Kazakhstan marked a significant milestone in Islamic finance with the launch of its Central Asia and Caucasus’ first Shariah-compliant exchange-traded fund (ETF) under the International Trading System’s Shariah index.
By Nagima Abuova
The ITSS ETF’s primary listing occurred on the Astana International Exchange (AIX) at the Astana International Financial Centre (AIFC) in January 2025.
Each share of the ETF represents an equal stake in the Shariah-compliant fund, which allegedly adheres to Islamic finance principles. The ETF raised USD 5 million during its initial offering, with investors purchasing 500,000 shares at USD10 each.
The ETF’s investment strategy replicates the holdings and performance of the ITS Shariah index, which includes thirty of the largest global companies that meet the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) criteria. Notable companies in the portfolio include Apple, Microsoft, Nvidia, Tesla, Procter & Gamble and AstraZeneca.
Daily Shariah compliance is monitored by an independent firm, Sahih Invest, under the guidance of Mufti Muhammad Ibrahim Essa, a globally recognized scholar in Islamic banking. This structure ensures adherence to ethical and religious standards.
The ITSS ETF provides investors with a diversified portfolio across industries without the need for individual stock analysis. Shares are traded in U.S. dollars, with tax exemptions on returns due to AIFC regulations. The fund’s low management fee of 0.5% and liquidity ensured by market makers make it an accessible and transparent option for investors.
Commenting on the ETF at a recent roundtable in Astana in January 2025, ITS Managing Director Alexander Diakovsky says that they worked with multiple organizations to ensure the ETF adheres to Islamic principles and operates with full transparency.
“This fund offers a balanced, liquid instrument, competitive with international markets and tailored to the needs of local investors,” says Diakovsky.
Commenting on the domestic market, AIFC CPO Daniyar Kelbetov claims that significant progress has been made in Islamic finance in Kazakhstan, noting significant advancements in recent years.
“The market is gaining momentum, with the launch of new financial instruments and growing confidence among investors,” says Kelbetov.
He cited a study estimating the potential of Islamic deposits and investments in Kazakhstan at approximately USD 5.67 billion.
Kelbetov also noted the influence of Kazakhstan’s progress on neighbouring countries, particularly Uzbekistan.
“With a population twice as large as Kazakhstan’s and a higher percentage of practicing Muslims, the Uzbek market holds significant potential for Islamic financial products,” says Kelbetov.
Kazakhstan’s Islamic finance sector has made notable strides since introducing its first legislation in 2009, positioning the country as a leader in the Commonwealth of Independent States (CIS) for Shariah-compliant financial services.
The establishment of Al Hilal Islamic Bank in 2010 marked the inception of Islamic banking in the region. In December 2024, the Astana International Exchange (AIX) facilitated the issuance of the nation’s first local corporate sukuk (an Islamic financial certificate or shariah-compliant bonds) by Gamma-T SPC Limited, a subsidiary of Gamma-T, specializing in maintenance services for coal mining entities.
AIFC Head of Islamic Finance Madina Tukulova says that these developments are meaningful as it underscores the role of Islamic finance in supporting the real economy.
“The funds raised through the sukuk will be directed to modernize Kazakhstan’s coal industry, specifically focusing on the production of smokeless coal. This step is not just an issuance but an important beginning for the market,” says Tukulova.
Furthermore, Tukulova says that a study conducted by AIFC in collaboration with the Islamic Development Bank surveyed over 12,000 respondents, far exceeded typical international benchmarks. The findings were published in the Islamic Finance Country Report for Kazakhstan, presented during AIFC Day in September 2024.
She also highlighted the significance of financial literacy, addressing misconceptions about Islamic finance tools and expanding public understanding of their benefits.
“Many misconceptions persist, even among financial professionals, about how these tools work. Despite Islamic finance’s 16-year history in Kazakhstan, it feels as though we are at the starting point of its true potential. The responsibility lies with each of us to ensure its continued growth,” says Tukulova.
ITS Board Member Roman Goryunov agrees.
“Investments today are about accessibility and simplicity. Let’s convey this to people. From our side, we ensure the reliability of the infrastructure, so these products are trustworthy and understandable. While we cannot eliminate market risk—everyone must understand that the financial market inherently involves such risks—we are committed to minimizing other risks through an essential infrastructure,” says Goryunov.
During the roundtable, participants raised concerns with Mufti Essa about Shariah compliance for companies included in the index, suggesting that some companies may not have a proven halal certification, have faced boycotts, or engage in marketing practices or content contradicting Islamic teachings.
According to Mufti Essa, key factors include adherence to halal business practices and financial thresholds, such as a debt-to-market capitalization ratio not exceeding 30% and non-compliant income constituting less than 5% of total revenue.
“Scholars do not issue fatwas declaring beverages like Pepsi or Coca-Cola haram unless there is clear evidence of prohibited ingredients,” says Mufti Essa.
He also addressed concerns regarding unethical practices or non-compliance with Islamic principles in corporate policies. The Shariah screening focuses solely on income sources and the nature of business activities, not on human resources (HR) practices or marketing ethics.
Regarding the differences in Shariah indexes, Mufti Essa highlighted the variations in criteria across regions. Some indexes require stricter thresholds for debt or income compliance. These differences reflect gradual adaptations to the global dominance of conventional banking systems.
“Islamic finance is evolving, and its principles are being implemented gradually. Patience and continued efforts are essential to achieve a fully compliant system. We cannot impose everything at once. We must be very careful because the conventional banking system has been established for over 300 years, whereas Islamic finance is less than 50 years old. We need to understand these foundational differences,” says Mufti Essa.
Notes from the Editor: This feature has been edited from its original publication here.
