Fitch evaluates prospects for introduction of Islamic finance in Azerbaijan - EXCLUSIVE

Fitch Ratings believes that the impact of Islamic finance on traditional funding models of Azerbaijani banks will remain insignificant in the near term, Olga Ignatyeva, senior director at Fitch Ratings, told Report.

"Starting in 2026, Azerbaijan's central bank has indicated plans to introduce Islamic banking products, initially via an 'Islamic Window' model within conventional banks, alongside planned legal and regulatory changes. This gradual, pragmatic approach should help test market appetite and raise awareness of Islamic finance products.

In our view, regulatory clarity and market education will be critical success factors: comprehensive Shariah governance, clear supervisory guidance, and a supportive legal and tax framework will be important for segment growth, investor confidence, and financial stability.

Consistent product structuring, transparent disclosures, and sustained outreach to retail and corporate clients should also help build trust in Islamic finance over time. Implementation could be operationally complex and costly, as banks will need to adapt governance, risk, and compliance processes, systems, and reporting, and develop internal expertise and staff training to meet Shariah requirements.

Overall, Islamic windows could broaden product offerings and support funding diversification over time, but we expect a gradual rollout and limited near-term impact on banks' traditional funding profiles," she noted.

The Central Bank of Azerbaijan (CBA) has prepared a roadmap for the launch of an "Islamic Window" model for the introduction of Islamic banking products in the country. Islamic finance is positioned as an alternative fundraising mechanism and is included among the Central Bank's strategic priorities.

As part of the preparatory work, international experience has already been analyzed and the optimal implementation format for Azerbaijan has been selected. During the initial stage, independent specialists will develop a list of acceptable Islamic finance products within the "Islamic Window" model, after which the basic instruments, developed through consultations with professional financial associations and international experts, will be introduced.