International Bank of Azerbaijan (IBA), the country’s largest lender, is preparing to launch a separate sharia-compliant banking unit as the former Soviet state prepares an Islamic banking law slated for next spring.
A stand-alone unit would allow IBA, 50.2 percent owned by Azerbaijan’s Ministry of Finance, to more than quadruple its Islamic financing business in the country, said Behnam Gurbanzada, IBA’s director of Islamic banking.
“IBA is working on developing new products as well as establishing a platform for a separate, fully sharia-compliant unit,” Gurbanzada said.
IBA, which holds 40 percent of banking assets in Azerbaijan, has thus far extended $180 million of Islamic financing in the country; after legislation is passed, this could increase to as much as $750 million within a year, he added.
The bank currently offers sharia-compliant products through an Islamic window, a practice which allows conventional lenders to provide Islamic financial services as long as client money is segregated from the rest of the bank.
A separate unit could help increase the appeal of Islamic banking among retail clients, in a country where an estimated 93 percent of the population of 9 million are Muslim.
IBA also wants to create a strong domestic Islamic banking platform for use with its subsidiaries in Russia, Georgia and Qatar.
“Azerbaijan shows considerable promise to become a hub for Islamic banking in the region and has great potential to cooperate with Russia and all other CIS (Commonwealth of Independent States) countries which are interested in Islamic banking,” said Gurbanzada.
This month, the Association of Russian Banks asked Moscow to consider ways to promote Islamic finance in the country, including through an industry-specific law.
IBA has hired Bahrain-based consultancy Shariyah Review Bureau to help in the design of several projects including a real estate development in Azerbaijan’s capital Baku and a cash financing product, said Gurbanzada. The bank is also developing a sharia-compliant student financing product.