Russian-Led Development Bank Plans to Expand Islamic Financing

Eurasian Development Bank, a Russian-led lender backed by six former Soviet republics, wants to expand Shariah-compliant financing after helping arrange a deal last year, Chief Executive Officer Igor Finogenov said.

“Islamic finance is an opportunity for us to enter new credit markets,” Finogenov told reporters in Moscow today. “We hope it will allow us to diversify our liability base.”

The bank is looking to boost lending that complies with Islam’s ban on interest after serving as mandated lead arranger for a $60 million syndicated Murabaha facility for Kazan, Russia-based AK Bars Bank in September. The Almaty-based development bank was founded by Russia andKazakhstan in 2006 and also includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan.

“We’re a Eurasian bank, and many of our member countries are in areas that are traditionally close to Islamic culture,” Finogenov said. That raises “the possibility of finding projects that meet the criteria required for Islamic finance.”

http://www.bloomberg.com

Going Islamic - Russia

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.

Avoiding U.S. debt

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.

Local hero

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.

http://themoscownews.com

Islamic Finance in Russia – Developments in 2010

It has been a year since the first conference on Islamic finance in December 2009. Over the year there have been quite a number of significant events taking place, all of which will influence the development of Islamic finance in Russia. Among these, the major milestones are the establishment of the Russian Association of Experts in Islamic Finance; the first Halal Expo Exhibition; publication of an authorized translation of the Accounting and Auditing Organization for Islamic Financial Institutions’ Standards of Islamic Finance Transactions; and the first Islamic finance deals on the Russian market.

As part of the wider growth process of specialists focusing on Islamic finance, the Association of Experts of Islamic Finance was established in early 2010. At present it has 76 members and 11 candidates from seven Russian regions. To become a member, candidates should demonstrate an adequate level of knowledge and obtain recommendations from two existing members of the association.

The first Halal Expo Exhibition took place in June 2010. This was a three-day event, which gathered more than 60 producers of halal goods and services from 10 countries. Companies demonstrated the advantages of their products to the several thousand visitors that attended. The event was supplemented with a seminar on Islamic finance that attracted the participation of representatives of one of the largest Islamic banks Al-Baraka and of the Malaysian Central Bank.

The first publication in Russian of the authorized Accounting and Auditing Organization for Islamic Financial Institutions, or Aaoifi, standards was one of the year’s important events. Assisted by Pepeliaev Group, the Russia Council of Mufties in association with the RAEIF translated and published such standards as “murabaha” (sale on credit), “sukuk” (securitization) and “takaful” (Islamic insurance).

The presentation of these published standards took place in Moscow in October 2010, with the participation of Aaoifi head Dr. Mohamad Nedal Alchaar.

One of the most important developments was investment by a Malaysian fund in facilities related to production and distribution of halal foodstuffs in Tatarstan.

Despite numerous complaints with respect to the tax and legal obstacles to implementing Islamic finance in Russia, it was possible to find adequate solutions for investment that were compliant with both Russian legislation and sharia principles. Russian lawyers, in cooperation with Malaysian colleagues, provided all the necessary support in respect of services required for this investment.

2010 saw issues of several sukuks in Europe, in particular in the field of aviation, i.e. the leasing of aircraft. Although transactions did not involve Russian companies, there are no major obstacles to conducting similar financing projects in Russia. We expect the first Russian sukuk to be issued in 2011, as the market is recovering and Russia appears to be attracting the interest of foreign investors, also from the Middle East and North Africa.

At present, the Russian legal and tax environment is able to accommodate most of the classical Islamic finance transactions, and there is growing number of experts who know the field, and so executing Islamic finance projects in Russia is rather more a matter of selecting the appropriate investment projects than issues relating to tax and legal support surrounding implementation. For the latter, there are appropriate solutions under existing laws.

http://www.themoscowtimes.com

Rise of Islamic Finance in Russia

Ahlul Bayt News Agency (ABNA.ir), 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 and 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, Arab News wrote.

While the Central Bank of Russia largely remains disinterested in taking the initiative in facilitating Islamic finance in the country, behind the scenes there are some encouraging developments that could speed up the introduction of Shariah-compliant products there.

Given the federal system in Russia, there are ways of bypassing the Central Bank of Russia’s inertia. For instance, the government of the Russian autonomous Republic of Tatarstan, which is Muslim dominated, has got presidential blessing to open up to the sector.

In fact, the Islamic Development Bank recently confirmed a $1 million equity stake in the Islamic Investment Company of Tatarstan (IICT), a joint venture established with two government entities.

Tatarstan is hosting a major Islamic finance investment symposium in Kazan in two weeks time.

Other Muslim republics in Russia such as Dagestan, Chechnya, Ingushetya and others could equally follow the same route, subject to instilling greater awareness and market education regarding Islamic finance.

Another potentially important development is the establishing of a taskforce on alternative financial institutions and products by the influential Association of Regional Banks of Russia.

Alexei G. Kovalenko, head of the taskforce, said, “We have approached three of the big four advisory firms to help in this respect and we will choose which route to go once we have their initial input. This process could take the next few weeks, I believe.”

