AZE.US
Despite years of discussion, Azerbaijan has yet to establish a fully developed Islamic banking system.
Financial expert Akram Hasanov says the main obstacles are a shortage of qualified specialists, limited interest from conventional banks and the higher transparency requirements of Sharia-compliant finance.
Islamic banking operates under principles that prohibit interest, or riba. Instead of lending money at a fixed rate, the bank participates in a transaction or business project and shares both the profit and the risk with the client.
Hasanov told Bakupost that the issue has been debated in Azerbaijan since the early 2000s. He said he also raised it during a 2022 meeting between economic experts and the new leadership of the Central Bank.
“We were told that work was underway, but there is still no concrete result,” he said.
Shortage of Qualified Specialists
Hasanov identified the lack of trained professionals as one of the main barriers.
Islamic banking requires expertise not only in conventional finance, but also in Sharia principles, profit-and-loss sharing, asset-backed transactions and compliance oversight.
Without specialists who understand both banking regulation and Islamic finance, it is difficult to design reliable products or build an effective supervisory framework.
Conventional Banks May Resist Competition
Another obstacle, according to Hasanov, is the lack of enthusiasm within the existing banking system.
“Banks that operate on interest do not benefit from additional competition, so they may obstruct the process in different ways,” he said.
Under an Islamic banking model, a bank does not simply issue a loan and collect interest. It effectively becomes a partner in the client’s business.
If the project succeeds, the bank receives a share of the profit. If it fails, the bank may also bear part of the loss.
That means an Islamic bank must monitor borrowers and business projects more closely than a conventional lender.
Greater Transparency Is Required
Hasanov also said Islamic banking requires a higher level of transparency.
The return earned by a depositor depends on the performance of the bank’s investments and business partnerships. If those projects do not generate profit, the depositor may receive no return.
Without strong oversight, there is a risk that income could be concealed or distributed unfairly among the bank, entrepreneurs and depositors.
For that reason, Azerbaijan would need clear regulation, reliable auditing and effective supervision before Islamic banking could operate on a significant scale.
Savings Remain Outside the Banking System
Hasanov argued that the government should be interested in developing Islamic financial products.
Some religious citizens avoid conventional banking because of the use of interest and instead keep their savings at home. As a result, that money remains outside the formal economy.
Islamic banking could bring part of those funds into circulation while also attracting investors from Muslim-majority countries.
According to Hasanov, the model could expand consumer choice and create a new source of capital for Azerbaijan. But this would require trained specialists, dedicated regulation and a banking sector willing to accept a new competitor.
AZE.US