The intellectual argument for and the demystification of Islamic finance has gained much ground in Russia and the CIS countries over the last two years, but the political decision makers and bureaucracy, especially the banking regulatory authorities, still need to be convinced about the role an alternative Islamic system of financial management can play, especially in the aftermath of the global financial crisis. As such, Islamic finance in the region is at best a work in progress but the task ahead remains huge.
This was the consensus at the pioneering inaugural Roundtable on "Islamic Finance in Russia and the CIS: Market and Regulation" which was held in Istanbul and organized by Bank Conference and largely sponsored by the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IDB Group).
The roundtable was important in many respects and attended by a range of officials from Russia, the CIS and the world of Islamic finance. They included Khaled Al-Aboodi, CEO of ICD; Mohammed Nedal Alchaar, secretary general of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in Bahrain; Bakaruddin Ishak, assistant governor, Bank Negara Malaysia; Jochen Robert Elsen, deputy head of international affairs, Federal Financial Supervisory Authority (BaFin) in Germany; Jean-Marc Goy, head of international affairs, Commission for Supervision of the Financial Sector (CSSF) in Luxembourg; Yerlan Baidaulet, chief economic adviser to the deputy prime minister of Kazakhstan; and Umed Davlatsod, deputy minister of Economic Development of Tajikistan.
From a Russian context the Roundtable assumed even greater importance for other reasons. For the first time two key members of the Duma, the Russian Parliament, participated in an international Islamic finance event. They included Arkadiy Svistunov, member of the Financial Market Committee of the Duma, and Aleksey Belov, head of the Administration Financial Market Committee of the Duma. Similarly, the participation of Vladimir Milenin, head of the Directorate, Analytical Centre for the Russian government, who reports directly to the Office of Russian Prime Minister Vladimir Putin, and Irina Yarygina, professor at the Finance University under the Russian government, who is in the process of drafting an Islamic finance law for Russia, was perhaps even more important.
Another important participant was Maxim Osintsev, managing director of the Oil and Gas Department of Sberbank, Russia’s largest bank, and which is 50 percent owned by the Central Bank of Russia. Osintsev, who is a fluent Arabic speaker, sees huge potential for the use of sukuk in Russia, especially to raise finance in the transport, oil and gas and agricultural sectors to fund infrastructure and expansion. But he remains doubtful if there would be any meaningful developments in the next one to two years in sukuk issuance in Russia.
The participation of the above and many others from the region perhaps suggests that the intellectual argument for Islamic finance is progressing much faster than developments on the ground, although these vary from country to country.
However, Khaled Al-Aboodi of ICD raised expectations when he made an offer to the Russians and CIS that they possibly could not refuse. The ICD, he stressed, is prepared to organize study and familiarization tours on Islamic finance for Russian and CIS officials to successful markets such as Malaysia, which Bank Negara Assistant Manager Bakaruddin Ishak welcomed and promised to help facilitate.
Al-Aboodi stressed that the ICD is already active in many respects in Russia and the CIS. In the Russian state of Tatarstan, for instance, ICD is managing the Tatarstan International Investment Company, the first Islamic investment company in Russia and a joint venture between the Tatarstan government and the IDB. The ICD also operates Ijara companies in Azerbaijan, Kazakhstan and Tajikistan.
Bakaruddin Ishak of Bank Negara outlined the Malaysian model of Islamic banking which is now nearing its fourth decade and which is the most advanced and holistic Islamic banking system in the world.
Arkadiy Svistunov, a member of the Duma, stressed that Islamic finance could be very important for today. “The world is emerging from a serious financial crisis. The challenge is how we can avoid the mistakes that brought about the crisis. The key is transparency, something which the Islamic finance system emphasizes. In Russia it is a question of whether a new law needs to be adopted or whether amendments to the existin legislation would suffice. But each country must find its own solution, if it decides to facilitate Islamic financial products,” he explained.
His co-parliamentarian, Aleksey Belov, explained that Russia is going through a unique moment in its contemporary history. The global crisis has alerted the entire decision-making process in the government and there is great concern and desire to avoid the pitfalls of the excesses of market capitalism.
However, he warned that the level of financial literacy in the population in general is low. That is why it is important to articulate the values and essence of Islamic finance to the grassroots to allay misconceptions and demystify the phenomenon.
Milenin revealed that a Forum on Islamic Finance in Russia will be held soon in Moscow to sort out the problems Islamic finance is faced with in Russia today. He suggested that there should be no impediments given that Islamic finance corresponded to human values in financial and economic management.
However, he agreed that there is a lack of will and cooperation regarding Islamic finance in Russia, but warned that it would be premature to translate an Islamic financial system into the Russian reality. The future, he stressed, should be balanced cooperation. He added that he is confident that eventually “we shall overcome all the difficulties.”
Leonid Syukiyaynen, professor at the State University Higher School of Economics, who is an Arabic speaker and a specialist in Islamic economics, warned that the Russian government is not yet ready to facilitate Islamic finance structures. But, while there is no serious objection to Islamic finance, there is also no support or encouragement to facilitate Islamic financial products in Russia, he added.
Of the CIS countries, Tajikistan and Kazakhstan seems to be the most proactive in facilitating Islamic finance, while others such as Azerbaijan remain ambivalent. Umed Davlatsod, deputy minister of economic development of Tajikistan, maintained that Islamic finance was very much needed in the CIS countries especially Tajikistan. The government set up a working group for the introduction of Islamic finance in the Tajik economy. A government decree has been introduced, he revealed, but the aim was also to learn from other countries’ experiences and mistakes.
The key conclusion to emerge from the roundtable is that there is a huge demand for training and education in Islamic finance in Russia and the CIS; there is a need to make decision makers and lawmakers more aware of the principles of Islamic finance; there is no need to wait for an Islamic finance enabling system to be in place, instead Islamic financial products can be introduced on an ad hoc basis in a bottom up way rather than top down system; there was a call for the development of a wider Islamic economic model of which finance is a mere component and a greater articulation of the industry; and that the mindset at thetop of the Central Bank of Russia needs to change especially on financial management in general and on the alternative Islamic finance system in particular.
