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ANALYSIS OF THE UAE’S ISLAMIC FINANCIAL SYSTEM AND POSSIBILITIES OF
USING ITS EXPERIENCE IN UZBEKISTAN
Irgasheva Gulbakhor Sodiqovna
Tashkent State University of Economics
ORCID: 0009-0009-0955-664X
Abstract.
This article explores and examines the experience of the UAE, where the Islamic finance
system has significantly developed. The history of the development of the Islamic financial system in the
country, its current status, the establishment of Islamic banking, the practices of Islamic project financing,
and the obstacles to its growth along with solutions for overcoming them have been analyzed. Furthermore,
this article discusses the directions in which the UAE's experience in this field could be utilized to address
the challenges faced in the development of Islamic finance in Uzbekistan.
Keywords
:
Islamic finance system, regulatory-legal framework, Islamic banks, Islamic window, UAE,
Uzbekistan, investment projects, Islamic finance products, IsDB, ICD.
BAANING ISLOM MOLIYA TIZIMI TAHLILI VA UNING
TAJRIBASIDAN O‘ZBEKISTONDA
FOYDALANISH IMKONIYATLARI
Irgasheva Gulbahor Sodiqovna,
Toshkent davlat iqtisodiyot
universiteti
Annotatsiya.
Ushbu maqolada islom moliya tizimi sezilarli darajada rivojlangan BAAning
tajribasi o‘rganilib, tadqiq qilingan. Mamlakatda islom moliya tizimining rivojlanish
tarixi, bugungi
kundagi holati, shuningdek, islom bankchiligining tashkil etilishi, loyihalarni islomiy moliyalashtirish
amaliyoti va rivojlanish yo‘lidagi to‘siqlar va ularni hal etishdagi yechimlar tahlil qilingan. Shuning bilan
birga, islom moliyasining
O‘zbekistonda rivojlanishida uchraydigan kamchiliklarni bartaraf etilishida
BAAning ushbu soha
borasidagi tajribasidan foydalanish yo‘nalishlari ko‘rib chiqilgan.
Kalit so‘zlar:
islom moliya tizimi, me’yoriy
-huquqiy baza, islomiy bank, islomiy darcha, BAA,
O‘zbekiston, investitsiya loyihalari, islomiy moliya mahsulotlari, IsTB, XSRIK.
АНАЛИЗ ИСЛАМСКОЙ ФИНАНСОВОЙ СИСТЕМЫ ОАЭ И ВОЗМОЖНОСТИ
ПРИМЕНЕНИЯ ЕЁ ОПЫТА В УЗБЕКИСТАНЕ
Иргашева Гульбахор Содиковна
Ташкентский государственный экономический университет
Аннотация.
В данной статье анализируется опыт Объединенных Арабских Эмиратов
(ОАЭ
)
в развитии исламской финансовой системы. Рассмотрена история развития исламской
финансовой системы в стране, её текущее состояние, а также создание исламского банковского
сектора, практика исламского финансирования проектов и барьеры на пути её развития,
а
также решения для их преодоления. Кроме того, исследуются направления использования опыта
ОАЭ в развитии исламской финансовой системы в Узбекистане и устранение существующих
недостатков в этой сфере.
Ключевые слова:
исламская финансовая система, нормативно
-
правовая база, исламский
банк, исламский фонд, ОАЭ, Узбекистан, инвестиционные проекты, исламские финансовые
продукты, И
c
РБ, ИСРИК.
UO
‘
K: 339.187.62
XII SON - DEKABR, 2024
62-69
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Introduction.
