The global Islamic finance industry will see a new entrant in Russia. Moscow Industrial Bank has already started the process of getting acclimatized with the Islamic finance industry by learning from the established model of the Islamic Development Bank (IDB). Abubakar Arsamaskof, president of Moscow Industrial Bank, said that the bank has 7,000 employees working in 260 branches that provide different products and services. He added that their main focus is on industry, construction and agriculture. He also highlighted that they issue Muslim debt card to those wanting to perform Haj. He also indicated that Russian companies are moving towards the Halal industry in a big way and have investments that are estimated at $100 million. The Russian delegation was visiting the IDB to collaborate with regard to Awqaf and enhance the Islamic finance system in Russia. Other negotiations include collaboration between IDB and Moscow Industrial Bank to find investment opportunities and create jobs for youth.
The Islamic Corporation for the Development of the Private Sector (ICD) and the International Association of Islamic Business (IAIB), signed a Memorandum of Understanding (MoU) to explore collaboration between entrepreneurs from Islamic countries and Russian Federation. The two institutions are determined to collaborate on introducing Islamic banking products in Russia and lobbying for changes in Russian banking legislation. ICD's CEO Khaled Al-Aboodi said he was looking forward to the collaboration, while IAIB President Marat Kabayev said the purpose of the partnership was to develop economic ties among Islamic countries, to promote Islamic Finance in Russia and attract investors from Islamic countries. ICD and IAIB also agreed to organize joint professional programmes, market research, workshops, publications, study tours and assistance in production and certification of Halal goods.
Russia and Iran are exploring the establishment of an Islamic bank as the two countries expand their economic cooperation. According to Russian Energy Minister Alexander Novak, the banks are exploring the mechanism, but the related decision has not been made yet. State-linked Russian lenders Vnesheconombank, Sberbank and Tatfondbank have been developing Islamic financial products of their own over the past year. Iran is keen to diversify funding options for its companies. At present, most financing in Iran is sourced from domestic lenders with only a small portion sourced from foreign sources and the debt capital markets.
Vnesheconombank, Sberbank and Tatfondbank are going to take part in the 23rdWorld Islamic Banking Conference in Bahrain from 5 to 7 of December 2016. The three banks are working on launching Islamic finance products to get access to the investors from the Gulf countries and Southeast Asia. According to Linar Yakupov, head of the Association of Regional Investment Agencies of the Russian Federation, there is growing interest from other 20 Russian banks. However, the current legislation system of Russia complicates the progress. It forbids banks from engaging in commercial activities, so they can operate only a limited range of assets.
Russia continues to open new avenues and to provide new instruments for international investors through Islamic finance. Representatives of major banks and a high official of the Russian central bank will partake in the 23rd World Islamic Banking Conference in Bahrain’s capital Manama. The reason why Moscow is increasingly opening up to Islamic finance lies mainly within its quest to make up for a shortfall caused by Western sanctions. Three state-linked Russian banks, Vnesheconombank, Sberbank and Tatfondbank have all signed agreements with the Islamic Development Bank (IDB) in order to launch Islamic finance products. Maxim Osintsev, executive director at Sberbank, said there was now political will for Islamic finance to be developed in Russia. The ice has broken and people now understand that Islamic banking products can be in demand.
As Russia's economy continues to stagnate, the country's 83 regions are being forced to compete with one another for outside investment. Four of Russia's Muslim republics, Tatarstan, Bashkortostan, Chechnya and Dagestan, have set their sights on Muslim states in the Middle East and Southeast Asia. Despite their economic differences, Russia's Muslim republics have been uniformly hurt by the collapse in global oil prices. Though Islamic financing has been legally banned in Russia, the Muslim republics have simply ignored it outright, issuing transactions under Islamic banking guidelines or negotiating with foreign financial groups to start implementing them. Tatarstan and Chechnya discussed several construction projects, but the question now is whether Russia will allow Gulf state financing to continue. Most likely it will continue to put national security and Russian unity ahead of the needs of the Muslim population.
In Russia a Memorandum of Understanding was signed between Islamic business and finance development Fund (IBFD) and TAWUN, a Shariah consulting company of Pakistan. The Pakistani delegation was led by S.M Muneer from the Trade Development Authority of Pakistan and Mehmood Arshad, the Founder of TAWUN. Arshad stated that the Russian market is very interesting for his organization and TAWUN has all the necessary experience and competence. They will support Russia to launch Shariah-compliant products and get additional funding from OIC countries.
Russia is hoping to close deals shortly to attract Islamic banks to invest in Russia to help make up for a shortfall in international finance caused by Western sanctions. The head of Vnesheconombank Sergei Gorkov said funds invested by Islamic banks will be used for infrastructure projects in the country. He added that that Russia is expected to close its first deals to attract Islamic capital in the autumn of 2016. However, the active introduction of Islamic banking is opposed by some Russian lawmakers.
Two of the largest Russian banks will soon incorporate Islamic banking rules into their line of work. The proposal was made by Rustam Minnikhanov, President of Tatarstan and banks are displaying real interest. Minnikhanov pointed out that should the two banks incorporate the new system of transactions, Russia would be forced to revise a score of fiscal laws and regulations. Sberbank's First Deputy Chairman, Maxim Poletaev, said the bank plans several pilot transactions in autumn 2016 in the Republic of Tatarstan.
Russia’s VEB development bank plans to announce its first deals with the Islamic Development Bank (IDB) in the near future. VEB Chairman Sergey Gorkov said the bank may announce particular transactions in the autumn this year. However, there are several opposite viewpoints regarding the partnership. Russia’s Federation Council deputy speaker Yevgeny Bushmin said that the Central Bank and the Russian legislation are not prepared for promotion of Islamic banking in the country.
