Islamic Banking Is Welcome In Russia
Dr. Mozammel Haque
A Round Table discussion on the “Challenges and Prospects
of Islamic Banking implementation in Russia” took place on 18 March 2015 at the
Russian State Duma Committee on financial market.
The discussion was attended by the representatives of the
Central Bank of Russia and the Federation Council, executive authorities, large
financial institutions and banks of Russia and Azerbaijan, as well as the
representatives of the embassies of Egypt and Iran.
Challenges and Prospects of Islamic Banking
Implementation in Russia
The discussion was moderated by Dmitri Saveliev, Deputy
Chairman of the State Duma Committee on financial market, who had brought to
the State Duma the first bill (regarding the repeal of the ban on banks
commercial activities) aimed at introducing Islamic banking in Russia.
The experts agreed that due to the current economic
conditions the Russian Federation needs urgently to diversify the banking
system, and defined Islamic finance as one of the promising sectors in this
field. It is reported. “Establishing Islamic banks in our country will help to
increase trust to our banking system in the whole”— said Alexander Torshin,
Deputy Chairman of the Central Bank of Russia. “We don’t reject the idea. The
Central Bank is ready to consider such initiatives as long as they are
reasonable and legitimate”.
The participants pointed out that the practical
implementation of Islamic banking requires considerable changes in the Russian
legislation. “I would like to draw your attention to the challenges faced by
the working party on Islamic finance under the Federation Council” — emphasized
Sergei Batin, senator. “It is so-called double taxation for one thing. It is
difficult to overcome this obstacle within the framework of the current
legislation. I wish we could work in a constructive way and witness the issue
of a federal law enabling Islamic banking implementation in Russia”.
Despite existing legislative impediments, the International
Bank of Azerbaijan expressed its interest in Russian customers. The launch of
the pilot project based on Islamic financial principles is scheduled for April
in Moscow. “We are absolutely ready for cooperation. Our pilot project will
employ funds in the sum of USD 1 million” — said Behnam Gurbanzade, the
director of Islamic banking department of the International Bank of Azerbaijan.
“After that, within the framework of the current legislation, the funds will be
redirected to 3-4 large-scale Moscow projects. We will see how it works”.
Dr. Madina Kalimullina
Dr. Madina Kalimullina, Director of Economics Department of
the Russia Muftis Council raised the question regarding using specific terms to
denote Islamic financial institutions. Referring to the experience of Turkish
and British colleagues, she noted that the alternative banking institutions of
these countries have names not related to Islam.
Besides, Dr. Madina Kalimullina emphasized the importance
of demonstrating the willingness of Russia to work according to Islamic
financial principles. “International recognition is an important aspect. Russia
should show its openness for working with Islamic countries. Nowadays many
Islamic banks are expecting clear-cut decisions from the Russian side” — said
Madina Emirovna. “Apart from that, we need to offer them an appropriate field
of activity, an appropriate infrastructure”.
During the Round Table discussion the experts became
acquainted with practical examples of using Islamic financial tools within the
framework of the current legislation, discussed the issues of ethics and Shari’ah
control over Islamic banks’ activity, and defined the precise steps to take in
order to set the wheels of Islamic system in motion.
Decided to create an advisory
board on drafting bills
The discussion resulted in the decision to create an expert
and advisory board with a view to amend certain legislative laws of the Russian
Federation. “We are going to establish an expert working group on drafting
bills” — summarized Dmitri Saveliev. “I invite you, dear colleagues, to
participate in it within the frames of your organizations. We will be happy to
defer to your expert recommendations and will take them into account in our
legislation”.
The results of this work will be announced at the next large-scale
meeting, which will take place in May. International Forum "Islamic
Finance and Real Economy" embracing the issues of Islamic finance
regulation and Islamic investment promotion will take place within Moscow Halal Expo 2015 on 21 May 2015.
Risk assessment for Islamic
banking
implementation in Russia
Madina Kalimullina Ph.D. in Economics, RAEIF executive
secretary and coordination board member “Introducing Islamic banking in Russia”
roundtable discussion on 18 March, 2015 made the following presentation on Risk
Assessment for Islamic Banking Implementation in Russia. The presentation was
translated by Natalya Ergen for MuslimEco.
