Regulation on Operations Conducted by Microfinance Organizations and Credit Unions in Accordance with Islamic Principles of Banking and Finance

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Creation date: 2026-05-13

Approved

by the Resolution of the Board of the National Bank of the Kyrgyz Republic

of October 26, 2011 No. 60/8

REGULATION

on operations conducted by microfinance organizations and credit unions in accordance with Islamic principles of banking and finance

(As amended by Resolutions of the Board of the National Bank of the Kyrgyz Republic of May 30, 2014 No. 24/12, February 10, 2016 No. 7/2, December 21, 2016 No. 49/8, May 31, 2017 No. 21/10, March 28, 2018 No. 2018-P-12/10-6, August 21, 2019 No. 2019-P-33/43-8, April 22, 2020 No. 2020-P-33/24-3, December 20, 2023 No. 2023-P-12/80-3, October 8, 2025 No. 2025-P-12/50-3-(NPA), October 23, 2025 No. 2025-P-12/55-4-(NPA), December 19, 2025 No. 2025-P-12/68-2-(NPA), April 27, 2026 No. 2026-P-12/26-3-(NPA))

The Preamble has lost force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 31, 2017 No. 21/10

I. General Provisions

1. The purpose of this Regulation is to establish the procedure for microfinance organizations, including microfinance organizations with an "Islamic window" and credit unions of the Kyrgyz Republic (hereinafter - MFOs), to conduct certain types of operations corresponding to Islamic principles of banking and finance.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 31, 2017 No. 21/10)

2. The norms of this Regulation apply to MFOs taking into account the specifics of their activities and organizational-legal forms defined by the legislative and regulatory legal acts of the Kyrgyz Republic.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 31, 2017 No. 21/10)

3. MFOs conducting operations in accordance with Islamic financing principles are not entitled to charge remuneration in the form of interest, attract funds under interest, guarantee the return of an investment deposit or income from it, and must invest funds only in businesses permitted by Shariah.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 30, 2014 No. 24/12)

4. Types of transactions and operations for MFOs must be approved by the Shariah Board, the main functions of which are to ensure the compliance of operations and transactions conducted by these MFOs with Shariah standards.

A Shariah Board may be created by associations (unions) of MFOs.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 27, 2026 No. 2026-P-12/26-3-(NPA))

5. The activities of a Shariah Board created at associations (unions) of MFOs are regulated by the regulation on the Shariah Board, which is approved by the members of the MFO association.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 27, 2026 No. 2026-P-12/26-3-(NPA))

6. The activities and composition of a Shariah Board created within an MFO are determined and regulated by the Board of Directors (founders) of the MFO in accordance with Shariah Standards.

In performing its functions, the Shariah Board must be independent from the executive body of the MFO.

7. Members of the Shariah Board must meet the requirements established by the regulatory legal acts of the National Bank of the Kyrgyz Republic (hereinafter – the National Bank).

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 27, 2026 No. 2026-P-12/26-3-(NPA))

8. MFOs, when conducting operations on Islamic principles of banking and finance, must comply with the requirements of the Law of the Kyrgyz Republic "On Countering the Financing of Criminal Activities and Legalization (Money Laundering) of Criminal Proceeds" and regulatory legal acts of the National Bank aimed at countering the financing of criminal activities and legalization (money laundering) of criminal proceeds.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 19, 2025 No. 2025-P-12/68-2-(NPA))

9. MFOs, having the corresponding license/certificate of the National Bank, are entitled to conduct operations specified in Section II of this Regulation, subject to compliance with the requirements of banking legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 27, 2026 No. 2026-P-12/26-3-(NPA))

9.1. Contracts in accordance with Islamic principles of banking and finance, including in the form of an electronic document signed by means of an electronic signature that allows verifying its belonging to the contracting party, with all attachments thereto and other contracts/agreements by mutual agreement of the parties are drawn up in the state language and, if necessary, in the official language (if necessary, the text of the contract may be translated into another language). This consent is attached/stored in the client/partner dossier. The number of original copies of the contract must be no less than the number of parties to the contract. The MFO must ensure the preservation of original copies of the contract in accordance with the legislation of the Kyrgyz Republic.

The text of the contract must be accessible for perception and understanding by the client/partner. The rights and obligations of the participant arising from the terms of the contract must be reflected in a separate section of the contract. Throughout the text of the contract and in all attachments to it, the font must be the same and its size must be no less than 12 (no less than 16 - for a client with visual impairment upon request).

