Azerbaijan, with support of IsDBI, beginning to create regulatory framework for Islamic financial instruments

The Central Bank of Azerbaijan has requested the Islamic Development Bank Institute (IsDBI) to provide technical assistance (TA) toward the cost of the "Islamic Finance Grant to Develop Regulatory Framework for Capital Market Development in Azerbaijan," Report informs referring to the IsDBI.

The core objective is to assist Azerbaijan in establishing an enabling environment for the introduction of Sukuk. This will lay the foundation for a more diverse financial sector.

The project is expected to deliver a robust legal and regulatory framework will be developed to govern the issuance of sukuk and other Islamic finance products.

Capacity of Azerbaijani institutions will be enhanced to effectively manage the risks associated with Islamic finance transactions.

A formal monitoring and evaluation framework will be established to track the progress and development of Islamic finance in Azerbaijan.

The project aims to facilitate the successful issuance of Azerbaijan's first sukuk, which will serve as a milestone for the country's financial sector diversification.

"The project's primary goal is to develop a modern, sustainable Sukuk sector to significantly bolster government initiatives. By mobilizing resources, fostering financial inclusion, and creating jobs, this effort will drive overall socioeconomic development. Sukuk offers an investment avenue that complies with Islamic principles, attracting a wider base of investors, enhancing capital flow, and funding critical infrastructure. This will ultimately create a more inclusive and robust economy. To realize this vision, it is crucial to first establish a solid foundation. This requires a robust legal, regulatory, and supervisory environment that enables the efficient and effective issuance, regulation, supervision, and management of Sukuk. Without this enabling framework, the full potential of this sector cannot be unlocked," reads the message.

IsDBI is currently selecting qualified consulting companies to provide services under this project.

A thorough analysis of Azerbaijan's existing capital market will be conducted to assess its readiness for Islamic financial instruments. This includes a benchmark study of successful Islamic capital markets in countries such as Malaysia, Bahrain, the UAE, Bahrain, Kazakhstan, Türkiye and Saudi Arabia to identify best practices.

The consultant's work is expected to last no more than 15 months, beginning in November 2025.