BAKU, Azerbaijan, June 17. Tax, insurance, and monetary neutrality for Islamic financial instruments is ensured in Azerbaijan as part of the development of Islamic banking, Executive Director of the Central Bank of Azerbaijan (CBA), Shahin Mahmudzade, said at the 14th Islamic Development Bank Group Private Sector Forum, Trend's correspondent reports from the event.
He mentioned that the volume of sukuk issued in the country is approximately $0.5 billion, while the volume of associated assets is approximately $1.3 billion.
"I expect much higher figures in the future," Mahmudzade emphasized.
He noted that a significant portion of these instruments is attracted from foreign markets. According to him, research was conducted during the introduction of Islamic finance in Azerbaijan, the results of which showed high potential demand.
"About 80% of respondents stated the need for Islamic finance in Azerbaijan," he explained.
Mahmudzade also informed that some respondents perceived Islamic finance as charity.
"About 70% believed that banks provide funds free of charge and do not require repayment," he noted.
He announced that this demonstrates the need to improve financial literacy in this area. The CBA Executive Director underscored that neutrality of conditions for both conventional and Islamic banking was a key principle in developing legislative amendments.
According to him, this refers to tax, insurance, and monetary neutrality.
"Without tax neutrality, loans in Islamic finance become more expensive," he said, adding that the relevant amendments have already been introduced into the legislation.
He also noted the importance of ensuring neutrality in the deposit insurance system, including approaches similar to the takaful system. Mahmudzade said that the third key element is monetary neutrality, including access to liquidity and central bank instruments.
According to him, the absence of such mechanisms could reduce the profitability of liquid assets in Islamic banks. He emphasized that creating a level playing field will allow Islamic financial instruments to compete with conventional ones.
"We have created these three levels of neutrality for Islamic windows," he noted. Shahin Mahmudzadeh added that the industry's development also depends on the financial sector's activity and willingness to invest in infrastructure and professional personnel.
He said that the CBA is ready to support the development of Islamic finance if there is market demand.
"We are ready to support Islamic windows, but we must see demand to move toward a fully-fledged Islamic banking sector," he said.
Mahmudzade also pointed out that separate licensing and infrastructure for Islamic banking may be developed in the future.
