Russia Set to Launch Islamic Banking
Russia is launching Islamic banking for the first time ever as a two-year pilot program starting this September.
On August 4, Russian President Vladimir Putin signed a law introducing Islamic banking to assess its feasibility. If the program is successful, it will be introduced to the rest of the country.
But why Islamic Banking, and why in Russia?
According to the senior vice president, Oleg Ganeev of Sberbank, Russia’s largest lender, the Islamic banking sector has an annual growth rate of 40 percent and is reportedly expected to reach a value of $7.7 trillion by 2025.
The war in Ukraine and Western pressure on Russia’s economic sector are just the latest developments that have sped up the process of turning to Islamic banking.
With a large Muslim population of up to 25 million, Russia has had Islamic financial institutions for a long time, but this is the first time the country’s legislation has officially endorsed its launch.
The pilot program will take place in four Muslim-majority republics – Tatarstan, Bashkortostan, Chechnya and Dagestan: areas that already have the most experience in Islamic finance.
Islamic banking operates under Shariah, the Islamic legal system that forbids transactions involving usury or interest, as they are considered an unjust exchange.
It is asset-based, with profit and risks shared between the financial institution and the client as part of a partnership. No bank can benefit from the client’s financial problems, as is the case with conventional banking.
Islamic banking in Russia is a long-awaited initiative, and its official introduction will mean greater links with economies of Muslim-majority countries.
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