Сhallenges of Islamic financial system in Russia
poll of the month
Interview with Madina Kalimullina, Director of Economic Department of Russia Muftis Council
Ms. Madina, as expert in the sphere of theory and practice of Islamic economy, how do you estimate the level of Islamic Finance development in our country?
For a long time, the Russian market featured a substantial uncertainty with regard to Islamic finance. In 3-4 years period after the revocation of the license from a well-known project "Badr-Forte Bank" and closure of «Manzil» project that was dealing with the financing of real estates purchase, the market has gathered enough information and interest in Islamic finance. Still, there was no project, probably except for BrokerCreditService's mutual fund "Halal", which unfortunately was launched at the beginning of the last financial crisis. I neither give as example payment card projects as they do not reflect the essence and content of Islamic finance. It should be noted as well that lots of projects were announced, but most of them were never launched so far. In my opinion, there is a reasonable explanation for that.
The market was waiting for new projects. Muslims were wondering why there was not a single Islamic bank in Russia? Why there were no Islamic financing projects? Those who had no idea of market peculiarities started thinking that there was hardly any prospect of such projects appearing at all, that in Russia such themes would never develop. These sentiments were clearly seen even during the "Islamic finance " courses, which we have organized and launched jointly with the Moscow International Higher Business School. In 2009, there were quite a lot of people willing to take the courses, and many of them were attracted by their originality. In 2010, the number of students decreased, but the student body has become much more solid - to larger extent, it consists now of individuals who are ready and willing to implement in practice Islamic finance projects.
Finally, the years 2010 and 2011 have turned the tide. Several projects have been successfully launched simultaneously in various regions of Russia. And it was not just an announcement of their opening, these were already functioning and growing financial institutions.
Practice in the development of Islamic finance is very important. It allows to adjust the knowledge and forecasts and to identify the ways for further improvement. The market must move on as it is new and it attracts great interest both in Russia and among foreign partners. We should also expect the reaction from regulators, which for sure are aware of all the positive potential incorporated in Islamic finance that can foster the development of the real sector of our economy.
As for today, what concrete steps have been taken in order for Islamic Finance functioning in Russia being possible?
I can list the main steps:
- gradual accumulation of experience and improvement of quality of Shariah expertise;
- opening of two Islamic branches in commercial banks and three financial investment companies;
- opening of vocational courses on Islamic finance in several universities in Moscow and Kazan;
- cooperation with the international community from OIC countries on an ongoing basis;
- translation and publication of AAOIFI Shariah standards for Islamic financial instruments;
- organization of professional platforms for the development of Islamic business: Moscow Halal Expo, Kazan Summit on Islamic business and finance;
- consolidation of experts under the Russian Association of Experts in Islamic Finance;
- creation of prerequisities for the organization of the Islamic Business Club.
In your opinion, what objectives should the authors of Islamic finance projects in Russia pursue?
The essence of Islamic economics and finance is not merely in the rejection of prohibited transactions.
Many people say that the main objective of Islamic banks, as well as other banks', is to make profit. This is true to some extent, but the desire to get profit as a means to maximize the efficiency of asset allocation is never equal to the enrichment at any price. The task of a Muslim entrepreneur is not only to become a billionaire, but to create a new product or service which will be useful and beneficial to the society.
If, by the will of God, he has been successful in earning a considerable fortune, it imposes an additional responsibility on him in front of the society. In the end, no one will pass away to eternity with his wealth, and the best thing that a person leaves in this life is the result and continuation of his good deeds.
Unfortunately, most of contemporary enterpreneurs do not produce new goods or services aimed at improving the life of the society, they have no desire to maintain and improve the quality of their products: a large part of them, whether food or textiles, building materials or furniture are of low quality or even defective. Most of the offered services is the mediation, often based on delusion.
Investments are almost never directed into the sectors where the population has the utmost need: agriculture, energy, environmental protection, improving living conditions in urban and rural areas. Instead, investors prefer to invest in areas that have large and fast money output: casinos, football clubs, trading, financial instruments, banking sector.
In our opinion, this is the distortion of the concept of entrepreneurship. Today, those entrepreneurs who operate under the norms of Islam do not receive high profits, but have a normal income.
