Uzbekistan is an unusual case in the Islamic world. Its population of nearly 40mn is overwhelmingly Muslim — around 90% — yet the country has operated since independence as a resolutely secular state, with a conventional western-style banking system inherited from the Soviet era. Islamic finance has existed at the margins: a handful of microfinance products, limited awareness, no dedicated legal framework. For most of its post-independence history, that suited everyone fine.

But the government is now looking at a global Islamic finance market worth more than $4 trillion — concentrated heavily in the Gulf states that are simultaneously becoming Uzbekistan's most important investment partners — and has decided it cannot afford to leave that capital on the table. The result has been a flurry of legislation, a new regulatory architecture and, as of just two weeks ago, the country's first law making full Islamic banking legally possible. The timing, to coincide with the fifth Tashkent International Investment Forum (TIIF) that kicked off on June 17, was deliberate.

Gulf capital commitments on the move

The strategic context matters. Ramona Manescu, former foreign minister of Romania and now an adviser to the government on economic diplomacy, argued at the forum that the nature of Gulf capital flows has fundamentally shifted — and that framing the opportunity purely in financial terms misses the point.

"Most of our previous years, we were talking about Islamic finance and Gulf capital as a source of liquidity. Now I think this perspective has been shifted. We can speak about Gulf capital as a strategic partnership — about connectivity, about diversification, about digital transformation and technology transfer,” she said.

Gulf sovereign wealth funds and Islamic institutions are slow moving but they are no longer simply looking just for yield. They are looking for durable footholds in strategically positioned markets as Gulf politics and foreign relations have been dramatically shaken up in the last few months.

Uzbekistan — sitting at the intersection of the China-Europe corridor, bordered by five Central Asian states and undergoing rapid economic transformation — fits that description.

"Uzbekistan occupies a unique, strategic position that only a few countries have in the region. It is not only that Uzbekistan has the potential to become a gateway between Central Asia and Europe — I think they are performing very well already,” Manescu said.

Manescu's broader argument was that political trust and economic opportunity must be aligned for long-term capital to flow. "Long-term capital follows confidence — confidence that is built between all actors. The only countries that understand why they need to align the political vision with the economic vision will make a real difference. It's important, as I said, not for the short term, but for long-term investment."

The legal architecture built in three stages

Until recently, Islamic finance in Uzbekistan existed in a regulatory grey zone. Sanjar Nosirov, deputy head of the Central Bank of Uzbekistan, walked through how that is being systematically dismantled — in three deliberate stages.

The first stage began with microfinance and is already done. Legislation was passed enabling microfinance organisations to offer Sharia-compliant products — Murabaha, Ijara, Salam, Mudarabah, Musharakah — from 2024 onwards. Around 12 institutions are now providing these products. In 2025, eight organisations offering Islamic finance products recorded a combined portfolio of around $7mn. By the first five months of this year, that figure had already reached $32mn — growth of more than fourfold. Murabaha-based financing dominates at 63% of the total, with Mudarabah and Musharakah representing 17% and 14% respectively.

Murabaha is the simplest and most widely used Islamic finance product. Conventional loans charge interest, which is forbidden under Sharia law. Murabaha gets around this not by pretending profit doesn't exist, but by restructuring the transaction. The bank takes on actual ownership of the widget and immediately sells it back to the borrower at a markup. The creditor then pays for this transaction, including the mark-up, in instalments until the “loan” is paid off.

"One of our microfinance organisations, fully specialised exclusively in Mudarabah-based investment arrangements, has today financed more than 300 farms under Mudarabah contract for agricultural entrepreneurship financing,” Nosirov noted.

The second and most significant stage arrives this month on June 29, when Uzbekistan's law on Islamic banking activities comes into force.

"I believe this represents a historic moment in the development of the financial system of Uzbekistan,” says Nosirov.

The law creates a dual-track model: banks can either operate as fully-fledged Islamic banks or offer Islamic products through a dedicated window within a conventional institution.

A two-tier Sharia governance structure has been established — a national Islamic Finance Board at the Central Bank level to coordinate and set standards, and an institutional board within each licensed Islamic bank. The Central Bank has established a dedicated Islamic Finance project office, is working to introduce seven Sharia standards with the help of the new board and has joined the Islamic Financial Services Board (IFSB) to align Uzbekistan's regulations with international norms.

For foreign investors, Nosirov was direct about what the regulatory framework is designed to offer: "The main aim was to establish clear licensing regulatory requirements, robust Sharia governance arrangements, and an appropriate taxation framework. The objective was to create a transparent and predictable legal environment that provides greater certainty to investors and the general public."

The third stage — still in development — is an Islamic capital markets framework, including dedicated sukuk legislation. Sukuk is the Islamic version of a bond. A new capital markets law with a standalone chapter on Islamic instruments is being drafted in line with international standards.

Nosirov acknowledged the challenge is not only structural. "Once I tried to explain Murabaha to a friend. He said — so it's basically buying something and selling it at a mark-up? I said yes. He thought for a moment and replied: so, every shop in the world is already doing Islamic finance. That was the moment I realised our biggest challenge is not structuring the product — it is explaining what is Islamic about it, because in the population they don't understand that Islamic finance is not simply interest-free finance." Capacity building and public financial literacy, he said, are now formal central bank priorities alongside the regulatory work.

The world's fastest Islamic finance growth?

Alisher Djumanov, managing partner of Uzbek-based AD Wealth, believes that Uzbekistan has the potential to become one of the fastest growing Islamic finance markets in the world.

Gulf investors are already taking their first Islamic financing baby steps in the Uzbek market through conventional channels. State-linked institutions such as Saudi Arabia-based Acwa, one of the biggest foreign investors in Uzbekistan, have moved from newcomers to top-10 foreign investors in the country in just a few years. "If you look at the ranking of the largest foreign investors in Uzbekistan, you will see that Gulf-based investors are in the top positions,” says Djumanov. “They came to Uzbekistan starting from 2019 to 2020 and quickly became top-10investors in the country."

The question Djumanov posed is whether Islamic banks and investment funds from the GCC will replicate that trajectory.

Arab banks have a long track record of setting up their services in Muslim countries around the world and the expectation is once they enter the Uzbek market their expansion will be fast.

For precedents, take Turkey and Pakistan. Al Baraka Bank, out of Bahrain, established the first participation bank in Turkey in 1984. Kuwait Turk followed in 1989. Forty years later, those two institutions are number one and number two in the Turkish Islamic banking market. In Pakistan, Meezan Bank — backed by the Islamic Development Bank and Kuwaiti capital — entered as an investment bank in the late 1990s, converted to a full Islamic bank in 2002, and is today the largest Islamic bank in the country with $15bn in assets and a 30% market share.

"These facts indicate that there has been successful experience of Gulf-based investors in frontier markets and new jurisdictions. Central Asia generally and Uzbekistan in particular is a massive opportunity for them,” Djumanov says.

Djumanov noted that Gulf Islamic institutions — including Meezan's parent — have already been meeting with the Central Bank of Uzbekistan officials and conducting due diligence in Tashkent. The new law creating licences for Islamic banks is the signal they have been waiting for.

"My prediction is that in the next decade, by 2035, Uzbekistan will demonstrate the fastest growth of Islamic finance anywhere in the world, starting from its inception when the law went into effect,” says Djumanov. “It is going to be a growth race that has nowhere been seen previously."