As global Islamic finance expands beyond its traditional strongholds in the Gulf and Southeast Asia, Central Asia is positioning itself as one of the industry's most promising new frontiers.

The opportunity is significant. Home to predominantly Muslim populations, fast-growing economies, and millions of underbanked citizens, countries such as Kazakhstan and Uzbekistan are laying the foundations for a new era of Shariah-compliant finance. Governments are reforming banking laws, developing Islamic capital markets, and strengthening links with Gulf investors as they seek to diversify their economies and broaden access to financial services.

The timing is favourable. Global Shariah-compliant assets reached approximately US$5.5 trillion in 2024 and are projected to surpass US$7.5 trillion by 2028, according to data from Standard Chartered. For Central Asia, such a growth momentum presents a rare opportunity to attract new pools of capital while building a financial system better aligned with local demand.

Kazakhstan lays growth foundations

Kazakhstan has emerged as the region's frontrunner in Islamic finance development. The Astana International Financial Centre ( AIFC ), operating under English common law, has become the primary platform for sukuk listings and Shariah-compliant financial structures.

Momentum accelerated in March 2026 when Kazakhstan enacted a new banking law allowing conventional banks to open Islamic banking windows. The reform is expected to expand access to Shariah-compliant products without requiring the establishment of entirely new institutions.

The government has set a target for Islamic finance to account for between 3% and 5% of the banking market, reflecting growing confidence in the sector's potential. According to Fitch Ratings, enabling regulations and sizeable unbanked populations could help drive growth, while Islamic banking may play an important role in improving financial inclusion.

Around 13% of adults in Kazakhstan remain outside the formal financial system. Islamic banking windows offer an alternative for consumers who have traditionally avoided conventional banking because of religious concerns surrounding riba or interest.

Uzbekistan's untapped potential

If Kazakhstan is leading on regulatory development, Uzbekistan represents the region's largest untapped market.

With a population of approximately 37 million, the country offers significant room for expansion. Legislation introduced in March 2026 under the Uzbekistan 2030 strategy enables state-owned banks to offer Shariah-compliant products, marking a major milestone in the country's financial sector reforms.

Financial inclusion remains a key challenge. Roughly 40% of adults remain unbanked, creating substantial demand for alternative banking solutions.

Although Islamic finance remains small across Central Asia, growth forecasts are increasingly optimistic. The region's Islamic finance assets stood at approximately US$699 million in early 2024, but industry projections suggest rapid expansion over the coming decade.

A joint report by the Eurasian Development Bank ( EDB ), Islamic Development Bank Institute ( IsDBI ), and LSEG estimates that Islamic banking assets could reach US$2.5 billion by 2028 and US$6.3 billion by 2033. Kazakhstan is expected to remain the largest market, with Uzbekistan emerging as a close competitor. The report also forecasts the regional sukuk market growing to US$2.05 billion by 2028 and US$5.6 billion by 2033.

Gulf capital drives momentum

A major catalyst for growth is the increasing flow of capital from the Gulf. Central Asian governments are actively seeking investment from Gulf Cooperation Council ( GCC ) countries and Islamic multilateral institutions to fund infrastructure, energy, and economic development projects. The Islamic Development Bank has already provided substantial financing across the region.

According to Fitch Ratings, government efforts to attract funding from GCC countries and Islamic development institutions could provide a significant boost to the sector. Beyond financing, Islamic finance is becoming an important tool of economic diplomacy. Kazakhstan, Kyrgyzstan, and Uzbekistan are working to harmonize regulatory standards and facilitate cross-border investment flows, helping strengthen commercial ties with Muslim-majority economies.

As emerging markets seek to diversify sources of capital and reduce dependence on traditional funding partners, Islamic finance is increasingly viewed as a strategic bridge between Central Asia and the broader Islamic world.

Building Islamic capital markets

The development of sukuk markets is another important piece of the puzzle. Kazakhstan has made notable progress through the Astana International Exchange, including retail sukuk listings and the launch of the region's first Shariah-compliant index exchange-traded fund. Uzbekistan is also exploring sovereign and corporate sukuk issuance.

For governments and businesses alike, sukuk offer access to long-term, asset-backed financing in markets where conventional bond markets remain relatively shallow. However, the EDB, IsDBI and LSEG report notes that Islamic capital markets are developing more slowly than Islamic financial institutions, highlighting the work still required to create deeper and more liquid markets.

Small today, significant tomorrow

Despite growing momentum, Islamic finance remains in its early stages across Central Asia. In most countries, penetration rates remain around 1% or less of total banking assets.

Fitch expects the sector to remain relatively niche in the near term, although Kazakhstan and Kyrgyzstan could experience stronger growth as ties with Gulf investors deepen.

Similarly, S&P Global Ratings describes Islamic banking in the region as nascent, while Moody's points to strong long-term potential driven by favourable demographics, regulatory reforms, and expanding connections with GCC markets.

Challenges remain: the industry faces shortages of qualified talent, evolving regulatory frameworks, and liquidity constraints. Strong Shariah governance and product development will also be essential if institutions are to build trust and scale effectively.

Yet the upward trajectory is clear. With supportive governments, growing investor interest, and significant unmet demand for Shariah-compliant financial services, Central Asia is increasingly emerging as one of the most compelling growth stories in global Islamic finance. If current reforms translate into sustainable market development, the region could become an increasingly important destination for Islamic capital over the next decade.