Kyrgyzstan – An Emerging Islamic Finance Hub

The Stock Exchange of Kyrgyzstan – BTS has historically been at the forefront of innovation when it comes to offering new products to its trading audience.

In 2022 the President of the Kyrgyz Republic, Sadyr Japarov, signed a Decree to expedite the development of the country’s stock market which specifically mentioned the need to launch new financial instruments and further integrate the country’s stock market with the global one.

In early 2023 a Governmental Programme was adopted detailing a plan to make Kyrgyzstan an international Islamic finance hub. A part of the programme is the launch of Islamic securities, known as sukuk, by local issuers.

Shortly thereafter several issues of sukuk were made, in the format of Sukuk Al-Mudarabah (securitizing a share in business profits from commercial activity) and Sukuk Al-Wakala Bi Al-Istithmar (an Actively Managed Certificate, securitizing a professionally managed investment portfolio).

Islamic securities (Islamic certificates, sukuk) are securities that allow you to earn income from a particular business, asset or investment strategy. In very simple terms, they can be described as a hybrid of stocks and bonds.

Their uniqueness lies in the fact that the funds raised through their issuance must be invested in adherence to Islamic financial principles which require the observance of specific investment prohibitions. Promising fixed interest or investing in fixed-interest instruments is not permissible. Also, financing activities that conflict with Sharia religious prohibitions, such as the production of alcohol, is not allowed. Moreover, the use of capital separate from real assets for speculative purposes or knowingly exposing it to a high degree of risk is forbidden.

A Sharia Council, specifically formed for the issuance of such securities, monitors compliance with these Islamic financial principles. The law imposes stringent requirements on its members concerning their education (in law or economics, supplemented with Islamic finance) and work experience.

In the Kyrgyz Republic, issuance of five types of Islamic certificates is permitted by law:

  • Islamic rental certificates (for investment in rental or leasing businesses)
  • Islamic project finance certificates (where investors finance the creation of an asset and partake in the profits from its operation)
  • Islamic equity certificates (where investors provide money to manage a business in exchange for a share of the profits)
  • Islamic investment agency certificates (similar to an investment fund but in the form of a security, where investors entrust funds to a professional asset manager through a security; akin to an Actively Managed Certificate popular in some countries such as Switzerland)
  • Islamic partnership certificates (where investors finance the business alongside its organizer and share the profits)

The BTS Stock Exchange of Kyrgyzstan allows the listing of all types of Islamic certificates. Additionally, the Sharia Council, established at the exchange, enables the exchange to offer services to specialized Islamic financial institutions.