Islamic financing opens up new opportunities for Kyrgyz citizens who cannot use traditional loans due to religious beliefs. Margarita Dzhabieva, Regional Manager of the “Islamic Window” Department of “Ayil Bank” spoke about the key principles of this type of financing, its differences from classical banking products and prospects for the population in an interview with “Akchabar”.

- PLEASE TELL HOW THE FINANCING BASED ON THE MURABAHA PRINCIPLE WORKS.

- Let's start with what a Murabaha is. Murabaha is a deal involving the sale of goods in instalments. The client applies to the bank with an application to purchase some goods: equipment, real estate, motor vehicles. At the client's request, the bank buys this product and sells it to the client with a markup in instalments. Simply put, the bank interacts with the seller, buys the goods, and resells them to the client. The transaction is a sale of goods the bank has purchased at the customer's request or already owns at the time of application. The selling price includes the purchase price of the goods and a pre-agreed markup that remains constant throughout the deal. This is a key advantage - the markup is fixed, unlike traditional banks where the interest can change. In Murabaha, the customer pays only the agreed amount.

- WHAT ARE THE MAIN DIFFERENCES OF ISLAMIC FINANCING FROM TRADITIONAL BANK LENDING?

In an Islamic bank, the relationship between the bank and the customer is based on partnership. All transaction terms and conditions are specified, which excludes uncertainty and unilateral changes. In a conventional bank, the terms may change, for example, the interest rate may increase without the client's consent. This is not the case with Murabaha - everything remains unchanged throughout the deal. The customer knows exactly how much they need to pay and when. Another difference is that if the bank makes a profit, it shares it with the client, and if there is a loss, the client also bears his share of the loss. This creates fair conditions and greater trust. In an Islamic bank, the relationship between the bank and the customer is based on partnership. Each contract clause is negotiated by both parties, which excludes uncertainty and unilateral condition changes, that can happen in traditional banks. In the conventional bank, the client is offered terms and conditions,  agrees to them and is given a loan, if not, he will not get the money. Sometimes due to circumstances a bank may increase the interest rate. This is not the case in Murabaha - all the terms are agreed in advance and the markup remains unchanged. The client knows exactly how much he has to pay and when. In addition, in case of profit, the bank and the customer share it, and in case of loss, the customer also shares it with the bank. This creates fairer terms and more trust between the parties. The customer can choose the goods and discuss the markup terms.

- MAY ISLAMIC FINANCING BE USED FOR EVERY PURPOSE, SUCH AS BUYING REAL ESTATE OR A CAR?

- Yes, we have six types of products: mortgages, auto financing, business financing, consumer financing, agro-financing and instalment payments for goods. We offer almost the same products as traditional banks. The only limitation is areas prohibited by Shariah, such as alcohol, tobacco, pork or gambling.

- MAY NON-MUSLIMS BE ELIGIBLE FOR ISLAMIC FINANCING?

- Yes, Islamic financing is available to everyone, regardless of religious affiliation. It is up to the customer to decide whether he/she is more comfortable with the Islamic financing or a conventional loan. We do not differentiate based on religion.

WHICH PRODUCT IS MOST IN DEMAND AMONG YOUR CLIENTS?

- The greatest demand now is for mortgage financing. We have launched a promotion with a reduced markup, which is valid until the end of the year, and thanks to this we are receiving a lot of mortgage applications. Our terms are more favourable than other banks offer: the rate of profitability is only 16% per annum. This is one of the most attractive offers in the market. The mortgage requires 30% of own funds, but if the client does not have this amount, he can provide additional collateral. The documents are standard: ID cards, income certificates, and family members' documents.

- WHAT FEEDBACK DO YOU GET FROM CLIENTS WHO HAVE USED ISLAMIC FINANCE?

- The feedback is mostly positive. Many clients have managed to buy a home or expand their business thanks to our programs. For example, government mortgage programs often require a long wait, and during this time, due to inflation, real estate prices can increase. With us, however, clients can purchase housing immediately and start paying for it while others are still waiting for their turn in government programs. Renting housing often costs 35-45 thousand KGS per month, but here you can take out a mortgage and pay for own housing. The only thing is that we have double registration - the bank first buys housing and then resells it to a client with a markup.

- PLEASE TELL US ABOUT FINANCING AGRICULTURAL PRODUCERS ACCORDING TO SHARIAH PRINCIPLES.

