Azerbaijan tests Islamic banking at two banks, plans tax, insurance changes

Photo: Trend News Agency

BAKU, Azerbaijan, October 22. Demand for Islamic banking in Azerbaijan was assessed before initiatives to develop the sector were launched, Nargiz Shiraliyeva, head of the Financial Sector Development Department at the Central Bank of Azerbaijan (CBA), said at the third Islamic Finance Forum on Thursday, Trend’s correspondent reports from the event.

She noted that research showed considerable interest in Islamic finance products among many businesses. However, limited awareness of the sector could have led to inflated survey results in some cases. Therefore, it was decided to introduce legislative changes in stages.

“At the first stage, a pilot project was launched under the regulatory sandbox initiative, and two banks are currently offering Islamic finance products. The legislation has been designed to address the practical challenges banks encounter during the project,” she said.

According to Shiraliyeva, the initiative includes five key Islamic finance products as alternative financial instruments.

“These include Ijarah and Istisna products, as well as alternative term deposits and alternative demand deposits. Amendments to the Tax Code and the Law on Deposit Insurance have been proposed to ensure that the new products remain competitive with conventional banking products and do not cost more.

For example, discussions have been held with the State Tax Service to eliminate the additional VAT burden arising from Murabaha products and the double application of state fees,” she emphasized.

She added that the legislation also provides for insurance coverage for Islamic deposits placed by citizens with banks. At the same time, measures have been taken to assess risks for depositors without creating an additional burden on banks.