Islamic finance coming to Russia?

Monday, June 6, 2011 According to this Agence France-Presse piece, Russia is to "enter the world of Islamic finance." Actually what appears to be happening is that the Republic of Tatarstan, which is a republic within the Russian Federation, will guarantee sukuk bonds for the construction of a new finance center. Sukuk don't pay interest, but rather give the owner a share of the enterprise. Here's what the article says: "Russia will show that it can be interesting for Muslim countries," one of the project's backers, Linar Yakupov told AFP. "Right now Islamic banks cannot work in Russia, because our legislation does not take into account the Koran's restrictions." Islam forbids borrowing or paying with interest, and sukuk (the plural of the Arabic word for a financial deed) are not based on debt like traditional bonds. Instead, buying the bonds secures partial ownership in a concrete asset like land or a building, and investors are guaranteed a part of the profits generated by this asset. The first sukuk to be issued in Tatarstan's capital Kazan on June 20 will be going toward financing a major business centre in the city whose construction will cost $200 million. "Sukuk are guaranteed by the Tatarstan government, the operator will be based in Luxembourg, and we know that the international market is ready to buy," Yakupov said. Rustam Minikhanov According to the article, Tatar president Rustam Minikhanov has called bringing Islamic banks to Russia "possible and even necessary." While the Agence France-Presse piece implies that this is the first time sukuk have been employed in Tatarstan, this piece in the Kazan Herald seems to imply otherwise: The republic’s involvement in Islamic finance began in 2006 and resulted in the creation of the Tatarstan International Investment Company in 2010. An Islamic leasing company is expected to be founded this year. The Agence France-Presse piece also raises some doubts regarding whether or not Moscow will allow this to actually happen: In Moscow, however, federal authorities are showing greater caution. "There is no existing law nor a draft law regulating Islamic finance. Given the lack of eagerness from the federal authorities to study this issue, we should not expect it for another two or three years," said Oleg Ivanov, vice-president of the Regional Banks Association of Russia. Ivanov's association has tried without success to include Islamic finance into Russia's strategy for developing its banking system to 2015, which was adopted by the government two months ago. "The government and the Central Bank did not support us," Ivanov told AFP. Stay tuned...