Islamic finance treads fine political line in Kazakhstan

In Kazakhstan, a farmer and an imam approach the Islamic Development Bank for a loan. The farmer, an Orthodox Christian, needs tractors to plough his fields. The imam wants to repair the roof of his mosque. Which one gets the loan?

Yerlan Baidaulet, a banker who is one of Kazakhstan's foremost proponents of Islamic finance, received both requests. He sent the imam away with a donation from his own pocket on the grounds that Islamic banking permits charity or grants, not loans, to religious institutions.

The farmer, an ethnic Russian, got the loan he needed. Long since repaid, it was the springboard to the growth of a major farming enterprise in the grain belt surrounding Kazakhstan's futuristic capital, Astana.

"Islamic finance isn't only for Muslims," said Baidaulet, executive director for the Commonwealth of Independent States and Eastern Europe at the IDB, a Saudi Arabia-based multilateral lender. "Even dollar bills are printed with the words: 'In God We Trust'."

Two decades after the collapse of the Soviet Union freed Kazakhstan from Marxist ideology, the country of 17 million people is making a bid to become a regional centre of Islamic finance, which is based on religious principles including bans on interest and pure monetary speculation.

Strongman President Nursultan Nazarbayev, in power since Soviet times, has declared he wants Almaty to become a hub for Islamic banking in the former Soviet Union, which includes other majority Muslim states and Russian republics such as Tatarstan.

While that reflects growing demand among a generation of practicing Muslims who grew up after the Soviet Union's collapse, it could also bring direct economic benefits to Kazakhstan by linking the country to big pools of Islamic investment money in the Gulf and southeast Asia.

On the face of it, the country is ideal for Islamic finance. About 70 percent of its population is nominally Muslim and, in the wake of the global financial crisis, people are more receptive to alternative forms of banking. (...)