Islamic finance has witnessed substantial growth worldwide and has evolved into a vital
component of the global financial system. The Islamic financial system is rapidly expanding not
only in Muslim-majority countries but also in non-Muslim nations. Notably, the Middle East,
Southeast Asia, and Africa have emerged as key hubs for Islamic finance, with countries such as
Saudi Arabia, the UAE, Qatar, Malaysia, and Indonesia making significant contributions to its
development. Malaysia is home to well-established Islamic banks and capital markets, while
Indonesia, as the country with the largest Muslim population globally, has made considerable
advancements in Islamic banking and sukuk. Furthermore, Islamic finance is gaining increasing
attention in Europe and North America, primarily driven by the rising Muslim population in
these regions. For example, the growing number of institutions engaged in Islamic finance in
London can be seen as a reflection of this increasing interest.
Islamic finance is grounded in Islamic law, or Sharia, which prohibits the charging of
interest (riba) as well as involvement in harmful activities such as alcohol production, narcotics,
and gambling. Instead of charging interest, Islamic banks operate on the basis of profit-sharing
partnerships, where the parties involved share the profits in agreed-upon proportions
according to their investments. Islamic banks have expanded their services beyond retail
banking, venturing into corporate finance and asset management. Leading Islamic banks
include Al Rajhi Bank (Saudi Arabia), Dubai Islamic Bank (UAE), and Bank Negara Indonesia
(Indonesia).
In this context, the global Islamic finance sector continues to evolve, demonstrating its
potential for contributing to a more just and ethical financial system in both Muslim and non-
Muslim countries alike.
In 2020, the total assets of the Islamic finance sector amounted to $2.88 trillion, with
projections indicating growth to $3.69 trillion by 2025. The annual growth rate between 2020
and 2025 is forecasted to average 5.5%. According to international experts, by 2023, the assets
of Islamic banks are expected to reach $3.3 trillion, reflecting an 11% increase compared to the
previous year. Due to the rising interest in Islamic financial instruments, particularly sukuk,
Islamic banks' assets are anticipated to reach $3.7 trillion by 2025.
In this research, we aim to explore the potential benefits of leveraging the experience of
the UAE - one of the leading countries in the development of the Islamic finance industry - to
further advance the Islamic finance system in Uzbekistan. The primary objective of this study
is to analyze the achievements of the UAE in the field of Islamic finance, develop scientific
conclusions, and provide recommendations for applying these practices in Uzbekistan. This not
only highlights the relevance of our research but also underscores its practical implications for
the growth of Islamic finance in Uzbekistan.
Literature review.
This research is focused on studying the experience of the United Arab Emirates (UAE) as
one of the countries where the Islamic finance industry has developed significantly, with the
aim of deriving valuable conclusions and recommendations for the development of Islamic
finance in Uzbekistan.
"Islamic finance" is a relatively new term, first used in the mid-1980s. In the 21st century,
the development of this field has reached a much higher level, and scientific research and the
preparation of analytical materials on this subject have increased accordingly. Notably, many
foreign researchers, scholars from CIS countries, as well as Uzbek scholars and researchers,
have conducted studies in the field of Islamic finance and published their findings.
The scientific works of scholars engaged in Islamic finance research contribute
significantly to the study and development of the core principles of Islamic economics. One of
the most prominent scholars in this field is Chapra (2008), who has written numerous research
papers, books, and articles on Islamic finance. In his notable work, “
The Islamic Vision of
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Development in the Light of Maqasid al-Shariah
”, Chapra deeply
analyzes the economic justice,
Islamic banking, interest-free financial systems, and their impact on modern economies,
presenting the results of his research.
Furthermore, Hasan (2013) has made significant contributions to the field of Islamic
economics and finance through numerous scholarly works. In his books
“Islamic Banking: An
Introduction" and
"Islamic Finance and Economic Development”
, he provides a comprehensive
explanation of the core principles of Islamic banking and delves into its role and relevance
within contemporary economic systems. Additionally, Hassan (2017) has undertaken an in-
depth analysis of Islamic financial systems, evaluating their impact on global economic
challenges. His book
“Islamic Finance: A Practical Guide”
offers a detailed exploration of the
practical aspects of Islamic finance and banking, while examining the economic processes that
underpin these systems.
Tariq (2020) has also conducted extensive research within the domain of Islamic finance.
