ITFC Invests $3M in Alif for Sharia-Compliant Instalment Service in Uzbekistan

Uzbekistan’s financial sector is experiencing a dynamic period of transformation, driven by the rise of financial technology (fintech) and a growing demand for ethical and inclusive financial solutions. At the forefront of this evolution is Alif, a prominent fintech company that has recently secured $3 million in funding from the International Islamic Trade Finance Corporation (ITFC). This investment is earmarked for the further development and expansion of Alif’s popular Sharia-compliant Instalment Service, Nasiya. This development not only underscores the increasing significance of Sharia-compliant finance in Central Asia but also highlights Alif’s strategic commitment to meeting this burgeoning demand and contributing to the region’s economic development.

Related: Uzbekistan Adopts Global Islamic Finance Standards to Drive Economic Growth

A Deeper Understanding of Sharia-Compliant Instalments

For millions of Muslims worldwide, adherence to Islamic principles (Sharia) is a guiding force in all aspects of life, including financial transactions. Traditional financial products, which often rely heavily on interest (riba), can present a significant conflict with these deeply held beliefs. Sharia law strictly prohibits riba, considering it an unjust and exploitative practice. This prohibition makes conventional loans, credit cards with accruing interest, and other similar financial structures unacceptable for observant Muslims. This is where Sharia-compliant financial products and services, designed to adhere to Islamic principles, become essential.

Sharia-compliant installment services, such as Alif’s Nasiya, offer a practical and ethical alternative to conventional financing. These services are structured to avoid interest and instead rely on permissible contracts and financial instruments that align with Sharia principles. Some of the most common contracts used in Sharia-compliant finance include:

• Murabaha (Cost-Plus Financing): Murabaha is one of the most widely used Sharia-compliant financing methods. In this contract, the financial institution purchases an asset (e.g., a car, appliance, or property) on behalf of the customer. The institution then sells the asset to the customer at a predetermined price, which includes the original purchase price plus a mutually agreed-upon markup. This markup represents the institution’s profit, effectively replacing interest. The customer then repays the total amount (purchase price plus markup) in installments over a specified period. The key principle here is transparency: the cost and markup are disclosed to the customer upfront.
• Ijara (Leasing): Ijara is a Sharia-compliant leasing agreement where the financial institution retains ownership of an asset (e.g., equipment, vehicle, or property) and leases it to the customer for a defined period. The customer makes regular lease payments, which are considered rental payments for the use of the asset. At the end of the lease term, the customer may have the option to purchase the asset at a predetermined price. Ijara differs from conventional leasing in that the ownership of the asset remains with the lessor throughout the lease period.
• Musharaka (Joint Venture/Profit-Sharing): Musharaka is a partnership or joint venture arrangement where two or more parties contribute capital to a business venture or project. Profits and losses are shared among the partners according to a pre-agreed ratio. This contract promotes risk-sharing and aligns the interests of all parties involved. It’s particularly suitable for business financing and investment projects.
• Sukuk (Islamic Bonds): Sukuk are often referred to as “Islamic bonds” but are structurally different from conventional bonds. Sukuk represents ownership in an asset or project, rather than a debt obligation. Sukuk holders receive a share of the profits generated by the underlying asset or project, rather than receiving interest payments. Various types of sukuk exist, each with its specific structure and features.

Alif’s Nasiya service specifically operates on the Murabaha model, providing customers with access to installment plans for purchasing various goods and services without incurring interest charges. This approach not only makes essential items more accessible but also promotes responsible financial behavior by encouraging budgeting and planned spending.

A $3 Million Investment from ITFC

Alif’s recent agreement with the ITFC, a member of the Islamic Development Bank Group (IsDB), has resulted in a $3 million investment to bolster the expansion of Nasiya, its Sharia-compliant Instalment Service. The IsDB, a multilateral development finance institution established to foster economic development and social progress in its member countries, plays a crucial role in promoting Islamic finance globally. The ITFC, as a specialized entity within the IsDB Group, focuses specifically on facilitating trade finance among member countries. This strategic partnership between Alif and the ITFC serves several important objectives:

