Executive Summary

President Shavkat Mirziyoyev’s approval of a dedicated Islamic finance law on 27 March 2026 marks a decisive inflection point in Uzbekistan’s financial evolution.

With an effective date of 29 June 2026, the legislation will create a defined legal and supervisory framework for Sharia-compliant banking, introduce specific tax concessions, and show Tashkent’s aim to emerge as a significant financial intermediary between the Gulf, South Asia, and the wider post-Soviet sphere.

The move unlocks at least $1 billion in foreign capital, mobilises dormant domestic savings, and integrates segments of the population historically excluded from the conventional banking system. This also positions Uzbekistan in direct competition with regional stakeholders, particularly Kazakhstan, amidst the growing popularity of Islamic finance throughout the former Soviet republics, including pilot initiatives launched by Russia in 2023.

Key Takeaways

• The legislation establishes a definitive legal framework in Uzbekistan for Islamic financial instruments, harmonising the nation’s practices with international standards for non-interest banking and diminishing regulatory uncertainties for international investors.
• A new Council for Islamic Finance, operating under the Central Bank, will enforce Sharia compliance and standardisation, ensuring operational discipline and institutional credibility.
• Value-added tax exemptions and tax adjustments equalise conditions between Islamic and conventional banking, rectifying structural impediments that had previously discouraged investment from the Gulf and Southeast Asia.

Facts

President Shavkat Mirziyoyev signed a landmark law on 27 March 2026, establishing a legal framework for Islamic banking in Uzbekistan.

The law allows key Sharia‑compliant models — including Murabaha, Musharaka, and Sukuk — and mandates the Central Bank to establish a five-member Council for Islamic Finance responsible for standard‑setting, compliance audits, and doctrinal oversight.

The Central Bank will issue perpetual, non-assignable permits only to legal entities, granting them licenses. Ten financial institutions have already begun preparations to open Islamic windows or transition to full Islamic operations.

The legislation further changes the National Tax Code to prevent the imposition of dual taxes on asset-based transactions. The Value Added Tax (VAT) is exempt for Sukuk and Islamic leasing. Revenue generated from Sharia-compliant investment deposits is exempt from personal income tax. The government’s roadmap expects the launch of at least one Islamic window by end‑2026 and the establishment of two fully independent Islamic banks by 2030.

Analysis

The adoption of this law reflects a calculated strategic shift rather than a symbolic gesture. Uzbekistan aims to broaden its financial landscape, lessen reliance on conventional loans, and attract capital from the Gulf Arab monarchies, whose sovereign wealth funds are increasingly investing in Central Asia.

Why Islamic Finance Matters for Uzbekistan?

1. Mobilising Domestic Capital. Religious beliefs lead many Uzbek families to steer clear of interest-based banking. The state can attract significant informal savings to the regulated financial system by providing Sharia-compliant options, enhancing monetary stability, and growing the deposit base.
2. Attracting Gulf Investment. GCC investors prefer jurisdictions with clear Islamic finance legislation. With its new framework, Uzbekistan has eliminated the legal obscurity that previously impeded involvement, positioning the nation as a feasible location for Sukuk issuances, infrastructure funding, and credit lines aimed at small and medium enterprises (SMEs).
3. Enhancing Regional Competitiveness. If Uzbekistan does not advance in Islamic finance, it risks a strategic disadvantage, as Kazakhstan and Kyrgyzstan are already participating, and Russia started experimenting in 2023. The new law enables Tashkent to compete with Almaty and possibly become the central hub for Islamic finance in Central Asia.
4. Supporting SME Growth. Businesses, often hesitant about interest-based loans, can now access financing through equity or asset-backed methods that fit local business norms and their tolerance for risk.

The establishment of the Council for Islamic Finance signifies a move towards centralised doctrinal oversight, similar to successful systems in Malaysia and the United Arab Emirates (UAE). This reduces interpretive fragmentation and provides the predictability required by sovereign wealth funds and institutional investors.

Strategic Risks and Challenges

1. Foreign Influence Dynamics. Opening the sector to Gulf actors introduces geopolitical considerations. Uzbekistan needs to balance capital inflows with protections against external influence on its financial policies, as GCC financial institutions frequently align their strategies with state-linked objectives.
2. Regulatory Complexity. Managing a dual banking system requires specialised expertise in Sharia auditing, risk management, and product structuring. Heavy investment in human capital is essential for Uzbekistan to bypass regulatory blind spots.
3. Market Disruption. Traditional banks may face competitive pressure, potentially leading to consolidation or market exits if they fail to adapt.
4. Reputational Risk: Any compliance failures within Islamic institutions could undermine investor confidence and damage Uzbekistan’s credibility as an emerging Islamic finance hub.

Implications

• Enhanced Capital Inflow: The removal of legal uncertainty will catalyse investment from GCC states and Malaysia, particularly in infrastructure, energy, and agribusiness.
• Regional Competition: Uzbekistan might challenge Kazakhstan as the leader in Islamic finance, redirecting the region’s financial focus.
• Market Diversification: Increased competition will likely improve product quality and customer service across the banking sector.
• Fiscal Integration: Tax exemptions for Islamic deposits will encourage the validation of informal savings, strengthening the national balance sheet.
• Regulatory Adaptation: The Central Bank must develop robust supervisory capacity to manage the complexities of a dual banking environment.

Conclusion

Uzbekistan’s Islamic finance legislation represents a structural milestone in the country’s financial modernisation agenda. It lays the groundwork, legally, financially, and regulatorily, for a separate banking system that adheres to global norms and local faith-based values.

The framework, upon effective implementation, holds the potential to attract significant foreign investment, activate underutilised domestic savings, and enhance Tashkent’s standing in the growing Islamic finance sector of the post-Soviet area.

The critical factors will hinge on the probity of the licensing framework, the functional trustworthiness of the Council for Islamic Finance, and the government’s capacity to navigate the geopolitical and regulatory intricacies inherent in enhanced collaboration with Gulf financial entities.