Sanctions from western countries were the triggers pushing Russian governmental authorities and corporations to urgently search for alternatives of financial recourse and business partners. The stable and prosperous partners of Russia are traditionally countries in the Middle East and Southern Asia preferring Shariah compliant transactions.
The absence of Islamic finance legislation was the main obstacle in the development of the Islamic finance and Halal industry in Russia. Thus, legislators have tried to solve this problem by creating two drafts of the law devoted to Islamic finance in Russia.
Big Russian state banks and banking corporations including Sberbank and Vnesheconombank continued to enlarge their Islamic product line within Russia and abroad, offering more Shariah compliant instruments for their customers
Review of 2022
The main event in 2022 was the introduction of new federal laws devoted to Islamic finance and full-scale public discussions of these laws among Islamic finance experts, policymakers, legislators and regulators. According to these laws, new legal entities — institutions for participating (Islamic) financings (IPFs) — will be formed, which will have special licenses from the Central Bank of the Russian Federation to carry out all Shariah compliant transactions. The drafts of the laws include a number of terms and provisions of Shariah compliant products and instruments adapted to the current Russian legislation. Islamic financial resources should be separate from conventional funds and the mechanism of special Islamic accounts is one of the points of the draft.
According to the drafts of the laws, within the first two years, the IPFs will work only in four Muslim regions (Tatarstan, Bashkiria, Dagestan and Chechnya). If positive results are seen in these pilot regions, the laws will be expanded to other regions of Russia.
The biggest state bank in Russia, Sberbank, has become a flagship of Islamic finance in Russia. Sberbank has 12 Halal products in its pipeline, including Mudarabah, Musharakah and Ijarah. A special department of Islamic (participating) finance, established about six years ago, has now implemented projects in Islamic financing for a total amount of more than RUB20 billion (US$329.43 million). This department of Sberbank is now ready to sign agreements with customers for an additional RUB20 billion. At the end of the year, Sberbank opened its first Islamic window in Kazan City, the regional capital of Tatarstan.
The volume of transactions with new Islamic stock indices which were invented by the Moscow Exchange in the previous year continued to grow; however, there are still no signs of any Takaful operations development in Russia in the last three years.
The Islamic finance educational programs by leading Russian universities have attracted many students and qualified teachers from different countries and regions. Islamic finance soon will be included in many educational profiles of universities for economists and legal advisors.
Preview of 2023
Several factors will impact the development of Islamic finance in Russia. On one hand, it depends on the general terms and quality of the economic trends in Russia which will hinge on the geopolitical situation as well as the proper monetary and fiscal policy response of the Russian authorities.
On the other hand, Islamic finance has become very attractive in Russia as a real alternative to the western usurious model due to its stable and low-risk activity that attracts conservative private and corporate investors. Adopting the special laws about institutions of Islamic (participating) financing will create a stable legislative base and promote the growing demand for Islamic financial instruments in Russia in 2023.
Traditional and new forums dedicated to Islamic finance will be held in Moscow and Muslim regions 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 in. The number of joint programs of several foreign universities will continue to attract respectable international Islamic organizations such as the IsDB or AAOIFI as constant partners.
One of the growing trends in Russia will be the production of Halal food and beverages especially grain, corn and meat. Russia will enlarge its global share as a Halal food exporter to other countries.
Conclusion
New laws devoted to Islamic finance will provide a strong and transparent legal framework for Islamic financial institutions in Russia, with equal conditions for SMEs and big banking corporations. The Central Bank of the Russian Federation together with the Russian government will continue their efforts in promoting the steady development of Islamic finance in Russia by attracting local and foreign customers, investors and partners.
The laws together with the new policy of the Russian authorities give us hope for the acceleration of Islamic finance growth and for better demand among the Russian community and businesses.
Joint efforts of the Muslim Ummah together with state authorities and business units can overcome obstacles that slow down the development of the Shariah compliant sector.
Islamic financial institutions should use the current situation in Russia and their growing attractiveness to highlight their advantages such as their stability and double-risk control to occupy 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 and replacing western partners and investments in Russian companies and financial institutions.
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].