It certainly helps when you host the Annual Meetings of the Islamic Development Bank (IsDB) Group and you are in the middle of an ambitious economic and socio-political reform agenda.
Uzbekistan, currently the go to FDI location in the six Muslim republics of central Asia and IsDB member countries, is on a growth and reform trajectory, which includes a new-found commitment to promote the Islamic finance industry and to leverage its potential in export development, infrastructure financing, investment and social finance.
Uzbekistan, says Deputy Finance Minister Odilbek Isakov, is currently working on a Presidential Decree which hopefully will be approved in the next few weeks. “The new Decree will introduce a number of important legislative norms aimed at facilitating the introduction of Islamic finance and products …. in the Uzbek market. I cannot go into detail, but it will effectively set an Islamic Finance Roadmap for the next two years, highlighting what needs to be done in terms of the regulatory, legal and other frameworks.”
The IsDB Group, he agrees, is very important for the central Asian region. The IsDB is the third largest international financial institution lender to Uzbekistan. “Our six main banks in Uzbekistan with the technical help from ICD have also established Islamic Banking Windows (IBWs). They are now offering Shariah-compliant deposits and financing products to individuals and corporates. It is not just about Islamic banking, but also Islamic insurance and developing an Islamic capital market, Islamic advisory and so on. Our IBWs are in a nascent stage,” he added.
Of all its peer MDBs, the IsDB’s rapid response to the pandemic was the most proactive, underpinned by an initial US$2.3bn Group Strategic Preparedness and Response Programme (SPRP) “to help combat the health and socio-economic impact of the pandemic in
member countries comprising a combination of soft loans, ordinary resources, private
sector finance, trade finance and credit and investment insurance”. This was complemented by other Group facilities and guarantees amounting to over US$7.5bn.
“The COVID-19 pandemic,” stressed IsDB President, Dr Muhammed Al Jasser, “taught us difficult lessons about the fragility of national economies in a globalized world. We are using the opportunity of our annual meetings to ensure that the power of multilateralism can help create stronger, more resilient economies in long term.”
The pandemic hit Uzbekistan very hard initially. Due to a strong government response the economy rebounded in H2 2020 recording a 1.7 percent GDP growth, which according to Uzbek Deputy Finance Minister Odilbek Isakov, “was one of the few positive rates in the world for 2020. The Government’s original estimate was 5.1% GDP growth for 2021 which has changed to 5.5-6.5% on the back of stronger than expect economic recovery. Despite a mini rise in Covid infections in July, we are confident that this target remains achievable.”
Indeed, the President of Uzbekistan Shavkat Mirziyoyev in his keynote speech at the 46th Annual Meetings of the IsDB Group was gracious in his acknowledgement of the support his country was getting from the Group. “We are grateful to the Islamic Development Bank for its timely support of our anti-pandemic measures. To date, the Bank has approved 30 major investment projects in Uzbekistan in health, education, agriculture, water supply, road infrastructure and construction of affordable housing in rural areas worth over US$ 2.5 billion” he said.
In addition, the IsDB has also provided US$141 million in 2020 in support of the country’s COVID-19 response plans to acquire emergency medical equipment and build MSMEs resilience.
Uzbekistan’s Annual Meetings gains are substantial which augurs well for the increased prospects of the involvement of Islamic finance in the banking system and economy. These include:
- The establishment of a US$100 million Economic Empowerment Fund for Uzbekistan (EEFU), to which IsDB is contributing US$20 million with the rest coming from Saudi Arabia (45%) and the Uzbek government (35%). Financing will be provided through multiple channels, including credit lines, Murabaha facilities and equity participation. The Fund aims to create 100,000 jobs by supporting micro, small, and medium-sized enterprises (MSMEs) and is the first impact investment fund established in Uzbekistan. The aim is to gradually increase the fund size to US$500 million. Khalid Al-Falih, Saudi Minister of Investment reminded: “Research confirms that it is SMEs that collectively make a significant contribution to a country’s economic development. Studies show that in high-income countries, SMEs account for up to 55% of a country’s GDP, providing 65% of employment. This figure is even higher in lower income countries. I am confident that the creation of this Fund will fundamentally change the lives of hundreds of thousands of people across Uzbekistan.”
- US$200 million investment for the “Sustainable Rural Development Project” to support rural economic development initially in the villages in Karakalpakstan, Khorezm, Bukhara and Navoiy regions, and later upscaling the project to other regions of the country. The project will develop vital infrastructure to support rural residents in confronting socio-economic, environmental and climate challenges, through building resilient irrigation and drainage canals, drinking water infrastructure, road network and bridges, rural electricity and social infrastructure including markets, schools, and health clinics that will benefit more than 710,000 rural residents in the project areas.
- US$80 million to finance the second phase of a project devoted to expanding access to oncology services by equipping treatment centres and expanding medical training. The latter is part of a US$121.87 million project to which the IsDB is providing US$80 million and the remaining US$41.87 million by the Uzbek government.
- The Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the IsDB Group, has extended US$40 million in four Lines of Financing to Uzbek banks comprising US$10 million for Kapitalbank, US$10 million for Trustbank, US$10 million for Orient Finans Bank and US$10 million for InFin Bank – all aimed at boosting businesses and preserving jobs especially in MSMEs.
“I consider this as a historic event in Uzbekistan’s efforts to reduce poverty. One of the top priorities of our economic policy is to support women and youth, especially in the countryside, to invest in innovative projects and youth startups. We have a clear plan on how to support businesses from the birth of an idea to successful implementation, through financial and non-financial support. The clear message of these funding commitments is that member countries are stronger and more resilient when they act in unison,” emphasised Uzbekistan’s Deputy Prime Minister and Minister of Investments Sardor Umurzakov.
IsDB President Dr Al Jasser strongly believes that the funding commitments especially the (EEFU) could be a unique funding model for new projects and initiatives which could be “transferable to other countries in the region and the IsDB member countries.”