Charging interest is forbidden in Islam, so a different form of banking has been developed than emerged in the West after the repeal of the religious prohibition on interest (rent) in Western Christianity and which became the basis for capitalistic finance. Islamic finance is developing quickly and Russia's adoption will give it a further boost outside the Islamic world.
Cut off from Western capital markets, Russia is stepping up efforts to tap into the huge pools of capital in the Middle East by issuing Islam's answer to bonds, sukuk, which are not subject to Western sanctions.
Sukuk are especially attractive for Russia following its downgrade to junk status by rating agency Standard & Poor's in January. As the bonds are asset backed, the quality of those assets will be more important to potential investors than Russia's sovereign rating. "Today, Russia has a low rating and is suffering from sanctions, but it is not the rating that will attract the investors but the quality of the assets and the returns the bond pays," Linar Yakupov, head of Russia's Islamic Business and Finance Development Fund, tells bne IntelliNews.
Russia's Islamic banking is still in its infancy, and the state has yet to launch a debut sukuk, but the government is actively working on putting in place the regulations that would allow for the issue of what is essentially a regular asset-backed bond with some special rules and restrictions. "Islamic bonds are a mix of ethics and a structural product. They are broader than just the banking business and wider than the Middle East. It is a horizontal product," says Omar Shaikh, member of the board of the Islamic Finance Council in the UK. "It is a young market and still evolving. And it is not just for Muslims. Sukuk have attracted several billion dollars worth of investment and non-Muslim governments like the UK have issued them."…
With a significant Muslim population of about 20m, Russia has already gone some way to developing Sharia-compliant Islamic financing structures.…
The whole of the former Soviet Union sees Islamic finance as a way of attracting money from the Middle East and Southeast Asia; yes we can do that, but it is not the point. This is a new instrument, a new tool for government and business to use."
In this regard, the former Soviet republics of Azerbaijan, Kyrgyzstan and Kazakhstan are all well ahead of Russia. All of them are a lot closer to the Middle East, both commercially, geographically and culturally, and all have the regulations and Sharia-compliant banks already in place.
That's why the creation of the Eurasian Economic Union (EEU), which came into being on January 1, will also help spread Islamic finance to Russia, because the trade bloc unites the markets of Russia and Kazakhstan, allowing the freer movement of capital and making the sharing of regulatory frameworks easier, as well as increasing the pool of Muslim investors and Islamic-oriented companies.Globalization taking a different turn that the West expects.
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