Islamic Banking in Kazakhstan: Challenges and Opportunities for Shariah-Compliant Products Development

The development of the Islamic banking sector relies on a dynamic regulatory framework that fosters innovation in product development. In Kazakhstan, despite the introduction of Islamic banking laws and amendments, the sector continues to face significant challenges in achieving parity with conventional banking. While previous research has explored various aspects of Islamic banking, the critical issue of product development remains insufficiently analyzed. This study aims to examine the key obstacles limiting Islamic banks’ ability to offer competitive and innovative financing and deposit products, which are essential for meeting market demand and attracting investment, particularly from foreign investors. Additionally, Islamic financing faces tax-related challenges and unforeseen regulatory barriers. Recent court rulings, including decisions by the appellate court in the case of DAMU against Al Hilal Islamic Bank, have heightened risks for the Islamic banking sector in Kazakhstan, making it less attractive to investors, especially given the involvement of a foreign-invested bank. The research employs a qualitative comparative analysis, examining Kazakhstan’s banking and taxation regulations in contrast with the laws of neighboring countries, as well as Middle Eastern and South Asian nations. The findings highlight the urgent need for amendments to both banking and tax laws to establish a level playing field for Islamic and conventional banking in Kazakhstan. Based on these findings, practical recommendations are proposed for regulators to enhance the development and competitiveness of the Islamic banking sector in Kazakhstan. Keywords: Islamic Banking, Islamic Finance, Regulation, Legislation, Product Development, Financial Innovation