July 13, 2007 (RFE/RL) -- The Saudi-based Islamic Development Bank (IDB) and the Kyrgyz government have launched a pilot project designed to introduce Islamic financing in Kyrgyzstan.

Regional Growth Of Islamic Banking

Islamic banking is widely viewed as having first appeared in Egypt in the 1960s. Owing to the oil boom of the 1970s, it then flourished on the Arabian Peninsula and, from there, expanded into the Middle East, Iran, and Southeast Asia. It is now rapidly developing in Pakistan and India, and is making inroads in Western countries that have large Muslim communities such as Britain and the United States.

But it has so far made little headway in Central Asia and the Maghreb region (western North Africa), a circumstance that some observers ascribe to historical, sociological, and psychological reasons.

When Kyrgyz authorities last year first floated the idea of introducing Islamic banking in the country, National Bank Chairman Marat Alapaev argued that it could only be done on an experimental basis; Alapaev cited what he called the "fundamentally secular character" of Kyrgyzstan's financial system.

Proponents of Islamic banking, in turn, object that the standards that apply in the Shari'a-based system do not differ greatly from that of traditional banking. They also say a number of conventional Western banks are offering Islamic financial products to their clients. They say the main difference between Islamic and secular banking is that Islamic banking has a stronger ethical component that makes it more appealing to Muslim believers.

'Ethical' Investing

Another common argument in favor of Islamic banks is that they inspire confidence because they assume a share of the risks in the ventures they fund.

One of the system's basic principles is the sharing of loss and profit. Islamic banking traditionally prohibits usury and the collection or payment of fixed interest ("riba" in Arabic). Under Islamic mortgage rules, a bank generally purchases the property and resells it at a profit, allowing the final buyer to pay in installments. This system is known in Arabic as "murabaha," or cost-plus financing.

Islamic banking also forbids trading in financial risk and bans investing in commercial activities that are considered unlawful ("haram" in Arabic) under Shari'a, such as the gambling and pornography businesses, or the tobacco and alcohol industries.

IDB In Central Asia

While Islamic banking is not widespread in Central Asia, the IDB -- which is the bank of the Organization of the Islamic Conference (OIC) -- has been present in the region for more than a decade.

The IDB was launched in 1975 with a view to promoting Islamic banking worldwide.

Most Central Asian countries joined the bank in the mid-1990s, shortly after gaining their independence from the Soviet Union and entering the OIC. Kyrgyzstan joined first in 1993, followed by Kazakhstan in 1995, Tajikistan in 1996, and Turkmenistan in 1997. Uzbekistan became an IDB member only in 2003, seven years after joining the OIC.

The IDB's largest Central Asian stakeholder is Kazakhstan, with 0.12 percent of its capital. Kyrgyzstan, Tajikistan, and Turkmenistan have 0.06 percent each. Uzbekistan has 0.03 percent.

The IDB says its aim is to foster the economic development and social progress of member countries and Muslim communities in nonmember states in accordance with Shari'a principles.

French Islam expert Gilles Kepel argues in "Jihad," his reference work on radical Islam, that if the IDB has contributed to reinforcing Islamic cohesiveness among member countries, it also has fostered a dependence between its poorest member countries and its main shareholders, oil-rich Saudi Arabia and Libya, among others.

The IDB has backed infrastructure projects in the region (ITAR-TASS file photo)