Islamic Finance

The financial crisis revealed a number of problems in the global financial system, which led to a recession in the global economy. At the same time, the postulates of the financial system of values contributed to the formation of an unbalanced financial system: limited regulation of market relations and maximum profitability, if possible.

The main causes of the crisis were the deregulation of the financial market and the formation of fictitious capital. The emergence of new financial instruments and financial institutions that are outside the traditional regulatory and Supervisory framework has led to the formation of a huge amount of money supply that is not backed by real assets. Financial capital, which is managed and accumulated through complex schemes, has become a kind of virtual capital that does not correspond to the volume of production in the real sector of the economy. Financial resources have lost their original purpose – to ensure the promotion of real goods and material goods. This contributed to the growth of speculative capital and the emergence of imbalances in the development of the world economy. For example, according to the Bank for international settlements, in 2008 the volume of the global OTC derivatives market was 591.9 trillion. doll. US, which is 9.5 times higher than the world's gross product (62.2 trillion. doll. In other words, only 10% of derivatives served the real economy.

Thus, there is a need to create an effective financial system that is linked to the real production process and secured by real assets. Here, a special role is played by Islamic financial instruments that are directly related to the production process and allow to localize existing risks.

In his annual Address to the people of Kazakhstan "New decade – new economic growth – new opportunities" on January 29, 2010, the Head of state noted the need to form the domestic stock market as a regional center of Islamic banking with the entry of Almaty into the top ten financial centers in Asia.

The Republic of Kazakhstan has created a legal framework for organizing the activities of Islamic banks and organizing Islamic Finance. Thus, on February 12, 2009, the Law of the Republic of Kazakhstan "on amendments and additions to certain legislative acts of the Republic of Kazakhstan on the organization and activities of Islamic banks and the organization of Islamic Finance"was adopted.

The main set of changes for the introduction of instruments of Islamic financing, is associated with the Law of the Republic of Kazakhstan "On banks and banking activities in the Republic of Kazakhstan" aimed at creating a legal basis for the functioning of Islamic banks, the removal of restrictions preventing the introduction of Islamic banks, the definition of forms and methods of state regulation and supervision of Islamic banks, the list and procedure of Islamic banking operations.

Amendments to the Law of the Republic of Kazakhstan "on the securities market" provide for the issuance and circulation of Islamic securities (sukuk).

Amendments to the Law of the Republic of Kazakhstan "on investment funds" provide for the possibility of creating Islamic investment funds. At the same time, shares and units of Islamic investment funds are also considered by the law on the securities market as Islamic securities.

On July 22, 2011, the Law of the Republic of Kazakhstan "on amendments and additions to certain legislative acts of the Republic of Kazakhstan on the organization of Islamic Finance" was adopted, according to which the issue of state Islamic securities was allowed, as well as the list of issuers of corporate Islamic securities was expanded.

Thus, the main requirements for the activities of Islamic banks and for the issue of Islamic securities are established (prohibition of charging interest in the form of interest, financing activities that contradict the norms of Islam, mandatory presence of a Council on the principles of Islamic Finance in Islamic banks and the creation of an Islamic special financial company for the issue of Islamic securities).

There are no restrictions on the participation of Islamic banks in the authorized capital of legal entities, as well as restrictions prohibiting Islamic banks from engaging in activities other than banking when financing production and trading activities. Thus, Islamic banks are allowed to participate in trading operations and share profits and losses with their clients.

In addition, the following Islamic banking products have been identified that are adapted to the civil law institutions of Kazakhstan:

• non-interest bearing demand deposits;
• trust management of money (investment Deposit) (Mudaraba);
• Bank loan operations without charging remuneration (card al-Hasan);
• trade Finance (Murabaha);
• financing of production and trade activities on the terms of partnership (Musharaka);
• rent (leasing) (Ijara);
• Agency services in the framework of Islamic banking (Wakala).

Also, conditions have been created for the issuance and circulation of the following types of Islamic securities (sukuk):

• shares and units of Islamic investment funds;
• Islamic rental certificates (al Ijara);
• Islamic certificates of participation;
• and other securities recognized as Islamic securities in accordance with the legislation of the Republic of Kazakhstan.

At the same time, issuers of corporate Islamic securities can be legal entities that are residents of the Republic of Kazakhstan.

