On October 10, Moody’s international rating agency stated that the introduction of Islamic banking windows in Azerbaijan would create new income opportunities for banks and improve their funding and liquidity profiles. According to the agency, the Central Bank of Azerbaijan (CBA) announced on October 7 that Islamic banking products would be launched in 2026, accompanied by legal amendments to the Civil Code, Banking Law, and Tax Code to support Shariah-compliant operations, including a proposal to exempt Islamic finance transactions from value-added tax. The CBA will supervise the rollout, initially allowing conventional banks to offer Islamic services through dedicated windows to familiarize the market before broader implementation.

Moody’s emphasized that these changes would strengthen Azerbaijani banks’ profitability and financial resilience. Drawing on Kyrgyzstan’s example, the agency noted that successful implementation could increase financial inclusion and enable local banks to attract funding from Islamic development institutions through sukuk issuance. The report highlighted that despite 97% of Azerbaijan’s 10.4 million people identifying as Muslim, the absence of supportive regulation had previously constrained the sector. While demand for Islamic finance is expected to be strong, Moody’s warned that regulatory and operational challenges might delay progress. The agency also recalled that the International Bank of Azerbaijan launched an Islamic Banking Department in 2013 but discontinued it in 2015.

Moody’s concluded that Azerbaijan’s move aligns with a broader regional shift, following Uzbekistan’s recent approval of a draft law on Islamic banking, and could pave the way for fully Shariah-compliant banks and sukuk-based financing for SMEs and infrastructure projects.