His study,
“Principles of Isl
ami
c Banking”
, addresses both the theoretical foundations and
practical applications of Islamic banking, with a particular focus on the development and
operational efficiency of Islamic banking systems in the context of modern economic
conditions. His continued dissemination of research findings plays a significant role in the
ongoing development of this field.
In Uzbekistan, the number of researchers contributing to this field has been steadily
increasing over recent years. Through their scholarly endeavors and publications, these
researchers have played a pivotal role in enhancing public awareness of Islamic finance. In
particular, Zayniddinov (2023), in his research titled
“Opportunities for Utilizing Turkey's
Experience in the Development of Islamic Finance
in Uzbekistan”
, critically examines the
organization of Islamic financial services in Turkey, the practice of project financing in
alignment with Islamic principles, as well as the barriers and potential solutions to
development. He explores the feasibility of adapting Turkey's experiences to the Uzbek context,
offering well-founded conclusions and recommendations.
Researchers in the field of Islamic finance, grounded in the principles of stability, justice,
and integrity inherent in Islamic economics, have proposed alternative solutions to
contemporary economic problems. Within the scope of the present study, conclusions and
recommendations have been formulated regarding the potential application of the UAE's
experiences in Islamic finance to the specific context of Uzbekistan.
Research methodology.
In conducting this research, a qualitative approach was employed for an extensive
scientific analysis. Additionally, logical and structural analysis, along with economic-statistical,
systemic, and comparative analysis methods, were effectively utilized throughout the research
process.
Analysis and discussion of results.
The United Arab Emirates (UAE) is considered one of the countries where the Islamic
finance system has significantly developed. The development of the alternative financial system
in the country began in 1970 and spans more than 50 years. In 1975, the first Islamic bank in
the UAE, Dubai Islamic Bank (DIB), was established. Today, it is the first and oldest fully
operational Islamic bank in the world and, in terms of size, the second largest Islamic bank
globally. Dubai Islamic Bank conducts all of its financial operations based on Sharia law and has
its own Sharia board. This board, consisting of experts in Islamic finance, ensures that all the
bank's activities are in compliance with Sharia principles and certifies their conformity.
Apart from being the first and largest Islamic bank in the UAE, Dubai Islamic Bank also
plays a significant international role in promoting Sharia-compliant financial services
worldwide. The bank has established branches in several countries, including the UAE, Saudi
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Arabia, Egypt, Kazakhstan, Indonesia, and other nations. DIB solidified its position in global
Islamic banking operations starting from the 1990s.
Table 1
Timeline of Islamic Finance Developments in United Arab Emirates
Furthermore, Dubai Islamic Bank founded Dubai Islamic Bank Pakistan Limited, a wholly
owned subsidiary, which became the first Islamic bank in Pakistan to offer Priority & Platinum
Banking services and boasts the most extensive and innovative portfolio of Alternative
Distribution Channels. In 2017, the launch of Panin Dubai Syariah Bank in Indonesia marked
Year
Actions Taken
1975
The Dubai Islamic Bank (DIB) was established in the UAE, and it is recognized as the world's
first Islamic commercial bank.
1979
The first Takaful (insurance) company in the United Arab Emirates, Islamic Arab Insurance
Company (SALAMA), was established.
1985
Islamic banking law and the Supreme Shariah Authority of the United Arab Emirates have been
implemented in accordance with federal law.
1997
The second Islamic bank, named Abu Dhabi Islamic Bank (ADIB), was established.
2002
-the second takaful insurance company of the UAE, Dubai Islamic Insurance and Reinsurance
(Aman), was established.
-the establishment of the first Islamic bank through the conversion of a conventional bank:
Sharjah Islamic Bank.
2004
-Emirates Islamic Bank, a subsidiary of Emirates NBD, one of the largest banks in the UAE, was
established.
-the Dubai government issued sovereign sukuk, while the company "Emaar Properties" issued
corporate sukuk.
