Islamic finance in Russia is still not a fully operational business segment, though it is rapidly developing.
But in 2015, Islamic financing in Russia is perceived as a more attractive option, an alternative to the West-European model. The possibility of the introduction of amendments to the legislation for the development of Islamic banking in Russia is seriously being considered at the state level.
Review of 2015
In 2015,a wide range of forums on the development of Islamic banking took place in Russia.
In April, the Lower Chamber of the Russian Parliament’s Committee on Financial Markets held a meeting with the theme ‘Practical aspects of the introduction of Islamic banking products – Necessary legislative initiatives.” As one of the major issues for the development of Islamic banking and Islamic finance in Russia is the lack of the necessary legal framework, changes in the existing legislation were discussed.
Under the agreement between the government of the Republic of Tatarstan and the Russian-Malaysian consortium that was signed at the Kazan Sukuk Conference in April 2015, a working group to develop proposals to introduce relevant changes to Russian legislation was established.
On the 7th October, the Central Bank of Russia, together with the representatives of State Duma, the Association of Russian Banks, the Association of Regional Banks of Russia and the largest players in the financial market of the Russian Federation, held expert hearings within the final stage of the feasibility study for the launching of Islamic banking in Tatarstan, as a pilot project for the launch of Islamic banking and finance in the Russian Federation. These studies will form the basis for amending the legislation for the development of Islamic banking in the country.
As a result, the Central Bank appears to support the idea of introducing Islamic banking standards in a number of regions of the Russian Federation. If the government’s decision is positive, and the project develops well, the Central Bank will be ready to continue the dialogue on the draft law on Islamic banking, which had been previously submitted to the State Duma.
On a more practical level, in early October 2015, the company LaRiba Finance, which provides services in the field of Islamic finance, signed a contract with the large retail network Eldorado. LaRiba will provide financial services to customers of Eldorado. This financial services is based on a Murabahah model. In addition to Eldorado, the company provides its services in another two big retail supermarkets in Makhachkala, the capital of Dagestan.
In late October, a large Bahraini bank proposed to establish a joint Russian-Bahraini bank in Russia that will work with the principles of Islam.
Overall, the prospects for the development of the Islamic finance sector are high and cooperation in this area will contribute to socio-economic development.
Preview of 2016
The further development of Islamic finance in Russia will very much depend on the decisions of the Central Bank of Russia and the government on whether or not to establish a regional pilot project on Islamic finance implementation in Tatarstan. Should the proposal succeed, we may finally see the establishment of a fully-fledged Islamic bank in Russia. Otherwise, it may take a few more years to reach this stage.
Another major boost for the development of Islamic finance in Russia is the stronger cooperation and multiplication of Islamic businesses, which naturally require genuine Islamic finance. Therefore, the development of small and medium Islamic businesses in Russia may encourage the development of Islamic finance in Russia as well.