1. Supporting Uzbekistan’s Private Sector: The ITFC’s investment aligns with its core mission of supporting private sector development and promoting economic growth in its member countries. By providing funding to Alif, the ITFC is indirectly contributing to the growth of Uzbekistan’s economy. This access to Sharia-compliant financing empowers businesses, especially SMEs, to invest in expansion, adopt new technologies, improve productivity, and create much-needed employment opportunities. This, in turn, stimulates economic activity and contributes to overall economic development.
2. Enhancing Financial Inclusion: Nasiya’s installment plans play a crucial role in enhancing financial inclusion in Uzbekistan. By offering Sharia-compliant financing options, Alif is reaching a segment of the population that may not have access to or prefer not to use traditional banking services due to religious beliefs. Nasiya enables these individuals to purchase essential goods and services, improving their quality of life and fostering greater participation in the formal economy. This increased access to finance can have a significant positive impact on household finances and overall economic well-being.
3. Uzbekistan’s Islamic Finance Ecosystem: The investment in Alif not only benefits the company directly but also contributes to the broader development of the Islamic finance ecosystem in Uzbekistan. By supporting a successful and innovative Sharia-compliant fintech model, the ITFC is sending a strong signal to other investors and entrepreneurs, encouraging further innovation and investment in this rapidly growing sector. This can lead to the development of a more diverse and robust Islamic finance market in Uzbekistan, offering a wider range of products and services to consumers and businesses.

Alif’s Growth Trajectory

The $3 million investment from the ITFC is not an isolated event but rather a continuation of Alif’s impressive growth trajectory. In December 2024, Alif secured a substantial $20 million funding round from Accial Capital, an American investment firm specializing in emerging markets. This earlier investment, combined with the ITFC funding, demonstrates the strong confidence that international investors have in Alif’s business model, its management team, and its potential for future growth. It also highlights the increasing attractiveness of Uzbekistan’s fintech sector as a destination for foreign investment.

Alif’s vision extends beyond its current Nasiya offering. The company has ambitious plans to issue Islamic sukuk bonds in the international capital markets. Sukuk, often described as “Islamic bonds,” are Sharia-compliant financial instruments that represent ownership in an asset or project, rather than a debt obligation. This structure avoids the payment of interest, making sukuk compliant with Islamic principles. The planned sukuk issuance, which will be registered with Euroclear, a leading international central securities depository, will provide Alif with access to a significantly larger pool of capital. These funds will be specifically allocated to expanding its Sharia-Compliant Instalment Service and other consumer financing options within Uzbekistan, further solidifying Alif’s commitment to the market and its ambition to become a dominant player in the region’s Islamic finance landscape.

The Landscape of Sharia-Compliant Finance in Uzbekistan

Uzbekistan, with its predominantly Muslim population, presents a fertile ground for the expansion of Sharia-compliant financial products and services. The demand for ethical and religiously aligned financial solutions is steadily increasing, driven by growing awareness of Islamic finance principles and a desire for alternatives to conventional banking. Reports from reputable organizations such as Thomson Reuters, the Islamic Financial Services Board (IFSB), and other industry analysts project substantial growth in the Islamic finance sector across Central Asia, with Uzbekistan identified as a key market with significant untapped potential.

However, the development of Islamic finance in Uzbekistan also faces several challenges that need to be addressed to unlock its full potential:

• Evolving Regulatory Framework: While the Uzbek government has taken positive steps to promote Islamic finance and create a more conducive regulatory environment, the legal and regulatory framework is still in its early stages of development. Clear guidelines, standardized regulations, and a robust supervisory framework are essential to provide a stable and predictable environment for Islamic financial institutions, fintech companies like Alif, and other stakeholders. This clarity will attract further investment, promote innovation, and ensure consumer protection.
• Public Awareness: A significant portion of the Uzbek population may still have limited awareness and understanding of Islamic finance principles, products, and services. Educational initiatives, public awareness campaigns, and financial literacy programs are crucial to bridge this knowledge gap and promote wider adoption of Sharia-compliant financial solutions.
• Talent Development: The sustainable growth of the Islamic finance sector requires a skilled workforce with expertise in Sharia law, Islamic finance practices, and modern financial management. Investing in training and education programs, both domestically and internationally, is essential to develop local talent.

Ultimately, Alif’s expansion of its Sharia-compliant Instalment Service, fueled by the ITFC investment, represents a significant step towards providing Uzbek consumers with greater access to ethical and religiously aligned financial solutions. As awareness and understanding of Islamic finance continue to grow, services like Nasiya are poised to empower individuals to make informed financial choices that align with their values, contributing to a more equitable and sustainable financial future for Uzbekistan.