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-3)

9.2. The MFO is recommended to pay special attention to issues of interaction and assistance to clients with disabilities, including those concerning:

• etiquette rules when communicating with the client;
• rules for accompanying the client when an MFO employee and the client perform necessary operations within the framework of service;
• the application of accessible measures for the most comfortable service;
• communication with the client themselves, not with their companion, if the client has not chosen another way of communication;
• minimization of stressful factors and full (detailed, specific) explanation of banking procedures in the process of serving the client.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-3)

9.3. When serving a client with visual or hearing impairment, the MFO must, at the client's request, ensure audio playback/sign language interpretation of the text of the contract and other documents signed by the client.

The MFO must provide a client who is unable to sign independently due to existing impairments with the opportunity to sign (including a facsimile signature) in contracts and other documents signed by the client, taking into account the requirements of the legislation of the Kyrgyz Republic.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-3)

10. (Lost force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 30, 2014 No. 24/12)

10-1. Movable and immovable property that is the subject of a contract on Islamic principles of banking and finance must be insured in cases provided for by the legislation of the Kyrgyz Republic in the field of mandatory insurance.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 23, 2025 No. 2025-P-12/55-4-(NPA))

10-2. Movable and immovable property that is the subject of a pledge contract on Islamic principles of banking and finance must be insured in cases where the legislation of the Kyrgyz Republic in the field of mandatory insurance or the pledge contract imposes on the pledgor the obligation to insure the pledged property.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 23, 2025 No. 2025-P-12/55-4-(NPA))

10-3. When providing financing, for which it is possible to draw up a schedule for repayment of debt or accrual of income, the contract must additionally indicate the markup/income or increase in the client's debt amount compared to the price (cost) of the goods, work, or service in the nominal annual percentage rate, calculated in accordance with the Regulation

"On Minimum Requirements for the Pricing Policy of Banks, Payment Services and Services Provided by Microfinance Organizations, and for the Implementation of Marketing Activities", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 29, 2021 No. 2021-P-12/75-1-(BS).

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 27, 2026 No. 2026-P-12/26-3-(NPA))

II. Types of Transactions Corresponding to Islamic Principles of Banking and Finance

Chapter 1

Mudaraba Transaction

11. Mudaraba is a transaction whereby, based on a contract, one party - the investor - provides capital (funds), and the other party (mudarib) - accepts this capital and manages it for the purpose of obtaining profit, which is distributed proportionally between the parties in accordance with the terms of the contract. In the event that losses are incurred during the performance of the contract, the investor bears losses in the amount of the provided capital sum, and the mudarib in this case does not receive remuneration for their labor. This rule of loss distribution applies in the event that losses arose not due to the fault of the mudarib.

In the event that losses during the performance of the contract arose due to the fault or unlawful actions of the mudarib, these losses must be covered at the expense of the mudarib. At the same time, the investor has the right to receive from the mudarib the sum previously transferred under the contract at the expense of collateral, and in the event that it is insufficient, at the expense of other property of the mudarib.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2016 No. 49/8)

12. Limited/special mudaraba - a mudaraba transaction, under the terms of which the investor establishes the types of assets or projects for investment by the mudarib.

13. A mudaraba transaction is applied by MFOs in two cases:

• as a tool for attracting funds in accordance with the requirements of the legislation of the Kyrgyz Republic, having the corresponding license of the National Bank;
• as a financing tool.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 30, 2014 No. 24/12)

14. A mudaraba contract is concluded in written form or in the form of an electronic document signed by means of an electronic signature that allows verifying its belonging to the contracting party, with all attachments thereto.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-3)

15. MFOs, acting in the role of investor, must conduct an assessment of the business plan, determine objects for investment, conduct an assessment of the client's activity(1) and consult them subsequently during the execution of the contract.

16. When issuing funds under a limited/special mudaraba transaction, MFOs must include in the contract a condition prohibiting the non-targeted use of funds and the issuance of loans, advances, and credits.

17. For proper fulfillment of obligations under a mudaraba transaction, MFOs, acting in the role of investor, may receive collateral from the client in the form of pledge of any form.

18. The mudaraba contract must provide for at least:

1. indication of the type of contract;
2. the amount of the sum provided;
3. the method of securing obligations;
4. rights and obligations of the parties;
5. liability of the parties for non-fulfillment or improper fulfillment of the obligation to compensate for losses arising during the performance of the contract due to the fault or unlawful actions of the parties;
6. the procedure for distributing profit and loss between the parties;
7. conditions for the parties to perform the contract independently or with the involvement of qualified specialists;
8. accounting for the use of received funds, allowing, upon completion of the contract or a separate stage, to determine the profit obtained, which is subject to distribution between the parties;
9. the procedure for terminating the contract.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2016 No. 49/8)

19. The profit of the parties to the contract is determined in the manner provided for by the contract as a share of the profit obtained. The procedure and terms for distributing profit from mudaraba operations are established in accordance with the terms of the contract.

