Central Asia is emerging as a promising market for Islamic finance, driven by its overwhelmingly Muslim population and improving regulatory environment. According to international rating agency Moody’s, the region has significant long-term potential, although it will take time to narrow the gap with global Islamic finance leaders such as the Gulf countries and Southeast Asia, where Islamic finance accounts for nearly 40% of total financial assets.
The region, which includes Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, benefits from a young, economically active, and increasingly urbanised population. These demographic trends are expected to support the future expansion of Sharia-compliant financial services. However, the sector still faces several challenges, including limited public awareness, a lack of product diversity, and underdeveloped financial infrastructure.
Kazakhstan currently leads the Islamic banking sector in Central Asia. By the end of 2025, the country had three Islamic banks in operation: ADCB Islamic Bank JSC, formerly known as Al Hilal Bank Kazakhstan, Zaman-Bank JSC, and Al Safi Bank, which became the first Islamic bank licensed within the Astana International Financial Centre (AIFC). Together, these banks held assets worth approximately $600 million, representing around 0.4% of the country’s total banking sector assets.
A major breakthrough came in December 2025 when Kazakhstan adopted a new banking law allowing conventional banks to offer Sharia-compliant products through Islamic windows. This move is expected to accelerate growth in Islamic finance, especially in retail banking and financing for small and medium-sized enterprises. The AIFC has also played a central role in attracting Islamic banks, takaful operators, asset managers, and Sharia advisory firms through its internationally recognised legal framework.
The AIFC estimates that Kazakhstan’s Islamic finance market could eventually exceed 6.8 trillion tenge, equivalent to around $15.2 billion. Currently, murabaha and ijara financing products dominate the market, accounting for more than 90% of customer demand.
Uzbekistan is also taking major steps toward developing its Islamic finance industry. In March 2026, the country adopted its first Islamic banking law, which will come into effect in June 2026. Before these reforms, Uzbekistan had no formal Islamic banking system despite having a population of 37.7 million people, around 88% of whom are Muslim. Conventional banks were prohibited from offering Sharia-compliant products, while only a few small non-bank providers operated on a limited scale.
According to a UNDP survey referenced by Moody’s, 68% of the population and 60% of businesses avoid conventional banking services for religious reasons. The new legislation now permits the establishment of fully Islamic banks, Islamic windows within conventional banks, and Islamic microfinance institutions. It also introduces legal definitions for key Islamic finance contracts such as murabaha, mudaraba, musharaka, wakala, and salam.
Under Uzbekistan’s updated “Uzbekistan–2030” strategy, the country plans to introduce nationwide Islamic financial services through one commercial bank by 2027, with expansion to at least three banks by 2029–2030. Moody’s considers these reforms to be credit-positive for Uzbekistan’s banking system.
Kyrgyzstan is currently regarded as the most advanced Islamic finance market in Central Asia due to its mature regulatory framework and state development strategy covering 2022–2027. The country established the region’s first Islamic bank, EcoIslamicBank, in 2011. As of March 2026, six out of Kyrgyzstan’s 24 commercial banks offer Islamic banking services, including one fully Islamic bank and five conventional banks operating Islamic windows.
Growth in Kyrgyzstan’s Islamic finance sector has been particularly strong in recent years. Islamic finance volume increased by 58.4% in 2024 to reach 10.3 billion som, equivalent to around $118 million. In 2025, growth accelerated further by 125%, bringing total Islamic finance volume to 23.1 billion som, or approximately $264 million. Mortgage financing has also expanded significantly, with its share increasing from 17% to over 40% by 2025.
In Tajikistan, Islamic finance remains relatively small but continues to expand steadily. The country has one licensed Islamic bank, OJSC Tawhidbank, which converted from a conventional bank in 2019. Another important player is Alif Bank, a fast-growing fintech company that largely operates according to Islamic finance principles. By the end of 2025, the combined assets of these institutions accounted for around 6% of Tajikistan’s total banking sector assets.
Islamic finance in Tajikistan has grown at an average annual rate of 38.5% since 2021. However, financial intermediation in the country remains low, with private sector lending accounting for only around 15% of GDP.
The sukuk and takaful sectors are also gradually developing across the region. Kazakhstan remains the clear leader in Islamic bond issuance after launching its first retail sukuk worth $10 million in 2025 through Asia Mineral Resource. The country also introduced a major auto-financing programme, Tayyab Finance, valued at 20 billion tenge.
Tajikistan’s Alif Bank issued its first sukuk al-mudaraba tranche worth $5 million as part of a broader $50 million programme aimed at funding expansion into Uzbekistan. Kyrgyzstan issued its first local currency sukuk in 2023, while Uzbekistan and Tajikistan are still developing regulatory frameworks for domestic sukuk markets.
Progress has also been made in takaful, or Islamic insurance. Kyrgyzstan integrated takaful into its updated insurance law in 2025 and licensed Bakai Insurance CJSC as its first specialised takaful operator. In Tajikistan, LLC Takafful has been operating since 2018 as the region’s first takaful provider.
Despite growing momentum, Moody’s highlighted several challenges that continue to hinder the sector’s expansion. One of the main obstacles is limited public awareness, as many consumers interested in Sharia-compliant financial products still lack sufficient understanding of Islamic finance services.
Another major issue is the shortage of liquidity management instruments. The limited supply of Sharia-compliant securities, especially sukuk, restricts banks’ ability to manage liquidity effectively and comply with prudential requirements. Although Kazakhstan has made progress in sukuk issuance, Islamic capital markets in the rest of the region remain at an early stage of development.
Finally, the institutional ecosystem for Islamic finance across Central Asia is still evolving. Legal frameworks, professional expertise, and financial infrastructure continue to develop slowly, limiting product innovation and slowing the entry of new market participants.
Nevertheless, with supportive demographics, stronger regulations, and rising demand for ethical and Sharia-compliant financial services, Central Asia is increasingly being viewed as one of the most promising emerging regions for Islamic finance growth in the coming decade.