Both the number of banks offering Islamic banking products and the range of products offered are expected to expand in Azerbaijan through the enforcement of relevant legislative amendments in the country, Executive Director of the Central Bank of Azerbaijan (CBA) Shahin Mahmudzade told Trend in an exclusive interview.
In his interview, he first spoke about the results of the 2026 Annual Meeting of the Islamic Development Bank (IsDB) Group held in Baku, as well as the main contributions of this event to the development of the financial sector of Azerbaijan, especially Islamic finance.
"The annual meetings of the Islamic Development Bank Group serve as an important platform for establishing dialogue and partnerships among member countries, as well as for exchanging knowledge. The agreements signed within the framework of the meeting held in our country this year demonstrated that the event has significant economic and strategic importance for both the IsDB region and the country's economy.
The forum also had a high impact on the development of the financial sector. We believe that the event made a significant contribution to strengthening cooperation with international financial institutions, establishing new partnerships, and recognizing Azerbaijan as a regional financial center. That meeting was a significant impetus, especially in terms of intensifying institutional cooperation in the field of Islamic finance and building an Islamic finance ecosystem," the CBA official said.
Agreements worth a total of $6 billion were signed within the framework of the Annual Meeting of the IsDB Group. The executive director also spoke about the importance of these agreements for the region and the impact of the documents signed regarding Azerbaijan on the development of the country's financial market. Mahmudzade said that the agreements signed with other countries and regional institutions within the framework of the meeting are mainly aimed at financing energy security, food systems, and social projects in member countries.
"These documents support the socio-economic development of those countries and the strengthening of economic cooperation in the IsDB region.
Within the framework of the meeting, a financing agreement worth approximately $436.7 million was signed for the reconstruction of the Karabakh Irrigation Canal. This document is of particular importance in terms of its impact on the relevant economic sector of the country.
Meanwhile, the impact of the signed documents on the financial sector is related more to the increase in the availability of long-term development finance and the strengthening of financing opportunities for large infrastructure projects than to the deepening of financial markets," he explained.
Mahmudzade also shared his views on the regulatory, legal, and institutional measures taken by the CBA towards the development of Islamic finance. In addition, he spoke about the stage of preparatory work for the introduction of Islamic banking products from 2026, and which products will be launched on the market in the first stage.
"For the purpose of implementing Islamic banking, a draft of amendments to the Civil Code, the Tax Code, the laws of Azerbaijan "On banks", "On non-bank credit institutions", "On state duty", "On credit bureaus" and "On privatization of state property" has been prepared and submitted to the relevant state bodies.
The draft amendments have been prepared taking into account international experience and have been adapted to local legislation. The goal is to implement international standards in a consistent and sustainable manner with the local legal environment. In the near future, the implementation of Islamic banking is envisaged within the framework of the 'Islamic windows' model.
After the amendments to the legislative acts on Islamic banking enter into force, the following products are envisaged to be provided by banks within the framework of the 'Islamic window' model:
A manufacturing and construction financing contract - Istisna;
Sale-based, that is, purchase-sale financing type — Murabaha;
Lease-based financing type — Ijara. This product is considered an analogue of financial leasing in traditional banking activities;
Financing and deposit type based on profit and loss sharing between the bank and the client — Mudaraba;
Deposit-based product similar to demand deposit — Wadia.
Non-bank credit institutions are expected to provide only Istisna, Murabaha, and Ijara products.
At the same time, two commercial banks are currently testing Islamic financial products under the special regulatory regime under the supervision of the CBA. International Bank of Azerbaijan OJSC is testing the Murabaha product for financing movable and immovable property registered in official legal registers, and Rabitabank OJSC is testing both Mudaraba and Murabaha products. The testing period of the products is until February 2, 2027," the executive director noted.
In his interview, the CBA official, in response to a question about the interest of banks operating in Azerbaijan in the introduction of Islamic banking products, said that there is currently a certain interest in Islamic banking products by banks.
"As we noted, two banks are currently offering Islamic banking products to customers within the framework of the special regulatory regime.
In addition to measuring the interest of the population in Islamic banking, the introduction of these products within the framework of the pilot regime creates an institutional basis for banks to introduce Islamic banking on a wider scale in the future.
With the entry into force of legislative changes at the next stage, it is expected that both the number of banks offering Islamic banking products and the range of products offered will increase," he said.
According to the relevant report, according to the base scenario, Islamic banking assets in Azerbaijan are projected to reach $2.7 billion by 2035, and $3.6 billion under the optimistic scenario. Mahmudzade spoke about the main conditions that must be met to achieve these goals, as well as the role of the CBA in this process.
"In order to achieve the goals set out in the report of the Islamic Development Bank Institute and the International Islamic Trade Finance Corporation, an appropriate ecosystem must first be established.
In this direction, the Central Bank, in accordance with its mandate, is expected to perform regulatory and supervisory functions, monitor financial stability, and, if necessary, implement appropriate regulatory interventions.
At the same time, measures to increase the financial literacy of market participants and consumers will also play an important role in this process," the CBA official emphasized.
In conclusion, Mahmudzade pointed out that the development of Islamic finance in Azerbaijan and the emergence of new Islamic finance products can contribute to the diversification of the financial sector.
"This mainly creates new opportunities in terms of attracting financial resources from the Gulf countries, integration of the population and business subjects who don't use traditional financing products due to their religious beliefs into the financial sector.
Concurrently, the development of Islamic finance can serve to expand the range of financial market participants, increase financial inclusion, and strengthen the financing of the real sector. It should be taken into account that since Islamic financial products are asset-based, this model enables further strengthening of the relationship between the real sector and the financial sector.
In this regard, the development of Islamic finance can strengthen the prospects of Azerbaijan becoming a regional hub of Islamic finance," the official said.
