Is it possible to use the Islamic economic model in Tatarstan? Will small business receive money if projects are financed in compliance with Sharia principles? These topics were discussed yesterday in the Chamber of commerce and industry of Tatarstan. Business community of the Republic expressed mistrust: all talk and no result. Experts opposed this opinion: nothing worse can happen
Businessmen in Tatarstan were offered interest-free banking
Is it possible to use the Islamic economic model in Tatarstan? Will small business receive money if projects are financed in compliance with Sharia principles? These topics were discussed yesterday in the Chamber of commerce and industry of Tatarstan. Business community of the Republic expressed mistrust: all talk and no result. Experts opposed this opinion: nothing worse can happen.
Public hearings on development of alternative forms of small business financing with the help of Islamic economic model were organized by the Chamber of commerce and industry of Tatarstan with assistance of the Small and Medium-sized Business Association of Tatarstan.
To the East in search of money
The congress-hall was packed with businessmen who wished to hear, where and under what conditions it is possible to raise money for the project development. Banks have resources, they said, but those banks do not want to risk when dealing with businessmen. “Credit financing through the conventional economic model in Russia reached an impasse”, Artem Naumov, executive director of all-Russian non-governmental organization “OPORA ROSSII”, thinks. “We should reduce the refinancing rate, for instance, but it is really troublesome. Banks offer high-interest loans, do not encourage long-term lending, and decrease value of collateral". No wonder that businessmen, who suffer from “credit hunger”, rush about in search of new sources of financing directing their eyes towards the East.
As it turned out, the differences between a conventional economic model and an Islamic one are not as great, as it seems at first sight. According to Renat Edikhanov, representative of "Ansar. Finance technologies" company, such financial instrument as murabaha is a kind of purchase and sale contract. Musharaka is a form of joint partnership, similar to a joint-stock company limited liability company. Ijara is similar to conventional leasing. Mudaraba is a beneficial ownership, in fact. In brief, to start Sharia-compliant business in Russia, it is enough to make some alterations in the inner document of the company. It is obvious that Russian law will be supplemented in a certain time period, but fundamental alterations can be prevented, as it was made in the UK, where law alterations were minimal.
Other speakers were Maxim Akhmadiyev, representative of "Ansar. Finance technologies" company (his topic was "Obligation fulfillment. Application in the Islamic economic model”), and Aidar Karimov – senior manager of the business engineering office of the IFC “Linova” (“Prospects of investment project financing in the agricultural sector").
No interest rate is like no fax machine
However, the majority of businessmen in the Chamber of commerce and industry in Tatarstan were attracted by another characteristic feature of the Islamic model – no interest rate. A businessman starts sharing profit between shareholders, when he has it. It means, he stays away from this debt trap, and doesn’t have to pay strictly defined credit interest to a bank.
Such scheme will be a basis for Finance and investment group “Amanat”. As a matter of fact, this meeting looked like an “Amanat” commercial. “We registered “Amanat” as a credit consumers’ society. It complies with Russian legislation and Islamic finance principles. There is a contradiction at first sight, but I always give the following example: a group of people registered a company in compliance with Russian legislation, but according to some inner document they are not going to use a fax machine. The same thing with “Amanat” – we work in Russian legal environment, but abandon interest rate”, Vladimir Karpeyev, director of “Amanat” group explained.
According to him, there exist potential borrowers and shareholders (which is more important). Two of them even attended the public hearings. “We shall never allow that shareholders make up “Amanat” expenditure. That is why the project selection will be very careful”, warned an 83-year-old shareholder Kamil Zaripov.
"Rich Muslims seem not to crave for coming in Russia"
After all reports and speeches, remaining businessmen started discussing the topic. The very first questions of Tatarstan business community turned out to be quite straightforward. Zakiya Shafikova, owner and CEO of “Elemte” Investment Company, put successful future of Islamic model in Tatarstan to doubt and characterized the attraction of such investments as “too unreal”. “I have been participating in such discussions for more than three years already. We expect people to invest, but as I see it (I should say, I have been working with investments for 12 years), our citizens do not have great savings. Do you think elderly people will trust their money for the projects? We want rich foreign Muslims to come and give money, when we develop proper Islamic models. But rich Muslims do not crave to invest in Russia, as our country is a risky one. There is no Islamic bank so far, that opened an office in Russia. Would you tell me, if any foreign long-term money has been attracted? Or you speak about short term money? I have no doubt that Vladimir Yuryevich [Karpeyev] finds it [short term money], as he is not a novice in this type of business”, said Zakiya Shafikova.
Haidar Haliullin gave an example. "Minnikhanov and the Islamic Development Bank signed an agreement setting up the International Investment Company ".
