Central Bank of Azerbaijan proposes legal amendments to foster Islamic finance

The Central Bank of Azerbaijan (CBA) has proposed amendments to the Tax Code and the laws "On Deposit Insurance" and "On Non-Bank Credit Organizations" to foster the development of Islamic finance, Nargiz Shiraliyeva, head of the CBA's financial sector development department, stated at the 3rd Islamic Finance Forum in Baku, Report informs.

According to her, the amendments are designed to ensure tax neutrality for Islamic financial products and render them no more expensive than traditional banking services. In particular, when using Murabaha (an Islamic sales contract), where a bank purchases goods and resells them with a markup, additional tax expenses arise, including VAT, and state duties are levied twice. The CBA proposed eliminating double taxation and has discussed these issues with the State Tax Service.

It is also proposed to ensure the insurance of Islamic deposits on equal terms with traditional ones. According to Shiraliyeva, the changes aim to regulate the legal framework for Islamic finance without imposing an additional burden on banks.

Following the adoption of legislative amendments, the CBA plans to update prudential and supervisory requirements, as well as organize training for employees regulating banks and non-bank credit organizations (NBCOs). Additionally, cooperation with the International Finance Corporation (IFC) is planned to conduct training for the financial sector.

Amendments to the legislation on NBCOs will allow these organizations to offer Murabaha, Istisna (a specialized sales contract), and Ijarah (an Islamic lease agreement). However, deposit products will remain exclusive to banks.

Shiraliyeva noted that this decision takes into account survey results showing that a portion of potential clients for Islamic financial services utilizes NBCOs, particularly in the country's regions.