In addition, the issue of state-owned Islamic securities is allowed. In accordance with the Budget code, the Issuer of state-issued Islamic securities is the Central authorized body for budget execution, which determines the volume, terms and conditions of each issue of such state-issued securities.

Islamic banking products are subject to a separate tax regime that provides tax incentives equivalent to traditional financial transactions (financial transactions are exempt from value added tax)

In order to provide an opportunity and ensure accessibility to the public in investing in Islamic securities, the fee for processing electronic orders for transactions with Islamic financial instruments in the Central securities Depository JSC has been canceled.

Also, for the development of Islamic Finance, a separate sector "Islamic securities" is provided in the official list of Kazakhstan stock exchange JSC.

The regulatory framework for accounting for Islamic Finance operations includes additions to the plans of accounts (special balance sheets for accounting for Islamic Finance operations) and instructions for accounting and preparation of financial statements by Islamic banks and Islamic special financial companies. The legal framework for accounting in the Republic of Kazakhstan was developed on the basis of the standards Of the organization for Accounting and Audit for Islamic Financial Institutions (AAOIFI) within the framework of the General principles and bases of IFRS.

The instructions of the NBK provide for the accounting of almost all operations of Islamic banks and Islamic special financial companies: Mudaraba, Murabaha, Ijara, Musharaka, Istisna, sukuk.

On April 27, 2015, the Law of the Republic of Kazakhstan "on amendments and additions to certain legislative acts of the Republic of Kazakhstan on insurance and Islamic Finance" was adopted, including issues of Islamic insurance, banking and leasing. This Law deals with issues of Islamic insurance, including the introduction of the concepts "Islamic insurance (reinsurance) organization", "Islamic insurance Fund", defining the basic principles of Islamic insurance, establishing requirements for the activities of an Islamic insurance (reinsurance) organization, the procedure for forming, accounting and using an Islamic insurance Fund, establishing requirements for the content of an Islamic insurance contract, the procedure for paying remuneration to an Islamic insurance (reinsurance) organization; improvement of legislation on the activities of Islamic banks, including the recognition of "commodity Murabaha" (financing as a commercial intermediary with the provision of commercial credit) as a banking operation of Islamic banks, the definition of administrative mechanisms and taxation methodology for this operation, as well as issues of accepting deposits by Islamic banks using the "Wakala" principle, as well as legislative consolidation of the basic principles of Islamic leasing.

On November 24, 2015, the Head of state signed the Law of the Republic of Kazakhstan "on amendments and additions to certain legislative acts of the Republic of Kazakhstan on non-performing loans and assets of second-tier banks, provision of financial services and activities of financial organizations and the National Bank of the Republic of Kazakhstan". The law provides for improving the existing structure of issuing state-owned Islamic securities and creating conditions for converting traditional banks into Islamic banks.

The possibility of reorganization of the traditional Bank, in the form of conversion into an Islamic Bank and stipulates the procedure for issuing and grounds for denial of the permit by the authorized body for voluntary reorganization of the Bank in the form of conversion into an Islamic Bank by the resolution of Board of National Bank of the Republic of Kazakhstan from January 28, 2016 № 15 "On approval of Rules of issue of permission to voluntary reorganization of the Bank in the form of conversion into an Islamic Bank and refusal to issue permission".

• On February 12, 2009, the Law of the Republic of Kazakhstan "on amendments and additions to certain legislative acts of the Republic of Kazakhstan on the organization and activities of Islamic banks and Islamic Finance organizations" was adopted»
• On June 7, 2009, the Law of the Republic of Kazakhstan "on ratification of the Agreement between the Government of the Republic of Kazakhstan and the Government of the United Arab Emirates on opening an Islamic Bank in the Republic of Kazakhstan" was signed, which served as the basis for opening The first Islamic Bank in the country – al Hilal Bank JSC (which is a 100% subsidiary of Al Hilal (UAE))
• President's message to the people of Kazakhstan "New decade – new economic growth – new opportunities" dated January 29, 2010:

"...It is necessary to make the domestic stock market work, which by 2020 should become a regional center of Islamic banking in the CIS and Central Asia and enter the top ten financial centers in Asia."

• Strategic development plan of the Republic of Kazakhstan until 2020, approved by decree of the President of the Republic of Kazakhstan dated February 1, 2010 No. 922: "...As part of the formation of a full-fledged stock market in Kazakhstan and its integration with the international capital market, the regional financial center of Almaty will be further developed. In the strategic perspective, the state will create the necessary conditions for the development of a competitive financial center in Almaty that meets international standards, and its entry into the group of ten leading financial centers in Asia.

