks and microfinance organizations on goods sold to clients under Islamic finance arrangements will be exempt from value-added tax.

Senators said the law would help expand access to financial services for individuals and businesses, improve the competitive environment in the financial sector, and facilitate the inflow of new strategic investors into Uzbekistan’s banking and financial system.

Following the discussion, the Senate voted to approve the law.