The paper consists of the
followings:
1. • Key aspects of Islamic banking implementation • Legal
status of financial products • Correlation between different market
participants’ interests • Risks specific to Russia
2 Key aspects of Islamic banking implementation •
Terminology (law, financial organizations, agreements) • International
recognition • Defining legal status of the products • “Islamic windows” • Abuse
prevention • Ethics (shariah) control • Legislation flexibility (possibility of
making amendments) • Market participants’ involvement (consideration of
different players’ interests) • Raising financial awareness • Consumer
protection
3. International recognition International standards
(AAOIFI) Comprehensible ethics (shariah) control Active membership in IDB group
Statements of leaders/large-scale projects with state guarantee
4. Consideration of market players’ interests Islamic
Finance State Islamic banks/funds Russian banks Population Russian business
Russian Islamic financial companies
5. Islamic banks and Islamic windows Full-fledged Islamic
Banks Islamic windows Number of players Very small. 1-2 for the first several
years Large number of players in banking tools Resource consumption Very high
consumption (BBI) Lower consumption Phasing No phased transition Phased
transition Law: 5-10 years Return on investment Time limit for return
Considerable time reserve
Reputation risks + a) net assets - b) market entry risk a)
mixing assets b) Shariah compliance risk c) Social risk (affiliated branch
closing) d) Clients’ and employees’ mindset risk GCC investors Attractive for
investors: Novations and development of Gulf countries’ banking culture Not
attractive for Islamic investors Practical use in countries Kazakhstan,
Malaysia (before 1993), Bosnia Malaysia (after 1993) Bahrain, Russia
6. Islamic banking Islamic financial companies
(non-banking) Capability of attracting investment Attracting big investors
Accumulating assets at microlevel Startup process Complicated, long Relatively
simple and short Reserve insurance Special conditions - Loans (qard) Operating
accounts. Plastic Special conditions +(according to the rules) Placement (qard)
Special tools and conditions Special conditions Special conditions (mudarabah)
Special tools and conditions Special conditions Murabahah Special tools, trade
license Double taxation exemption (VAT) Musharahah Special conditions (Permit
for equity holding) + Facilitating registration of ownership Mudaraba (project
funding) Special conditions + Currency exchange + - Cash and settlement service
+ Contract with cash processing centre.
7. Islamic banks and Islamic financial companies Risks
specific to Russia • Reputation risk (non-conformance to standards, inadequate
ethics control) • Investment risk • Risk related to change of business owner •
Political risk (especially when dealing with Gulf countries) • Existence of
business elements contradicting shariah (in particular, in terms of financial
indicators) • Mindset differences
8. International Forum «Islamic Finance and real sector of
economy» May 21, Crocus Expo 1. Islamic finance and private equity funds as a
tool of attracting investment into Russian economy •Creating favourable investment
climate for investors •Systems of cross-border payments with OIC countries
•Prospects of establishing Islamic banking industry in Russia •Practical
implementation of Islamic finance and investment products in different sectors
of economy. 2. Practical aspects and development problems of Islamic finance in
Russia •Banking business diversification and gaining competitive advantages
•Challenges of Islamic funding implementation •Means of involving the funds of
population and business into the real sector of economy •Means of funding small
and medium enterprises 3. Investment potential of Russian regions
9. Russia: integration into international market of Islamic
finance • Experience of Badr-Forte bank • Transaction of Globex bank I (before
2006) • Establishing Economic programmes department in RMC • First conferences
on Islamic finance • First product of EXPRESS bank II (2008) • Establishing
RAEIF • Agreement on AAOIFI on standards translation • “Islamic finance” course
in MIRBIS • Amal finance house • Moscow Halal Expo • Kazan Summit III
(2009-2010) • “Lariba-Finance” • “Masraf” trust • AK BARS bank’s transactions •
CIEFD • Internship in Islamic banks • Shariah rating -NRA • “Islamic law”
Master’s programme in Higher School of Economics • Letter
on Islamic Country assessment in terms of Islamic finance development •
Effective laws on Islamic banking • Effective amendments to certain acts • No
legal framework • Effective laws on Islamic banking • Effective amendments to
certain acts • No legal framework Legal framework for Islamic finance •
Uncontrolled stage • Implementation stage • Growth stage • Uncontrolled stage •
Implementation stage • Growth stage Development stage • Centralized •
Non-centralized • Combined • Centralized • Non-centralized • Combined Shariah
control system • Permitted • Forbidden • No regulation • Permitted • Forbidden
• No regulation Islamic windows functioning • State regulation • Local
regulation • Specialized funds
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