20. A mudaraba contract cannot be terminated unilaterally if:

• the mudarib has commenced performance of the contract and is already using funds in entrepreneurial activity;
• the term of the contract has not expired.

Chapter 2

Shariika/Musharaka Contract/Partnership

21. Shariika/Musharaka is a partnership contract between an MFO and one or more parties, under which each partner contributes a certain amount of money, or with the consent of all partners - material assets, and under which joint management of the business is carried out using joint assets on the conditions of profit distribution according to the contract, and losses are borne by each partner in accordance with their contribution to the total capital.

22. A shariika/musharaka contract is classified into two main categories:

1. association of participants without forming a legal entity;
2. association of participants with the formation of a legal entity, including, partnership societies and/or legal entities created in accordance with the legislation of the Kyrgyz Republic.

Unless otherwise follows from the subject of the contract, a shariika/musharaka contract is applied both to associations of participants without forming a legal entity and to associations with the formation of a legal entity.

Shariika/Musharaka Muntahiya BitTamlik is a form of partnership based on a shariika contract, in which one of the partners gradually buys out, in an amount determined by the contract, the share of another/other partners until the right of ownership to this share passes completely to him. This operation begins with the formation of a partnership, after which the purchase and sale of shares between two partners begins.

The purchasing partner is allowed only to give an obligation to buy shares or a share in the authorized capital. This obligation must be independent of the partnership contract. In addition, the sales contract must be independent of the partnership contract. It is not allowed for one contract to be concluded on the condition of concluding another contract.

23. In a shariika/musharaka muntahiya bittamlik transaction, the general rules of the shariika/musharaka contract are applied, and it is not allowed to include in the shariika/musharaka contract any provision that gives any party the right to withdraw their share from the company's capital.

A shariika/musharaka contract is concluded in written form or in the form of an electronic document signed by means of an electronic signature that allows verifying its belonging to the contracting party, with all attachments thereto. In the event that a legal entity is created on the basis of the contract, it is subject to registration in the manner established by the legislation of the Kyrgyz Republic. In the document on the establishment of the partnership or the charter of the legal entity, the purpose of the partnership must be clearly formulated.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-3)

24. MFOs are allowed to conclude partnership contracts if the financial funds or property presented by the parties for the purpose of carrying out partnership activities originate from permissible sources. When creating a legal entity based on partnership, all necessary confirmations must be obtained regarding compliance with the rules and principles of Shariah in the performance of operations during partnership activities, including, management in compliance with Shariah rules.

25. When making amendments to the partnership contract, if the shares in distributed profit are revised, then losses must be borne by each partner in accordance with their contributed share in the capital.

26. If material assets (goods) are contributed to the capital of a legal entity established on the basis of a shariika/musharaka partnership contract, the monetary value of such assets must be determined by independent experts.

27. As a contribution to the capital of a legal entity established on the basis of a shariika/musharaka contract, it is not allowed to contribute debt obligations (accounts receivable). Debt obligations may be contributed to the capital of a partnership established on the basis of a shariika/musharaka partnership contract only if they are inseparable from other assets presented as a contribution to the capital. At the same time, the value of net assets must be confirmed by independent auditors.

28. The contract on the creation of a legal entity based on partnership must provide for the obligation of each partner to act within the framework of the contract and in the interests of the company, as well as unconditional compliance with the rules and principles of Shariah.

29. The contract may provide for a condition on the management of the legal entity by certain partners or one of the partners. In this case, other partners are obliged to adhere to this decision and not take actions on behalf of the company.

30. The shariika/musharaka contract may provide for the appointment of a manager not from among the partners, for a fixed remuneration included in the company's costs, or provide for payments in the form of a part of investment profit and a fixed remuneration to encourage the manager. If management is carried out from the very beginning based on the size of the share of the profit received, then this action classifies the manager as a mudarib, and in this case, he has the right only to a share in the profit, if any, and no further remuneration is paid to him for manager services.

31. It is not allowed in the shariika/musharaka contract to determine a fixed remuneration for a partner who contributes his share to the management of the company's funds, established on the basis of a shariika/musharaka contract, or who provides his services in any other form, for example, provides accounting services. At the same time, it is allowed to give him a larger part of the profit than he would earn in accordance with his share in the partnership capital.

