Almaty-based Al Hilal Islamic Bank may expand into neighbouring markets as legislation in the Central Asian countries changes. Islamic finance is gaining popularity in the region, but Al Hilal is currently the only sharia-compliant lender in Kazakhstan.
“Our medium-term strategy is to test the effectiveness of the Kazakhstan model and then use that as a base for further expansion into other regions of the CIS (Commonwealth of Independent States) as appropriate,” said Abraham. “An important precondition for any expansion is the existence of a proper legislative framework for Islamic finance in the respective countries.”
Kazakhstan is currently reconsidering its financial legislation as the initial set of rules aimed at Islamic finance failed to spur much activity. Kazakhstan was the first former Soviet country to introduce Islamic finance rules in 2009. New legislation in favour of Islamic finance is also being developed in Azerbaijan, Kyrgyzstan and Tajikistan, which currently have secular regulatory regimes.
“Kazakhstan is a country new to Islamic finance. People still do not fully understand the mechanics of it, the advantages and the principle of work. And now, our most important task is to help people understand and accept all the details,” said Abraham. “And part of our social responsibility, as well as one of my personal corporate goals, is to increase the awareness and status of Islamic finance. It has nothing to do with business.”
New laws to be discussed in Kazakhstan’s parliament would provide the bank with a clearer framework that could translate into better commercial opportunities, Abraham said.
He also mentioned that the clarity could help new banks such as Zaman Bank, a local bank that is working to convert itself into the country’s second Islamic bank. Al Hilal posted a 46 percent increase in assets in 2013 and is on target to see asset growth of 70 percent this year, which will continue throughout 2015. This is partly explained because of the still relatively-small size of the bank with financial statements showing 16.7 billion tenge ($92 million).
Al Hilal currently works mainly with government and large corporate clients and will wait for legislation to be renewed before offering retail banking services. Islamic banks in Kazakhstan are categorised on a par with other commercial banks, known as Tier 2 banks, but current law does not extend all the tax privileges to them that conventional banks have.