IDENTIFICATION AND MANAGEMENT OF RISKS IN ISLAMIC FINANCE IN THE REPUBLIC OF UZBEKISTAN

Аннотация

The importance of developing Islamic finance in the Republic of Uzbekistan is increasing in the context of international economic integration and globalization. The creation and development of financial institutions based on the principles of Islamic finance in our country, including Islamic banks and investment funds, play a crucial role in ensuring the stability and development of the national economy. In 2021, the total value of assets in global Islamic finance markets reached approximately $3.95 trillion. By 2026, the total value of assets in these markets is projected to reach $5.9 trillion, with an annual growth rate of 10-20%. The emergence of Islamic finance as a decisive component of economic changes in Uzbekistan is explained by the government’s efforts to modernize the financial sector and integrate advanced global experiences. The principles of Islamic finance, including the prohibition of interest (riba), risk-sharing, and the requirement to back transactions with real assets, distinguish it from traditional finance. However, these unique characteristics give rise to specific risks that need to be identified and managed effectively. These include compliance, operational, market, and liquidity risks. This thesis examines the identification and effective management methods of these risks. Key words: Islamic Finance; Risk Management Sharia Compliance; Legal Risk; Liquidity risk; Operational risk. The emergence and development of Islamic finance in Uzbekistan represents a dynamic opportunity for diversifying the country's financial sector, in line with ethical financial principles derived from Sharia law. Islamic finance not only promises to attract significant international investments but also fulfills the needs of the country's predominantly Muslim population, ensuring inclusive economic growth. In Uzbekistan, Islamic finance has become a crucial component of the ongoing economic changes, closely linked to the government's efforts to modernize the financial sector and integrate advanced global practices.The principles of Islamic finance, such as the 62 NEW RENAISSANCE 2025 JANUARY INTERNATIONAL SCIENTIFIC AND PRACTICAL CONFERENCE VOLUME 2 | ISSUE 1 prohibition of interest (riba), risk-sharing, and the requirement to back transactions with real assets, distinguish it from traditional finance. However, these unique features introduce specific risks that need to be identified and managed effectively. This thesis explores the identification and management of risks in Islamic finance within the context of Uzbekistan's developing legal and institutional framework. By analyzing international practices and Uzbekistan's recent efforts, the study proposes strategies for mitigating these risks to encourage sector growth.Integrating Islamic financial practices into Uzbekistan's evolving financial landscape brings with it various challenges, such as addressing regulatory uncertainties, mitigating market-specific risks, ensuring operational efficiency, maintaining liquidity, and strict adherence to Sharia principles. These risks are compounded by Uzbekistan's relatively limited experience in Islamic finance and the unique dynamics of its financial ecosystem. This thesis aims to comprehensively analyze these risks by drawing on international research, Uzbekistan's legal and financial foundations, and globally recognized risk mitigation strategies.Through identifying potential pitfalls and offering effective solutions, this study strives to contribute to the establishment of a stable and sustainable Islamic finance sector in Uzbekistan, enhancing its role as a driver of economic development and serving as a model for other emerging markets. While Islamic finance offers numerous advantages, particularly in promoting ethical and sustainable business practices, it also presents unique risks: 1-table. Risks in Islamic Finance and Their Implications1 Risk Type Causes of Risk Likelihood Consequences Management strategy - Lack of specific - Financial disputes - Develop specific laws for Islamic finance Legal risk legislation High - Misinterpretation of- Study and adapt international legal - Unclear regulatory contracts practices framework - Weak investor - Organize training for lawyers specializing confidence in Islamic finance - Limited financial - Financial instability- Introduce innovative financial products Liquidity risk products and Medium - Difficulty in - Promote diversification of assets and services fulfilling obligations funding sources 1 Table created by the author 63 NEW RENAISSANCE 2025 JANUARY INTERNATIONAL SCIENTIFIC AND PRACTICAL CONFERENCE VOLUME 2 | ISSUE 1 - Low market - Encourage participation of institutional participation investors Operationalr- Lack of - Errors in processes Automate and digitize operational processes isk experienced staff High - Operational - Conduct regular training and certification - Weak internal inefficiency programs for staff controls - Increased costs - Implement strong