Azerbaijan launches pilot Islamic banking project

The Central Bank of Azerbaijan (CBA) has initiated a pilot project to test Islamic finance products through a regulatory sandbox. Two banks are currently offering specific Islamic financial instruments, including Ijarah, Istisna, and alternative term and demand deposits.

To support the sector, the CBA is proposing legislative amendments to the Tax Code and the Law on Deposit Insurance. These changes aim to ensure Islamic products remain competitive with conventional banking by addressing issues such as VAT burdens on Murabaha products and the double application of state fees. Additionally, new measures will provide insurance coverage for Islamic deposits to protect citizens while managing risks for banking institutions.