The global coronavirus pandemic which covered Russia at the beginning of 2020 caused quarantines and the lockdown of citizens which have blocked business activity of different industries, including Islamic financial institutions. The severe business and social environment decreased the income level of the population and the corporate sector. Retail business was active only in terms of food and beverage supply. Thousands of small enterprises could not restore their activity for even three months after the cancelation of the lockdowns.
However, existing Islamic financial institutions are battling the external obstacles and have introduced remote channels of communication with customers. Now clients are able to make a lot of transactions online (open and close accounts, sign documents via an electronic signature, transfer money, attract money from investors, obtain a Halal debit card, etc).
All Islamic finance educational programs in leading Russian universities have strong demand from potential students and all are now in the online format. The online format allows the intake of students from any location with internet connection and decreases the fares for education.
Review of 2020
The speed of growth of Halal projects in the real and financial sectors of Russia in 2019 decreased or even stopped in 2020 because of the coronavirus pandemic. But economic depression has led to an adequate response from volunteers in Russian Muslim regions who initiated charity programs. Owners of small shops in Chechnya and Dagestan canceled all the debts of the poor people who suffered during lockdowns. This initiative became huge and very quickly spread all over Russia. Other people voluntarily bought food and beverages in shops to give for free to senior citizens and the disabled, multi-children families and other vulnerable groups of Russian Muslims, popularizing the Islamic idea of charity.
The Russian regulator in 2020 concentrated its main activity on the legal and methodological aspects of Islamic finance, organizing only online consultations with experts.
Islamic finance is active in the following regions in Russia: Tatarstan, Baskorkostan, Dagestan, Chechnya and the Nizhniy Volga region. Although all the major events of Islamic finance and the Halal industry were canceled, demand for such events is expected to continue next year.
Despite declining business activity in Russia, large state-owned Russian financial institutions continued to realize their plans for developing Islamic financial transactions. After state banking corporation Vnesheconombank opened its branch in Abu Dhabi in the UAE in 2018, the biggest state bank, Sberbank, launched its branch in the UAE in October 2020 for Shariah compliant transactions in Middle Eastern countries.
Islamic finance has been included as an educational course in all programs of Islamic universities in Russia. The Central Bank of the Russian Federation supported the proposal of the Participating Banking Working Group to the Ministry of Education of Russia to include Islamic finance as an educational course in the Bachelor of Economic compulsory program in every Russian civil university. So, despite severe obstacles, Halal activity in the financial sector in Russia found possibilities to develop in 2020.
Preview of 2021
The speed at which Islamic finance develops in Russia in 2021 will depend on different factors. On one hand, it is difficult to forecast how quick Russia’s national economy will recover after the severe impact from the coronavirus pandemic. Generally, it will depend on state support at the federal and regional levels and the efforts of business organizations and the population itself.
On the other hand, Islamic finance as a model is more attractive during crises, when its stable and low-risk activity attracts conservative private and corporate investors. Growing demand for Islamic financial instruments in Russia began in the middle of 2020 and will continue to increase in 2021.
I hope that quarantines will ease in 2021 which will allow major international events in the Halal industry to be held normally.
In 2021, I expect there to be an increasing number of Islamic finance educational programs in Moscow and other regions. The programs will become more advanced, and will have more variants and options for students of different levels. We hope that Russian universities will find experienced partners among leading universities in Malaysia, Egypt, Bahrain and other Islamic countries to organize joint educational programs in different forms.
In 2020, despite the economic crisis caused by the global coronavirus pandemic, Islamic financial institutions have transferred their business to the online format, which attracted more customers from all over Russia and other countries. Universities are also providing online educational programs for students and inviting global experts in Islamic finance, popularizing the Islamic finance model among the population and business leaders.
Although there is growing interest in the Halal business and Islamic financial products in the banking, insurance and stock market sectors among the population and business institutions, only the supply of Halal food and beverage was successful. The reasons are the same like for previous years: absence of Islamic finance legislation, absence of a friendly fiscal policy, lack of stable Islamic finance investors, no attractive conditions for foreign investors, no governmental programs for the promotion of the Halal sector in Russia and such.
In general, 2020 was worse than 2019 in terms of Islamic finance industry development. But there are signs of recovery. In 2021, Islamic financial institutions will be more in demand because they have an advantage during the crises in terms of their stability and risk control to attract retail and corporate customers. The Islamic finance sector should use this unique possibility for breakthroughs and to take more business in the national financial market.
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]