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Interview between Linar Yakupov, Chairman at Committee of the Republic of Tatarstan for the development of Small and Medium Enterprises, Chairman of KAZANSUMMIT Organizing Committee the and Nicolas Maletitch, CIS Agency France-Presse. The correspondent of islamic-finance.ru., Internet portal also took part in the interview.

Interview between Linar Yakupov, Chairman at Committee of the Republic of Tatarstan for the development of Small and Medium Enterprises, Chairman of KAZANSUMMIT Organizing Committee the and Nicolas Maletitch, CIS Agency France-Presse. The correspondent of islamic-finance.ru., Internet portal also took part in the interview (05/13/2011).

Good afternoon. What is a sovereign Sukuk, and why is it needed?

Yakupov: Sovereign Islamic bonds - Sukuk, mean that their issue is initiated by the state or public entities. This project can be called benchmarking (Benchmarking). In December 2010, in the Malaysian capital Kuala Lumpur, the Government of the Republic of Tatarstan and a consortium of foreign companies signed an agreement to prepare the first pilot issue of Islamic bonds for the Republic of Tatarstan, under the current legislation of the Russian Federation.

Facilities, under which may be issued sukuk, should have certain assets actually equivalent to the value of the sukuk, but in this project, we consider only the land and property system. It can be any building structure, generating cash flow. Buying a certain percentage of sukuk the holder in accordance with its share is entitled to his own property in part of the object.
And naturally, we would like sukuk to help to diversify the economy.

Under which specific items you plan the sukuk issue?

Yakupov: We conceived a very ambitious project to build a modern trade fair grounds or the World Trade Center, in accordance with all international standards. This does not mean that there will be just a regular trade and entertainment center, it does not. It will be a combination of exhibition space, business centers and leisure centers.
Today, there is an urgent need for a large trade fair. Kazan disposes the only one exhibition complex - Kazan Fair, with a total area of ​​7000 m2. This is not enough, because of modern infrastructure gap.

If our Republic is ready to host large international events, exhibitions, the republic must be competitive in this direction it should be recognizable around the world business community, and we need to meet international standards and keep pace with modern trends.

Take, for example, KAZANSUMMIT. The number of visitors and countries participants of KAZANSUMMIT is increasing every year. But unfortunately, today's hotel complex with conference facilities are physically struggling to cope with such volumes. As we know many regional, Moscow and foreign companies are willing to carry out its activities in Tatarstan.

That is the sukuk issue will be spent for the construction of this center? What about the volume of Islamic investment?

Yakupov: Sukuk will not completely cover the necessary amount for the construction of this complex. This project is planned in the private public partnership, so one part of will be attracted from foreign direct investment, another part of the state of Russian investors, etc.
We plan around $200 mln sovereign sukuk. It is still negotiating to issue 100 or 200 million dollars, but we are almost sure that the international market is well ready and well reacts to $ 200 million.

Over the past 6 months, developers have been researching the market, negotiated with potential investors and as a result got a good response and positive feedback. Institutional investors and many Islamic banks in the Middle East and South-east Asia also expressed interest. Besides we observe a great interest from Russian banks.

But we still don’t have them. After all, as I understand it some years various people engaged in this, someone thought that it was not cost-effective and what’s for Moscow. What has changed?Yakupov: Of course, one of the problems related to Islamic finance is not an accurate understanding of the whole of the subject. We are here in Tatarstan, above all, we consider Islamic finance as an economic tool. Yes we are a Muslim region, but Islamic banking, Islamic finance - is primarily an economic component. They focus on the economic processes that operate in their specific standards, but in Russia they have not yet been adopted.

But there is another point. There is an almost complete absence of specialists in government and financial structures, which would be well versed in the subject of Islamic finance. Therefore, I believe the educational process in the field of Islamic finance gains the primary importance.

However, the situation is getting better. Today we see people working in the largest Russian banks who are quite well versed in the given subject, many of them actively participate in the Main Economic Forum on Islamic Business and Finance KAZANSUMMIT. For example, Ak Bars Bank is already working with the Malaysian Islamic bank in this direction, they have established experience of experts exchange.

Do you really think that the appearance of those first Islamic bond in Tatarstan, could "open the eyes of Moscow" and that's an advantage for the economy?

Yakupov: Exactly. From the early days, when we started working in the direction of Islamic finance, we consider ourselves as a pilot project as a sort of testing ground. We are all in the framework of Russian legislation and initiatives that we are making now, we will announce them as a result. And if all goes well, it will give us an advantage in the field of economics, diversification options to attract investment tools. Besides, you can always make certain standards from the experience. Well, if there’s something you don’t like or something that does not work, you have two choices - either we're finalizing it and begin to implement, use, or we completely abandon it. In this case, I believe that there would be a great mistake to abandon it completely. As the volume of Islamic finance is growing by leaps and bounds. The number of banks, fund companies, asset management companies is increasing - the industry is growing by leaps and bounds. For a variety of objective and subjective reasons, the first 10 years of this century, there were times when cash flows changed their directions, and especially it concerns Islamic countries. They were originally concentrated in the capital itself, have developed it to a certain level, and now want to enter new markets. And here the application of Islamic financial instruments would be a measure of our openness and willingness to work productively. Russia is an investment area, if required, if you want to come to us with their investments, we are ready to work with you in this direction. I stress it this is a serious step and this is an indicator that Russia is open to investments from Islamic countries. While some have accumulated capital and want to place it in Russia – we are ready to create conditions for its development here.

