Islamic banking provides for a certain tandem of norms and values, which are based not only on beliefs, but also on the traditions of the entire Islamic nation. Russian banking and Islamic banking are not only fundamentally different, but at some points contradict each other.
Islamic Banking Standards
The Islamic financial system is functioning successfully, starting from the main standards:
- Loan interest is prohibited. The presence of interest is not only regarded as usury, but also prohibited by the Quran.
- Speculation is under a strict veto. The use of problems or someone else’s difficulties in their financial interests is prohibited. In particular, the type of earnings in the financial market, which becomes possible as a result of certain difficulties with the state, is considered unacceptable.
- A complete veto on gambling, including the lottery.
In addition to these restrictions, both the Islamic bank and its customers are not entitled to invest in companies that provide goods and services that are contrary to the Muslim faith. These may be corporations involved in the production of alcohol and tobacco, spheres of activity related to witchcraft. Despite specific laws, Islamic banking is growing worldwide at an average rate of 10-15% per year. In total, about 300 institutions in the territory of at least 51 states can be counted in the world, including in the USA.
The desire of Islamic banks to enter the international market
In the past few years, Islamic financial institutions have expressed their desire to actively advance to the international market. In the world media more and more often there are reports that the authorized bodies are considering the possibility of establishing and promoting Islamic banks in Russia. It is worth mentioning that there are significant differences between the banking systems of the two states. The main difference between Islamic financial representations is the prohibition on the issue of funds at interest. The main income is formed by the sale of goods by installments at inflated prices. In Russia, the situation is just the opposite. Banks do not have the right to trade all kinds of goods, with the exception of precious metals. The basic principle of Russian banking is lending.
Mutual integration
Against the background of the economic situation in Russia, as well as as a result of tough sanctions by America and the European Union, attempts to establish financial relations with Eastern financial institutions are quite logical. At the moment, a likely partnership is limited to words from Russia and negotiations between representatives of the financial eastern structure and representatives of the domestic banking sector. The President of the Islamic Financial Institute, Ahmad al-Madani, does not cease to say that the states intend to take a step towards each other in June 2015.
The representative of the eastern financial sector intends to come to Moscow to discuss this issue with the head of the Central Bank Elvira Nabiullina. Islamic banks in Russia are seeking market entry through local partners. Help for such a decision can be not only the relevance of financial support to domestic banks, but also the number of Muslims living in Russia, which number at least 20 million. To say more, domestic banks are interested in entering the Islamic market. In particular, Sberbank and VTB have already had discussions with authorized persons over the opening of their representative offices in the east.
Active actions of Russia - are they?
The Islamic Bank is a very specific financial institution, and a specific legislative framework must be created for its fruitful work. It is this issue that the State Duma is now actively engaged in, due to the fact that the main specificity of the activities of Islamic institutions is the provision of goods in installments. Mutually beneficial partnership between states will become possible only if the ban on trading activities by commercial financial institutions is completely lifted. The Central Bank actively supports the partnership initiative. The Russian government turned to financial cooperation due to the interest in this issue in Tatarstan, which was initiated by colleagues from Malaysia.
Favorable soil
As it was written above, a bill is being prepared in the State Duma, the author of which was Dmitry Savelyev. He proposed amendments, according to which banks will be able to sell goods at a premium to their customers. The relevance of this decision is due to the fact that in Russia there is a fairly large percentage of Muslims who urgently need the support of financial institutions that are in line with their religion.
It is too early to talk about how Islamic banks work, since legislative barriers are still at the stage of elimination. In favor of cooperation is the fact that at least two trillion dollars are concentrated in Islamic banking. Currently, there are only three enterprises operating in Russia that provide services under Islamic law. These are the TNV LaRiba-Finance organizations in Makhachkala, the Amal enterprise in Kazan and the Masraf FD.
Positive forecasts of two states
According to preliminary estimates, an Islamic bank in Russia will be very popular not only among Muslims, but also among the indigenous people of Russia, among representatives of other religions. The reason for the alleged popularity of financial institutions lies in their loyal policies. There is no doubt that thousands of people will be interested in financial support, albeit through the purchase of a specific product, without additional insurance, without hidden fees and unexpected penalties. But most importantly, an Islamic bank will under no circumstances sell customer debts to collection agencies. One can even assume that a fairly large part of the clients of domestic financial institutions will make their choice in favor of the Eastern partner. You do not need to be an expert in the financial market to understand that a mortgage in an Islamic bank will be provided on more favorable terms than in any domestic one.
