Following the global trend of slow recovery after the crisis caused by the COVID-19 pandemic, the Russian economy is showing positive signs of business activity growth in the Halal and Islamic finance industries.
Small and average-sized Islamic financial companies, during the isolation and lockdown period, managed to find new ways of communication with customers by inventing and developing new technologies of financial transactions using the online mode.
The demand for Halal food and beverages increased due to the flexible ways of delivery and the mode of payment provided by the distributors for retail and corporate customers.
Review of 2021
Economies worldwide were negatively impacted by the coronavirus pandemic which limited business activities. In Russia, businesses became more creative in developing online technologies and promoting new online products to the community and corporations.
The Islamic finance industry in the Muslim regions of Moscow expanded either in the form of small Islamic financial companies or the diversification of conventional banks of big banking corporations.
The biggest state bank in Russia, Sber, which is using the facility of its branch in Abu Dhabi ‘Sberinvest Middle East’, announced the general volume of closed Shariah compliant deals amounting to RUB30 million (US$395,935) and US$262 million. There are also plans to accomplish more Islamic finance transactions worth RUB10 billion (US$131.98 million) in the near future.
New Islamic stock indices were invented by the Moscow Exchange; however, there are no signs of any Takaful operations development in Russia in the last two years.
The Islamic finance educational programs conducted virtually by leading Russian universities have attracted many students and qualified teachers from different countries and regions.
Preview of 2022
Several factors will impact the development of Islamic finance in Russia. On the one hand, it depends on the general terms and quality of the recovering process of the Russian economy from the pandemic which will hinge on the recovering speed of the global economic situation as well as the proper monetary and fiscal policy of the Russian authorities.
On the other hand, Islamic finance is a model that is attractive during crises due to its stable and low-risk activity that attracts conservative private and corporate investors. Hopefully, the growing demand for Islamic financial instruments in Russia in 2021 will continue in 2022.
The lifting of the lockdown period due to the pandemic will make way for bigger international forums to be held in Russia which will increase participation from Islamic finance experts worldwide.
The increasing number of Islamic finance educational programs in Moscow and other regions will become more specialized and advanced with more variants and options for students of different levels to participate. Joint programs of several foreign universities will attract respectable international Islamic organizations such as the IsDB or AAOIFI as partners.
One of the growing trends in Russia will be the production of Halal food and beverages apart from developing Islamic stock markets due to the usage of new Islamic stock indices such the Islamic Investment Index and the Total Return Islamic Investment Index on the Moscow Exchange.
Conclusion
Islamic financial institutions have improved online technologies, attracting more customers not only in Russia but also other countries.
Despite the signs of recovery of Shariah compliant transactions and the growing volume of Islamic financial operations of conventional institutions, the gross volume of Islamic financing is not satisfactory. Islamic finance is still a niche product, which only has limited recognition among the Russian community and businesses.
Obstacles still exist in the development of the Islamic finance sector such as the absence of Islamic finance legislation, a non-friendly fiscal policy, unfavorable conditions for foreign investors and no governmental support. All these limit the foreign Islamic investments in the Russian economy which in turn slows down the development of the Shariah compliant sector.
Islamic financial institutions should use their advantages such as their stability and double-risk control to achieve more business share in the national financial market. They need to intensify the popularization of Islamic finance and Halal industry advantages to attract more customers, hence enlarging the volume of transactions.
The growing number of Islamic financial deals can raise the interest of Russian financial authorities followed by some support measures for the Islamic financial sector. This is important not only for the Muslims and their businesses, but for all Russian economies.
Dr Ilyas Zaripov is a member of the Participating Banking Working Group of the Central Bank of the Russian Federation and the head of the Islamic Finance Educational Program of the Plekhanov Russian University of Economics. He can be contacted at [email protected].