The stricter, more ethical rules of Islamic finance helped many countries avoid the worst of the 2008 economic meltdown. Now officials in the Russian republic of Tatarstan are hoping that Islamic finance can help them attract direct investment from Muslim nations around the world. Last week a summit on Islamic finance in Kazan, the capital of Tatarstan, welcomed delegates from as far afield as Malaysia, Saudi Arabia, Turkey, Azerbaijan and the United Arab Emirates.
VTB Group and Gazprombank are vying to become the first Russian borrowers to sell Islamic debt in a bid to attract Middle Eastern investment. VTB, Russia's second-largest bank, aims this year to raise about $200 million selling sukuk, debt that complies with Islam's ban on interest, Herbert Moos, the lender's deputy chairman, said in an interview Wednesday. Gazprombank, the lending arm of gas export monopoly Gazprom, is in talks with at least 10 Moscow-based companies on arranging a sale and will meet investors in the Persian Gulf in September, said Alexander Kazakov, director of structured and syndicated finance.
As Russia’s 20 million Muslims observe the holy month of Ramadan, the country’s banks are beginning to wake up to the growing opportunities offered by Islamic banking.
But more than the strict ethical guidelines that govern Islamic banking, it’s a cultural leap that is proving the most difficult for Russian bankers.
Islamic fund managers and investors in the Middle East should turn their attention to more than 65 million Muslims in Russia and the Commonwealth of Independent States (CIS) while the region's banks investigate the potential of offering Shariah-compliant products for overseas investors and local consumers, said a senior official of Amanie Islamic Finance consultancy.
Mark Smyth, Executive Director at Dubai-based Amanie Islamic Finance Consultancy and Education (AIFCE), highlighted the huge potential in Russia as well as the other CIS countries such as Kazakhstan.
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.
These sentiments could not have been articulated better at the Moscow Forum on Islamic Finance & Investments which was held in the Russian capital last Thursday and attended by a host of local and international participants including Ali Hassan Jaafar, the Saudi Arabian Ambassador to Russia.
The European Union’s largest and strongest economy, Germany, is finally edging toward facilitating Islamic finance in its jurisdiction. Germany has a Muslim population of 4.3 million, the second largest Muslim population in the EU after France with 5.5 million. Reports from Germany stress that the country’s banking regulator, the Federal Financial Services Authority (BaFin), has issued a limited banking license to Kuveyt Turk Participation Bank, one of Turkey’s four so-called participation (Islamic) banks. Kuveyt Turk is majority-owned (62 percent) by Kuwait Finance House, one of the largest Islamic banks in the world in terms of capital and assets. The Islamic Development Bank (IDB) also has a 9 percent stake in Kuveyt Turk Participation Bank.
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