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International scientific-online conference
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IMPLEMENTATION OF ISLAMIC INSURANCE IN
UZBEKISTAN'S LEGAL SPHERE
Imomaliev Temur Rustamovich
Chief legal counsel at “Uzbekinvest” EIIC” JSC
https://doi.org/10.5281/zenodo.14619362
Introduction
Uzbekistan, a country strategically located in Central Asia, has been
undergoing significant economic reforms and modernization over the past few
decades. Among the various sectors undergoing transformation, the insurance
industry stands out as one of the key areas of focus. With a population that is
predominantly Muslim, there has been growing interest in introducing Islamic
insurance (Takaful) as an alternative to conventional insurance models. This
shift is driven by the increasing demand for financial products that are
compliant with Islamic principles, and a broader push to diversify Uzbekistan’s
financial system.
Islamic insurance is governed by principles of mutual cooperation, risk-sharing,
and ethical investment, which contrasts with the profit-maximizing motives of
traditional insurance. This article explores the legal and regulatory framework
surrounding the implementation of Islamic insurance in Uzbekistan and the
challenges and opportunities it presents.
Legal Framework for Islamic Insurance in Uzbekistan
The legal framework for Islamic insurance in Uzbekistan has evolved
gradually over the last few years, reflecting the country’s broader commitment
to modernization and integration with global financial markets. Uzbekistan,
which gained independence in 1991 after the dissolution of the Soviet Union,
had a predominantly state-controlled financial system for many years. However,
since the early 2000s, there has been a concerted effort to diversify financial
services, attract foreign investment, and promote financial inclusion.
In 2018, Uzbekistan took its first steps toward introducing Islamic finance into
its legal structure by adopting a law that allowed for the development of Islamic
banking and finance. This law set the groundwork for the gradual introduction
of Islamic insurance (Takaful) by recognizing the principles of Shariah-
compliant finance and creating a legal framework for its development.
A significant milestone occurred in 2020 when the Uzbek government, through
its National Bank and the Central Bank of Uzbekistan, issued a series of
regulations governing Islamic banking and insurance. These regulations outlined
the requirements for the establishment of Takaful operators, the licensing
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process, and the operational guidelines for Shariah-compliant insurance
companies.
Under these regulations, Takaful providers are expected to operate under a
cooperative model where the participants contribute funds into a pool to cover
potential risks. A Takaful operator manages the pool and administers claims
according to Shariah principles, which prohibit interest (Riba), gambling
(Maisir), and uncertainty (Gharar).
Key Legal Provisions for Takaful Operators
The legal framework for Islamic insurance in Uzbekistan is built on a foundation
of transparency, regulatory oversight, and Shariah compliance. Some of the key
legal provisions include:
1.
Licensing and Registration
: Islamic insurance providers must be
registered with the Central Bank of Uzbekistan, and their operations must be
licensed by the government. The licensing process is designed to ensure that
only qualified entities with the necessary expertise and financial stability can
operate within the Islamic insurance market.
2.
Shariah Compliance
: To ensure that operations align with Islamic
principles, Takaful providers are required to establish a Shariah supervisory
board. This board consists of experts in Islamic law who review the products,
services, and operations of the Takaful provider to ensure that they are free
from any elements that violate Islamic teachings.
3.
Risk Sharing and Cooperation
: The core principle of Islamic
insurance is risk-sharing, rather than risk transfer. In a Takaful scheme,
participants pool their resources and share the risk of financial loss. This
cooperative model is seen as ethically superior to traditional insurance, where
risk is transferred to a third party (the insurer).
4.
Investment Restrictions
: The legal framework for Islamic
insurance includes strict guidelines on how Takaful providers can invest the
pooled funds. Investments must comply with Shariah principles, meaning they
must be free from activities such as alcohol production, gambling, or any
ventures involving interest-bearing debt.
5.
