‘The future that is coming’: will Islamic banking work in Russia?

“Halal” finances are hindered by legal barriers so far, but this is temporary

‘The future that is coming’: will Islamic banking work in Russia?
Photo: Oleg Tikhonov/ realnoevremya.ru

In Russia, they are preparing to legalise Islamic banking. The novelty will be tested at first in Dagestan and Chechnya. However, Tatarstan also expressed the desire to join this experiment. Expert on Islamic finance, investor Zokir Ibragimov in the author's column for Realnoe Vremya explains how Islamic banking differs from traditional banking and how it will be implemented in our country.

Islamic banking in Russia is not an experiment, but an inevitability

In August, the Central Bank of Russia announced the launch of an experiment on the introduction of Islamic banking in the country. Chechnya and Dagestan are selected as pilot regions.

“The Chechen Republic and the Republic of Dagestan have been proposed by the Ministry of Finance of the Russian Federation as subjects of this project and are enshrined in the instruction of the president. The issue is being worked out by the Ministry of Finance of Russia with the participation of the Bank of Russia, including the preparation of amendments to legislation. Direct piloting on the territory of the subjects of the Russian Federation — participants of the experiment is expected in 2023, " the Central Bank of Russia said in a statement.

The choice of two North Caucasian regions surprised few people. People had more questions about the fact that Tatarstan and Bashkortostan, which were also planned as sites for running the system, were not included by the regulator in the end. However, it should be noted that the introduction of Islamic banking into the Russian economy is not so much an experiment as an inevitability, it is the future that is coming. Islamic finance, in my opinion, will be introduced all over the world, because humanity today simply has no other alternative.

Tatarstan and Bashkortostan were also planned as sites for running in the system, but in the end they were not included by the regulator. Photo: Maksim Platonov/ realnoevremya.ru

The modern (traditional) financial system, based in fact on usury, for objective reasons begins to reach its limits, and humanity is coming to a dead end. The world's central banks and financial regulators around the world have fewer and fewer tools to control the situation. As a result, we see a lot of distortions in the economy, high inflation in various parts of the world, and many countries are starting to print more and more money in an attempt to “plug the holes”.

When the bubble bursts

In fact, the US Federal Reserve System is engaged in the so-called soft default, that is, it does not conduct a hard default, in which the insolvency of the state is declared, but a soft one, when debts to the whole world increase from year to year and the cost of this debt decreases by printing even more money. Of course, this is super-unfair, this state of affairs cannot last forever. Many people understand that everything will eventually come to a standstill. Yes, this process can be stretched over time, but it cannot continue indefinitely.

Islamic finance is the very path that humanity has. The introduction of Islamic finance, following the principles on the basis of which they function, would save people from a large number of financial problems. Financial markets, as we can see, are inflated like soap bubbles. Financial systems are “overheated”, goods and services are becoming much more expensive as more money is thrown into the economy.

The Fed and central banks of countries print a lot of money to “put out fires.” People and institutions are starting to buy out various financial instruments because they have no other alternatives for investment due to the fact that interest rates are very low, and people are starting to invest in everything because of an increased risk. People's appetites are growing, the existing financial system motivates them to inflate the prices of all kinds of assets. When these processes become difficult to manage, regulators introduce new measures, for example, raising interest rates, reducing the amount of money in the economy, which ultimately leads to a decline in the economy and the loss of considerable capital by the population. We must not forget that these mechanisms are accompanied by some excitement among people, because there is an opportunity to earn a lot quickly and lose everything in a moment.

Islamic finance will become prevalent in Russia as well

With Islamic finance, all these things go into oblivion. The distribution of resources is more equitable. From the point of view of risk sharing and responsibility, creditors act as a single object — this is how it should be in the system of Islamic finance based on justice. Now it is happening quite differently: lenders are relieving themselves of all risks, shifting them to the borrower as much as possible. However, this problem is solved — it is enough to introduce Islamic finance. In Islamic finance, money acts as a medium of exchange, and not as an asset or commodity, as it happens in many economies of the modern world.

In Islamic finance, money acts as a medium of exchange, not as an asset or commodity. Photo: Maksim Platonov/ realnoevremya.ru

Accordingly, the pilot implementation and further development of Islamic finance in Russia and in the world as a whole will gradually lead to the understanding that there is a real alternative to the existing system: economy can be built more fairly, harmoniously and honestly in relation to all participants in the financial market.

Therefore, I really hope that, despite all the difficulties, and there are quite a lot of them, despite many legal and legislative nuances, the Central Bank of Russia, relevant organisations and the government of the Russian Federation will be able to find a solution to these issues and safely introduce Islamic finance in the country. And it is possible that in the future Islamic finance will become prevalent both in Russia and in most countries (with divine blessing).

Zokir Ibragimov

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The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.