Sanctions-hit Russia mulls introducing Islamic banking to lure Muslim investors

Russia is reportedly drafting a new bill allowing non-credit financial institutions to specialize in Islamic banking in the country in a bid to help the sanctions-hit state banks to lure investors from Muslim nations.

The non-credit banking institutions would operate as financing partnership organizations (FPO) and offer Sharia-compliant financial products to their clients, Russia’s Kommersant daily reported Saturday.

According to the report, the FPOs would be regulated by Russia’s Central Bank, which would maintain a register of all such companies and oversee their operations.

Such organizations can raise funds from individuals and legal entities and invest them in projects according to the norms of Islamic law on a partnership basis, the proposed legislation sates.

Chairman of State Duma Committee on Financial Market, Anatoly Aksakov, announced that the draft law may be submitted to the parliament's lower house by the end of the week for approval.

Islamic banks operate under religious and ethical guidelines and ban interest payments and monetary speculations.

The global Islamic banking sector, the report added, is growing at an annual rate of 14 percent and is estimated to be worth $1.99 trillion, accounting for a six-percent share in the non-Islamic global banking industry. 

The FPOs, the report adds, will provide the following operations: “Granting money loans to legal entities and individuals without charging a fee, financing them as a trade intermediary by entering into installment sale contracts or leasing contracts, financing production and trade activities by participating in the share capital of legal entities on a partnership basis and granting sureties.”

"In the new situation characterized by cutting ties with Western financial markets, the need of Russian citizens, the companies of the real economy, and financial institutions in the tools of (Islamic) financing partnership is growing," according to the draft bill.

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The daily further pointed out that the idea of introducing Islamic banking in Russia has long been discussed by the country’s financial authorities. 

Last spring, it was reported that the State Duma Committee on Financial Market would establish a working group on Islamic finance. It was supposed to introduce selective amendments to the laws in order to stimulate the inflow of finances from the United Arab Emirates (UAE) and other Muslim states. Also in November 2014, Russia’s Central Bank Chairman Elvira Nabiullina declared that the Bank of Russia is looking into introducing regulations for Islamic banking. 

"This will give great opportunities for the development of lending to the economy and the development of the financial sector," she emphasized.

Qatar, Turkey, Indonesia, Saudi Arabia, Malaysia, UAE, Kuwait and Pakistan account for 93 percent of Islamic banking assets, the report added, noting that outside the Muslim world, the first Islamic bank was established in the UK in 2004.

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