Kovalenko, a former banker and insurance executive, has some experience in Islamic finance, having established the first Takaful company in New Zealand a few years ago. 

Major Russian banks such as VTB (Vneshtorgbank) and Gazprombank also confirm that they are working on Islamic financial products albeit originated outside Russia.

Stanislav Yankovets, managing director, strategic development, Middle East and North Africa, confirmed to Arab News that VTB Capital, a wholly-owned subsidiary of VTB, has resumed work on issuing a sukuk through its Dubai entity VTB Capital Dubai.

http://abna.ir/data.asp?lang=3&id=190317

Russia: A Promising Market for Islamic Finance

By Lahem al Nasser

Riyadh, Asharq Al-Awsat- There are around 47 million Muslims in Russia, which means that Muslims make up around one third of Russia's overall population. This figure is expected to rise to 50 percent by 2050 due to the high birth rate among the Muslim community, the decrease in the non-Muslim Russian population which is decreasing at a rate of 1 million people per year, as well as the immigrations of Muslims from central Asia into the Russian Federation. The Islamic presence in Russia is centered in the Caucasus, Siberia, and Moscow. Russian Muslims heaved a sigh of relief at the collapse of the Soviet Union; they reaffirmed their identity and began to practice their religion openly once more without fear or shame. In 1990 there were as few as 98 mosques in Russia, however today there are more than 7200 mosques throughout Russia. This is something that characterizes the Muslim zeal for their religion, and the [Russian] Muslims desire to follow the tenets and teachings of their religion, something which they were prevented from doing under the former Soviet regime.

This is something that makes the Muslims in Russia eager to apply Islam to all aspects of their life, including Islamic Shariaa Law. Therefore the [Russian] Muslims are in dire need of all types of Islamic financial institutes, such as Islamic banking, investment, and insurance institutions that meet with their [religious] requirements. Only one bank offering Islamic financial services is operating in Russia, and this is the "Badr Forte Bank." This bank was instituted in 1997 by the Forte Bank to offer Shariaa-compliant financial services to Muslims [in Russia]. As for Shariaa-compliant insurance services, a Russian – Tatarstani insurance company sought to establish an Islamic Takaful Insurance company, and in 2004 an agreement was concluded with the Dubai Islamic Insurance and Reinsurance Company [AMAN] to study the possibility of establishing a Takaful Insurance company in Russia. However this agreement was terminated in 2005 and no Takaful insurance company has yet to come into existence in Russia.

There can be no doubt that Russia represents one of the major markets for Islamic finance due to the existence of a large Muslim population that – as I mentioned above – is eager to follow the tenets of Islam. In addition to this, the Russian Muslim community enjoys an annual growth rate of more than 6 percent, and Russia has enormous oil and natural gas resources.

Following the outbreak of the global financial crisis, the Russian market – in the same manner as other international markets – opened up to Islamic finance, and Vice-Speaker of the upper chamber of the [Russian] Federal Assembly called for effective ties to be established with the Islamic Banking system in order to allow Russia long-term access to Islamic financial resources. Torshen also did not rule out the Central Bank of Russia amending its rules to allow Islamic banks to open in Russia, despite admitting the disparity between the operational mechanism of Islamic finance and the Russian banking system. Russia's largest financial companies are seeking to take advantage of the [financial] liquidity of Islamic banking at a time when there is a lack of financial liquidity in the global financial system.

This is why FDP Capital, one of the leading financial companies in Russia, is seeking to introduce Islamic financial services in its operations in collaboration with the Liquidity Management House which is affiliated to the Kuwait Finance House, with memorandums of understanding being signed by the two parties to this effect. I therefore call on the Islamic Development Bank, the Islamic Chamber of Commerce and Industry, and the General Council for Islamic Banks and Financial Institutes to take advantage of this opportunity [in Russia] by inviting the heads of major Islamic financial institutes to meet and draw up a unified strategy to seize this opportunity, as it is one that will not recur.

The Islamic financial industry has a great opportunity to serve itself [in a unified manner], rather than waiting for individual institutes to take the initiative separately. The financial crisis proved that many major Islamic financial institutes lack the human and financial potential to develop long-term strategies, alternate plans, and ambitious visions, from in-depth study of market research. Initiating this [unified] strategy will allow the Islamic financial industry to seize opportunities as they arise, rather than wasting time considering opportunities and drawing up plans, as ultimately this may result in the opportunity going to waste.

Link: http://aawsat.com/english/news.asp?section=6&id=18878

First Takaful Insurance Company founded in Russia

First Takaful insurance company, based on the Islamic Laws, is established in Russia, reports the Kommersant newspaper. The company is going to offer its clients to participate in profits in order to enter into the segment of Islamic insurance in Russia. The potential market size is estimated at $2.6 billion.

The Russian Takaful Insurance company, established by Safinat and Al'ans Kapital investment groups, will open offices in Moscow and Kazan.

Among the first services the company announces motor insurance, property insurance and pilgrim insurance. The clients willing to participate in profits will get a discount for the next year insurance period; in case of termination of the contract the clients will get a compensation payment.

Link:http://www.russia-ic.com/news/show/9199/