32. The shariika/musharaka contract may provide for the liability of partners in the form of providing collateral to cover losses in the event of unlawful actions, negligence, carelessness, or violation of the contract by partners/partner.

33. If the guarantee of compensation for losses incurred by some or all partners is provided by a third party, such guarantee must meet the following requirements:

1. the legal capacity and financial obligation of such a third party acting as a guarantor must be independent of the shariika/musharaka contract;
2. the guarantee cannot be provided for a certain compensation and cannot be linked to the shariika/musharaka contract;
3. the third party acting as a guarantor must not own more than half of the capital amount in the company for which it provides the guarantee;
4. the company receiving the guarantee must not own more than half of the capital amount of the company providing such guarantee;
5. the partner in whose favor the third-party guarantee is issued has no right to refuse to fulfill his obligations under the contract if the guarantor does not fulfill the conditions of the guarantee.

34. The shariika/musharaka contract must provide for a procedure for distributing profit between the parties in the form of a share of the profit obtained proportionally to the contribution of each partner to the company's capital. Profit cannot be established as a fixed monetary amount.

35. The shariika/musharaka contract may provide for a change in the partners' shares in profit sharing on the date of its distribution or the right of a partner to assign part of the profit due to him in favor of another partner on the day of profit distribution.

36. MFOs are not entitled to voluntarily accept losses of other partners. But in the shariika contract, MFOs may provide for the right of other partners to voluntarily accept without any prior condition responsibility for losses at the moment of their occurrence.

37. Partners are allowed to agree on the use of any method of profit distribution, regardless of whether it is constant or not, for example, agree that the size of the profit share in the first stage of contract performance is one, and in the second stage - another, depending on the discrepancy of two periods or the amount of profit obtained. This is allowed on condition that the use of such a method does not lead to a situation where one of the partners is excluded from participation in the profit.

38. Profit must be distributed based on actual results, without taking into account expected future profit from the company's activities.

39. It is not allowed to include in the conditions or method of profit distribution under the shariika/musharaka contract any provision or condition that may lead to a violation of the principle of profit distribution. Any condition or method of profit distribution that may lead to such a result will render the contract invalid.

40. Partners are not allowed to include in the contract a provision according to which one or several partners may receive a fixed amount from the profit or an amount calculated as a percentage of the capital of the company created on the basis of a shariika/musharaka contract.

41. It is allowed to agree that if the amount of profit obtained is higher than a certain maximum threshold, which the parties may establish in advance, the excess profit may be transferred to a specific partner. The parties may also agree that if the profit does not exceed the maximum amount or is below such amount, the profit is distributed in accordance with their contract.

42. Upon completion of the partnership term or its liquidation, profit may be finally distributed based on receipts from the sale of all existing assets of the company created on the basis of a shariika/musharaka contract, at market value.

43. It is allowed to distribute some funds to any party in advance, i.e., before actual or constructive assessment on condition that final actual settlements will take place at a later stage. In this case, the parties are obliged to compensate the company for any amount they received in excess of their share of profit after actual or constructive assessment.

44. If the subject of the shariika/musharaka contract is assets acquired for lease (leasing), which will bring income, or the subject of the contract is services that will bring receipts, then the amount is distributed annually to partners in advance and is subject to settlement and compensation at the end of the term of the shariika/musharaka contract.

45. It is allowed on the basis of the charter or decision of the parties not to distribute the company's profit or periodically leave a certain amount of profit as a solvency reserve or a reserve for covering capital loss (investment risk reserve).

46. The parties may conclude a shariika/musharaka contract for a specific term or without specifying a term, or establish conditions that are the basis for terminating or canceling the contract.

Each partner has the right to terminate the shariika/musharaka contract (i.e., exit the company) after providing proper notice to his partner(s) about this. In this case, he has the right to his share contributed to the capital/assets of the company, and his exit does not lead to the termination of the partnership of the remaining partners.

In a term contract, the parties are allowed to agree on early termination of the partnership. In all such cases, obligations and actions that partners perform before the termination of the contract remain unchanged and continue to exist.

47. A partner is allowed to give an obligation to buy, either during the period of the company's existence, or at the moment of its liquidation, all assets of the company created on the basis of a shariika/musharaka contract at their market value or by agreement on the date of purchase. It is not allowed to give an obligation to acquire assets of the company created on the basis of a shariika/musharaka contract at a nominal value determined in advance.

48. An enterprise created on the basis of a shariika/musharaka contract ends its activities upon expiration of the contract term or before this date, if the partners decided to terminate it early, or in the case of an enterprise created for a specific business, after the actual liquidation of assets that constitute the subject of the partnership contract. Termination of the shariika/musharaka contract