BAKU, Azerbaijan, February 20. The Central Bank of Azerbaijan (CBA) plans to submit a draft amendment to legislation on Islamic banking to the government soon, Shahin Mahmudzade, Director General of the CBA, said in an exclusive interview with Trend.
According to him, the relevant draft amendments to the Civil Code, the Tax Code, and the Laws of Azerbaijan ‘On Banks,’ ‘On Non-Bank Credit Organizations,’ ‘On State Duty,’ ‘On Credit Bureaus,’ and ‘On Privatization of State Property’ have been submitted for legal review.
"Following their adoption, the next stage will involve establishing a prudential regulatory framework to address the risks arising from the implementation of Islamic financial products,” Mahmudzade emphasized.
The Director General also tackled the matter of VAT implications for Islamic financial dealings.
He noted that financial services provided under alternative (Islamic) banking operations are intended to be subject to the same tax regime as conventional banking services, thereby ensuring tax neutrality between conventional and Islamic banking activities. According to Mahmudzade, this approach is reflected in the draft legislative amendments currently under preparation and will be submitted to the relevant state authorities shortly.
Islamic banking represents a financial framework that aligns with Shariah principles, which explicitly forbid interest, excessive uncertainty, and investments deemed unethical, such as those related to alcohol and gambling. Rather than providing loans with interest, it focuses on risk-sharing, profit-and-loss sharing, and transactions grounded in tangible assets. It champions investing that is ethical, socially responsible, and rooted in fairness.
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