Kazakhstan Boosts Islamic Finance by Launching Shariah-Compliant Exchange-Traded Fund
Central Asia and Caucasus See First Shariah-Compliant ETF Launch
In a groundbreaking move for the region, the International Trading System (ITS) platform launched the first Shariah-compliant exchange-traded fund (ETF) in Central Asia and the Caucasus on January 14, 2025. This ETF, known as the ITSS ETF, is based on the ITS Shariah index (ticker: ITSS), one of the proprietary indices calculated by ITS alongside the ITS World index (ITSW).
Details of the Launch
The ITS platform, which began trading ETFs in November 2024 with the ITS World ETF (ITSW), expanded its offerings in January 2025 with the introduction of the Shariah-compliant ETF based on the ITS Shariah index (ITSS). ITS clients, primarily professional securities market participants from Kazakhstan and other countries, transact through accredited financial intermediaries such as brokers and banks registered with the Astana International Financial Centre (AIFC). The platform operates as an international liquidity hub, ensuring best execution and smart order routing for global securities, along with a central securities depository and clearing house.
Implications
This launch marks a significant milestone, as the first Shariah-compliant ETF in the Central Asia and Caucasus region. It offers investors seeking Shariah-compliant investment options a liquid, tradable structured product with diversified exposure to compliant stocks. The presence of a Shariah index and dedicated ETF aligns with the growing demand for Islamic finance instruments and could attract both regional and international Islamic investors.
By providing a low entry threshold and diversified exposure, this ETF supports the development of ethical and faith-based investing options, which may stimulate broader market participation across Central Asia and the Caucasus. The platform’s regulatory environment, tied to the AIFC, provides significant credibility and infrastructure support for such innovative financial products.
The ITSS ETF
The ITSS ETF's investment strategy replicates the holdings and performance of the ITS Shariah index, which includes 30 of the largest global companies that meet the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) criteria. Daily Shariah compliance for the ITSS ETF is monitored by an independent firm, Sahih Invest, under the guidance of Mufti Muhammad Ibrahim Essa. The ITSS ETF provides investors with a diversified portfolio across industries without the need for individual stock analysis.
The primary listing of the ITSS ETF occurred on the Astana International Exchange (AIX) at the Astana International Financial Centre (AIFC). Madina Tukulova, head of Islamic Finance at AIFC, emphasized the importance of financial literacy and knowledge-sharing in cultivating a financial culture.
Kazakhstan's First Local Corporate Sukuk
In a related development, the Astana International Exchange (AIX) facilitated the issuance of Kazakhstan's first local corporate sukuk by Gamma-T SPC Limited. The funds raised through the sukuk will be directed towards modernizing Kazakhstan's coal industry, specifically for the production of smokeless coal.
Shariah Compliance Concerns
Mufti Muhammad Ibrahim Essa addressed concerns regarding Shariah compliance, explaining the evaluation process guided by AAOIFI criteria. Concerns were raised during the roundtable about Shariah compliance for companies included in the index, including the lack of proven halal certification, boycotts, and marketing practices contradicting Islamic teachings.
Mufti Essa highlighted the variations in criteria across regions, reflecting gradual adaptations to the global dominance of conventional banking systems. He noted that scholars do not typically issue fatwas declaring common beverages like Pepsi or Coca-Cola haram unless there is clear evidence of prohibited ingredients.
Accessibility and Transparency
The ITSS ETF has a low management fee of 0.5% and ensures liquidity through market makers, making it an accessible and transparent option for investors. Roman Goryunov, the ITS board member, echoed Tukulova's emphasis on financial literacy and accessibility in investments.
In summary, the ITSS ETF launch on ITS reflects an important development in financial innovation, Islamic finance accessibility, and regional capital market integration in Central Asia and the Caucasus. It offers investors a novel, compliant gateway aligned with global Shariah finance standards. Notable companies in the ITSS ETF’s portfolio include Apple, Microsoft, Nvidia, Tesla, Procter & Gamble, and AstraZeneca.
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