Kazakhstan is currently working on the launch of its new Astana International Financial Center (AIFC), which should propel the country into the spotlight of the international financial community and, in particular, the Islamic finance industry.
The AIFC has been designed to grow to no less than the future financial hub for the Commonwealth of Independent States (CIS), West and Central Asia and to become one of the world’s 20 most advanced financial centres for both conventional and Islamic finance. It is part of Kazakhstan President Nursultan Nazarbayev‘s vision entitled “100 Concrete Steps for Realization of Five Institutional Reforms of the Head of the State (100 Steps)” which includes a sustainable transformation of the huge nation’s economy away from oil revenue as a response to global challenges and a strategic plan to lift Kazakhstan into the world’s 30 most developed nations by 2050.
The creation of the AIFC is step 70 in the programme. Its regulatory framework is modelled after the Dubai International Financial Center, one of the most successful financial free zones in the world. Likewise, the AIFC will offer bank and financial institutions a number of incentives, including investment subsidies, tax reliefs, free capital flows and legal independence. It will also open avenues for investors within the Eurasian Economic Union between Kazakhstan, Russia, Belarus, Kyrgyzstan and Armenia.
The AIFC is expected to contribute up to 1% of non-hydrocarbon GDP increase each year up to 2025 (which is equivalent to aggregated revenue of $13.4bn in the period). Plans are to attract more than $350bn in foreign investment and to issue a total value of $91bn in sovereign bonds, mostly sukuk.
Apart from strategic advantages for the diversification of Kazakhstan’s economy, the government places very high expectations in the AIFC in terms of nurturing Islamic finance growth in a country where 70% of the 17mn-population are Muslim, but where Islamic finance is still marginalised even 25 years after Kazakhstan ceased to be a Soviet Socialist Republic.
Although the concept of Islamic banking has been re-introduced in 2008, the sector remained idle and currently holds less than 1% of total banking assets in the country. The only full-fledged Islamic bank operating in Kazakhstan is Abu-Dhabi’s Al Hilal Bank, launched in 2010 in Astana, only to be joined by Zaman Bank, which is currently in the process of being converted from a conventional bank to a fully-fledged Islamic bank with the help of a loan from Saudi Arabia’s Islamic Corp for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank, and should be ready to be operational in 2017.
The ICD this October also signed a memorandum of understanding with the AIFC to push forward the Islamic financial services industry in Kazakhstan, an agreement that includes assistance and know-how transfer in the fields of Islamic capital markets, asset management, financial technology, as well as human capital development and skills training.
Kazakhstan is also using Malaysia as a role model for the development of its Islamic finance sector in order to put the country on the global financial map. There are plans that AIFC will work with Kuala Lumpur’s stock exchange Bursa Malaysia to support the development of Islamic securities, namely sukuk, as well as an Islamic stock index and a commodities exchange in AIFC.
The Gulf Cooperation Council (GCC) countries, too, are seen as important partners that would contribute to the success of the AIFC, both as investors and cooperation partners, namely with the help of the ICD.
“The AIFC aims to become a regional hub for Islamic finance, creating favourable conditions for the operation and development of Islamic financial institutions,” says AIFC governor Kairat Kelimbetov, former Governor of the National Bank of Kazakhstan, adding that “this is based on the principals of international best practices. We consider the ICD as our strategic partner in GCC region.”
The launch of the AIFC is anticipated for 2018 after the country will have had hosted the Astana Expo 2017 in the capital from June 10 to September 10 next year.
The Astana International Financial Center will be built on the premises of the Astana Expo 2017. The AIFC is expected to contribute up to 1% of Kazakhstan’s non-hydrocarbon GDP increase each year up to 2025 (which is equivalent to aggregated revenue of $13.4bn in the period).