DUSHANBE, September 3, 2014, Asia-Plus – Reuters quoted Kazakhstan''s Al Hilal Islamic Bank chief executive as saying that Kazakhstan''s Al Hilal Islamic Bank, which is the only sharia-compliant lender in the country, may expand into neighboring countries as legislative efforts to develop Islamic finance gather pace across the region.

Fresh Islamic finance legislation is being developed in Azerbaijan, Kyrgyzstan and Tajikistan, creating a more welcoming framework for the industry in countries which have secular regulatory regimes.

Legislation is also being redrawn in Kazakhstan, the first former Soviet country to introduce Islamic finance rules in 2009; the initial set of rules failed to spur much activity.

Almaty-based Al Hilal, whose parent is wholly owned by the Abu Dhabi government, is considering increasing its geographical presence as part of its 2015 business plan, chief executive Prasad Abraham said on the sidelines of an industry conference.

“Our medium-term strategy is to test the effectiveness of the Kazakhstan model, and then use that as a base for further expansion to other regions of the CIS (Commonwealth of Independent States) as appropriate,” said Prasad Abraham.  “An important precondition for any expansion is the existence of a proper legislative framework for Islamic finance in the respective countries.”

A draft amendment, currently awaiting discussion in Kazakhstan''s parliament, would provide the bank with a clearer framework that could translate into better commercial opportunities, Abraham said.

This could spur new entrants into the sector, such as Zaman Bank, a local bank which is working to convert itself into the country''s second Islamic bank. It has not given a time frame for that plan.

In addition to Zaman, the regulator has now received an application to operate another full-fledged Islamic bank, Abraham said without elaborating.

Launched in 2010, Al Hilal is on target to see asset growth of 70 percent this year, with similar growth expected for 2015, he said, adding this was partly because growth was from a low base; it is expected to slow as the bank gains size.

The bank posted a 46 percent increase in assets in 2013, reaching 16.7 billion tenge ($92 million), financial statements showed.

Its business is focused on government and large corporate clients, and after conducting a feasibility study earlier this year it has decided to wait for legal issues to be resolved before offering retail banking services.

Islamic banks in Kazakhstan are categorized on a par with other commercial banks, known as Tier 2 banks, but current law does not extend to them all the tax privileges that conventional banks have.