Halal mortgage for self-builds in Tatarstan

Halal mortgage for self-builds in Tatarstan
Photo: Maxim Platonov/realnoevremya.ru

As Realnoe Vremya found out, Tatastan is going to launch an analogue of the Islamic mortgage for self-builds. Representatives of seven big countryside real estate developers explained how they were creating an interest-free system with instalments according to Sharia norms. Read in our report about the prospects of the new service in the pilot of the Islamic financing system in Russia and what difficulties this project has.

“A Halal mortgage is attractive not only for Muslims”

Russians borrowed over 140 billion rubles in banks last year for self-builds. Today about 90% of self-build deals include borrowings from banks and some 80% of mortgages are taken out in state preferential programmes.

So the interest in a self-build mortgage is big enough. However, in the general amount of home loans, this real estate segment holds just 5%, noted Tatarstan entrepreneur, owner of Khan’s House Ilyas Gimadov. The developer initiated the project of a Halal self-build mortgage together with several companies:

“The absence of preferential programmes for second-hand homes scotches the realty market too. For instance, our clients need to sell a flat but they can’t because it is more profitable for everybody to take out a mortgage for a new house. Second-hand housing is stalled — and this chain doesn’t work. Due to this, together with another seven companies of this kind we are working on a project of an alternative mortgage or, more precisely, a loan paid in instalments, which is some analogue of a Halal loan. Developers of blocks of flats once worked in this scheme. While we offer our option for self-builds. A buyer can pay 50% of the home value. The other 50% are paid in instalments for 5-8 years. The loan is interest free, however, the payment will depend on the price of a square metre in the market, that’s to say, an independent estimate will monitor self-build prices every quarter and fix a market price for a square metre of the facility,” Gimadov said.

“We are working on a project of an alternative mortgage, an analogue of a Halal loan for self-builds.” Photo: realnoevremya.ru

The authors of the project plan to present the Halal mortgage for self-builds at KazanSummit forum this May.

“We believe that it is an interesting offer for the market in general. Moreover, amid rising mortgage rates. We call this product an analogue of the Islamic mortgage but it suits not only Muslims but also any buyer of any religion. Now the financial product is authorised in the Ministry of Justice,” the entrepreneur added.

“To be considered”

Specialists of the financial market at the moment are very careful about the prospects of the project. Economist, Director General of BusinessDrom analytic agency Pavel Samiyev thinks that now it is hard to evaluate the future of the Halal mortgage because the verification principle is unclear:

“This moment hasn’t been elaborated from a perspective of legislation and regulations. This is why there can be difficulties with its execution in the future. There is some demand for this bank product, especially in some Russian regions. But we need to understand that it is uncertain because there are not legislative standards. Now it is hard to assess the prospects and, moreover, the scale and volumes in monetary terms.”

The authors of the project plan to present the Halal mortgage for self-builds at KazanSummit forum this May. Photo: realnoevremya.ru

The State Duma is preparing to adopt a law on a two-year experiment to launch Islamic banking in Dagestan, Chechnya, Bashkortostan and Tatarstan (adopted at the first hearing). The participants in the new legal regime will be able to lend money to legal entities and natural persons without interest, finance clients by signing purchase and sale agreements (including real estate) on the condition of payment in instalment. It is considered that the regions involved in the experiment will be free of a number of operations of the Organisation of Partnership Financing from value added tax and income tax.

A new Islamic mortgage product was presented at KazanSummit as early as summer of 2021 in Tatarstan:

“We have been implementing the Islamic Mortgage for two years to buy homes and land parcels according to Sharia norms. We see demand for this programme among Russians, which is confirmed by results of marketing research,” the press service of Ak Bars Bank told Realnoe Vremya.

“Understanding the significance of the area, we try to keep and expand the geographical footprint of the Islamic Mortgage in big Russian cities. We hope that those changes that happen in legislation will make Islamic finance more affordable and popular for clients.”

“A partnership (Islamic) financing principle has been created. The bill is quite well-considered and will be tested in a number of regions. But it is a bit different story because in this case financing of companies’ commercial projects is envisaged. This isn’t lending to natural persons. We will see how it will be in practice. It seems to me that it is early yet to draw a conclusion, it is necessary to see how the partnership financing project for legal entities, entrepreneurs will develop and then see how this can be transmitted to natural persons? Here everything is a bit more complicated. Something must provide a bank that will deal with this lending with profit. It is unclear for me yet how to correctly organise and correctly regulate this. I haven’t yet seen clear projects of this kind,” Pavel Samiyev noted.