... By 2020, the domestic stock market will become the regional center of Islamic banking among the countries of the Commonwealth of Independent States and Central Asia."

• Concept of development of the financial sector of the Republic of Kazakhstan in the post-crisis period, approved by decree of the President of the Republic of Kazakhstan dated February 1, 2010 No. 923: "...Work will continue on the implementation of the ... Plan for the development of the regional financial center of Almaty until 2015, approved by the decree of the government of the Republic of Kazakhstan dated January 30, 2009 No. 90. ... As one of the additional sources of attracting resources, further development will be provided by Islamic Finance…»
• Speech by the President of the Republic of Kazakhstan at the 38th session of the Council of foreign Ministers of the Organization of Islamic Cooperation on June 28, 2011:

"Kazakhstan has opened an Islamic Bank. We are actively promoting Islamic Finance and benchmarking of Islamic financial instruments in the region. Suggest ….. develop Almaty as a regional financial center using Islamic Finance»

• in August 2010, the Agency of the Republic of Kazakhstan for regulating the activities of the regional financial center of Almaty, together with government agencies, approved the Roadmap for the development of Islamic Finance in Kazakhstan for 2010-2012.
• On October 20, 2011, the Head of state issued instructions No. 61-17. 307 on the development of the system of Islamic Finance in Kazakhstan
• On November 17, 2011, the national Bank of the Republic of Kazakhstan was admitted as an Associate member of the international organization " Islamic Financial Services Board)»
• On March 29, 2012, the government of the Republic of Kazakhstan approved the Roadmap for the development of Islamic Finance in Kazakhstan until 2020
• in July 2012, development Bank of Kazakhstan JSC issued debt securities in accordance with the laws of Malaysia (sukuk al-Murabaha) in the amount of 240 million Malaysian ringgit (about 76.7 million USD), 38% of which was distributed among Kazakh investors
• On June 1, 2014, an agreement was signed on the provision of technical assistance (grant) by the Islamic Development Bank to the National Bank of the Republic of Kazakhstan to improve Kazakhstan's legislation on Islamic Finance
• September 2014 round table "Development and regulation of Islamic financial institutions" was held for the regulators of the CIS and Central Asia
• October 2014, the President of the Republic of Kazakhstan was awarded the Prize for world leadership in the field of Islamic Finance in the framework Of the Global Islamic Finance awards (GIFA)
• October 2014, the Chairman of the National Bank participated in the world Islamic economic forum (WIEF) in Dubai, UAE
• November 2014, the British Embassy in the Republic of Kazakhstan organized a seminar on "Islamic Finance" for representatives of the National Bank and Islamic financial institutions
• December 2014 Deputy Chairman of the National Bank participated in the world Islamic banking conference (WIBC) in Manama, Bahrain
• December 2014, the national Bank became a member of the accounting and audit Organization for Islamic financial institutions (AAOIFI) and the International Islamic financial market (IIFM)
• February 2015, the national Bank together with CIBAFI held a certified Islamic Banker seminar " in Almaty
• in March 2015, the national Bank held a seminar on Islamic Finance with the invitation of Daoud Bakar in Almaty
• in April 2015, the National Bank signed an agreement with one of the world's leading consulting companies to provide consulting services in the framework of technical assistance to the IDB
• April 2015, a Law was adopted that includes issues of Islamic insurance, banking and leasing
• in may 2015, the National Bank held the IFSB Summit 2015 in Almaty
• in may 2015, the National Bank jointly with ARIF issued a brochure on Islamic Finance
• in June 2015, the National Bank jointly with IRTI held specialized seminars in Astana and Almaty
• in August 2015, the National Bank jointly with ARIF held a seminar for the teaching staff of higher educational institutions of Kazakhstan
• in November 2015, the law on the organization of Islamic Finance was adopted (creating conditions for issuing sovereign Islamic securities and converting traditional banks into Islamic banks)
• December 2015: interview of the President of the Republic of Kazakhstan on Islamic Finance published in Isfire magazine
• December 2015 Kazakhstan Islamic Country Report was presented at the 2015 world Islamic banking conference in Manama, Bahrain

August 2017, Zaman-Bank Islamic Bank JSC was issued a license to conduct banking and other operations of the Islamic Bank