The Tatarstan Investment Development Agency (TIDA), in conjunction with the Thomson Reuters Agency, has developed a five-year plan for the creation of a Regional Center for Islamic Finance of Russia and the CIS in Kazan. According to estimates developed by Thomson Reuters, the CIS countries during this period may raise about $28 billion in investments from Malaysia and countries of the Cooperation Council for the Arab States of the Gulf (CCASG). To co-ordinate the financial flows, the developers plan to create a regional regulatory bank in Kazan.
According to the press-service of TIDA: “The main objective of the
project is to stimulate the development of Islamic finance in the
Russian Federation, by providing an alternative to traditional banks,
not just for the Muslim population, but also for people of other faiths.
The experience of the UK has already shown this, as 70% of borrowers of
funds from Islamic banks are non-Muslims. Moreover, Islamic financial
instruments are a means of attracting investments from Muslim countries.
This is not a matter of investments into industry, but rather of
attracting financial flows through financial institutions.”
According to the proposed plan, the creation of the center will
require $11 million in investments into educational, counseling,
methodological and other programs. Project ideologists have not yet
named their sources of funding.
It is quite clear why Kazan has been chosen as the hub for Islamic
investments. Tatarstan has accumulated considerable experience in
international projects and contacts with investors from Muslim
countries. Kazan has repeatedly hosted major international events,
devoted to Islamic business and finance. Support and widening of
investments will be one of the key issues at the upcoming 5th International Economic Summit of Russia and the countries of the OIC, which will be held in the capital of Tatarstan in October of this year.
According to the experts, Islamic investors are showing interest in
Russia both due to economic and geopolitical factors. Alberto Brugnoni,
chairman of the Italian non-profit organization ASSAIF, says: “Muslim
investors simply cannot ignore Russia due to its huge size, raw material
resources, the size of its Muslim population and its proximity to
several strategic Muslim countries in Central Asia.”
“According to various estimates, the potential size of the retail
market of Islamic finance in Russia ranges from a modest 10% of the
total number of religious Muslims to the entire Muslim population
(10–15% of the population of Russia as of today, which is forecasted to
reach 30% by 2050).
Muslims returning to their religion, and
experiencing a growing desire to live and work in accordance with Islam,
is sure to give impetus to Islamic financial instruments,” adds Mr.
However, some experts are not convinced that all the ambitious plans
of the Kazan center will be implemented. According to Alexander Akimov,
head of the Department of Economic Research of the Institute of Oriental
Studies at the Russian Academy of Sciences, the idea of establishing a
center for Islamic finance is not new, it emerged five years ago, but
was never been developed. He does not rule out the possibility that
Islamic finances will simply purchase existing assets, instead of
creating new projects.
However, this plan may face some legal challenges. “First of all,
lending in Russian banks is based on the principle of serviceability,
maturity and repayment. Serviceability implies payment of accrued
interest on a loan, which according to Islamic law, is forbidden for
financial institutions and individuals. In addition, one of the
instruments of Islamic banking is the so-called “Murabaha”– a contract
for the sale of goods between a seller and buyer at an agreed price,
which also indicates the amount of the profit or markup. This form of
transaction is prohibited by Russian law. As long as the law does not
change to allow for Islamic banking and financial products, consumers
will have to use investment and leasing tools,” said the press service
of TIDA. Business can become the driving force for stimulating changes
in the law, but so far, it has not displayed the proper degree of