‘Participants are stewing in their own juice’: what is needed for the development of Islamic banking in Tatarstan

Insufficient awareness of the population

Representatives of both the authorities and financial organisations spoke at the round table discussion. Both the former and the latter repeatedly returned to the main problems currently facing the participants of the experiment — the shortage of qualified personnel in the field of Islamic banking and insufficient awareness of the population about the possibilities of partner financing. As Minister of Economy of Tatarstan Midkhat Shagiakhmetov said, a sociological survey on the topic of Islamic finance has recently been conducted in the republic. Respondents were all banks operating on the territory of Tatarstan, about 400 enterprises interested in partner banking in one way or another, and about 3,5 thousand residents. The results of the study suggest that businesses, credit institutions, and the population are acutely aware of the lack of information. Therefore, the list of measures to be taken for the further development of Islamic banking in the republic includes improving the financial literacy of Tatarstan citizens.

Let us remind that the experiment started on September 1, 2023 and will last until September 1, 2025.

The minister of economy of Tatarstan also called the development of applied aspects of partner finance an important task: monitoring the implementation of the experiment, preparing proposals for regulatory regulation.

“The next direction is the development of the market and financial infrastructure in the field of partner finance. Further — assistance in attracting investments in projects of the Republic of Tatarstan on the principle of Islamic finance. Here, of course, we expect to work together with our major market players — Sberbank, Ak Bars Bank, and our other companies," he said.

Shagiakhmetov complained that today Islamic finance is more expensive than traditional one:

“For us to spread Islamic finance directly, to give a new incentive for the development of this segment of finance, it is very important that the conditions of partnership and traditional finance are the same.”

Involvement of financial organisations in the field of partner banking

At the round table discussion, it was repeatedly emphasised that an important task facing the republic now is the entry of banks and financial companies into the register of participants in Islamic banking. To date, there are three organisations in it, two of which are Tatarstan. Applications of two more organisations from the republic are currently under consideration by the Bank of Russia.

A number of proposals to attract financial organisations to the field of partner financing were announced by Ayrat Farrakhov, a deputy of the State Duma of the eighth convocation of the Russian Federation, who spoke remotely. He said that against the background of the highest key rate, partner financing has additional advantages.

“We discussed with Rustam Nurgalievich that support measures should be taken at the federal level, taking into account that the experiment has begun. I mean benefits, subsidies, compensation for lost income, and so on. We will ask this question every time," the deputy assured.

At the same time, according to Farrakhov, Tatarstan may already consider introducing some support measures. This would be an important first step and an example for other subjects.

He also proposed to create a platform similar to invest.tatarstan, which reveals the investment potential of Tatarstan, but dedicated to partner financing. To attract financial organisations, according to the deputy, it is necessary to identify the best projects in the field of partner financing, encourage them with prizes and hold competitions. Such measure will serve to spread Islamic banking as soon as possible.

Another proposal of the deputy was the creation of a simple and accessible memo for banks and financial organisations. The head of the Tatarstan Investment Development Agency, Taliya Minullina, in response said that work in this direction is already underway. The agency is developing such product together with the Ministry of Economy and the National Bank.

An important feature of the round table discussion was the presence of guests from three republics who also became participants in the experiment on partner financing — Bashkortostan, Dagestan, and Chechnya. According to the head of the agency, this joint discussion will help “to check the clock, to agree on a joint plan”.

“So far, within the framework of the pilot experiment, almost every participant, in fact, is stewing in their own juice. But we need everyone to unite together now and show a good result," she stressed.