Bakiev said after the signing ceremony that he thinks the development of Islamic banking will convince the IDB's other 55 member countries to invest in his country's economy. He also indicated that his government was considering pushing the experiment further and set up a regional Islamic banking center in Bishkek.
Regional Growth Of Islamic Banking
Islamic banking is widely viewed as having first appeared in Egypt in the 1960s. Owing to the oil boom of the 1970s, it then flourished on the Arabian Peninsula and, from there, expanded into the Middle East, Iran, and Southeast Asia. It is now rapidly developing in Pakistan and India, and is making inroads in Western countries that have large Muslim communities such as Britain and the United States.
But it has so far made little headway in Central Asia and the Maghreb region (western North Africa), a circumstance that some observers ascribe to historical, sociological, and psychological reasons.
When Kyrgyz authorities last year first floated the idea of introducing Islamic banking in the country, National Bank Chairman Marat Alapaev argued that it could only be done on an experimental basis; Alapaev cited what he called the "fundamentally secular character" of Kyrgyzstan's financial system.
Proponents of Islamic banking, in turn, object that the standards that apply in the Shari'a-based system do not differ greatly from that of traditional banking. They also say a number of conventional Western banks are offering Islamic financial products to their clients. They say the main difference between Islamic and secular banking is that Islamic banking has a stronger ethical component that makes it more appealing to Muslim believers.
'Ethical' Investing
Another common argument in favor of Islamic banks is that they inspire confidence because they assume a share of the risks in the ventures they fund.
One of the system's basic principles is the sharing of loss and profit. Islamic banking traditionally prohibits usury and the collection or payment of fixed interest ("riba" in Arabic). Under Islamic mortgage rules, a bank generally purchases the property and resells it at a profit, allowing the final buyer to pay in installments. This system is known in Arabic as "murabaha," or cost-plus financing.
Islamic banking also forbids trading in financial risk and bans investing in commercial activities that are considered unlawful ("haram" in Arabic) under Shari'a, such as the gambling and pornography businesses, or the tobacco and alcohol industries.
IDB In Central Asia
While Islamic banking is not widespread in Central Asia, the IDB -- which is the bank of the Organization of the Islamic Conference (OIC) -- has been present in the region for more than a decade.
The IDB was launched in 1975 with a view to promoting Islamic banking worldwide.
Most Central Asian countries joined the bank in the mid-1990s, shortly after gaining their independence from the Soviet Union and entering the OIC. Kyrgyzstan joined first in 1993, followed by Kazakhstan in 1995, Tajikistan in 1996, and Turkmenistan in 1997. Uzbekistan became an IDB member only in 2003, seven years after joining the OIC.
The IDB's largest Central Asian stakeholder is Kazakhstan, with 0.12 percent of its capital. Kyrgyzstan, Tajikistan, and Turkmenistan have 0.06 percent each. Uzbekistan has 0.03 percent.
The IDB says its aim is to foster the economic development and social progress of member countries and Muslim communities in nonmember states in accordance with Shari'a principles.
French Islam expert Gilles Kepel argues in "Jihad," his reference work on radical Islam, that if the IDB has contributed to reinforcing Islamic cohesiveness among member countries, it also has fostered a dependence between its poorest member countries and its main shareholders, oil-rich Saudi Arabia and Libya, among others.
The IDB has backed infrastructure projects in the region (ITAR-TASS file photo)
Under a separate deal concluded in July, the IDB agreed to lend Bishkek $12 million to upgrade the power grid in southern Kyrgyzstan's Batken region. Kyrgyzstan has borrowed nearly $61 million and received more than $3.5 million in grants from the IDB since 1993.
In neighboring Uzbekistan, the IDB has earmarked some $115 million since 2003 for energy, education, health, and infrastructure projects.
IDB President al-Madani announced during a visit to Tashkent on July 3 that the bank will offer an additional $15 million credit to three Uzbek banks (Ipoteka-Bank and the state-owned Uzpromstroibank and Asaka Bank) to fund private industrial and agricultural projects.
Addressing a seminar the same day of the Arab Coordination Group -- which includes the IDB and a number of Middle East-based development institutions (the Saudi Fund for Development, the Kuwait Fund for Arab Economic Development, the OPEC Fund for International Development, and the Abu Dhabi Fund for Development) -- Uzbek Foreign Trade Minister Elyor Ganiev said his country hoped to attract more than $1.6 billion in investments from Arab IDB members within the next three years.
The IDB is also involved in a number of industrial projects in Kazakhstan, Tajikistan, and Turkmenistan.
Kazakhstan As Regional Center
Some banks in Kazakhstan are already offering Islamic financial products to their clients. But those offerings are reportedly limited to cost-plus financing, while more sophisticated forms of Islamic banking like leasing (ijara) or bonds (sukuk) are still under study.
Addressing an international conference on Islamic finance in Almaty in May, the deputy head of the state agency that regulates and supervises Kazakhstan's financial market, Gani Uzbekov, said he thinks his country "stands a good chance of becoming a regional center of Islamic banking."
Uzbekov said the IDB might soon repeat a successful experiment it carried out in Malaysia five years ago and issue Islamic bonds denominated in tenges, the Kazakh national currency. Those bonds would primarily serve to fund energy projects in the northern city of Ust-Kamenogorsk.
On the sidelines of the Almaty conference, Kazakhstan's Bank TuranAlem and the Emirates Bank Group announced that they were in talks for the creation of a 50-50 joint venture that would specialize in Islamic financial products. The deal could be finalized by the end of this year.
Meanwhile, Bank TuranAlem this week secured a $250 million syndicated Islamic loan from Arab, British, and Malaysian lenders. In a July 12 statement, the bank called that credit the biggest Islamic loan facility it has ever received.
The time appears to be over when Muslim bankers lamented that Central Asian governments did not even appear to know that Islamic banking existed. Regional decision-makers and private bankers are gradually opening up to Islamic financial products.
Whether Islamic banking will achieve widespread success among Central Asian publics is another question.
| FURTHER READING | |
 Because of Koranic restrictions, most banks that call themselves "Islamic" are able to serve only the richest clients in the Muslim world. more |  A unique online project helps connect ordinary people with the microcredits they need to escape poverty. more |
Islam And Politics In Central Asia
The Khodji Mashrab Mosque in Dushanbe (TASS file photo)
ACTIVISTS AND AUTOCRATS: Eric McGlinchey, assistant professor of government and politics at George Mason University, told an RFE/RL briefing that Islam-centered political movements present the most coherent challenge to autocratic governments in Central Asia.
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