Azerbaijan.US
Azerbaijan is set to introduce Islamic banking products starting next month, with two pilot financial instruments – Murabaha and Mudaraba – to be launched in selected banks under the supervision of the Central Bank of Azerbaijan.
The initiative will be implemented on a pilot basis for one year, operating under a special regulatory framework. The project aims to expand financial options for clients seeking alternatives to interest-based banking, while maintaining compliance with Islamic finance principles.
Oversight of the new products will be carried out jointly by the Central Bank of Azerbaijan and an Islamic Finance Council operating under the Association of Banks.
What the Products Offer
Mudaraba is a profit-sharing partnership model in which one party provides capital while the other manages the investment. Clients place funds with the bank, which invests them in approved projects. Profits are then distributed between the parties based on pre-agreed ratios. Returns are generated through profit participation rather than interest payments.
Murabaha, meanwhile, is primarily designed for entrepreneurs and small- and medium-sized businesses. Under this model, the bank purchases goods, equipment, or assets requested by the client and resells them at a pre-agreed markup. Payments are made according to a fixed schedule, allowing financing without conventional interest-based lending.
While Mudaraba products will be available to any client wishing to invest funds, Murabaha financing will be limited to business purposes.
Pilot Phase and Timeline
The pilot program will be implemented in two banks:
one starting from February 2, 2026,
the other from April 1, 2026,
with both pilots running for a one-year period.
The framework includes strict requirements for transparency, quarterly reporting, and independent audits. All contractual terms must be approved by the Central Bank.
Financial experts note that the introduction of halal banking products could broaden Azerbaijan’s financial ecosystem, attract new client segments, and offer businesses additional funding mechanisms aligned with ethical and faith-based finance principles.
