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Tatarstan set to develop Islamic finance and banking

25.01.2012

Tatarstan’s largest commercial bank – Ak Bars Bank has raised US$60 million in the first-ever-syndicated Murabaha financing out of the Russian Federation. This landmark deal enables the bank to have Shariah-compliant funds in anticipation of future Islamic investments.
Tatarstan set to develop Islamic finance and banking
Tatarstan’s largest commercial bank – Ak Bars Bank has raised US$60 million in the first-ever-syndicated Murabaha financing out of the Russian Federation. This landmark deal enables the bank to have Shariah-compliant funds in anticipation of future Islamic investments.

“In the recent unstable economic environment and volatile financial markets our bank managed to close the deal on favourable terms,” states Robert Minnegaliev, the Chairman of Ak Bars Bank’s Board. “This transaction, conformity of which with Shariah Law was verified, creates the real opportunity to diversify the raising funds and makes Ak Bars bank a pioneer in Islamic Finance development not only in Russia but also in the Commonwealth of Independent States”. Obtained funds will be used to expand and update public services including transport networks in Tatarstan for the Universiade to be held in Kazan in 2013.

The closing of a revolving syndicated Murabaha financing facility on behalf of Ak Bars Bank also gained international recognition being recently selected by Islamic Finance News as the “Europe Deal of the Year”. The Islamic Finance News Deals of the Year award was established in 2006 and honors those who have participated in the industry’s most groundbreaking transactions each year. It is one of the most prestigious awards and highly recognized by the global Islamic capital markets.

The growing interest of Tatar companies in Shariah compliant business reflects the Tatar Government’s commitment to promoting Tatarstan, where Muslim population reaches 52%, as Russia’s Islamic finance centre and an attractive place for Muslims to do business. Since 2009 the annually held KazanSummit arranged by Islamic Business and Finance Development Foundation and Tatarstan Investment Development Agency has proved to be one of the most important and effective events for expanding the economic relationships between Russia and Muslim countries. Moreover, in December, 2010 a letter of intent aiming at the issuing of the first sovereign Islamic bond, or sukuk, was signed in Malaysia between Tatar Government, Amanah Raya Berhad Investment Bank, Kuwait Finance House and Linova Investment Finance Company (Russia). The Tatar government is planning to borrow some US$200 million through sukuk. A further round of discussions is now planned for paving way to this project in the nearest future.

The fact that the market is considered to have the potential for fast growth is the reason why the Islamic Finance development is considered a high priority by Tatarstan government. According to the recent research by Ernst&Young the dramatic development over the past twelve months – including “the Arab Spring”, Eurozone crises and “Occupy Wall Street” movement – provide further impetus for the growth of Islamic banking. Industry forecast suggest Islamic banking assets with commercial banks globally will reach US$ 1.1 trillion in 2012 (2010: US$ 826 bn).

However, there are still number of challenges that are needed to be overcome in order to develop Islamic banking in Russia. Linar Yakupov, the head of Tatarstan Investment Development Agency, in his interview to Tatcenter stated that one of these concerns is the absence of an enabling legislative, regulatory, tax and legal environment that could allow Islamic financing in the Russian Federation. Traditionally in non-Islamic countries central Banks and other regulatory bodies impose requirements conflicting with Shariah standards and principles which prohibit the payment of interest on loans or overdrafts, and also prevent investment in certain areas including defense, adult entertainment and gambling.

Experts also admit that where conventionally structured products are relatively straightforward, similar Islamic financial products tend to be more complex. Shariah compliance often leads to additional requirements in the structuring process which in turn leads to higher transactional costs.

However, according to Linar Yakupov, “the combination of ingenuity and persistence together with the support of Tatar government will enable the financial industry in Tatarstan to overcome the obstacles on the way of raising Islamic funds.” “Islamic financing still remains competitive and is in high demand among developed countries as it appeals to a wider range of customers than those outside the Muslim community. Islamic banking should be considered as a supplementary device of attracting financial resources and boosting economic processes in the region,” he said.

Source: kazantimes.com

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