Russia will soon introduce the Islamic banking system in some regions. [Picture: Reuters]
Four Muslim-populated regions in southern Russia will soon launch a pilot of the Islamic banking system. The move is seen as an attempt to draw investment from wealthy Arab nations against crippling Western-led sanctions.
The country’s lower chamber of Parliament, the State Duma, gave the go-ahead for a two-year experiment that would begin in September. The Islamic banking system will be introduced in Bashkortostan, Chechnya, Dagestan, and Tatarstan and will be supervised by the central bank.
Madina Kalimullina, executive secretary at the Russian Association of Experts in Islamic Finance (RAEIF), told the Istanbul-based TRT World the law was a “step forward” for Islamic finance in Russia.
“The topic of Islamic finance in Russia has been on the agenda for about 10 years from the regulative perspective and the law draft which has been adopted recently has been discussed for about one year. This is a step forward for the market with regards to Islamic finance development because the market is really there, but it has been unregulated for all these years,” she said.
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Sanctions
While Kalimullina said there was appetite for the Islamic banking system in Russia for at least the past decade, her co-panelist Torek Farhadi said Russia’s invasion of Ukraine in 2022 – which prompted far-reaching sanctions from the West – may have accelerated its normalisation.
“Islamic banking comes from a need to attract capital from where capital is, which in this case might be in the Gulf. Large investment funds and investors want to invest, but they prefer to invest with vehicles for financing that are appropriate for them because it’s their money,” said Farhadi, a former advisor to the International Monetary Fund (IMF) and World Bank.
Farhadi said a number of wealthy Russians emigrated to Arab countries like the United Arab Emirates (UAE) in the wake of the sanctions. There, they were exposed to the Islamic banking system.
“Islamic banking can be a great tool for attracting financing and investment and creating trust. The most used is sukook, which is an asset-backed bond [whereby] the investors take ownership in the asset and lease it back to the client.”
Among other things, Islamic banking bans the collection and payment of interest by lenders and investors, reports Radio Free Europe. Approximately 10% of the 143 million Russian citizens are Muslims.
