The Ministry of Justice of Uzbekistan registered a regulatory procedure defining the mechanism for traditional banks and microfinance institutions to transition to an Islamic service model. The document took effect on August 1, 2026, creating a legal framework for the systemic transformation of financial institutions.
What happened
Until now, the development of partner financing in the country relied on launching separate Islamic windows or niche products. The new procedure, registered under number 3656–1, outlines the process for changing an institution’s core business model.
The document covers several areas. First, microfinance institutions get a legal route to transform into Islamic microfinance banks. Second, traditional commercial banks can initiate a full transition to Sharia-compliant operations. This was reported by the industry channel FinTech & Retail UZ, citing Ministry of Justice data.
The regulator also established a reverse transformation mechanism. If a financial institution decides to abandon the Islamic model for any reason, it will have the legal right to return to a traditional format.
The regulation introduces additional requirements for registering and licensing Islamic financial institutions. This applies to corporate governance, the formation of specialized boards, and capital separation principles. Banks must prevent the mixing of funds from traditional and Islamic activities during the transition phase.
Country and market
For Uzbekistan, legalizing full-scale Islamic banking closes a long-standing gap in its financial infrastructure. The country has a segment of consumers and entrepreneurs who refuse to use traditional credit products due to religious beliefs.
The lack of specialized legislation previously deterred large banks from making massive investments in this segment. Approving the transition procedure gives the market clear rules and reduces regulatory risks for shareholders.
Why it matters
Creating a regulatory framework moves Islamic finance from experimental projects into traditional banking. Banks gain the ability to legally attract funding from conservative investors, including those from the Middle East, and offer retail clients an alternative to standard deposits and loans.
The regulator gives existing institutions a legal route for full transformation, which could set a precedent and benchmark for neighboring Central Asian markets.
What’s next
Publishing the document shifts the issue from a legal to a technological and operational level. Transitioning to an Islamic model requires banks to replace or deeply modernize their core IT systems, as the mechanics of profit calculation and risk distribution in partner financing differ fundamentally from loan interest.
Banks will need to retrain staff, form Sharia boards, and adapt scoring models. The market will likely see the first announcements from local MFIs and small banks initiating the transformation procedure as pilot projects in the coming quarters.