“Why we see a pause in the promotion of Muslim finance in Russia”

Head of BCF bank’s Analytic Department Maxim Osadchy noted that there are from 15 to 25 million Muslims in Russia, according to different estimates, therefore the big development potential of the Islamic mortgage in Russia doesn’t raise doubts:

“On the one hand, there are a lot of Muslims. On the other hand, the existing types of loans in Russia, including the mortgage, obviously contradict Islamic that prohibits interest. Bringing financial instruments offered to Muslims in accordance with Sharia laws, at least on territories with a significant share of the Muslim population, including in Tatarstan, is an important task. The idea of Muslim finance isn’t new. It periodically appeared and disappeared in Russia, but we “didn’t have the time” to make it real. Finally, immediately after the start of the special military operation, amid the suddenly increased sanctions pressure and as a consequently an “eastward turn,” the idea of Muslim banking became topical like never before.” The idea of Muslim finance was resuscitated according to Ramzan Kadyrov’s initiative, including the Muslim mortgage. Seemingly, this product will be in demand from supporters of Islam. But this requires quite significant changes in legislation. Meanwhile, the Duma doesn’t have law-makers that have experience of working with Sharia laws in finance. This is a very specific sphere because the compatibility of Russian legislation and Sharia requirements in Muslim finance takes much time.

The Islamic mortgage project has good prospects in self-builds but require serious changes in legislation, thinks the expert. Photo: Irina Plotnikova/realnoevremya.ru

Maxim Osadchy thinks that such an instrument would help increasing the number of mortgages in regions with a Muslim population:

“Let’s take, Chechnya, for instance. The number of home loans granted to natural persons with the entitlement to equity construction agreements as security reached 57,000 in Russia in general in December 2022. Chechnya had just 46 loans in this number! The programme of Halal lending, first of all, is aimed at Muslim regions and this is why I wait for some activity in this area, firstly, from regional banks. But there is a problem too: Chechnya has no bank registered in this republic.”

“Why do we see a pause in the promotion of Muslim finance in Russia? It seems there are more important things to care about because the ‘turn’ to the Muslim East isn’t critically significant for Russia. China is now our main partner,” the newspaper’s interlocutor noted.

“All entrepreneurs are waiting for it”

President of Russia’s Association of Muslim Entrepreneurs Aydar Shagimardanov confirms that the demand for Islamic lending is high enough:

“The prospects are huge. The Muslim population is growing both in the country and around the world, this is why Islamic financial products, including the Halal mortgage, are in demand today and tomorrow they will be in a greater demand. To make sure all these talk get going it is necessary the state make changes to the law on banking activity. Then Muslim banks will be able to open here, and in this case there won’t be any problems with the Halal mortgage — Muslim banks will compete with non-Muslim ones on equal terms.”

According to him, the work in this area has been done for a long time. The issue has been repeatedly discussed in the State Duma.

“But nothing has changed at the moment. We don’t see serious changes in legislative standards. Tatarstan has several financial organisations and construction companies that launch Halal financial products. Now the Self-Build Association is actively promoting the topic of the Islamic mortgage. And nobody impedes any construction company from offering Halal instalments. This depends on the desire of the construction company itself. There is going to be colossal demand for such a product. There is already demand. This year Sberbank plans to open Islamic lending. We are daily discussing this with it and waiting for such a possibility to appear in the next few months. All entrepreneurs are waiting for this,” Shagimardanov noted.

“A political will is needed”

Alexander Razuvayev, director of Alpari’s Analytic Department thinks that Islamic financing will start work with the beginning of the pilot project of Islamic finance:

“Given that Russia is now significantly cut off from foreign financing, Islamic financiers are in a more favourable situation. Western sanctions aren’t a command for them. I don’t rule out that banks will come to Russia including from Turkey, Azerbaijan, the Near East that will start introducing Islamic financing more actively but with the main condition — legislation.”

Another thing, according to him, is that to promote the product across Russia, it will be necessary to agree with some of the big retail banks, “But why not, an agreement can be reached.”

“Otherwise, this will remain only a regional story. I don’t think that some religious issue is key here, it is just another financial product. It is necessary to understand that on the one hand the Halal mortgage is interest-free, but at the same time the home value goes up. The interest is added to the home price. People will use it if it turns out to be more favourable. I hope dedicated legislative standards will be adopted. Some functionary from the Russian Central Bank delivered a speech at KazaSummit in 2016 and said that the job was done. But little has been done over this time. A political will is needed here,” Razuvayev stressed.

The expert said that currently entrepreneurs from Baku were considering the possibility of creating a financial company in Moscow that would deal with, first of all, Islamic finance and attract money from Islamic countries.

Milyausha Kashafutdinova