Russia will introduce Islamic bank across Chechnya, Dagestan, Tatarstan and Russian Bashkiria.
MOSCOW – – In a shocking twist of events, Russia is working on bringing Islamic Banking into the country.
The bank has been decided to be implemented in four regions: Chechnya, Dagestan, Tatarstan as well as Russian Bashkiria which are Muslim-majority regions. The Russian decision to introduce Islamic banking to the country will be a major effect on financial systems.
Islamic banking is governed by the rules of Islamic laws or Sharia. One of the main rules is that it does not allow the payment or charging of interest, a practice known as “Riba” as in Arabic. The alternative is that Islamic banks employ multiple methods.
Installment plans: These offer the loan with no interest. The those who borrow them pay back the money in predetermined amounts over a set period of time.
Equity Finance: Islamic banks become partners in companies by sharing losses and profits.
Leasing instead of loaning money, they lease out their assets, and the customers pay for the use of these assets.
Russian’s Plan for Islamic Banking
The State Duma Russian parliament, is drafting legislation to create Islamic banking a legal thing within Russia. This law will not just make it legal, but also regulate its operation. It will be implemented in the four areas mentioned previously.
This is significant as it’s not the same way that normal banking operates in Russia. The aim is to satisfy the requirements of Russia’s Muslim population, and to attract investors from Asia, the Middle East and Asia. Investors from Asia and Middle East have expressed interest to invest in Russia but haven’t yet invested because of religious reasons.
The chairperson of the State Duma Committee on Financial Market Anatoly Aksakov is of the opinion that the plan, if successful, will be rolled out across the entire nation. The idea may open the door to investors from countries with a Muslim majority who are interested in investing into Russia that could change the game.
One of the main reasons behind Russia’s decision is Western sanctions that it is facing as a result their actions within Ukraine. With the introduction of Islamic banking Russia is hoping to draw investors coming from Muslim nations as a viable alternative to Western financing.
Islamic banking has been growing globally in all countries, with a annual growth rate of 14 percent. It’s estimated to amount to $1.99 trillion, which is approximately 6 percent of the world banking sector.
Islamic banks are different from traditional banks. They operate differently from traditional. They are governed by ethical and religious guidelines that prohibit interest-based payments and other risky financial transactions.
In Russia in Russia, they’re Islamic banks, referred to as Financing Partnership Organizations (FPOs) will provide various services. They will offer loans with no interest, finance trade using specific contracts and help companies by becoming partners and offering assurances.
This is in line with Islamic law that does not allow conventional lending with interest. Instead, it provides alternative options such as the installment plan, equity finance and leasing.
The Central Bank of Russia will be in charge of the FPOs in order to ensure they comply with the regulations. But, there’s a requirement to have a long-lasting discussion before the new system can fully take operation. It will be implemented in some regions over a period of two years and a few FPO operations are exempt from paying certain taxes.
What is the reason Islamic Banking Is Important?
Islamic banking is getting more popularity all over the world, not just in Muslim-majority nations, but as well in Western countries. This is due to it being seen as a safe and ethical method of banking. In contrast to traditional banks which seek to increase profits by offering the use of interest-based loans Islamic banks are focused in partnerships, and share risk. Some were skeptical initially but Islamic banking has exploded in popularity and has become an integral component of the global financial system.
Russia’s move towards Islamic banking is both significant and strategic. It demonstrates Russia’s determination to broaden its banking system as well as attract investment from countries with a Muslim majority. While the process is still in the initial stages, this initiative could have a significant impact on the economy of Russia and its relationships to and the Muslim world.
