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Islamic banking makes its way to Russia

January 29, 2016, 19:06 UTC+3 Alexandrova Lyudmila
© Dmitry Rogulin/TASS

MOSCOW, January 29. /TASS/. The Islamic banking system continues making its way to Russia, although not as quickly as its supporters would like, primarily Russian Muslims who number 21 million people, according to various estimates.

The main problems relate to the need to change the Russian legislation. But the first steps in this direction are already being made.

A draft of amendments to the Civil Code was submitted to the State Duma this week to help separate Islamic money flows from non-Islamic funds.

The document prepared by Deputy Chairman of the State Duma Committee for the Financial Market Dmitry Savelyev stipulates opening special bank accounts to allow investing funds on these accounts into assets permitted by the Code of Muslim Laws - the Shariat. Today financial flows at banks are inevitably mixed, which creates complexities for opening "an Islamic window."

Islamic banking stipulates that funds are invested only in the assets permitted by the Sharia law. This implies a ban on loan interest because interest is both regarded as usury and banned by the Quran. A speculation is strictly vetoed. The use of problems or someone’s difficulties in one’s financial interests is prohibited. In particular, earnings that can be made on the financial market as a result of certain difficulties experienced by the state are considered as unacceptable. There is also a complete veto on gambling games, including lotteries, and it is prohibited to carry out futures transactions. Also, Muslims are not allowed to carry out operations that are at least somehow related to sin, for example, investing in the production of alcohol, tobacco, pig-raising or gambling business.

The bill adapts the mechanism of escrow accounts to the requirements of Islamic business.

Meanwhile, Chechen Republic Head Ramzan Kadyrov has said he has agreed with the management of Mazkorp from the United Arab Emirates on establishing an Islamic bank in Grozny.

Professor of the Russian President’s Academy of the National Economy and Public Administration (RANEPA) Yuri Yudenkov has drawn attention to the fact that Ak Bars bank in Kazan is already de facto operating partially under this scheme.

"This can only be welcomed because this means attracting resources much cheaper than the resources of Russian banks," he told TASS. "Steps in this direction should have been taken long ago."

The problem of Islamic banking has been discussed in Russia since the early 2000s but this issue has become especially topical after western sanctions were imposed against Russia. The world market of Islamic finances is estimated at $2 trillion, according to experts.

Islamic banking was discussed at the recent Gaidar economic forum in Moscow. As Adviser to the Prime Minister of Tatarstan and President of the Islamic Business and Finance Development Fund Linar Yakupov has said, the notion of Islamic finances causes a multitude of religious and political associations for ordinary persons in Russia.

Meanwhile, this is no more than a set of financial instruments, which actually has little relation to religion proper: the heads of Islamic banks and other financial institutions are frequently not Muslims themselves, like, incidentally, most of customers of these institutions.

So far, the creation of separate windows in large multi-profile banks where Islamic financial services will be provided is the most acceptable way of development for Russia instead of establishing independent Islamic banks. This will help, among other things, reduce the acuteness of possible competition between ordinary and Islamic financial institutions.

According to the expert, the fund he heads provided already five years ago a concept of a road map for developing Islamic finances in Russia. Since then, investment and leasing companies and financial houses have been established. But these are just few institutions that have not reached out to a large group of customers.

The main hurdle on the way of developing Islamic banking is that its development requires work to correct the Russian legislation considerably, RANEPA Professor Konstantin Korishchenko told TASS.

"The principle of Islamic banking contradicts the Civil Code of Russia. This is because funds under the Civil Code should be provided on the basis of repayment, matuirty and interest payment. Islamic banking, however, implies a different model of legal relations and some priority of religious morality, which exists in Islam. It is not quite understandable how an ordinary law can solve this contradiction," he said.

There are no single standards of Islamic banking even in the Islamic world, the electronic paper Vzglyad quoted Deputy Director of the Financial Policy Department at Russia’s Finance Ministry Sergei Platonov as saying.

According to him, each country in this sector passes through its own trajectory. So it will be impossible for Russia as well to "copy" the legislative base from somewhere and it will have to go along its own unique way.

TASS may not share the opinions of its contributors