The Partnership Banking Center, Russia's first financial institution established upon Islamic banking principles will start operations in March 2016 in Kazan. The new bank will function as a subsidiary of Tatagroprombank. The Partnership Banking Center will work with both individuals and companies, and will aim to channel Islamic investment into Russia. It will also sign an agreement with the Islamic Development Bank. The bank’s creation became possible thanks to a new law submitted to the State Duma in late January, under which the Russian banking system can comply with requirements of religious financial institutions.
Islamic Business and Finance Development Fund and REDmoney Group are jointly organizing IFN CIS & Russia Forum on 15th of March 2016 in Moscow. Islamic finance should become one of the strongest driving forces toward effective development of an international market that unites more than 182 million people of the Eurasian Economic Union. Participation in the Forum has already been confirmed by representatives of the largest Russian and international financial institutions.
Islamic finance is drawing more interest in Russia as the country struggles economically and requires fundamentally new approaches to attract investments from abroad. The sector is just beginning to grow in Russia and its perspectives were discussed during the recent Gaidar’s Forum in Moscow, one of the major annual international conferences on economy in Russia. Implementation of Islamic finance in Russia started through the so-called pilot projects in the predominantly Muslim republic of Tatarstan. It has both existing infrastructure and client base. Islamic banking could account for up to 5 per cent of the entire financial market in Russia.
Chechen President Ramzan Kadyrov plans to open an Islamic bank, with help from the United Arab Emirates. Kadyrov is known for his conservative, heavy-handed response to dissent against his rule and that of Russian President Vladimir Putin, recently calling for the Russian opposition to be tried as “enemies of the state.” Kadyrov has repeatedly portrayed himself as a protector of moderate Islam in the primarily Muslim Chechnya. Now Kadyrov has revealed that he is setting up a new project to attract more investment from the Gulf. He said he had spoken with Abu Dhabi-based development company Mazcorp and it had agreed to help him “move towards the realization of the project.”
The Islamic banking system continues making its way to Russia, although not as quickly as its supporters would like, primarily Russian Muslims who number 21 million people, according to various estimates. The main problems relate to the need to change the Russian legislation. But the first steps in this direction are already being made. A draft of amendments to the Civil Code was submitted to the State Duma this week to help separate Islamic money flows from non-Islamic funds. The document prepared by Deputy Chairman of the State Duma Committee for the Financial Market Dmitry Savelyev stipulates opening special bank accounts to allow investing funds on these accounts into assets permitted by the Code of Muslim Laws.
An agreement has been reached in Groznyy, the capital of Russia's Chechen Republic, to open an Islamic bank in the republic, Chechen leader Ramzan Kadyrov said. Executives of Mazkorp company Hilal Suhail Hilal Rashid Al Mazrouei and Wael Saab came from the UAE and agreed to start implementing the project. Opening of the bank is of enormous value for the republic, Kadyrov said. Large properties are under development in Chechnya with participation of capital from the UAE. The decision was also made at the meeting with the management of Mazkorp on shareholding participation in development of Magnus-Groznyy pharmaceutical cluster to start next year and on investment into construction of Ahmat-Tower multifunctional high-rise property in the capital of Chechnya.
Mina Mehrnoush, the head of planning at Iran’s Organization for Trade Development, said three Russian banks have voiced their readiness to promote banking relations with the Islamic Republic in the near future in a bid to boost commercial cooperation between Tehran and Moscow. Mehrnoush also said that during a recent visit to Russia by an Iranian trade delegation, “good meetings” were held with three Russian banks, namely Mir Business Bank, Tempbank and RFC Bank. Mir Business Bank, which is the agent bank of Bank Melli Iran, agreed to provide good facilities and open proper credit lines for Iran, she said. The Iranian trade official went on to say that other issues were also discussed in her meetings with Russian banking officials, including opening accounts for Iranian companies without having to make a trip to Russia.
Tourism authorities have launched a program to make more halal-certified food products available in Russia. The program aims to attract more tourists from the United Arab Emirates, Saudi Arabia and Kuwait. The halal program will focus on Moscow, St. Petersburg, Kazan, Sochi and the towns of the Golden Ring. According to Schegolkova, these cities already have the infrastructure and hotels that can provide halal-friendly services. The list of cities will be expanded over the next few months. In addition to cuisine from Russia’s Muslim regions and internal republics, the program aims to make halal-certified traditional Russian dishes widely available in the country.
A bill eliminating legislative obstacles to the commission of leasing transactions in accordance with Islamic finance was introduced to the State Duma. The changes are to be made to the law «On Financial Rent (Leasing)». The bill allows separating the two transactions lease and sale in time. So in order to do that, it is suggested to amend the current law and add that the transfer of ownership will be covered in the lease agreement, like in the current model, or in the separate purchase and sale agreement, which then will be Shariah compliant. The drafted bill also provides the possibility, by an agreement of the parties, to avoid penalties for past due payments.
Kazakhstan's parliament has approved legislative amendments to facilitate Islamic finance, paving the way for Central Asia's largest economy to issue its first sovereign sukuk next year, a government official said.
The amendments, which still require the president's signature, would also allow for the conversion of conventional banks into Islamic ones, said Yerlan Baidaulet, an adviser to the Investments and Development Ministry.
«We expect the sovereign sukuk in early spring of next year. Probably in March, it depends on the decision of the Ministry of Finance as it has its own budgetary process», Baidaulet said on the sidelines of an industry conference in Kuwait. The legal amendments to the banking services and securities laws are the latest steps by the majority Muslim state to help develop Islamic finance. A dedicated Islamic banking law is also currently in preparation, Baidaulet said. Lawmakers have also passed a law to establish an offshore centre in the capital Astana, which is partly aimed at attracting Islamic finance business, he added.