24 Nov 2023 16:51

Development of Islamic banking in Russia hampered by lack of information as well as legal subtleties - authorities

UFA. Nov 24 (Interfax) - The effective functioning of the partnership financing mechanism in Russia is hampered, in particular, by contradictions between the norms of Islamic banking and the current federal legislation on the banking system, according to participants in a thematic session as part of International Business Week 2023 in Ufa on Friday.

In August, Russian President Vladimir Putin signed a law on conducting an experiment in the country from September 1, 2023 through September 1, 2025 to introduce Islamic banking in Dagestan, Chechnya, Bashkiria and Tatarstan.

"The experiment has been going on since September, but during this short period of time, certain points have emerged hindering the effective implementation of halal banking. First of all, lack of awareness from both the public and the business community. Second, each republic participating in the experiment is 'cooking in its own juice,' therefore it is necessary to create a unified system of interaction between the republics, exchange of practices and experience via the Central Bank or the Ministry of Finance," Oleg Golov, a member of the Federation Council Committee on Federal Structure, Regional Policy, Local Government and Northern Affairs, said at the session.

The provision of halal banking services comes into certain contradictions with federal laws on banks and the banking system, he said.

"For example, halal mortgages or the sale of goods in accordance with Shariah standards, from the point of view of Russian legislation, are perceived as commercial activities, while banks are prohibited from engaging in production, trading, and insurance activities. Therefore, we need to make appropriate changes to the legislation and move on to eliminate these contradictions," the senator said.

Nearly 20 million Muslims live in Russia; they could become potential participants in the implemented mechanism, he said.

In turn, Deputy Prime Minister and Minister of Finance of Bashkiria Lira Igtisamova said that in the republic "there is a very great interest in the effective implementation of this mechanism, because Muslim associations in our country make up about 70% of the total number of religious associations in the region."

According to her, the republic has currently developed a "road map" for the introduction of partnership financing, which is undergoing an approval procedure with all interested parties. The document is aimed at creating conditions for the effective functioning of this mechanism, increasing awareness among citizens, business and the banking community about the passage of this experiment, identifying potential participants in the experiment, and identifying financial institutions that are ready to provide relevant services.

"We will have to do a lot to improve our republican legislation to meet the requirements of federal law. We will also make proposals to improve federal legislation," she said.

Islamic banking has a number of prohibitions and restrictions. For example, there is a prohibition on the payment of interest (riba) and interest transactions derived from it; prohibition on transactions with conditions of uncertainty (gharar); and a ban on financing precisely defined sectors of the economy (gambling, pork production, alcoholic beverages). There is also a condition for sharing the risk of profit and loss between the financier and the financed parties and a condition for conducting financial transactions only on the basis of real assets or transactions with these assets. Mandatory identification of the real assets underlying the transaction is required.

The 16th International Business Week - 2023 forum takes place in Ufa from November 22 to December 1.