- We provide soft loans within the state program “Financing of the agro-industrial complex”. This program is aimed at farmers' support and ensuring the country's food security. We are actively developing agro-industrial clusters, including the production of milk, meat, chicken eggs, vegetables, fruits, vegetable oil, potatoes, cereals, fish, cotton, wool and leather, honey, legumes, corn and viticulture. Since 2024 “Ayil Bank” started to provide financing based on Islamic principles within this program. This decision was influenced by demand. Often there is a category of citizens who need financial support but cannot use traditional loans because of their religious beliefs. Islam forbids loans with interest, and our program allows such clients to receive financial support without violating Shariah norms. This applies to individuals as well as farmers and entrepreneurs. We help them to meet their financial needs by providing targeted loans. For example, if a farmer wants to buy cattle or seeds, a seller must have a bank account to which we transfer the money directly. A client does not receive cash in hand, everything happens through bank transfers. We buy the goods in the bank's name, deposit them on the balance sheet, and then resell them to a client.

- WHAT GOALS DO CLIENTS MOST OFTEN PURSUE WHEN USING ISLAMIC FINANCE? FOR EXAMPLE, WITH WHAT DO THEY BUY LIVESTOCK OR MACHINERY?

- According to our data, most of the financing is spent to buy pedigree cattle (cattle). In most cases, these include dairy cows, which give several times more milk than ordinary cows. It is also, of course, machinery and small cattle.

- WHAT ARE THE CHALLENGES IN FINANCING AGRICULTURAL PROJECTS ACCORDING TO ISLAMIC PRINCIPLES?

- In the beginning, we did have difficulties because livestock markets operate on Sundays and sellers do not always have the opportunity to visit the bank and open an account. We solved this problem through the use of agency contracts. We appoint a client as the bank's agent, he/she receives money in hand, goes to the market, buys livestock and reports to us by submitting an acceptance certificate.

- HOW RISKY IS IT FOR THE BANK?

- Of course, there are certain risks. But we carefully monitor prices on the market and know how much a particular type of livestock costs on average. We monitor every transaction to avoid possible fraud. Clients provide us with receipts, sale and purchase agreements and other necessary documents. I wish to note that, as a rule, religious and responsible people apply for Islamic financing. We have never had cases when they were blacklisted and we searched for them. On the contrary, they pay everything on time and there are almost no fines.

- WHAT CONDITIONS MUST BE MET WHEN OBTAINING AGRICULTURAL FINANCE?

- First and foremost, a customer must have suitable conditions for keeping livestock. For example, a shed for an animal, if a client is going to purchase livestock. Also, a client must have his/her capital and experience in agriculture - we do not fund start-ups. We only consider customers with stable income and have been in the industry for at least six months. We can finance start-ups only if a customer has other sources of income or experience in another field.

- YOU HAVE MENTIONED THAT THE BANK USES FINES TO DISCIPLINE CLIENTS, BUT THIS MONEY DOES NOT GO TO THE BANK'S INCOME.

- Yes, fines are directed to charity. Last year, for example, we donated 2,800 KGS to a home for the disabled in Bakai-Ata. Of course, the amount is minuscule, but this is the amount we received in the form of fines. This once again confirms my words that our clients do not allow delays. They do everything on their conscience. This year we have accumulated about 6,000 KGS, and we plan to allocate it to charitable purposes by the end of the year.

- WHAT PROSPECTS DOES ISLAMIC FINANCE HAVE IN THE COMING YEARS?

-- Islamic finance is gaining popularity and in 5 years it may occupy a significant niche in the market. People are starting to look into this type of financial service more deeply and recognize its benefits, especially those who, for religious reasons, cannot avail of conventional loans. In addition to the six business lines, we have recently introduced two new products - "Ayim Finance" and "Eco Murabaha".

“Ayim Finance” is aimed to support women entrepreneurs and micro-enterprises with more than 50% female participation complying with Shariah standards. This funding can be used to replenish working capital, purchase equipment, and construction materials, and to open new business lines. The financing amounts range from 30,000 to 500,000 KGS.

“Eco Murabaha” focuses on the supporting environmentally friendly projects and businesses involved in raw material recycling and alternative energy. Among the areas are organic fertilizer production, secondary raw material recycling, solar panel installation and agro-ecotourism. It also supports consumer needs such as home insulation, electric vehicle purchase and installation of wastewater treatment plants.

For the first time the opportunity to obtain financing for women's business and environmental projects through the bank's “Islamic window” has been introduced, and being the first bank in the Kyrgyz Republic to pay attention to this, we will try to invest all our efforts in the development of these trends. Islamic financing is available today in all of “Ayil Bank's” 38 branches. We are actively funding clients in all seven regions of Kyrgyzstan, and each branch specialist is ready to help our customers.