Clare Nuttall in Astana -

The United Arab Emirates state-owned Al Hilal Bank is close to obtaining a banking licence to operate on the Kazakh market, its directors have confirmed. The first Islamic bank to set up in the Central Asian country, Al Hilal plans to invest $1bn over the next four years.

According to Prasad Abraham, chairman of the board of Al Hilal in Kazakhstan, the bank is "within the final few metres of the finish line" in receiving its licence, and this could happen by the end of March. It is just over nine months since an agreement on the bank's establishment was signed between the governments of Kazakhstan and Abu Dhabi. This is quick by Kazakh standards; typically it takes between 18 months and two years for a banking licence to be issued.

Al Hilal's balance sheet is expected to reach $200m-250m by the end of 2010, Abraham said. "The government of Abu Dhabi is committed to making sure that eventually at least $1bn is invested in the Republic of Kazakhstan. The first year will be slow, but after one year our rate of growth will increase," he told a press conference at the bank's trendy orange and black Astana offices on March 17.

Five of the staff are based in Astana, with a further 22 in Almaty. All but one are local, since Al Hilal has benefitted from cutbacks at Kazakh banks to recruit its team.

Close ties

Mohamed Jamil Berro, CEO of Al Hilal, said one of the reasons for setting up its first foreign subsidiary in Kazakhstan is because the country is the only one in the Commonwealth of Independent States as yet to adopt legislation on Islamic finance; the law came into effect in February 2009. In addition, "there are strong ties at all levels between Abu Dhabi and Kazakhstan, vast investment opportunities in Kazakhstan, and an opportunity for us to contribute to the growth and prosperity of this country," he said.

The friendship between Kazakh President Nursultan Nazarbayev and the Sultan of Abu Dhabi is also a factor. While the majority of Kazakhstan's citizens are Muslim, the country is largely secular, and Nazarbayev's policy has been to build good relations with all religions. However, he has been very much the driving force behind efforts to establish Islamic finance in Kazakhstan.

This has been a major factor in the country's success in adopting the legislation and attracting Al Hilal to the country, delegates at the Kazakhstan Islamic Finance Conference believe. "The most important ingredient is political will," said Adalet Jabiev, CEO of UAE-based Al Shamsi Capital, on March 17. "There was a vision at the highest level in the UK to become a hub for Islamic financial services, and it has succeeded. The same applies to Kazakhstan. Nazarbayev and the Kazakh elite are all for it, and there is political will at the highest level to push for Islamic finance."

"Even though under 4% of the UK population are Muslim, the government decided to turn London into an international gateway for Islamic finance," said Farrukh Raza, managing director of the Islamic Finance Advisory and Assurance Services (IFAAS) consultancy. "London is now the fastest emerging international hub for Islamic finance, and other European countries are now trying to copy it. The first sukuk [Islamic bond] was listed on the [London Stock Exchange] in 2006, and just three years later the sukuk market is now worth $20bn. The UK government is planning a sovereign sukuk."

Kazakhstan is also planning a sovereign sukuk, Finance Minister Bolat Jamishev told the conference on March 17. While Jamishev did not give further details, there is speculation that Kazakhstan could issue a sukuk in the $300m-500m range by the end of this year. Al Hilal would certainly be interested if this is carried out, Abraham said. "We would participate very actively," he told journalists.

Aside from that, the bank is mainly looking at the oil and gas, and metals and mining sectors. It is also interested in infrastructure projects such as road building, and may participate in public-private partnerships. "Our main focus will be on government financing and top tier corporate, as well as trade between the UAE and Kazakhstan," said Abraham. "Initially, we will be financing government projects and offering deposit facilities for corporate clients. Later, we plan to launch personal banking projects in the financing and investment sectors."

While many companies in Kazakhstan are in need of liquidity, Al Hilal is in a position to provide this. Set up in 2008, the bank is 100% owned by the government of Abu Dhabi and has capital of $1.2bn. This has already sparked considerable interest from local players. While declining to name any names, Abraham says that, "from day one we had enquiries from government, quasi government and corporate actors."