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MOSCOW, March 20. /TASS/. Islamic banking may become a Russian reality soon. Experts welcome the plans for introducing this institution on domestic soil. Russia’s Muslim community numbers tens of millions. Such a move will open the country to Muslim banks, which may acquire particular importance amid Western financial sanctions.
The State Duma is considering amendments to Russia’s legislation that would help translate Islamic banking practices into reality. First and foremost, the law On Banks and Banking Activities may be cleared of the ban on banks’ trading activity, which is the main obstruction in the way of transplanting the Islamic financial system to Russia. Islam prohibits banks from charging interest on the money they lend. Most Islamic banking instruments are confined to selling goods on credit at higher prices. Besides, none of the goods on the list concerned should contradict Shariah law. It is not allowed to make investment and to obtain proceeds from certain prohibited types of activity, such as the production and marketing of pork, alcohol and firearms, as well as from prostitution, pornography and gambling.
The issue of Islamic banking has been discussed in Russia since the beginning of the last decade. The services of Islamic banks may prove in great demand in the Muslim republics. The Western sanctions have accelerated that process, because Russian companies have begun the search for new sources of financing.
The Bank of Russia has welcomed the possibility of this concept, dramatically new to Russia. The emergence of Islamic banking will make the country’s banking system more credible, says CBR Deputy Governor Alexander Torshin. "Members of the Islamic financial system see us as a reliable partner," he said. "Why shouldn’t we have Islamic banking services, provided the banks comply with Russian legislation?"
Also, Torshin responded to the fear the emergence of Islamic banks in Russia may contribute to the financing of terrorism. "I cannot speak on behalf of the law enforcement. As for me, I can recall no instances of banks financing terrorism," Torshin said.
In the meantime, Arab banks have already displayed the readiness to operate on the Russian market, even though they will have to do so through Russian counteragents. As the daily Kommersant has said with reference to the executive director for the supervision of banking institutions at the Central Bank of Bahrain, Abdul Rahman Mohammed Al-Baker, at least two Islamic banks: Al-Baraka and Al-Shamal have been actively searching for partners on the Russian market to take a share in their capital. He said the banks had long developed interest in the Russian market, but they have been unable to enter it on their own so far, because Russia still lacks the regulatory basis allowing Islamic banks to operate in compliance with their rules.
All experts TASS has polled are unanimously in favor of Islamic banking in Russia.
Deputy chief of the public finance chair at the Higher School of Economics, Dmitry Kamnev, is certain that Russia does need Islamic banking. "The greater the competition on the banking market, the more money pours in, the better. It is essential to ensure their activity should be in line with Russian legislation. As for the financing of terrorism, the law enforcers should focus themselves on exposing and upsetting shadow schemes."
Research fellow at the Structural Research Center of the presidential academy RANEPA, Mikhail Khromov, sees nothing bad about the Islamic banking system. "Given the fact that Russia has a rather large Muslim diaspora, these services should certainly be in great demand from the local clientele. At this point it is difficult to judge how large the potential demand can be."
RANEPA lecturer Yuri Yudenkov has pointed to the fact that one bank in Tatarstan’s capital Kazan, Ak-Bars, has worked under this pattern for sometime already.
"One can only welcome this. There will be far more opportunities to make borrowings on laxer terms than those other Russian banks have been able to offer so far. Steps along these lines should have been taken a long while ago."
The analyst foresees a number of technical problems the introduction of Islamic banking might entail, though.
"The Central Bank will have to somehow distinguish purely Islamic moneys from all others to ensure they do not get mixed up in one cash flow, and also to regulate the activity of banks using these resources," Yudenkov said.
Assistant lecturer at the RANEPA academy’s public economic management chair, Maksim Safonov, believes that as a tool to expand the range of banking services Islamic banking is highly welcome. The expert sees a big problem in the poor financial competence of the population.
"The people are accustomed to performing only standard banking operations and are very conservative in reacting to innovations. The average customer will have to be instructed in how to use the opportunities the new system opens up in front of them, and this will take time," he warned.
TASS may not share the opinions of its contributors