‘Four organisations have expressed their readiness’: Islamic banking experiment kicks off in Tatarstan
The Central Bank started to accept applications for the pilot project
Banks and financial organisations of Tatarstan are preparing to participate in a pilot Islamic banking experiment. By 1 September, financial institutions are due to submit applications to the Central Bank to be included to a registry with further commitments to provide regular reports on deals signed on partnership financing. Experts augur well for the Islamic analogue for mortgage murabaha: maternity capital will be permitted to be used to repay it. Bankers hope for this too.
“Four organisations located in the Republic of Tatarstan have nowadays expressed their readiness to participate in the experiment”
This week big financial institutions started the preparation of applications to join the registry of the Central Bank that is responsible for the course of the pilot Islamic banking experiment in Tatarstan. There is likely no queue of candidates, one of Realnoe Vremya’s interlocutors forecasts.
“Islamic banking is quite a narrow niche because there is a ban on interest income, hence low turnovers. There aren’t almost any bankers who wanted to dive into murabaha or ijara,” he assures us.
However, neither is the Central Bank expecting an uproar.
“Four organisations located in the Republic of Tatarstan have nowadays expressed their readiness to participate in the experiment,” the press service of the regulator told Realnoe Vremya.
The regulator reminded us about the necessity of registering the application — an application for joining a special registry kept by the Bank of Russia will need to be submitted to participate in the experiment. None of the interested sides have applied yet, which means their names cannot be named before the official registration. But there is yet some time.
“The federal law adopted on the partnership financing experiment will come into force from 1 September. The experiment will start exactly from this date,” noted in the message of the press service of the Central Bank.
By that moment, information about participants in the experiment will be in public domain, the Central Bank promises.
“The draft of the Central Bank’s instruction on keeping the registry envisages that information about the name, address, official website of the participant in the experiment, the date of joining the registry and some other information will be in public domain. They will allow potential clients to clearly identify an organisation as member of the experiment and get contact information for further communication,” the regulator noted.
About 30% of Muslims invest capitals in murabaha
However, it isn’t hard to predict supporters of murabaha and musharakah, and the Central Bank is familiar with them without formal application.
“They provide financing for natural and legal persons as well as leasing in accordance with partnership financing principles,” the press service of the Central Bank said.
Indeed, Sberbank has been issuing funding through its flagship office for two years according to Islam canons, while Amal financial house has Islamic products on their balance.
“We will submit an application to the Central Bank until 1 September,” said Director General of Amal Rustam Sagdeyev.
According to him, the terms of financial services won’t change with the launch of the experiment: “An advantage of the adoption of the federal law is that Islamic banking became legal, financial services will become transparent, citizens’ trust will rise.”
He thinks that the refusal of interest (riba) will become the instrument of partnership financing more popular.
“There aren’t hidden fees, unilateral interest rate rises here,” said Sagdeyev.
According to his data, about 30% of Muslims invest capitals in mudarabah (Islamic deposit) and choose where to invest themselves.
However, he doesn’t dare to develop a halal mortgage like some banks.
“Only banking institutions have the right to work with maternity capital, this is why we cannot,” explained the director general of Amal.
Preferential mortgage is haram for Muslims
Indeed, only banks will get the carte blanche for murabaha. They can use maternity capital in Islamic mortgage. Moreover, this norm appeared literally before adopting the law. “We managed to create the Islamic mortgage by the second hearing, this was almost impossible,” State Duma deputy Ayrat Farrakhov, who was a member of a task force developing the bill, recently said.
“As a rule, Muslims have many children, but they don’t take out the preferential mortgage due to ideological reasons,” Associate Professor of the Department of Civil Law of Kazan Federal University, head of the International School of Islamic Business, Economy and Law Ilsur Salikhov explained to Realnoe Vremya. “Even though the Moscow muftiate permitted a preferential mortgage, Muslim families haven’t used it. This is why it is a huge boon that the Islamic mortgage can be repaid with maternity capital.”
Sberbank that already has an Islamic office operating in Kazan can focus precisely the Halal mortgage with maternity capital. The bank expects that in September-October, there will appear a service to use maternity capital in the Halal mortgage when the kid turns three. The Islamic office of Sber has mudarabah services, ijara, financing for developers. The first housing development project with the total cost of around a billion rubles has recently ended.
Applications should perhaps be expected from other Tatarstan banks, including big ones. however, none of them has been able to confirm the intention to send an application to the Central Bank.
“Any loan with interest is forbidden in Islam. This also explains the interest of Russian Muslims in the development of Islamic finances,” head of the press service of the Tatarstan Muslim Religious Directorate Rezeda Zakirova said.
“The most probable application of Arab capital is seen in infrastructural projects”
Director of the Department of Investment and Corporate Businesses Digit Broker Alexander Tsyganov thinks that the attraction of Arab capital can have a positive impact on the banking and stock markets:
“We have recently seen Russia’s rapprochement with the Arab world, which gives us certain hopes that the economic sphere, including investments can also be mutual integrated between our countries. The main interest is in the attraction of Arab capital to the Russian market and Russian infrastructural projects, which will have a positive impact on the stock market. Islamic instruments aren’t familiar to the Russian market and it is hard to assess their attractiveness compared to traditional ones. The most probable application of Arab capital is seen in infrastructural projects — funding of road construction, railway, big enterprises, factories. In this respect, the presence of the Republic of Tatarstan among the regions involved in the pilot Islamic banking project looks absolutely logical. Also, the attraction of Islamic capital can positively influence both the banking and stock markets from a perspective of new, additional liquidity.”