Governance and Disclosure
: Takaful operators are required to
maintain high standards of governance, transparency, and disclosure. They must
regularly provide information to regulators and participants regarding the
management of the risk pool, the financial health of the company, and any other
relevant information that might affect participants' interests.
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Challenges in Implementing Islamic Insurance
While the legal framework for Islamic insurance in Uzbekistan is steadily taking
shape, several challenges remain in the full implementation of Takaful in the
country. These challenges include:
1.
Lack of Awareness
: One of the most significant hurdles to the adoption
of Islamic insurance in Uzbekistan is a lack of awareness and understanding of
how Takaful works. The concept of risk-sharing is relatively new, and many
individuals and businesses in Uzbekistan are more familiar with conventional
insurance models. Education and awareness campaigns are essential to help the
public understand the benefits of Shariah-compliant insurance.
2.
Limited Infrastructure
: The development of a fully functional Takaful
market requires a robust infrastructure, including skilled professionals
(actuaries, underwriters, and claims adjusters) who are familiar with both
Islamic finance principles and the practical aspects of the insurance industry.
Building this capacity within Uzbekistan’s workforce is crucial for the success of
Islamic insurance.
3.
Regulatory Gaps
: While the legal framework for Islamic insurance is in
place, further refinement and adaptation are needed to address practical issues.
For example, there is a need for more detailed regulations regarding the
handling of claims, dispute resolution, and reinsurance (retakaful)
arrangements. A clearer regulatory framework will help mitigate risks and
ensure that the Takaful market operates smoothly.
4.
Competition from Conventional Insurance
: Conventional insurance
companies already dominate the Uzbek insurance market, and they have
established brand recognition and customer trust. Islamic insurance providers
face the challenge of competing with these entrenched players while convincing
customers to adopt a new and unfamiliar model of insurance.
5.
Shariah Compliance Challenges
: Ensuring that all aspects of Takaful
operations are fully compliant with Islamic law is an ongoing challenge. Shariah
compliance must be rigorously monitored, and Takaful operators must avoid
practices that could be deemed non-compliant, such as engaging in prohibited
investments or using interest-based financing.
Opportunities for Islamic Insurance in Uzbekistan
Despite these challenges, the introduction of Islamic insurance in Uzbekistan
offers several significant opportunities:
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1.
Financial Inclusion
: Islamic insurance products can help increase
financial inclusion in Uzbekistan, particularly in rural areas where traditional
insurance may not be widely available or trusted. Takaful’s cooperative and
community-focused model could appeal to individuals who are wary of
conventional insurance products due to concerns about interest or ethical
issues.
2.
Attracting Foreign Investment
: By introducing Islamic insurance,
Uzbekistan could attract foreign investors and capital, particularly from
countries with large Islamic finance sectors, such as the Gulf States. This could
provide a significant boost to the Uzbek economy and the financial services
sector.
3.
Diversification of the Insurance Market
: The introduction of
Takaful could diversify Uzbekistan’s insurance market, offering consumers more
choices and catering to different preferences. The market for Islamic finance is
growing globally, and Uzbekistan’s move to integrate Islamic insurance into its
legal system could help position the country as a regional leader in Islamic
financial services.
4.
Development of Islamic Finance Ecosystem
: The introduction of
Islamic insurance is a key part of the broader development of an Islamic finance
ecosystem in Uzbekistan. As more Shariah-compliant financial products become
available, it could encourage innovation and competition, benefiting the
economy as a whole.
Conclusion
The implementation of Islamic insurance in Uzbekistan’s legal sphere is a
significant development in the country’s efforts to diversify and modernize its
financial sector. With a supportive legal framework in place, Uzbekistan is well-
positioned to capitalize on the growing demand for Shariah-compliant financial
products. However, the success of Islamic insurance will depend on overcoming
challenges related to awareness, infrastructure, and competition. If these
challenges are addressed, Islamic insurance could play a crucial role in fostering
financial inclusion, attracting investment, and contributing to the development
of a more diverse and ethical financial system in Uzbekistan.