-the Dubai International Financial Centre (DIFC) was established, and this centre became one
of the leading hubs for Islamic financial services in the region.
2007
The "Dar al-Sharia" was established under the initiative of Dubai Islamic Bank, comprising
scholars of Sharia law and experts in Islamic finance and banking. It is a company dedicated to
dealing with matters related to Islamic finance and banking.
2008
Takaful Emarat, an Islamic insurance company, was established.
2010
The Central Bank of the UAE issued deposit certificates.
2014
The Sharjah government debuted sukuk.
2015
The Arab Scandinavia Insurance Company was transformed into a full-fledged takaful
insurance company.
2018
-"DP World" introduced financing related to sustainable development goals in the Middle East,
which also included Islamic financing.
-the establishment of the Supreme Shariah Authority was also implemented.
2019
-Majid Al Futtaim carried out the first corporate green sukuk issuance in the Middle East.
-the Dubai Financial Market (DFM) launched the first-ever DFM Shariah Index (DFMSI) in the
UAE.
2020
-The consolidation between Dubai Islamic Bank (DIB) and Noor Islamic Bank was carried out.
Additionally, mergers occurred between various Islamic financial companies, including takaful
insurers.
-Etihad Airways became the first airline in the world to issue transition sukuk.
2022
-the debut of sustainable sukuk was carried out by Dubai Islamic Bank (DIB).
-the law regarding commercial operations was implemented.
2023
-to develop the domestic sukuk market, the UAE government launched domestic treasury
sukuk.
-it was stipulated that no registration fees would be charged for issuing sukuk related to green
or sustainability goals.
-the First Abu Dhabi Bank issued the first green sukuk in the national currency.
-the Supreme Sharia Authority developed guidelines for Islamic financial institutions to
implement sustainability goals (SDGs).
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DIB's first initiative in the Far East, with the bank holding nearly 25% of the shares in the
Indonesian bank.
Additionally, in May 2017, Dubai Islamic Bank PJSC received a license from the Central
Bank of Kenya (CBK) to operate its subsidiary, Dubai Islamic Bank Kenya Ltd. At the beginning
of 2020, Dubai Islamic Bank completed the acquisition of Noor Bank, further strengthening its
position as a leading bank in the global Islamic finance industry.
Dubai Islamic Bank continuously strives to introduce new technologies and improve
banking services. It offers innovative Sharia-compliant products and services to retail,
corporate, and institutional clients, including mobile applications and online banking platforms.
Customers can manage their accounts via these platforms, and the bank is consistently
enhancing its services to meet the evolving needs of its clientele.
In the UAE, four years after the establishment of the first Islamic bank, the country's first
Islamic insurance (Takaful) company, Islamic Arab Insurance Company (SALAMA), was
founded in 1979. SALAMA has since become one of the leading entities in the Islamic insurance
market within the UAE and other Arab countries. The company has also expanded its services
internationally, consistently providing high-quality insurance services while striving to uphold
its social and economic responsibilities to the highest standards.
In addition to SALAMA, the UAE is home to numerous other Islamic insurance companies.
Notably, Dubai Islamic Insurance & Reinsurance Company (AMAN) was established in 2002,
located in Dubai, and specializes in offering Islamic insurance services.
In 2008, another insurance company, Takaful Emarat, was established in the UAE,
becoming a significant player in the provision of Islamic insurance services. The company offers
its clients a range of services, including personal insurance, health insurance, life insurance, and
pension services.
Figure 1. Analysis of existing insurance companies
in the United Arab Emirates (2023)
All Islamic insurance companies in the UAE provide services that are fully compliant with
Sharia law, operating in alignment with the principles of the Islamic financial system. Takaful,
which is typically based on risk-sharing and mutual assistance, involves each participant
contributing their share, with the collective pool providing support in cases of loss or
catastrophic events.