I believe those who want to earn on Muslims are destined to fail if they do not share the moral principles that are inherent in Islam, as well as in all monotheistic religions.
The initiatives that are present today in the development of Islamic finance are the result of huge effort and collaboration of people who do their utmost, not by words but with through real deeds.
Allah says in the Holy Quran (4:95): “Not equal are the sedentary among the believers who are not handicapped, and those who strive in the cause of Allah with their money and their lives”.
All the positive that we have today is the result of good deeds and hard work of certain individuals. We are glad that today a team of like-minded people have been created in Russia focused on the development of Islamic finance. And in our view, the guarantee of success and blessings of God depends exactly on partnership and cooperation.
What are the prospects for the growth of Islamic Finance in Russia?
I think in the near future we will witness appearing of another 2-3 new Islamic financial institutions in Russia. Then, for one or two years the market will keep its eye on the development of existing projects, making some adjustments. At the same time, the work on the development of Sharia committees will continue which is functioning for the time being within the framework of the Russian Association of Experts in Islamic Finance.
One of the important tasks is to create equal opportunities in the market. As any other new sphere, Islamic Finances requires coordination and some sort of standardization. Our companies that offer such kind of services will have to learn to work in competition. Our entrepreneurs should not forget that in Islam, along with the rules of production itself, there are strict rules of competition. Besides, it is very important not to disrupt each other's business. The Prophet (pbuh) said: "Do not outbid trade affairs (business) of each other."
It is my sincere pleasure that there are already more than one project related to Islamic finance in Russia. It makes one entering the market experience some kind of competitive environment and take a more responsible and professional approach to his work.
It is very important how the first projects will show themselves in the field of Islamic finance. In our opinion, all necessary conditions are present today for their successful development. Further these projects will be developing, the greater demand will there be for Islamic financial services, and a wider range of customers.
We can compare the prospects for Islamic finance development with the development of halal food industry. First, in the late 80's, the production of halal meat was limited to private households, a stable demand for such kind of meat was coming from a small group of people, while others, in the absence of the permitted food, were ready to consume non-halal products. However, with the appearance of mass production, more and more people began to switch to halal meat. Today, demand is growing along with supply. We can expect similar dynamics in the Islamic finance market. And standardization and certification (or validation) in this area is no less important.
One of the catalysts for the development of Islamic finance in Russia is a large and growing annual platform of Moscow International Halal Exhibition or simply Moscow Halal Expo, which will be held this year from May 26 to 28, at the International Exhibition Center Crocus Expo.
How Moscow Halal Expo may contribute to the development of Islamic finance in Russia?
Actually, the idea of the exhibition itself was originally to promote not only halal-production, but also Islamic financing.
One of the challenges of Moscow Halal Expo is to demonstrate the need in Islamic financing from among socially-oriented, high-tech projects and those related to halal production; and unite together on the single platform both investors and entrepreneurs.
Business program is also designed to attract interest of the regulators and market players, to present and to give a wider publicity to the existing and perspective projects in the field of Islamic finance.
Owing to the participation of foreign parties, Russian businessmen will have an opportunity to review and analyze the approaches of different countries to the regulation of Islamic financial institutions and to exchange experience in the organization of Islamic financing.
The program of Moscow Halal Expo 2011, along with the exhibition process, includes the business forum. Please, tell us more about this event.
Within the framework of Moscow Halal Exhibition a Business Forum will be held that will include a number of sessions:
Presentation of investment projects. The organizing committee has already received the requests for the presentation of quite interesting and various projects from different industries and regions of Russia. These projects are united by two things: none of them is associated with prohibited types of production and each of them involves the participation of investors on terms which are not contrary to Islamic finance, that is, both profits and losses are shared between investors and entrepreneurs. Participants include Russian and foreign investors, Tatarstan International Investment Company established with the participation of the Islamic Corporation for the Development of Private Sector. Session will be held behind closed doors.
The Roundtable discussion on "Practical issues of regulation of Islamic financial institutions and products" is designed to share practical experience with the involvement of regulators and market participants from countries that have made amendments to their legislation in order to create the conditions for the development of Islamic financial instruments.
