Minnikhanov about Islamic banking: ‘Why can’t it work in Russia — are we worse than others?’

KazanForum discussed the first results of partner financing and the expansion of the experiment

Minnikhanov about Islamic banking: ‘Why can’t it work in Russia — are we worse than others?’
Photo: Динар Фатыхов

The development of Islamic banking was discussed on the fourth day of the XV Russia — Islamic World: KazanForum 2024 International Economic Forum. The participants of the meeting announced the preliminary results of the partnership financing experiment, which has been taking place for nine months on the territory of four regions of the country: Tatarstan, Bashkortostan, Dagestan and Chechnya. Read the details in the material of Realnoe Vremya.

“Islamic banking has huge potential”

The official register of the Bank of Russia currently lists 23 organisations participating in the experiment on Islamic banking. Of these, 6 are credit, 4 are non-credit, and 13 are non-financial. The vast majority of organisations (13) are from Tatarstan.

Anatoly Aksakov, one of the co-authors of the law, chairman of the State Duma Committee on the Financial Market, expressed gratitude to the leadership of the republic and personally to Rustam Minnikhanov, the rais of Tatarstan, for his active position on this issue. He also proposed to include Ingushetia and Chuvashia in the experiment.

Anatoly Aksakov proposed to include Ingushetia and Chuvashia in the experiment. Динар Фатыхов / realnoevremya.ru

The panelists discussed what needs to be done to develop this area in Russia. Aksakov voiced the problem when organisations actually work on the principle of Islamic banking but are not registered in the register due to the additional loads that this law introduces into their activities. The deputy called for understanding the situation and minimising these loads.

Deputy Finance Minister of the Russian Federation Ivan Chebeskov noted that the relevance of Islamic finance has significantly increased after 2022. According to him, the global partner banking market is now estimated at $4 trillion. This is 6.5% of the entire banking sector, in some cases — 20%.

“The task is ambitious. We consider strategic goals. We see that the potential is great. Those who could finance their funds, involve them in turnover, have huge savings “under the pillow”. This is trillions of rubles," the deputy minister said.

We see that the potential of Islamic banking is great, said the deputy head of the Ministry of Finance of Russia. Динар Фатыхов / realnoevremya.ru

Maternity capital in Islamic Banking

The main part of the meeting was the speech of the rais of Tatarstan, Rustam Minnikhanov, who stressed that the republic had been moving towards Islamic financing for a long time and systematically, and thanked the country's leadership for their support.

“I think we are moving forward. We see that there is interest, the law has been passed. Work is underway in the republic and the regions, and a roadmap has been developed. A single online portal has been created. The main number of organisations in the register of the Bank of Russia in the field of partner finance is from Tatarstan, and this is not bad. On the contrary, it will be possible to organise an educational programme — training seminars on the basis of our republic. In the near future, it is planned to include 5 more organisations in the register, and new products are being offered. And most importantly, there are positive results. Since the beginning of the experiment, 1,290 transactions have been registered," Rustam Minnikhanov said.

Rustam Minnikhanov made proposals for the further development of Islamic banking. Динар Фатыхов / realnoevremya.ru

The rais of the republic also listed new partner banking products. These are project financing, preferential financing of small businesses, financing of leasing companies, electronic trading platforms using partner products, the development of halal investment products to attract public funds.

Besides, sukuk bonds are also worked with in Tatarstan. “We are ready to share this experience," the head of Tatarstan assured.

The sukuk principle is the right of the bondholder to share his profits or losses with the issuer. The yield on the bond is not guaranteed. A special feature of sukuk is compliance with Sharia law, where borrowing money at interest and financial speculation are prohibited. Transactions under Islamic law are based on the principle of profit and risk sharing. This means that each participant in the transaction assumes its share of risks.

Rustam Minnikhanov made proposals for the further development of this market and the involvement of new participants in the experiment. The rais proposed to provide the participants of the Islamic banking experiment with the opportunity to use maternity capital funds. “Why not, when this measure is available to other banks," he said.

“The experiment can be ruined”

Besides, the head of Tatarstan noted the need to equalise the conditions for providing partner financing with the conditions of traditional mortgages and loans through the inclusion of partner transactions in the appropriate preferential financing programmes for businesses and the public.

“This is especially relevant in light of the fact that religious families mostly have many children. Why are we not able to provide them with these tools?" Rustam Minnikhanov asked himself a question.

Several times during the discussion, the question was raised about the need to create a single centre of expertise at the federal level to develop standards for partner financing products, taking into account the financial needs of businesses and the public to ensure the purity of the experiment. It was decided to start working in this direction. Rustam Minnikhanov called the lack of personnel one of the key problems in this area:

“This is the most important question. We have started training specialised personnel in Tatarstan. Currently, the training takes place on the basis of the Russian Islamic Institute, Kazan Federal University, and Bulgarian Islamic Academy. But what is 100 people for the whole country? 300 people undergo advanced training. But this is not enough even for our republic.

The rais of the republic proposed to amend the federal state educational standards for economic, financial, legal and theological specialties in terms of including disciplines on partner finance and send appropriate recommendations to universities.

“I think it would be possible to give state-funded places for these purposes, but if not, then the banks themselves will be involved. Otherwise, we can ruin this case. If this system works all over the world, why can't it work in Russia? Are we worse than others, or what? These are additional tools that pose no threat to anyone," Rustam Minnikhanov expressed confidence.

If a person wants to live according to Sharia, there is nothing wrong if we give him such an opportunity. Динар Фатыхов / realnoevremya.ru

The Tatarstan leader outlined another aspect that hinders the use of other products — the lack of partner insurance. It was proposed to bring this issue up for further discussion.

“The duration of the experiment is two years. The work may not have gone at the volume and pace that we wanted, but there is progress. It is possible to ruin it, slowly nullify it, but no one will benefit from it. If a person wants to live according to Sharia, there is nothing wrong if we give him such an opportunity. It will also be useful for strengthening ties with Islamic countries, which are now actively developing," Rustam Minnikhanov summed up.

Islamic banking is the conduct of financial activities in accordance with the norms of Islam. The payment of interest and interest-bearing transactions derived from it, transactions with conditions of uncertainty, as well as financing of certain sectors of the economy: gambling, pork production, alcoholic beverages, tobacco, weapons, ammunition are prohibited. It is prohibited to finance trade in all of the above. Common operations of Islamic banking are installments, leasing, and equity financing.

Milyausha Kashafutdinova

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