The first Islamic financial institution in Russia
The first Islamic development bank in Russia in its history has every chance to begin its active work by the end of 2015. A financial institution may begin its work under the tutelage of the Infrastructure Fund under the Islamic Development Bank. According to preliminary estimates, the total capital of the fund is $ 2 billion. The financial institution itself is one of the largest funds in the field of targeted investment of infrastructure projects in at least 57 states that are IDB members.
The creation of the first Islamic bank is planned on a pilot territory in Tatarstan. This information was provided by Anatoly Aksakov, who is president of the Association of Regional Banks. At the moment, representatives of the east and Tatarstan are preparing technical and economic foundations that will allow the Islamic bank to enter the domestic market by the end of September 2015. The new credit institution will operate according to the standards of an investment bank and on a participatory basis. According to media reports, meetings have already taken place between representatives of the IDB and representatives of the Association of Russian Banks and Ak Bars. By the way, Ak Bars is the largest participant in the financial market of Tatarstan.
Failure to create the first Islamic financial institution in Russia
There is experience in history when attempts were made to introduce Islamic banking in Russia. It is very interesting that a bank called Badr Forte has been operating for 15 years. It is worth saying that the financial institution throughout its history has had certain difficulties associated with the legislation of the country. At that time, there was no talk of modernizing legislation. The result of this innovation is quite obvious. The Islamic Bank in Moscow was closed because it could not provide services in accordance with Islamic law. The first experience was deplorable, as it did not meet support from the Russian government. To function effectively in a country where most citizens do not profess Islam is at least problematic.
Deviation from the law or search for loopholes
In the conditions of a severe economic crisis, with the lowest possible ruble exchange rates, many domestic financial institutions lack liquidity. The situation provoked an active appearance of talk about close cooperation with the Islamic economy, about the introduction of new elements in the established financial structure of Russia. Negotiations with the OIC states are actively being held at the government level. To say more, the state’s interest in partnership with exotic countries began to appear back in 2009.
It is from this period that systematic round tables have been held between members of the governments of countries where issues of legislative co-operation are discussed. In history, there are projects according to which Islamic financial institutions practicing the principle of interest-free rates are introduced into the country. The trick is that Islamic banks in Russia, whose addresses are easy to find, are not positioned as banks themselves, but have a different legal status. Simply put, elements of Islamic banking are being introduced into the actual Russian banking system.
Islamic windows
The Islamic Development Bank got the opportunity to provide its financial services in the international market and in the markets of countries where quite a lot of Muslims live, thanks to such a concept as “Islamic windows”. The essence of the term is based on cooperation with a branch of a standard bank, which operates in accordance with Sharia. Assets of Islamic and convention departments exist separately. Their management and regulation takes place in different formats. In the West, the practice of opening “Islamic windows” is very common. It is used to attract a new segment of customers. Islamic banking in Russia in this format, although it exists, is underdeveloped. This category of establishments exists almost on semi-legal grounds.
Leap from the past to the future, or what stops the Russian government
Despite the current lack of a legislative framework for opening an Islamic bank in Russia, the first discussions on this issue did not appear in 2006 in Moscow, but in 1990. in the territory of Tatarstan. This is one of the largest secular Muslim republics in Russia. You can recall that in the early 1990s. Sberbank was planning the creation of an “Islamic window." In 1992, on August 14, an official statement was received by the media that a “Single Islamic Commercial Bank” would be created. Unfortunately, the project was never realized, and the aforementioned institute was never opened. Despite the unsuccessful experience of cooperation with the East, as well as in connection with the underfunding of domestic financial institutions, the Islamic Bank in Moscow is already considered not as a project, but as a fully realized prospect.
Modernization of the tax code of Russia
The first thing that Russia needs for a successful partnership with the East is the active development and modernization of tax legislation. This is necessary, first of all, for the implementation of tax neutrality. The bottom line is that the financial operations of conventional Russian banks are not taxed on value added. As for Islamic financial institutions, in accordance with their legislation, they must pay 18% VAT on value added. At the same time, there are active discussions about increasing VAT to 20%. This puts two types of financial institutions in completely opposite competitive conditions, not only in the domestic market, but also internationally. Subject to significant revision is the policy of the regulator in relation to Islamic banks. It is necessary not only to completely eliminate the barriers to their development. It is imperative that the latter do not abuse their benefits.
Advantages of introducing Islamic banking in Russia
At the moment, Russia has the opportunity to take full advantage of Islamic banking due to the fact that there are no competitors in this matter. China, by virtue of economic and religious convictions, has not yet considered prospects for cooperation with the East. An Islamic bank loan and other specific financial services may stimulate the flow of funds to the state budget. Moreover, Russia gets the opportunity to finance from a new partner, which is important in the situation that is taking place today.