Dr Muhammad Munir
A city or a region where a large number of diversified financial services are located is known as a financial hub. In Central Asia, Astana is geographically well located and has rightly been selected as financial hub in Central Asia.Many experts believe that the establishment of the Astana International Financial Centre (AIFC) would provide an opportunity for shared prosperity not only for Central Asia but also for other regions. The business experts from Bahrain and the UK are very hopeful for the prospective role of the AIFC as a financial hub for the countries of Central Asia, the Middle East, the Republics of the Transcaucasus, the EAEU, the territory of Western China, Mongolia and countries of Europe. Its main focus has been on development of capital market, asset management, wealth of wealthy individuals, new financial technologies, as well as Islamic finance.
Achieving an economy based on shared prosperity cannot be attained by depending solely on the banking sector, given its risk tolerance, costs, and business model. It is thus very important to support the development of other segments of the sector to achieve a balanced growth of a stable and inclusive industry that covers the full spectrum of financial services. In this context, the main priorities of the Centre are human resource development as per requirement of the local financial markets, professional certifications of international standards and preparing of professionals to improve the ecosystem of the centre and beyond. Another important area in which the Centre has great potential to become a regional hub is Islamic finance. A global report on Islamic Finance argues that Islamic finance, through its core principles, advocates for the just, fair and equitable distribution of income and wealth during the production cycle and provides mechanisms for redistribution to address any imbalances that may occur. Farhan Nur who is the head of professional development and chief researcher of the accounting and audit code of the Organization for Islamic Financial Institutions (AAOIFI) believes that the AIFC has an excellent potential in Islamic finance in the region.
One of the main features of the AIFC is that it is based on the English common law system, recognized throughout the world. This means that the AIFC has its own rules and laws independent of Kazakhstan which as a state has its own constitutional laws, status. Being a well-known, well-developed and reputable jurisprudence, English law is the preferred governing law for business transactions worldwide, even those that don’t have any geographic connection with the UK. According to Sheikh Bilal Khan who is a senior lawyer based in England and Wales, a member of the panel of arbitrators at the AIFC International Arbitration Center and Advisory Board on Islamic Finance, notes that AIFC is a unique example, jurisdiction within jurisdiction, and not just geographically but globally. About 95% of financial transactions around the world – banking, insurance funds, investments, state laws – operate according to General English law. There is no doubt that Astana”, which is only 20 years old, and its financial center which is quite new is making great successes and rapid growth. Its world ranking has already been at 61 as compared to Bahrain having ranking at 59 which had been operational for the last 30 years.
Experts note the right time to create such a center in Kazakhstan, as the country is now moving away from energy dependence, striving for diversification, with an emphasis on the development of a financial center. Financial services are probably the most flexible sector to pay attention to. The economy of the United Kingdom, the United States and several other countries is based precisely on the financial services sector. It is also noteworthy that organizations from these countries are going to buy through IPO (initial public offering) a part of the assets of Kazakhstan companies such as ‘Samruk Kazyna’, ‘KazMunayGas’, ‘Kazaktelecom’. These opportunities will attract foreign companies in Kazakhstan. Even China and Russia – two economic, political, military super powers – want to conduct their financial services through Astana.
AIFC development strategy is based on six key priority areas. First, establishment of a transparent and clear legal regime based on world best practices. Second, to create a regulatory regime consistent with recognised international standards to ensure fairness, transparency and efficiency of the financial market, protect interests of investors and financial services customers, and to minimise systemic risk. Third, AIFC Exchange shall comply with the world best practices for the development of the local capital market. Fourth, to create a favourable environment to facilitate the arrival of recognised professional managers to AIFC platform. Fifth, to supporting a sustainable economic growth and the development of green finance on AIFC platform. Sixth, AIFC shall become the centre of local expertise and facilitate increase and development of the country’s human capital by creating a favourable environment to attract the world’s best experts. There is a strong positive relationship between financial market development and economic growth. The centre represents an unprecedented opportunity for Kazakhstan to strengthen its economy and attract world class international investment. The AIFC can only be seen as a significant step forward in turning Astana into the financial capital of Central Asia.
— The writer is a senior analyst based in Islamabad.