Since the crisis, Muslim countries have accumulated “substantial liquidity” which needs to find investment opportunities in new markets, said Anatoly Aksakov, a State Duma deputy who also heads the Russian Association of Regional Banks.
“We are talking about tens of billions of dollars – assets that Islamic investors are seeking to diversify to escape dependence on U.S. dollardenominated instruments, which have become risky due to the high level of U.S. debt,” Aksakov told The Moscow News on the sidelines of the conference.
Linar Yakupov, CEO of the Tatarstan Investment Development Agency, told The Moscow News that he was hired by the republic’s government to attract Islamic capital. In 2001, Yakupov returned to his hometown, Kazan, from Kuala Lumpur, where he studied Islamic finance at the International Islamic University of Malaysia.
“I was probably the very first certified specialist in Russia on the issue,” Yakupov said. His starting project in Tatarstan was a halal farm, set up to produce food in conformity with Islamic customs.
“We were pioneers in this. When the Tatarstan government took a decision to turn the republic into a gateway for Islamic financial resources into Russia,” he said. Yakupov’s halal farm attracted investment from Saudi Arabia and Malaysia, he said.
Dynamic local economy
Tatarstan has one of the more dynamic economies of the Volga Federal District. According to a KPMG survey, the republic’s GDP has been growing at a rate of 6.5 per cent annually, and has accumulated $7.4 billion of direct foreign investment. The Expert RA rating agency ranks Tatarstan 11th of Russia’s 83 regions.
Unlike many other regions of the country, Tatarstan has managed to maintain many of its Soviet-era industries – such as large farms, machinery and aviation factories – over the last 20 years.
The republic also has large oil reserves. Since the 1940s, Tatarstan has produced more than 3 billion tons of oil, according to official figures, and has retained control of the oil firm Tatneft, plus two key refineries, Kazanorgsintez and Nizhnekamsneftehim.
Tatarstan’s links with the Islamic world could now help it weather global economic headwinds, says Rustam Minnikhanov, the republic’s president.
“We are proud that we have historical and spiritual interaction with the Islamic world,” Minnikhanov told last week’s conference.
Some adjustments required
Aksakov said that Islamic finance would be a good fit with most Russian legislation. “Perhaps we will need to adjust the law in some specific cases,” Aksakov said.
For example, the Riba principle prohibits acceptance of interest for loans of money, and this could cause a conf lict with Russian laws.
“If you take a car loan, you don’t pay interest on money, you just repay your car to the bank in installments,” Aksakov said. But if you pay for goods by installments, you’d have to pay the VAT, which you aren’t supposed to pay in a traditional loan repayment situation.
This was one of the issues that delayed a $200 million Islamic bond, or “sukuk,” project.
But given that the world hasn’t fully recovered from the financial crisis, Islamic finance has quite an appeal here – especially if you consider the dangers of irresponsible, Western-style lending.
“Look what can happen if you ignore the Sharia principles in banking,” a Saudi Arabian delegate, Abdurrahman Atran, who heads the World Assembly of Islamic Youth, told the conference.