Today London makes every effort to become a key centre for Islamic finance, why Russia should not be doing this?

Islamic banks believe that in Russia there are no conditions.

Yakupov: Today, Islamic banks can not work in Russia. Because the law does not allow it. The pioneers in this field among the CIS countries is Kazakhstan and Kyrgyzstan, both countries have legally adopted the functioning of Islamic banks in their territories. In the framework of our economy, Islamic banks can not exist. But today, we develop other areas, first of all it is the creation in 2010 of Tatarstan International Investment Company (an investment company in the public-private partnership), where the founders are investors from the Middle East, Malaysia, one of the founders is the Islamic Development Bank. The Republic’s proportion amounts to 20%. This company (TMIC), completely focused investment finance in our economy. Naturally, if it is permitted by Shariah.

TMIC invested in projects makes initial investments and subsequently finds investors. Here TMIC resambles an investment bank, and it may already exist within the Russian legal framework. Now we understand that you need a mechanism that will allow to finance - and one of the mechanisms is a leasing company that offers products similar to bank’s products. At this moment we are working on creation of Russia's Islamic leasing company with participation of TMIC and other Russian and foreign institutions. And they certainly will work under Shariah law.

Earlier this week, we participated in the annual Investment Forum in Dubai. In the framework of the event Rustam Nurgalievich Minnikhanov who attended Investment Forum as a speaker said that Tatarstan was working in this direction and were actively initiated the introduction of Islamic banking, in order to bring this subject to federal authorities in order to show that those were effective economic tools. Tatarstan is doing serious work in this direction, adapting the Islamic finance model. Tatarstan is the pioneer in this sphere, we have a responsibility to properly inform the federal authorities that we need to introduce Islamic finance.

You talked about Kazakhstan and Kyrgyzstan, could you please name some projects which has already been implemented?

Yakupov: In the Republic of Kazakhstan there is Al Hiyat Bank, and it operates under the Kazakh legislation. In this sense, they are really ahead of us, but for us it is not a question of race, but of quality.

In Kyrgyzstan, at the very beginning the President issued a decree on providing the bank (Ecobank) with a special authority to engage in Islamic banking. Then, based on its experience a special legislation has passed. This law regulates Islamic financial mechanism. Now this bank operates successfully.

In Azerbaijan, they also work in this direction.

Russia as the largest country in the CIS would also like to take their rightful place in this list. The Republic of Tatarstan works, analyzes and uses the experience of England, France, Luxembourg, the Middle East (with a high concentration of Islamic funds), Malaysia, Singapore. But we do not study the experience - we are engaged in this activity.

What role will Luxembourg play in this matter?

Yakupov: Just as a platforme. This may be Luxembourg or another country which uses the English jurisdiction. For example, in Luxembourg they have such experience, and the jurisdiction of the country which corresponds to the English legislation is important for investors.

It turns out that the project is not entirely within the Russian legislation?

Yakupov: How gentlemen journalists like to play on words! Today, the traditional bonds are issued in Luxembourg. We are talking only about the area of ​​English law. We can not make a revolution, we are creating favorable conditions for investors. This may be countries like Netherlands, Belgium, Hong Kong, Singapore, and it’s all in a day’s work is, and it is accepted practice throughout the world and Russia. We have many commercial contracts made in accordance with English legislation.

Tell me, can we count on the potential of Russia's population which confesses Islam?

Yakupov: 20 million of Muslims is an average country. Attracting deposits from the public we get the economic effect of Islamic banking and savings. You know it is a serious reason to increase the investment potential of Russia itself.

The awareness regarding Islam is growing among people and of course there are economic and social issues - in Islam, to practice usury is forbidden and what is Halal products? These are two very serious moments that arise when a person takes steps towards Islam. In Tatarstan they are still discussing the issue of halal industry, there are Halal producers, recently established the association of Halal producers, there is also KAZANHALAL trade fair - and people can choose the products they want to take. But regarding financial services they still have not such choice, and they have to go against their religion and to invest money in traditional banks or they need to hold their money in their hands. Unfortunately, the second option is more believable, and the number of people confessing Islam, who salt away their money is increasing. And the challenge for any country is to get this money and to benefit the Russia’s economy.

And how much money do they salt away?

Yakupov: Any grandmother is preparing for her last day, at least she has 15 - 20 thousand rubles. Practically no family that does not have a "nest egg" for a rainy day - and multiply the money by the number of Muslims. And yet, for example, no one makes a contribution of $ 100, nor three thousand rubles. They carry more. And finally we have billions of turnovers, we just need to create conditions for them to come to the Islamic financial system.

That is, here we see pure economics and not an ounce of ideology?

Yakupov: There is economy, but there’s no ideology. You can not stretch the concept now. One of the reasons why we have such a "chilly attitude" towards Islamic finance is an information environment in which we find ourselves, people have developed Islamophobia, and yet in fact say it again - this is pure economics. Media somewhere misunderstood, and maybe the media themselves have received incorrect information. I do not talk about the problems of the media (I'm the same as you the reader, just read, watch, listen and just as you form my own opinion of them), but I think that every journalist has an internal "censor" that commits "to dig" to the core processes and carry it to their readers. I am deeply convinced that with your help we can bring this idea to everyone.

Thank you for your visit.