Written by Lian Jye

After the breakup of the Soviet Union, Turkmenistan became the third Islamic state in Central Asia to join the Islamic Development Bank (IDB) in 1994. The country’s boom in oil and gas revenue, however, had reduced its reliance on external funding. Over the years, IDB is only involved in civil infrastructure projects such as Diagnostic Center project in 1999 and trans-Asia-Europe fiber optic communication line.

Turkmenistan is now ready to explore more opportunities with Malaysia, the market leader for Islamic finance.

During his visit to Turkmenistan last June, Prime Minister of Malaysia Najib Razak conveyed Malaysia’s intend to explore more cooperative opportunities in halal food and islamic banking industries with the resources-rich country. This meeting came after the Petronas USD 8 billion investment in the oil and gas industry, focusing on exploration activity. The suggestions have been greeted warmly by Turkmenistan President Gurbanguly Berdimuhamedov.

At the moment, Islamic banking in Malaysia is facing strong regional competition with Singapore and Hong Kong. Hong Kong has planned to issue USD 1 million of sukuk as early as September. This strategy is in line with Hong Kong’s plan to cement its leadership in global finance among non-conventional centers for Islamic finance.

Kazakhstan is in process of introducing new Islamic finance regulations that will allow the industry to better develop under a secular regime. One of the aspects of the new regulations will allow a secular bank to convert its operation into sharia-compliant operation with more ease. Under the current regulations, the bank has to shut down its operations and reapply for license conversion, which may take up to three years of waiting time or even longer.

Yerlan Baidaulet, the Kazakhstan member of the board of executive directors at IDB, believes that this current regulation is a “dead law” and does not benefit the long term development of the industry. The new one will avoid any complications and “focus on a certain set of financial instruments, on a clear tax regime.”

The largest economic entity in Central Asia is looking to establish leadership position in Islamic finance in the region. Since its membership approval in 1995, Kazakhstan has enjoyed strong partnership with IDB. Kazakhstan’s then Industry and Trade Minister, Adilbek Dzaksybekov, was elected chairman of the IDB Board of Governors in 2003. In addition, the country debuted its first sukuk in 2012, after the first attempt failed in 2010. Malaysian investors took up 62% of the debut issue.

During his official visit to Kazakhstan in May 2014, Prime Minister Najib also promised to turn the old capital of Kazakhstan, Almaty, into the regional centre for Islamic banking and finance. A special team will be delegated by Bank Negara, to share Malaysia’s expertise and experience in implementation and product offering.

–Edited by Kristine Diaz

By Ray