While considerably new, Islamic Banking and Finance has now taken firm roots in Russia and other Commonwealth Independent States (CIS) countries are following suit.
The total volume of Islamic Banking and Finance has now exceeded $2.6 trillion globally. This amount represents transactions, assets and investments by over 2,500 Islamic banking and financial institutions around the global.
In the modern era, Islamic banking and finance can be traced back to the 1960s from Egypt and Malaysia and its dramatic spread over the Middle East, Africa and Europe. Interestingly, while Islamic banking and finance was slow to take foot in Commonwealth Independent States (CIS) countries, its unprecedented growth over the last few years indicates that CIS countries are the emerging Islamic banking and finance market for the future.
Some well known CIS countries include Russia, Armenia, Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan, Turkmenistan and Azerbaijan.
“The delay for Islamic finance initiative in CIS countries may count in many folds, it would be due to Russian influence in CIS countries,” suggests the Islamic Banking guru Mr. Muhammad Zubair Mughal who is the Global CEO of AlHuda Center of Islamic Banking and Economics.
According to the seasoned banker, the mind set of Russian block and limited relations with International Banking and Financial Markets hampered development of Islamic Banking and Finance in CIS.
However, owing to what he described as ‘unstable Russian relationship with Europe’ and the sharp decline of oil prices has now compelled Russia to seek better financial alternatives, Islamic banking and finance.
Effectively, Russia has gone ahead and instituted friendly Islamic Banking policies and as a result geared-up Islamic banking and finance industry in CIS countries. This opens doors for enormous investment opportunities given that the Muslim population of CIS countries is estimated to be 75 million not to mention the non-muslim bankers that, like Russia, will opt for better banking options.
Russia also has a significant Muslim population and is with the recent government led initiative to support Islamic Finance it is expected that various Islamic banking and finance products will take root like Sukuk and Takaful.
Promoting Islamic Banking in CIS
AlHuda Centre of Islamic Banking and Economics (CIBE), a pioneer organization started its efforts to promote Islamic Banking and Finance is holding an Islamic banking and finance conference in Tashkent, Uzbekistan on 2nd May 2019.
The CIS Islamic Banking and Finance Forum will gather the CIS Islamic finance industry specialists and stakeholders on a single platform to promote Islamic banking and finance in the region.
In CIS countries, the Islamic banking and finance market can be divided into three parts. At first, there are countries such as Kazakhstan, Uzbekistan, Kyrgyzstan and Azerbaijan where the pace of Islamic banking and finance can be described as is satisfactory and where it is promoted and considered the sustainable financial alternative.
Secondly, there is the second group of countries, the likes of Tajikistan, Turkmenistan and Russia where the growth rate of Islamic banking and finance is rather slow. And the third group consists of countries in which there is no initiative taken so far, these are like Armenia, Ukraine and Belarus.
Kazakhstan leads the CIS in the growth of Islamic banking and finance. Started only in 1992, Islamic financing has grown drastically. More so, the growth can be noted following the global financial crises that started in 2008.
In Kazakhstan there is also considerable appropriate support of government institutions. Currently it has one full-fledged Islamic bank and 4 Islamic banking windows. They offer Takaful, Islamic leasing (Ijarah) and Islamic micro-financial institutions among other Islamic banking and Finance products.
Kazakhstan also launched an Islamic Agricultural Finance product with the financial assistance of the Islamic Development Bank. Further still, the recent establishment of the Astana International Financial Center (AIFC) places Kazakhstan as the regional center for Islamic Banking.
Azerbaijan comes after Kazakhstan but with much less government involvement. There is also no full-fledged Islamic bank in the country but there are at least 4 Islamic banking windows operating with limited Islamic Banking Regulations.
Uzbekistan follows and credit can be given directly to its new president H.E. Shavkat Mirziyoyev who has spearheaded the growth of Islamic Banking. Three Islamic banking windows are currently operational and accept deposits on Shariah bases.
Few Islamic leasing companies also offer Ijarah services, but it is predicted that after proper Islamic Banking and Finance regulations, Uzbekistan can supersede other CIS countries.
Neighbouring Kyrgyzstan also takes precedence its parliament passing the Islamic banking law in 2011 making it the only country in CIS to do so. In fact, there is at least one conventional bank that is in the process of becoming a full-fledged Islamic bank.
The most important factor of the growth of Islamic banking and finance industry in CIS countries is the Islamic Development Bank’s support.