"Well, what’s next? They will invest budget money in…", - Shafikova parried.
Rustem Gataullin, chairman of a Committee of trade and economic cooperation with Asia and Middle-East countries, tried to answer the question. "Our goal was to demonstrate that there are other methods of doing business. From my point of view, it is an innovational approach. You just have to edit THE inner document, and the whole approach to doing business changes considerably. As of the projects, I know that the IFC “Linova” has an agriculture one. The majority of banks in Tatarstan are already trying to finance single projects. Russia has money. Russian population and banks have money. The question is in what way we should develop small-scale business ".
"We don’t want to be accused in taking refuge in Islam"
Vladimir Karpeyev, director of the “Amanat” group, gave details about his company:
- We are almost ready to work. The problem is that we want to be treated as a Sharia-compliant company starting from our first steps, so that nobody says that we are taking refuge in Islam. That is the reason why we organized an institution, which is a norm for every Islamic finance organization, I mean, Sharia council of experts.
- Who are its members?
- Inner Sharia council of experts includes Kamil Zaripov, Nur ahmat Murudi, chairman of the League of Arab students. Those people are experts both in the Koran and in economics. But the problem is that there is no external Sharia council of experts in our Republic. There are many people who know Islam and are ready to work as a part of the council. But they do not want to be at its head, saying they are not ready for that. It is a huge responsibility indeed. It is quite possible that Bulat hazrat [Bulat Mulyukov] will be a head of the Sharia council of experts. He is a specialist in Islamic finance. But I would like to repeat: we won’t start until this scheme works fine. We do not want to be wrongfully accused.
- What is the mission of the council of experts?
- To determine whether finance relations, deals, and contracts comply Sharia law. It does not “sneak” in the financial details.
I am not Muslim, and when I have questions, sometimes I get various answers. It turned out that different people interpret the Koran differently. There are no uniform standards nowadays. It can be clarified during panel discussions, when everybody shares their opinion on how to do something. We can even spell the name of our Group “Amanat” in different ways. If there are several variants for one word, what about more complicated issues?
- How many shareholders are there in the group?
- About 25 members, but it is not our main goal to increase the number. There are a lot of interested people. Kamil abiy [Kamil Zaripov] says, when we start working, he and his acquaintances from the mosque share all their money with us. Here is the potential! The person has saved up for his old age, he must have at least one hundred thousand [rubles]. If every senior citizen deposits one hundred thousand – it makes up millions!”
- During the hearings it was said that you won’t be able to gather big sums of money and won’t help small-scale businesses.
- Nonsense. Small business requires thirty, fifty, or let’s say two hundred thousand rubles. I am completely sure that we will be able to find such sums. To find billions is not our goal.
- Under what conditions do you secure a loan?
- No interests, first of all. One person invests his labor and energy, while another one invests money. The parties share profit on those conditions they agree on. Sometimes it is 10 percent and 90 percent, and sometimes – 50 and 50. While the parties are shareholders, loss is also shared by convention.
- What requirements should projects meet to be financed?
- Firstly, a project should meet all Sharia regulations, e.g. it should not be based on dealing with alcohol. Secondly, a project should be profitable. Money should be returned, as it is shareholders’ money.
- But there is a risk that it is lost. It is business after all.
- Islam says “All our treasures are given by God”. It is his property, and a person can only use money. It is good when you have one hundred thousand rubles, but this sum doesn’t belong to you. You invest it in some project, but the business turns bankrupt, and you get only fifty thousand back. The person, who lost money, proved that it was act of the superior force. Thanks God, that you did not loose the whole sum. It is much easier to work with such principles.
Look, “Amanat” is a social project. On the one hand, we help elderly people to make a right investment. A person worked for his or her whole life, and he or she does not want to draw interests because of his or her religious beliefs. But inflation can devalue money if it is kept at home. We take the responsibility and guarantee that when you invest, you get profit. On the other hand, it is almost impossible for young people to borrow from a bank nowadays. We support two generations.
- Is it necessary to be Muslim to take money from you?
- No, absolutely no. A businessman signs a contract saying that he or she undertakes for performing all economic duties. The contract does not mention religious adherence. We are a temporal organization, and it is our own free will to work according to Sharia principles, which proved its efficiency in real life, especially during the world economic crisis.
- But not in Russia…
- Nevertheless, we should try! What was the reason for the crisis? Interests for interests, futures contracts… nothing real in fact. It is not possible in Islam, that’s why Islamic banks did not suffer from crisis. We don’t want to confront the conventional economic model; we offer an alternative way of small business financing.
Islamic-Finance.ru based on materials of Vladimir Kazantsev. Business-Online