Established in 1997, Abu Dhabi Islamic Bank (ADIB) is the second Islamic bank in the UAE
and a leading financial institution headquartered in Abu Dhabi. The bank offers a
comprehensive range of Sharia-compliant financial products and services, catering to a diverse
clientele. Over the years, ADIB has experienced significant growth, establishing itself as a key
player within the banking sector of the region.
ADIB is firmly committed to providing exceptional customer service and innovative
financial solutions, meticulously tailored to meet both personal and corporate needs. The bank
52
10
0
10
20
30
40
50
60
The number of conventional insurance
companies
The number of islamic insurance
companies
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offers an extensive suite of products, including retail and corporate banking, wealth
management, and digital banking services. With a workforce of over 8,000 employees, ADIB
continues to play a pivotal role in supporting the economic development of the UAE while
adhering to the highest standards of corporate governance and ethical practices.
Another prominent Islamic bank in the United Arab Emirates is Al Hilal Bank, established
in 2008. Although a relatively new player in the field of Islamic banking, Al Hilal Bank has
rapidly grown and offers a wide range of Sharia-compliant services, including personal and
corporate banking, investment banking, wealth management, and other innovative Islamic
financial products.
The National Bank of Fujairah (NBF) is a traditional bank in the UAE, with an Islamic
banking division that operates in accordance with Sharia law. Through this division, the bank
provides a variety of Islamic banking services, including trade financing, corporate financial
services, and investment solutions.
Therefore, from the information provided, it is evident that starting from the 2000s, Dubai
began to attract investments into the Islamic finance system, establish new institutions, issue
Islamic bonds (sukuk), and expand the activities of Islamic investment companies. In 2004, the
Dubai International Financial Centre (DIFC) was established, and this center has since become
one of the leading hubs for Islamic financial services in the region.
Furthermore, according to the 2023 Islamic Finance Development Report (IFDI 2023), the
UAE is ranked as the fourth largest Islamic banking market in the world. The country has a dual
banking sector, comprising independent Islamic banks that operate in compliance with Sharia
law and Islamic banking windows offered by traditional banks. The latter collaborate with
conventional banks while offering Islamic financial services.
In 2022, the UAE had a total of 24 Islamic banking institutions, of which 8 were
independent Islamic banks and 16 were Islamic banking windows within traditional banks.
Among the 8 independent Islamic banks, 6 were local institutions, and 2 were branches of
foreign Islamic banks. Additionally, out of the 16 Islamic windows, 11 were from local banks,
and 5 were part of foreign conventional banks offering Islamic services.
Figure 2. Growth Trend of Total Islamic Bank Assets in the United Arab Emirates
(AED Million, 2022)
582
570
598
590
631
114
170
166
190
214
0
100
200
300
400
500
600
700
2018
2019
2020
2021
2022
Total Islamic Bank Assets
Total Islamic Window Assets
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In 2022, the assets of the Islamic banking sector in the UAE amounted to 845 billion AED,
reflecting a compound annual growth rate (CAGR) of 3% over the previous five years. Islamic
banks accounted for 631 billion AED, while Islamic windows contributed 214 billion AED,
showing an 8% and 49% increase compared to 2018, respectively. Currently, Islamic windows
represent 25% of the total Islamic banking assets in the UAE. In 2022, Islamic banking assets in
the UAE made up 23% of the total banking sector assets.
The growth of Islamic banking assets in the UAE has been significant, with Islamic
financial products such as Ijarah and Murabaha being the most commonly offered and provided
financing structures by Islamic banks in the country. Ijarah is a lease agreement used for
financing assets such as housing, real estate, equipment, and machinery. Murabaha financing is
a trade contract used for purchasing goods, such as vehicles, at an agreed-upon profit margin.
Conclusion and suggestions.
Based on the findings of our research, we can draw the following conclusions: Despite
being a relatively new sector compared to other areas of the economy, the Islamic finance
industry is developing significantly in many countries due to its reliability and resilience. The
United Arab Emirates, as one of the most advanced countries in the Islamic finance sector, is
unique in managing two banking systems, where the Islamic banking system operates
alongside the traditional banking system. The existing Islamic banks, Islamic windows, and
Islamic insurance companies in the country operate fully in accordance with Sharia law,
providing services based on Islamic financial instruments.
