Russia historically does not have a visible Islamic finance industry, despite the fact that it has a significant (up to 10%) Muslim population constituting a majority in nine Russian regions. 

However, over the years there were attempts to either conduct particular Islamic finance transactions, or establish retail practices. To a certain extent, these attempts have been successful, although the establishment of fully-fledged, comprehensive Islamic finance retail solutions is a matter for the coming years.

Review of 2016
While many processes such as Russia-wide conferences and discussions on necessary legislative changes continued, there were few distinctive and promising developments. 

The major development was the active role played by a working group on the development of Islamic finance at the level of the Central Bank of Russia. The group held several meetings and the role of the Central Bank of Russia in supporting Islamic finance development in Russia became much more visible.

Another important development is the opening of the Center of Partnership Banking by one of the largest banking groups in Tatarstan. Previously, a few smaller Russian banks were opening retail Islamic banking divisions, but it is the first time that a significant regional player has proceeded to establish a fully-fledged Islamic banking division.

Regarding legislative developments to facilitate Islamic finance, there were not that many and the necessary amendments to Russian legislation to facilitate Islamic finance are still being discussed.

However, there is an indication that bigger banking groups are also tapping into Islamic banking in Russia. In particular, it was announced that Sberbank hired an experienced top manager of Islamic finance to develop this line of business. It is expected that by the end of 2016 Sberbank will execute at least one domestic Russian Islamic finance transaction.

As mentioned in the preview of 2016 last year, cooperation with business associations has boosted the development of Islamic finance products among local entrepreneurs. In particular, the Association of Muslim Entrepreneurs of Russia supported the Center of Partnership Banking and actively promoted Islamic banking services among its members.

In line with these developments, a new translation of AAOIFI Shariah standards from Arabic into Russian has started.

Preview of 2017
Among anticipated major events of 2017 are the annual Halal Expo and KazanSummit, which are the major Russian platforms for discussion of Islamic finance prospects and developments.

Over the years, the forward-looking stance has remained pretty much the same. Businesses are demonstrating growing interest toward the development of Islamic finance, as are regulatory authorities. However, the further development of Islamic finance in Russia will very much depend on the role of the government, the central bank and parliament. Although Islamic finance is growing and developing, but in order to enter a new level, legislative changes are required.

Conclusion
It appears that the organic growth of the Islamic finance industry in Russia is close to its limits existing under the current regulatory environment. It is hard to predict whether the government will take an active role and introduce the necessary legislative changes, similar to the UK model, or keep the current course of observing and analyzing. The year 2017 may provide an answer.

Roustam Vakhitov is a partner at International Tax Associates. He can be contacted at [email protected].