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Сhallenges of Islamic financial system in Russia
An analytical article by Mr. Yuriy Barmin published at the portal of Chamber of Commerce and Industry of Russia the issue of possible problems of Islamic finance development in Russia was raised among others . Yet MuslimEco editorial board has its contradiction to some of the author's observations.
Author's text: "When the idea of Islamic financial system appeared in Russia in 2000’s, it was discredited with a wrong association with the problem of Islamic terrorism. Apart from that, the industry image was adversely affected by the recent burst in the ISIS activity in the Middle East. Many Russians are wary about the connection between Islamic financial system and Islamic teachings. Most of them are Orthodox Christians and are unlikely to use the services of such financial establishments."
MuslimEco’s comment: The track record of Islamic financial companies working in Russia demonstrates the opposite: there are many Orthodox Christian citizens among the customers of the “Amal” Finance house.
Author's text: "Another reason for cautious attitude of Moscow authorities towards the Islamic financial system is related to its alleged connections with Saudi Arabia. Russia is trying to limit the Saudi influence in Muslim regions of the Northern Caucasus and Volga federal district since 2000’s. Secret service officers told they believe that opening the Russian bank system to Islamic finance will enhance the implicit influence of Saudi Arabia in the country."
MuslimEco’s comment: Most likely, Russia is trying to limit the influence of extremist ideas, which do not represent the ideology of any country, especially the world’s biggest oil exporter and investor. Ideological influence and investment channeled into real sector of economy are two distinctively different realms. Meanwhile, the influence of Hollywood and the USA on both Russian and Saudi youth is much more significant.
Author's text: "These concerns are also supported by the fact that the Islamic Development bank (IDB) with headquarters in Jiddah is working on the expansion of this industry. IDB is conducting negotiations with the Central Bank of Russia regarding the introduction of Islamic banking in Russia and making Tatarstan the regional centre of Islamic banking system."
MuslimEco’s comment: Islamic Development Bank is the official international financial establishment under the biggest International organization — Organization of Islamic Cooperation (where Russia is an observer). This bank is supposed to support economic development of member states, and also includes a number of departments related to investment, research and analysis, insurance of export operations etc. When developing Islamic banking sector in a country, Islamic Development Bank plays the role of the first co-investor organization, which participates in investment activities or establishes financial organizations in the country. Without negotiations between the heads of IDB and the Central Bank of Russia, the effective development of Islamic banking would be questionable.
Author's text: "Some experts from GCC believe that up to 85% of transactions involving sukuk don’t comply with shariah norms, which raises concerns regarding the subjective application of Islamic banking rules. In every Islamic bank there is a board that estimates every transaction, however the decisions of different banks may contradict one another. The GCC countries are yet to create relevant state establishments that would bring the norms of different Islamic banks to a common standard. In particular, the UAE is planning to create a committee of Islamic scholars, which would monitor the whole sector and devise standards for Islamic banking products; but that plan is far from being put into practice."
MuslimEco’s comment: this refers to so-called asset-based and asset-backed sukuk. The question about the former not complying with shariah norms was raised in 2009, followed by certain amendments in standards. The reputable organization AAOIFI has been developing general shariah and accounting standards for Islamic financial establishments since 2000’s.
Author's text: "It is possible that in different regions of Russia the Islamic banking rules will be interpreted differently due to different Islamic traditions in the Northern Caucasus region and central regions of Russia. Thus, the decisions of banks in Tatarstan and Chechnya or Bashkiriya and Dagestan would probably be different."
MuslimEco’s comment: For the last few years the Russian Association of Experts in Islamic Finance (RAEIF) has been cooperating with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which develops and issues shariah standards in Islamic finance sector, followed by the banks in the whole world. This year in May the Russian Muftis Council, the Centre of Islamic Economy and Finance Development (CIEFD) and the AAOIFI signed a Memorandum on coopeation implying more profound interaction in this sphere. Based on the experience of Islamic financial companies operating in Dagestan and Tatarstan we can say that there are no differences in interpretation of the shariah norms related to financial operatoions. In general, the differences in madhabs (religious schools) have less to do with property interests.
Author's text: "In order to bring Islamic banking rules to a common standard, Moscow authorities might prefer to regulate this sphere through the Central Bank of Russia instead of allowing the regional authorities to take independent decisions regarding the banking products conforming to shariah norms. The principles of Islamic financial systems forbid deriving profits from corruptive and fraudulent activity. At the same time, there is a high corruption level in the country’s financial centre due to loose grip of the Central Bnak on commercial banks. Hence, the Islamic banks from the countries with law-stipulated strict penalties (Saudi Arabia, Qatar, Malaysia) will have to reconsider their working methods and to adjust them to Russian financial environment, if they decide to enter the Russian market."
Source: MuslimEco based on Vedomosti web-site materials