Islamic Finance in Kazakhstan: The First Step Has Been Taken

Interest in Islamic investments is growing worldwide. Kazakhstan has the potential to join this trend—but it requires infrastructure development and investor trust. Nevertheless, Islamic finance is beginning to take shape in the country. The first step is Wardat al Hayat, reports Cronos.Asia.

The global Islamic finance market is expanding steadily. According to the EDB (Eurasian Development Bank), its volume reached $4.5 trillion in 2023 and is projected to grow to $6.7 trillion by 2027. This is more than just interest-free banking—it’s a full-fledged ecosystem, from Islamic bonds (sukuk) to Sharia-compliant investment funds.

Against this backdrop, Kazakhstan appears modest: it ranks 22nd in the Global Islamic Finance Report, and Islamic financial instruments occupy only a minor portion of the economy. Yet the potential is evident—both demographically and institutionally.

As noted by Ruslan Dalenov, Deputy Chairman of the EDB, the entry of Islamic finance into the Central Asian financial services market could add an extra $2 billion by 2028.

"From 2015 to 2021, global Islamic financial assets grew at an average annual rate of 10.5%, compared to 5.8% for traditional financial assets. By 2027, the share of Islamic finance in global assets is expected to reach $6.7 trillion," — said Dalenov.

Islamic Investment and Kazakhstan: What Hinders Growth?

There are over 13.9 million Muslims in Kazakhstan, of whom approximately 2.2 million actively practice the religion. Yet there are few suitable financial instruments for them. Islamic deposits and securities remain a niche, totaling just $2 billion and $4.3 billion, respectively.

The problem lies not in demand but in infrastructure. According to the World Bank, investment fund assets in Kazakhstan account for just 0.4% of GDP (compared to 8.5% in Russia and 35.8% in Malaysia). The ratio of fund assets to household deposits is only 0.13%.

Wardat al Hayat — The First Islamic Mutual Fund in Kazakhstan

In this context, the launch of Kazakhstan’s first Sharia-compliant mutual investment fund—Wardat al Hayat ("Flower of Life")—is particularly significant. Registered with the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM), this fund represents a unique offering on the country’s stock market and opens new opportunities for investors who follow Islamic principles.

According to the Kazakhstan Stock Exchange (KASE), on March 20 of this year, Wardat al Hayat was listed on KASE in the "Financial Fund Securities" sector. The fund is managed by BCC Invest JSC, a subsidiary of Bank CenterCredit JSC.

Fund Details:

• Unit nominal value — $100
• Currency — USD
• Expected return — from 4% annually
• Sadaqah (charity donation) — 1% of net income
• Units freely traded on KASE
• Recommended investment period — 3+ years
• Management fee — 0.75% per annum (below the market average)

Returns are calculated as the increase in Net Asset Value (NAV) after fees and expenses.

Investment Strategy:

• 80% — sukuk (fixed-income Islamic instruments)
• 20% — shares of gold mining and industrial companies, ETFs

All assets undergo Sharia screening and are supervised by a dedicated Sharia board.

Why Does This Matter?

Many devout Muslims avoid traditional financial instruments—such as deposits, bonds, bank stocks, and insurance companies—due to their incompatibility with Sharia law. Until now, they had few alternatives, and some resorted to keeping savings in cash at home.

This Islamic fund fills that gap by offering a legal, ethical, and Sharia-compliant investment option.
At the fund’s presentation, Ruslan Zerilov, Managing Director and Head of Asset Management at BCC Invest, commented:

"Yes, we understand the market is still relatively small. But these numbers will grow, because the population is growing. Right now, people have around 900 million tenge in deposits at traditional banks. But once Islamic finance and fund options become available, a portion of that could shift to Islamic institutions."

Zerilov emphasized that sukuk—the fund’s primary instruments—are especially appealing to practicing Muslims in Kazakhstan:

"Around 2.2 million Kazakhs strictly follow Islamic principles, and over 70% of the population identify as Muslim. That creates significant demand for Islamic financial tools, especially given the lack of available options. We want to position this fund alongside other mainstream financial products."

How Does the Islamic Fund Work?

• Sharia Oversight: Each investment decision is approved not only by the investment committee but also by the Sharia board, ensuring religious compliance.
• Prohibited Instruments: The fund avoids interest-bearing bonds, shares of conventional banks and insurers, REPO transactions, and other instruments forbidden by Sharia.
• Permissible Assets: Investments are made in sukuk and shares of companies whose activities align with Islamic values (excluding alcohol, tobacco, gambling, etc.).

Challenges and Barriers

Speakers at the fund’s presentation highlighted several current challenges. One major issue is the complexity of Sharia compliance. Another is taxation. As noted by Madina Tukulova, Chair of the Association of Islamic Finance and Business in Kazakhstan:

"Taxes are always a sensitive issue in Islamic finance. Every deal involves a tangible asset, which often carries VAT. Without resolving the issue of double taxation, the investor bears an undue burden."

Tukulova also pointed to the lack of a developed Islamic investor culture in Kazakhstan:

"I believe that as more investment tools become available, this culture will begin to take shape. It’s not just about religion—it’s about investing in instruments that align with Sharia values."

Key Challenges:

• Regulatory Restrictions: Kazakhstan currently allows only two types of Islamic securities—mudarabah and ijarah. This limits innovation.
• Taxation: Double taxation on real-asset-backed instruments (like sukuk) increases their cost.
• Lack of Investor Culture: Limited public awareness and experience among both retail and institutional investors.
  Low engagement from business and financial institutions.

Outlook

Despite these hurdles, the fund was launched with support from regulators—ARDFM, the AIFC (Astana International Financial Centre), and KASE. It has been certified by international Sharia experts, including recognized muftis from Pakistan and Kyrgyzstan. Assets are managed by licensed firm BCC Invest and held in an independent custodian bank.

A working group is forming to reform legislation and draft a new securities market law that will include a section on Islamic financial instruments.

"Honestly, I’m glad that even in these conditions, new issuers and products are emerging. Once the path is paved, others will follow," — said a representative from ARDFM.

The Road Ahead

The fund is open to all investors, regardless of religion. For many, it offers not only a religiously appropriate option but also an attractive investment opportunity. In the near future, we may see an expanded lineup of Islamic products, including the issuance of new sukuk in the domestic market.

In conclusion, the launch of Wardat al Hayat marks an important milestone in the institutionalization of Islamic finance in Kazakhstan. It shows that even with limited infrastructure, it is possible to create a competitive, transparent, and accessible Sharia-compliant investment product. At the very least, it provides an alternative to conventional instruments and may become a model for Islamic finance development across Central Asia.

As they say — time will tell whether Islamic finance will truly take root in the region.

---

Версия на русском языке:

Исламские финансы в Казахстане: первый шаг сделан

---