It is parti
cularly noteworthy that leveraging the UAE’s experience in Islamic finance in
Uzbekistan is of paramount importance. This is especially relevant because Uzbekistan's
population exceeds 37.5 million, with more than 90-95% of the population adhering to Islam.
The country possesses significant human resources, and the demand and needs of the
population are constantly increasing. There has been a notable rise in demand for Islamic
financial products and services, as there is a growing interest not only among the general public
but also within the business sector.
The introduction of Islamic finance in Uzbekistan is crucial, and a number of initiatives in
this field have been underway in the country. In particular, the development of Islamic finance
in Uzbekistan
began in the early 2000s, with the country’s membership in the Islamic
Development Bank in 2003 marking a significant step in this process.
Since that period, significant work has been carried out in Uzbekistan in the field of
Islamic finance. Notably, during the plenary session of the Senate held on May 18, 2024, it was
stated that the “Uzbekistan
-
2030” strategy includes the formation of the legal framework for
Islamic finance in the Republic and the implementation of related regulations. Furthermore,
Behzod Hamrayev, the Deputy Chairman of the Central Bank, mentioned that a draft law on the
establishment of Islamic finance has been developed, with plans to submit the document for
parliamentary discussion by the end of 2024. He also emphasized that, since Islamic finance is
a new and complex sector, it requires significant amendments to the legislation. For instance,
changes need to be made in areas such as collateral, lending practices, as well as in laws like the
"Central Bank Law," the "Banking Activity Law," and other related documents. Currently, the
draft law is prepared, and one of our key tasks for this year is to collaboratively work on it and
submit it to parliament for discussion,” said the Central Bank official. Additionally, the decision
to establish three Islamic banks in the regions by 2030 further indicates the increasing focus
on this sector.
The introduction of legislation related to Islamic finance in Uzbekistan, along with the
further development and flourishing of this sector, is expected to positively influence the
country's reputation within the Islamic world. Moreover, once the Islamic finance legislation is
adopted and implemented in the country, it will necessitate raising awareness about this field
among the population and business sector representatives. To achieve this, it will be essential
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to use various means to disseminate knowledge through public speeches, seminars,
conferences, articles, and programs in the mass media. These efforts will contribute to the rapid
increase in the level of awareness about Islamic finance.
Furthermore, increasing public awareness will primarily require the training and
qualification improvement of specialists in this field. Unfortunately, a major challenge is that
the International Islamic Academy in the country is currently the only institution providing
training for specialists in Islamic finance. However, this higher education institution produces
a very small number of professionals annually. Therefore, it is essential to increase the number
of higher educational institutions that train specialists in this field to meet the growing demand
for qualified personnel.
References:
Chapra M.U. (2008) The Islamic Vision of Development in the Light of Maqasid al-
Shariah”,
Research Adviser Islamic Research and Training Institute Islamic Development Bank Jeddah.
Hasan Z. (2013),
“Islamic Banking: An Introduction” and “Islamic Finance and Economic
Development”.
Hassan M. (2017), Islamic Finance: A Practical Guide.
Irgasheva G.S, (2024) Islom iqtisodiyotida investitsiyalar: ularning tashkiliy va boshqaruv
tizimi hamda amalda qo‘llash tamoyillari, “Iqtisodiy taraqqiyot va tahlil” jurnali, №
1 (yanvar oyi),
2024-y,
Tariq S.M. (2020),
Principles of Islamic Banking”
.
Zayniddinov. R. (2023) “Turkiya tajribasidan O‘zbekistonda islom moliyasini rivojlanishida
foydalanish imkoniyatlari”., Iqtisodiy taraqqiyot va tahlil ilmiy electron jurnal, 2023
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