BAKU, Azerbaijan, June 17. The Gulf Cooperation
Council (GCC) represents the most probable source of foreign direct
investment in Azerbaijan’s emerging Islamic banking sector, reads
the latest report by the Islamic Development Bank Group.


“GCC-headquartered Islamic banks collectively command assets
exceeding USD 1 trillion and have demonstrated a sustained appetite
for international expansion, particularly into Muslim-majority
markets with underdeveloped Islamic finance ecosystems.
Azerbaijan’s strategic location at the crossroads of the Caucasus,
its hydrocarbon-based economic ties with the Gulf, and its growing
geopolitical alignment with GCC states position it as a natural
destination for Islamic banking FDI,” says 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.


The IsDBI and ITFC analysts note that the GCC’s outward
investment strategy has intensified in recent years, with the
number of FDI projects reaching a record 1,973 in 2024.







“In the financial services sector specifically, major Islamic
banks have pursued international expansion through a combination of
greenfield branch openings, acquisitions, and digital banking
investments. Several structural factors make Azerbaijan an
attractive destination for GCC Islamic banking FDI. First,
Azerbaijan’s existing energy-sector ties with Gulf states provide a
natural bridge for financial sector cooperation. Second, the
country’s strategic position along the Middle Corridor trade route
linking China to Europe via Central Asia and the Caucasus creates
demand for trade finance instruments, including Shariah-compliant
varieties. Third, Azerbaijan’s relatively small and
concentrated

banking market means that a well-capitalised GCC entrant could
rapidly establish meaningful market share. Finally, the CBAR’s
phased approach, beginning with Islamic windows before potentially
licensing standalone Islamic banks, provides a low-risk entry
mechanism for international institutions to test the market before
committing to full-scale operations,” the report says.