Uzbekistan plans to introduce Islamic finance regulations and set up an Islamic finance institution to expand its banking sector and tap foreign markets as part of President Shavkat Mirziyoyev’s efforts to revamp the economy, Reuters reported.

Over the past year, the Tashkent government has liberalised foreign exchange rules and relaxed regulatory requirements for Kazakh banks looking to set up subsidiaries in the country.

The establishment of the institution, which was announced in a decree on the government’s website, goes beyond existing legislation.

It would allow the introduction of a wide range of sharia-compliant products, from Islamic bonds to insurance, said Yerlan Baidaulet, adviser to Kazakhstan’s Ministry of investments and development.

“It’s expected to push a systemic launch of the Islamic finance industry in the country,” Baidaulet said.

This could have implications for the wider region, which has seen various attempts to kick-start Islamic finance with mixed results: Kazakhstan has faced regulatory hurdles, while Azerbaijan’s largest bank closed its Islamic unit in 2015.

Uzbekistan’s approach might be more successful because it is creating a working group to coordinate efforts across all government agencies, including the ministry of finance and tax authority, Baidaulet said.

“All these things are nowadays missing in the CIS (Commonwealth of Independent States) region. These new amendments are being studied thoroughly by outside market-players.”

Uzbekistan, a former Soviet state, is the most populous country in Central Asia and most of its 32 million people are Muslim.

The proposed legislation will be drafted with the help of a grant from the Saudi-based Islamic Development Bank.

Facilitating Islamic finance, which follows religious principles such as bans on interest and monetary speculation, is seen as a way to help attract investments from the Middle East and southeast Asia.

It could also boost financial inclusion in a country with an underdeveloped consumer market and a banking sector dominated by state lenders.

Some Islamic financial products are already offered by Uzbek lenders, but specific legislation could make them cheaper while helping to introduce new ones.

Earlier this month, local lenders Trustbank and InFinBank signed separate financing agreements with the Islamic Corporation for the Development of the Private sector, the private sector arm of the IDB Group.