We believe the Master-class on the organization of Islamic business with participation of Shariah experts, pioneers of Islamic financing and international experts will be an interesting and remarkable event, the most interactive and fruitful.
The Roundtable on "Social projects and charity practices in Russia" will feature discussions on the social aspects of Islamic business and draw attention to the socially-oriented projects, i.e. the creation and development of Islamic educational infrastructure. The programs of the Islamic Development Bank divisions are expected to be presented during the session.
The presentation of the Analytical Note (bilingual) on the existing undertakings in the field of Islamic finance in Russia. The leaders of such projects as Badr-Forte Bank, Yumart-Finance company, Islamic branch of Vostok Capital, mutual fund Halal of BrokerCreditService etc. participate in drafting the document.
We tried to make the program of the business forum oriented as much as possible to the practice and solution of practical problems facing the industry.
The Special Assistance Office of the Islamic Development Bank has recently paid a visit to Russia Muftis Council. Tell us, please, about the outcome of the meeting. Have you reached any agreements?
The visit was quite important for both sides and we hope it will be the starting point for a new level of cooperation between the Islamic Development Bank and the Russia Muftis Council (RMC). One of the things that will definitely contribute to such a cooperation is the establishment of the Economic Department within the structure of RMC. The Department is aimed to promote economic relations of Muslims and Muslim organizations in Russia with international organizations, in particular, such a large and important structure as the Islamic Development Bank.
I think, the IDB experts have also witnessed the seriousness on the part of our department in assisting the IDB with the implementation of projects in Russia. In the months to come, by the will of God, we will launch a number of new projects aimed to create and develop Muslim infrastructure.
At the same time, we realize that today the opportunities for the implementation of IDB programs in Russia are significantly limited, primarily because Russia is not a member of the Organization of Islamic Conference. For this reason, there is only one IDB Department that is responsible for the direct interaction with the Russian Muslim organizations and its name speaks for itself - the Department for Relations with Muslim organizations in countries not members to the OIC.
One of the most important projects that is being realized by RMC in collaboration with aforementioned IDB Department is a program of interest-free loans for higher education (for three years we have provided interest-free educational loans to more than 50 people representing more than 10 regions of Russia, and we hope to increase this figure to 30 grants annually).
The second important area of cooperation is the co-financing of the construction of important social Muslim infrastructure facilities. First of all, madrassas and dormitories for students, etc.
During the visit to Moscow and Kazan as well as to other regions, IDB and RMC identified new projects in which the Islamic Development Bank was ready to take part in.
Another important area which we hope to develop in partnership with the IDB is the development of Waqf property (Waqf is an inalienable religious endowment in Islamic Law , typically denoting a building or plot of land for Muslim religious or charitable purposes). By the way, the issue of legal recognition of the status of waqf is the only clause in the final resolution of the last year's Conference on Islamic finances (which took place during Moscow Halal Expo 2010) which has not been yet implemented (you can get acquainted with the text of the resolution at: http://www.muslimeco.ru/eng/doc/halalexpo/ifconf/resolution/)
It may be noted as well, that apart from the aforementioned IDB Department, we continue to cooperate with other departments of IDB, namely, Islamic Research and Training Institute (IRTI), Islamic Corporation for the Development of Private Sector (ICD).
We are looking forward to the participation of colleagues from the above mentioned IDB departments in Moscow Halal Expo 2011, and we will have soon the information of who exactly will represent the IDB.
The Business program includes as well "Business Meetings". Could you please specify who can participate and what is the application procedure?
This year we have decided to arrange such meetings for the representatives of major retail chains and investment companies, at their request. There will be an opportunity as well to negotiate in specially equipped area and in the exhibition hall itself. Practice confirms that such negotiations are most effective.
At the same time, we would like to encourage business people who somehow associates themselves with the Islamic business ethics to exercise as much initiative as possible, refrain from ill-considered criticism of other participants in the market and come up with constructive proposals. In particular, we have high prospects for a semi-formal platform of the Islamic Business Club, where entrepreneurs will be able to share their views and proposals regarding the organization and development of Islamic business in our country. If God wishes so, this will lead to the creation of the promising new projects aimed to develop the real sector of our economy.
Translated by MuslimEco.Ru