World Economy

Islamic Finance Growing in Russia

Islamic Finance Growing in RussiaIslamic Finance Growing in Russia

Islamic finance is drawing more interest in Russia as the country struggles economically and requires fundamentally new approaches to attract investments from abroad.

The sector is just beginning to grow in Russia and its perspectives were discussed during the recent Gaidar’s Forum in Moscow, one of the major annual international conferences on economy in Russia, TradeArabia reported.

Implementation of Islamic finance in Russia started through the so-called pilot projects in the predominantly Muslim republic of Tatarstan. It has both infrastructure and client base. It also has lots to offer to the potential partners from the Persian Gulf Arab countries.

Russia has a native Muslim population of roughly 20 million. As an example, the UK might be a role model for Russia in Islamic finance as it has issued Islamic bonds.

Islamic banking could account for up to 5% of the entire financial market in Russia and it could follow the path of neighboring Kazakhstan that is expecting Islamic finance to constitute 10% of its financial market by 2020.

Russia initially planned to introduce Islamic banking during the crisis in 2008, as it started looking for additional resources. However, because of unfamiliarity with Islamic banking rules, the Russian bank VTB did not succeed in issuing a planned sukuk in 2009. The current crisis dictates new realities for Russia that excludes possibilities of a swift recovery similar to the post-2008 period and the Russian approach is more structural this time.

Tatarstan has nurtured close relations with the Persian Gulf Arab region for years. Delegations from many Persian Gulf Arab countries regularly participate in the international forum of Islamic business and finances ‘Kazan Summit’ in the capital of Tatarstan, Kazan. Several countries have already bankrolled $760 million into ‘Kazan Smart City’, Tatarstan’s ambitious business hub, as a part of Tatarstan Investment Company.

In fact, the first Islamic bank in Russia is Ak Bars Bank from Tatarstan. It has already attracted a number of investments from the Persian Gulf, including $60 million in 2011 and $100 million in 2013.  The republic took its first steps into the world of Islamic finance by issuing a sukuk in 2015 for financing a major business center in the capital of Kazan.

The pioneering status was highlighted by an agreement in April 2015 between a Malaysian-Russia consortium and the Tatarstan government during the Kazan Sukuk Conference. The agreement serves as a roadmap for opening of an Islamic bank or Islamic banking windows in the republic.