Russian lawmakers have introduced to parliament a draft bill to support Islamic finance, aiming to attract capital inflows at a time when an economic slowdown is intensifying and Western sanctions show no sign of being lifted. The draft law, sent to parliament's lower house, the State Duma, this week, proposes allowing banks to engage in trade activities, a concept central to many of the structures used in sharia-compliant financial products.
Russian banks are developing their expertise in Islamic finance to help broaden funding sources for local firms, though Western sanctions over the Ukraine crisis and the absence of a regulatory framework could hinder those efforts. Russia's Islamic banking sector is still in its infancy. But an estimated 20 million Muslims living in the country are a potential source of money, as are cash-rich Islamic funds abroad.
First-time sellers of bonds that adhere to Islam’s ban on interest are poised to revive an industry suffering its worst quarter in more than four years.
Luxembourg and Hong Kong aim to market debut offerings of sukuk next month, while , , and Tatarstan have announced plans for maiden issues. Islamic bond sales have fallen 82 percent to $2.6 billion this quarter compared with the previous three months, their lowest level since the first three months of 2010, according to data compiled by Bloomberg.
Turkey is working on new regulations to allow wider use of Islamic bonds, a closely watched move which could see sukuk issues employed by the government and corporations for project finance and infrastructure development.
Turkish institutions and the Treasury currently only issue the ijara type of sukuk, which is among the most widely used internationally; the new regulations would approve the use of istisna, murabaha, mudaraba, musharaka and wakala bonds.
Russia hopes to collaborate with Brunei economically in halal food production, Islamic finance and banking and in infrastructure development, outside of the oil and gas industry.
The ambassador of the Russian Federation to Brunei, Victor A Seleznev, said that this year, there are many Bruneians visiting Russia, and because Brunei will be the chair of ASEAN, it would mean that a lot of the Russian delegations will also be making a trip to Brunei.
Russian republic Tatarstan's ambition to develop a Sharia-compliant market received a boost this week when the Kazan-based AK Bars Bank became the first Tatar credit to secure a murabaha loan.
It was also the first international loan facility compliant with Sharia canons for a Russian bank.
Qatar, the world’s fastest growing economy, and Abu Dhabi are luring bond investors keen to cut their investment in markets closer to Europe’s debt crisis.
The average yield on Persian Gulf bonds fell three basis points, or 0.003 of a percentage point, this month to 4.719 percent yesterday, 12 basis points off the lowest ever level reached on Aug. 2, the HSBC/Nasdaq Dubai GCC Conventional US Dollar Bond Index shows.
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.