Moscow: There is no doubt of the potential for Islamic finance in Russia and the CIS countries, but the major stumbling block is the absence of enabling legislation and a regulatory framework to facilitate Islamic financial products such as Murabaha, Ijara and sukuk.
Moscow: There is no doubt of the
potential for Islamic finance in Russia and the CIS countries, but the major
stumbling block is the absence of enabling legislation and a regulatory framework
to facilitate Islamic financial products such as Murabaha, Ijara and sukuk
the Central Bank of Russia
largely remains disinterested in taking the initiative in facilitating Islamic
finance in the country, behind the scenes there are some encouraging
developments which could speed up the introduction of Shariah-compliant
the federal system in Russia,
there are ways of bypassing the Central Bank of Russia’s inertia. For instance, the
government of the Russian autonomous republic of Tatarstan, which is Muslim
dominated, has got presidential blessing to open up to the sector.
fact, the Islamic Development Bank recently confirmed a $1 million equity stake
in the Islamic Investment Company of Tatarstan (IICT), a joint venture
established with two government entities. IICT will effectively be overseen by
the Islamic Corporation for the Development of the Private Sector (ICD), a
member of the IDB Group, and according to Khaled Al-Aboodi, CEO of ICD, IICT
will identify projects and transactions for which the ICD will try to find
investors from its member countries. These would be targeted toward
small-and-medium-term enterprises (SMEs). In fact, Tatarstan is hosting a major
Islamic finance investment symposium in Kazan
in two weeks time.
in Russia such as Dagestan, Chechnya,
Ingushetya and others could equally follow the same route, subject to
instilling greater awareness and market education regarding Islamic finance.
Another potentially important development is the establishing of a task force
on alternative (Islamic) financial institutions and products by the influential
Association of Regional Banks of Russia.
"Our mandate is to come up with a draft legal
and regulatory framework for alternative Islamic financial institutions and
products which we could then present to the various political and financial
powers that be for further consideration and recommendations. We have
approached three of the big four advisory firms to help in this respect and we
will choose which route to go once we have their initial input. This process
could take the next few weeks, I believe,” explained Alexei G. Kovalenko, head
of the task force.
Kovalenko, a former banker and insurance
executive, has some experience in Islamic finance, having established the first
Takaful company in New
Zealand a few years ago.
Russian banks such as VTB (Vneshtorgbank) and Gazprombank also confirm that
they are working on Islamic financial products albeit originated outside Russia. Stanislav
Yankovets, managing director, strategic development , Middle East and North
Africa, confirmed to Arab News that VTB Capital, a wholly-owned subsidiary of
VTB, has resumed work on issuing a sukuk through its Dubai entity VTB Capital Dubai.
were working on a possible sukuk issuance in 2008, but then the financial
crisis happen and everything was put on hold. But now we have resumed work on
the possible issuance of a sukuk. We have signed an agreement with Kuwait
Finance House, which will help seed the issuance and help with the
distribution,” explained Yankovets.
Gazprombank, according to Michel Cordahi, head of Capital Markets, is similarly
looking at structuring Islamic capital market products and raising funds
through a sukuk issuance through its Lebanese subsidiary Gazprombank Invest
the same time Azerbaijan’s largest bank, the International Bank of Azerbaijan
(IBA), stressed Azer Safarov, adviser to the chairman of the board of IBA, is
in the process of setting up an Islamic Banking Window and plans to offer
Islamic financial products especially Murabaha trade finance and Ijara leasing
and consumer finance through its Moscow branches to customers in Russia and the
region. Indeed, the IAB is also a major driver behind the establishment of the
Islamic Banking and Finance Council (IBFC) of the CIS, the first regional
professional body to serve the sector. Safarov, confirmed to Arab News that the
articles of formation of IBFC was submitted a few days ago to the Russian
Ministry of Commerce for registration and approval, a process which normally
takes a few weeks.
evidence of greater interaction of Russian entities with overseas counterparts
is the two memoranda of understanding (MoUs) signed in Moscow during the Forum by Al-Shams Capital,
an asset management company authorized by the Securities Commission of Russia
but which operates exclusively under Shariah investment principles.
first MoU was signed with Theissen Law and Lux Global Trust Services — both
from Luxembourg- whereby the three parties would cooperate toward the
establishment of a CIS incubator private equity fund which would be domiciled
in Luxembourg and which would primarily be aimed at investing in SME
halal-related business activities including medium-sized financial institutions
(Islamic banks, leasing companies, Takaful companies), companies involved in
halal food production and distribution etc.
agreement was signed by Adalet Djabiev, CEO of Al-Shams Capital, and Marc
Theissen, senior partner, Theissen Law in the presence of Gaston Stronck, the
ambassador from Luxembourg
second MoU was with Oasis Holdings (PTY) Ltd. of South
Africa, whereby the two parties agree to work toward
forging a strategic alliance in identifying potential business opportunities
and providing Islamic asset management services in Russia and the CIS countries, and
toward potentially establishing a private equity fund management service with
Al-Shams Capital. Adalet Djabiev signed on behalf of Al-Shams and Nazeem Ebrahim,
vice chairman of Oasis signed on behalf of the South African Group, which has a
stable of 63 Islamic funds, the third largest universe of Shariah-compliant
funds in the world after Malaysia’s
155 and Saudi Arabia’s
general consensus was that the potential for Islamic finance is huge in Russia and the
CIS countries but the lack of enabling legislation and the regulatory framework
to facilitate such products would hamper its rapid introduction in the Russian
market. In the aftermath of the financial crisis, emerging countries such as Russia are
looking toward alternatives to market capitalism, and Islamic finance with its
emphasis on financing the real economy as opposed to speculative activities
such as derivatives ought to be well-placed.
Pakhomov, chairman of the State Debt Committee of the City Government of
Moscow, stressed that the City raises in excess of $5 billion of financing from
the international markets. More recently, the City Government has explored the
issuance of sukuk as part of its source of funding diversification strategy.
While the interest in issuing the sukuk is there, the current Russian legal
structure is simply not in place to facilitate such an issuance. For instance, Russia has no
trust or SPV laws, let alone tax neutrality measures in place. He was also
concerned by the implications and fallout of the AAOIFI statement on sukuk ,
but is confident that Islamic capital markets products has huge potential in Moscow, Russia
and the CIS region.
Murabaha is a contract for
purchase and resale, when a bank purchases the goods for the customer and resells them on a deferred
basis, adding an agreed profit margin.
Ijara is a form of a lease contract, when the finance provider buys the
property at a fixed price then leases it to the customer, in return for rental
payments over a fixed period.
Sukuk are certificates of equal value, Sharia compliant bonds. The sukuk holders are entitled a
profit generated by the underlying assets as well as to proceeds of the
realization of the assets