Linar Yakupov: “Islamic finance is a medicine for economy".
In recent months IFC “Linova” declared about two projects in the sphere of Islamic finance at once – the initiation of Tatarstan International Investment Company (TIIC) based on Shari’a principles and Halal Industrial Park (HIP). As it turned out for “Where is money”, but this is not all directions for company’s activity, except that the projects are underway yet. The details about the company’s activity were reported by Linar Yakupov, CEO of IFC “Linova”, to Elena Ivanova, the journalist of business weekly “Where is money”.
-Mr. Yakupov, spoke about the investment company, its establishment and future activities.
- To begin with I would like to say that relationship between the Republic of Tatarstan and Islamic Development Bank (IDB) has started more than two years ago after the meeting of
M. Shaimiev, the president of Tatarstan Republic, and Dr. Ahmad Muhammad Ali, CEO of IDB. In its turn IFC “Linova” has started the cooperation with IDB in 2006 and prepared draft memorandum of mutual understanding between the Republic of Tatarstan and IDB, which was signed by both sides in 2007. After Cabinet-level negotiations the cooperative activity has started to obtain practical relevance. Initially, the main procedures and regulations were spelled out, experts of IFC Linova analysed how to take account of Shari'ah principles in finance and economic activity, how to act up to these principles. Then during two years several projects of islamic finance's promotion in Russia were developed. Then in 2008 IFC Linova and Islamic Corporation for the Development of the Private Sector signed a pact of FS development (feasibility study) of the Islamic investment company's initiation in Tatarstan Republic. Current mode of investment operations in Russia didn't allow to attract funds of muslim investors. The development and the initiative of Islamic investment company's establishing allowed to provide guidelines for successful development. Half a year before at the first International Summit of Islamic Business and Finance in Kazan the protocol about the initiation of joint Islamic investment company was signed by Mr. Roustam Minnikhanov, the prime-minister of the Republic of Tatarstan and by Mr. Khaled M. Al-Abudi, Managing Director and CEO of the Islamic Corporation for the Development of the Private Sector. It derived the name of Tatarstan International Investment Company (TIIC). Currently required quantity of investors from IDB member countries have confirmed their participation in this campaign. That's very good, considering the fact that nowadays the market holds hand. Stock flotation of TIIC with the beating the target proves that the investors are interested in our region, so our objective is to observe all technical parameters and mutual interest. We are certain that the project's development will influence on investment attractiveness not only in Tatarstan, but also in Russia.
-On which principles will be based the activity of TIIC?
-TIIC will stick with the principles of investment banking. It means that it will initiate new projects through the establishing of new companies and investors' engaging, both russian and foreign. The nominal capital is $3 million. This is a small sum of money, but it's enough for the first time. It will increase as necessary.
-Which projects are seen in TIIC? Are there approved projects?
-Within the framework of FS we prepared the list of primary projects for investment. There are infrastructure project, for instance, the participation in buiding of toll road in Tatarstan Republic, agricultural projects, developing projects of Islamic finance mechanisms, such as the leasing company, the investment fund etc. The projects have seen yet, the primary investments are sized up and the extent of risk is determined.
-According to which criterion you selected these projects?
-Firstly, according to Shari'ah principles - TIIC doesn't participate in business connecting with gaming, alcohol and pork production etc. Yet another important moment, to which I would like to draw attention is the fact that TIIC will maximally distance itself from the oil patch. Generally, the investment company will be the additional lokomotive for the diversification of our economy - not only in Tatarstan but in other regions of Russia. 60% of investment will be for our Republic, the remaining is planned to be invested in projects of other regions of Russia.
-Who did initiate the project of Halal Industrial Park?
-Lately the idea of halal parks' initiation extensively evolves in muslim countries. Malaysian experience motivated IFC Linova to create the structure, which could set the pattern for interested businessmen involved in halal industry. The halal industrial parks are expected to be highly sought in the countryside and also in areas of Muslims' compact settlement satisfying the requirements of food complying with halal standard.
-What does the Halal industrial park represent?
- Halal industrial parl is formed in Baltasinski district of Tatarstan. According to the intention, HIP will build up the background, where the practical interests of agricultural producers (such as the farming, the backyard. the private entrepreneurs etc) meet the interests of the market which waits quality and unexpensive products. HIP will help to the small and the medium business in the achievement of desired goals due to the well-established infrastructure and Hosted Service. We have to reckon with the major problems at the processing and the realization of products. In the Halal Industrial Park the facilities for successful completion of the cycle are provided in order to solve this problem - from the farmer to the consumer. HIP will unite the whole circulation of production flow: from the small and medium-sized businesses' employers, engaging in manufacturing, to the consumer. Linova-Trade, the special company promoting the production of HIP, has been setted up yet. It will start the activity from the next year.
-Which are the terms of being in HIP except for the production of halal products?
-Shari'ah standards of ethics (for example, giving up of alcohol drinking, blackguardism) will be introduced in park. The residents ought to remember that their products will be certified. Certainly, the activity of resident must have the economic feasibility. Naturally, we cannot run the risk. We will extensively monitor each project for business plan's suitability and will help for its promotion. We have the whole strategy concerning the development of halal industry.
-What does it involve?
-Within the framework of Kazan summit in 2010 the holding of the international halal exposition has been planned yet. We negotiate with the Ministry of Industry and Trade of Tatarstan Republic on issues relating to this question. We also suggest to hold Halal Industrial Forum, where the producers, the certification authorities and regulatory organization can communicate and share of experience. There is the initiative to unify the halal standards across Russian Federation. Unfortunately, halal committees can't remain at odds, so, as a consequence, till here there are no exact standards of halal certification. For this purpose there is possible the initiation of the Association of Halal Committees, certifying the halal production according to the common standard. This is the next step yet.
-Do you consider that the terms for the development of islamic business have matured in Russia yet?
-Resting on the international experience, I can make a point that today a great deal of islamic finance products' consumers are not muslims - they are followers of other religions. Simply put, the islamic finance is the product for all people. It's the sample for the business dealing, but merely different one, than western one. It can be used by all desiring people. Moreover, following the results of investigation about 60% of muslims don't use traditional bank services overall because of the religious principles. These are people, who appear to be outside the orbit of economical development of the country. And if Islamic finance institutes are started up, the opportunities to set up business will be offered for them. Therefore, we will be able to use the latent financial and manpower reserves of the country.
It also shows that traditional banks should't be afraid of churn to the Islamic banks because Islamic bank is meant to those who in general avoid the interplay with the traditional western financial model. At this point it is possible to speak about the segmentation of the market - the Islamic bank has its own niche. Actually by reference to international practice, in Malaysia, where the Islamic banking is headmost, it occupies only 15% from the whole market, other ones are traditional devices.
Moreover, exactly the slant to the speculative instruments in the traditional finance sphere led to the grave crisis. On that score Islamic finance and banking, or ethical banks, how they started to be called nowadays, don't allow to produce speculation and are turned out to be a sort of
anti-crisis instrument. We don't say that Islamic finances are the panacea, but they could be the revitalizing factor for the whole economy. If this objective implements, we will be very pleased