A historic milestone has been reached, reshaping the financial and banking landscape of Uzbekistan. On March 27, 2026, the Law of the Republic of Uzbekistan No. O’RQ-1126 “On Amendments and Additions to Certain Legislative Acts of the Republic of Uzbekistan Aimed at Introducing Islamic Banking in Uzbekistan” was enacted, officially entering into force on June 29 of this year.
This landmark legislation is poised to significantly enhance the country’s investment climate, broaden financial inclusion, and reduce the share of the shadow economy. Below is a comprehensive analysis of the key pillars of the new legal framework and its impact on the banking sector.
1. Establishment of the Islamic Finance board under the Central Bank
In accordance with the new legislation, a dedicated supervisory body—the Islamic Finance Board of the Central Bank—will be established as a 5-member collegial organ.
Key responsibilities of the board:
- Developing and approving Sharia-compliant financial standards for credit institutions.
- Assisting the Central Bank in drafting regulatory and legal frameworks for the sector.
- Providing official clarifications and commentary on ambiguous or disputed matters within Islamic finance.
- Issuing expert evaluations and resolutions on disputes arising from Islamic financial activities.
Furthermore, the Central Bank has been granted the authority to deploy specific Islamic financial instruments alongside traditional tools to provide emergency liquidity support to Islamic banks. Since the principles of Islamic finance strictly prohibit usury (riba or interest), crucial amendments have been integrated into the sections of the Civil Code of the Republic of Uzbekistan governing bank deposit contracts.
The law now legally establishes that funds received under a bank deposit agreement can be returned either with other forms of income or without them (based on profit-and-loss sharing principles), rather than through fixed interest. Additionally, if a bank decides to reduce the rate of returns or profits, the new rates will only apply to deposits one month after the depositors have been formally notified.
Permitted Islamic Financial operations
The law provides clear legal definitions for “Islamic banking activity” and “Islamic finance standards.” For banks operating under these principles, traditional regulatory restrictions on direct commercial trading and equity participation in legal entities have been lifted—provided that these operations are conducted as Sharia-compliant financial transactions.
Under the new regulations, commercial banks are permitted to execute the following Islamic financial operations:
- Investment deposits: Mobilizing client funds or financing projects based on a mutual profit-and-loss sharing agreement (Mudarabah/Musharakah).
- Agency contracts: Attracting or allocating funds acting as an agent under agency principles (Wakala).
- Credit sales (Murabaha): Financing clients by purchasing an asset and selling it to the client at a cost-plus profit margin with deferred or installment payments.
- Forward-financing (Salam/Istisna): Providing financing by paying fully in advance for goods or manufacturing outputs to be delivered in the future.
- Partnerships (Musharakah): Undertaking joint business ventures or directly participating in the charter capital of legal entities through equity stakes.
- Islamic leasing (Ijarah Muntahia Bittamleek): Providing asset leasing with an explicit option or pathway for the client to acquire ownership at the end of the term.
In the Uzbek financial market, commercial banks can now operate under three distinct licensing tracks issued by the Central Bank:
- Conventional Banking License – solely for classic financial services.
- Islamic Banking License – strictly for Islamic financial services.
- Dual/Window License – allowing the parallel operation of both conventional and Islamic windows, provided that accounting records for Islamic operations are kept completely separate.
Only banks operating under a sole Islamic banking license are entitled to use the term “Islamic” in their corporate name or service trademarks. Conversely, dual-licensing banks are prohibited from incorporating this term directly into their primary brand name.
A conventional bank wishing to secure an Islamic banking license must submit an application to the Central Bank accompanied by a resolution from the general meeting of shareholders, statutory charter amendments, a 3-year business plan, and proof of structural capability to maintain separate accounting books. The review process for such applications is capped at 2 months.
Every bank providing Islamic financial services is statutorily required to establish an internal Bank Islamic Finance Board consisting of at least 3 members.
The members of this board are elected by the general meeting of shareholders upon the recommendation of the bank’s Supervisory Board and subject to vetting and clearance by the Central Bank. To prevent conflicts of interest, shareholders with controlling stakes and key executive employees are strictly barred from sitting on this board.
The internal Islamic Finance Board is tasked with assessing the compliance of transactions with established standards, approving internal policies, and submitting an annual compliance report to the general shareholders’ meeting. This supervisory duty cannot be delegated to the bank’s management or any other executive organ.
The adoption of this new law lays down a robust and long-awaited legal foundation for an alternative financial services market in Uzbekistan. This reform is expected to not only mobilize the capital of culturally conscious citizens into the formal banking system but also pave the way for a major influx of foreign direct investment from prominent Islamic investment funds across the Middle East and Southeast Asia.
