Editor’s note: Zaur Nurmamedov is a journalist and a graduate of the Faculty of Political Science at the Academy of Public Administration under the President of the Republic of Azerbaijan (1993–1999). He previously served as first deputy editor-in-chief of the Vesti.Az news portal (2009–2023). The views expressed in this article are his own and do not necessarily reflect the position of News.Az.

The prospects for the development of Islamic banking in Azerbaijan appear highly promising. With a predominantly Muslim population, significant economic potential, and a strategic location in the South Caucasus, the country is well positioned to integrate Islamic finance as a complement to its traditional banking system. The sector could become an important component of efforts to diversify the economy, reduce dependence on oil revenues, and attract new investment.

While discussions about Islamic banking were previously largely theoretical, in 2025–2026 the Central Bank of Azerbaijan (CBA) moved to the practical stage of implementing relevant instruments. The CBA has already completed draft legislative amendments for the introduction of Islamic banking and submitted them for government approval. At the initial stage, Islamic financial services are expected to be offered through “Islamic windows” within existing commercial banks rather than through separate Islamic banking institutions.

This means that conventional commercial banks will be able to offer customers products that comply with Sharia principles without establishing fully fledged Islamic banks. To facilitate this, amendments to the Civil Code, the Tax Code, and the Law on Banks have already been prepared. In other words, traditional banks will be able to introduce dedicated Sharia-compliant product lines without the need to create new institutions from scratch.

The proposed changes include the introduction of five core Islamic financial instruments: murabaha, mudaraba, istisna, ijarah, and wadia — a classic set of Islamic finance tools covering trade financing with a markup, partnership financing with profit-and-loss sharing, construction and manufacturing financing, leasing, and safekeeping deposits, respectively.

At a later stage, the introduction of sukuk (Islamic bonds) is planned. The legal framework for sukuk could be prepared by 2027, with the first issuance potentially taking place in 2028. These measures form part of the testing of Islamic finance mechanisms under a special regulatory regime launched by the CBA in 2025–2026 as part of the Financial Sector Development Strategy for 2024–2026.

Azerbaijan has already allocated approximately 370 million manats ($218 million) to finance projects in cooperation with Islamic financial institutions. According to World Bank data for 2024, around 44% of Azerbaijan’s population does not have a bank account, partly due to religious objections to interest-based financial products. This is a substantial figure for a country with a relatively developed banking infrastructure. Islamic financial products could help bring this segment of the population into the formal financial system.

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