The Open Joint-Stock Company (OJSC) Tawhidbonk, the first full-fledged Islamic bank in Tajikistan, says tax and legislative barriers impede development of Islamic financing in the country.
However, it assesses its operations over the first six months of this year as successful despite the unfavorable tax regime.
“Over the reporting period, the funding portfolio yields have risen 8.0 percent. Given the difficulties with double taxation on the bank’s financial transactions, one can say that this growth is significant,” says a statement released by Tawhidbonk.
The statement, in particular, notes that the current main problems facing Islamic banking in Tajikistan include imperfection of legislation, double taxation and non-recognition of financial transactions carried out by Islamic banks as banking transactions.
In April last year, Tawhidbonk managers noted that if the mentioned problems were solved, the bank could become one of active investors for the national economy without attraction of external resources.
They noted at the time that tax and legislative barriers impeded development of Islamic financing in the country.
The bank, in particular, asked last year for not levying the value added (VAT) on banking transactions of Islamic banks related to purchase and sale of assets (Murabahah, Tawarruq, Ijarah, Salam, Istisna’ and others).
Several Islamic contracts have been used by Islamic banks to cover the financial needs of their customers. The contracts include Murabahah, Ijarah, Tawarruq, Mudarabah, Musharakah, Salam, and Istisna'.
Recall, Tawhidbonk, which had been established on the basis of OJSC Sohibkorbonk, was granted the license for banking operations in September 2019.
Sohibkorbonk began converting operations to become a full-fledged Islamic bank in October of 2017. Chairman of Sohibkorbonk Board Sherali Zardov and the Islamic Corporation for the Development of the Private Sector (ICD) chief executive Khaled Al-Aboodi signed a memorandum of understanding (MoU) in Dushanbe in early October of 2017.
The law on Islamic banking in Tajikistan came into force on August 5, 2014.
Islamic banking is a banking activity that is consistent with the principles of Sharia and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also haraam ("sinful and prohibited"). Although these principles have been applied in varying degrees by historical Islamic economies due to lack of Islamic practice, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.
Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. But that is not the sole purpose either. Adherence to Islamic law and ensuring fair play is also at the core of Islamic banking. Because Islam forbids simply lending out money at interest, Islamic rules on transactions (known as Fiqh al-Muamalat) have been created to prevent it. The basic principle of Islamic banking is based on risk-sharing which is a component of trade rather than risk-transfer which is seen in conventional banking.
Islamic banks reportedly have more than 300 institutions spread over 51 countries, including the United States through companies such as the Michigan-based University Bank, as well as an additional 250 mutual funds that comply with Islamic principles.
