BAKU, Azerbaijan, June 17. Under a base-case
scenario, Islamic banking assets in Azerbaijan could reach
approximately USD 2.7 billion by 2035 representing 5 percent of
total projected banking assets in 2035, a new report by the Islamic
Development Bank Group reveals.


“Under a best-case scenario, assets could reach USD 3.6 billion
(at 10 percent penetration rate),” reads the report of the Islamic
Development Bank Institute (IsDBI) and the International Islamic
Trade Finance Corporation (ITFC) titled “Islamic Finance in
Azerbaijan: Breaking New Ground” launched during the IsDB Annual
Meetings in Baku.


IsDBI and ITFC note that Azerbaijan’s Islamic finance
opportunity extends beyond banking and capital markets to encompass
development finance, social finance, and takaful (Islamic
insurance).


“The IsDB Group has provided cumulative financing of USD 1.29
billion across 81 projects in Azerbaijan with the ICD deploying
Shariah-compliant Small and Medium Enterprise (SME) financing
through Rabitabank (USD 15 million) and Turan Bank (USD 15
million). Azerbaijan’s insurance market, with AZN 1.35 billion in
premiums (1.1 percent of GDP) is significantly underpenetrated
compared to the OECD average of 6.2 percent, creating an
opportunity for takaful. Global Islamic social finance potential is
vast, with zakat alone estimated at USD 200 billion to USD 1
trillion annually, but Azerbaijan would need to build institutional
foundations from scratch,” the report says.


IsDBI and ITFC analysts believe that a phased development
roadmap requires action across five pillars: (1) regulatory
reformṣ; (2) sector development; (3) capacity building; (4)
awareness building; and (5) regional positioning, thereby
establishing Azerbaijan as the Islamic finance hub for the CIS
region.







“Azerbaijan currently ranks 46th in the Global Islamic Fintech
Index. This reflects the developed infrastructure with high digital
banking penetration, internet/mobile infrastructure and
developments in regulation governing the fintech sector.
Azerbaijan’s relatively advanced digital government ecosystem and
fintech ambitions could support this transition. Especially
utilizing sandbox environment for Islamic fintech, the country
could position itself as a niche innovation hub between Central
Asia, the Caucasus, and Türkiye,” the report reads.


The authors of the report point out that with the development of
Islamic finance instruments in Azerbaijan liquidity management will
have a growing importance.


“With Islamic market development, the development of
Shariah-compliant liquidity management instruments and interbank
mechanisms will be of the growing importance to support the banks
with the Islamic banking windows and ensure efficient market
functioning,” says the report.