Moody’s forecasts Azerbaijan may have full-fledged Sharia-compliant banks
The introduction of Islamic banking windows in Azerbaijan is expected to create new income opportunities for local banks
BAKU, Azerbaijan (MNTV) — The introduction of Islamic banking windows in Azerbaijan is expected to create new income opportunities for local banks and enhance financial inclusion, according to a report by international ratings agency Moody’s.
On October 7, the Central Bank of the Republic of Azerbaijan (CBA) announced that Islamic banking products will be introduced starting in 2026. To support this initiative, authorities are preparing amendments to the Civil Code, Banking Law, and Tax Code, including a proposed exemption of Islamic finance transactions from value-added tax.
Once the new legal framework is in place, conventional banks will be permitted to offer Islamic banking services through special “Islamic windows.” The CBA will oversee the implementation phase, initially focusing on market familiarization and later expanding the product range.
Moody’s described the move as “credit positive,” noting that Islamic windows will enhance banks’ profitability, funding, and liquidity. The agency added that Azerbaijan’s experience could mirror that of the Kyrgyz Republic, where Islamic finance has successfully broadened banks’ product offerings and increased financial inclusion.
The report also noted that Azerbaijan’s largely Muslim population — approximately 97% of 10.4 million people — represents a strong potential customer base for Shariah-compliant services. However, the sector’s growth has been constrained in the past by the absence of enabling regulations.
Moody’s highlighted that Islamic windows will allow Azerbaijani banks to serve a previously underserved segment, while the planned development of a sukuk (Islamic bond) framework could help attract funding from international Islamic development institutions and support liquidity management.
Azerbaijan’s earlier attempt at Islamic finance began in 2013, when the International Bank of Azerbaijan launched an Islamic Banking Department targeting SMEs and retail clients, but the initiative was discontinued in 2015. The new regulatory push, Moody’s said, could pave the way for the establishment of fully Shariah-compliant banks and facilitate sukuk issuance to finance infrastructure and SME growth.
The move comes amid a broader regional trend, following Uzbekistan’s recent approval of a draft law on Islamic banking. Moody’s noted that while full-scale implementation in Central Asia may take time, Azerbaijan’s cooperation with international Islamic finance institutions is likely to accelerate progress.
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