Tatarstan started developing Islamic banking more than 10 years ago. 

A new bill designed to develop Islamic finance in Russia has already been received in the Russian State Duma. The so-called organisations of partnership financing will develop this area. The Bank of Russia that will have a registry of companies and exercise control will regulate the market. The new experimental legal regime is planned to be tested in four pilot regions from February 2023 — Tatarstan, Bashkiria, Chechnya and Dagestan. 

Tatarstan started to push the idea of creating a special zone to develop Islamic banking more than 10 years ago. Housing Traditions cooperative has been operating in the republic since 2018 granted a deferment of payment to buy a house. Ak Bars Bank has been issuing an “Islamic mortgage” since 2019, and it has been possible to buy a car and special machinery according to Sharia norms since 2020. However, due to the absence of regulation and support of the federal centre, it hasn’t been possible to create many companies working according to Sharia laws in the republic. Their total turnover, by experts’ estimate, doesn’t surpass a billion rubles today.

Housing Traditions housing savings cooperative was one of the first to enter the Tatarstan market with an Islamic financial product. Since 2018, it has been granting a deferment of payment to buy a house in Halal programme.

“Everything began in 2017, the concept of halal lifestyle appeared then,” remembers Director of the cooperative Rustam Shafigullin. Tatarstan President Rustam Minnikhanov ordered to elaborate a mechanism to finance a purchase of real estate property according to Sharia, and a task force was created. A new investment and financial product was developed — to buy flats and pay by instalments following Sharia norms, and a housing savings cooperative was created.

The flats bought through this cooperative aren’t collateral in loan agreements, shareholders aren’t imposed late fees, penalties and fines for an overdue payment. At the same time, there are other mechanisms to “encourage meeting the liabilities.” As Rustam Shafigullin explained, everything is quite simple: “If a shareholder doesn’t pay monthly instalments for three months, the flat can be exchanged for a less expensive real estate property or the share can be sold for a market price.” Lastly, the flat can be up for sale.

The cooperative collaborates with Unistroy providing a deferment of payment in all the regions this company has offices in. Since 2018, the cooperative has signed more than 600 deals in the Halal programme for 2,3 billion rubles. To buy a flat to pay in instalments today via the cooperative, it is necessary to pay the first instalment of at least 50% of the flat value. The term will be up to five years.

Rustam Shafigullin thinks that nothing will change in the market of housing non-profit cooperative with the adoption of the new law from 2023: “The new bill is about partnership financing and has just started to be considered in the State Duma. A lot of unregulated issues have left,” he says. It will take as few as several years after the adoption of the law and it comes into force to talk about the first results of the activity.

The mode of operations of new organisations of partnership financing, according to him, will be similar to the model of an open end fund. In fact, it is a model of discretionary management that will help to attract additional money into the economy, which is topical in the current situation when the links with Western financial markets turned out to be broken.

He thinks the most difficult thing will be to find legally and financially intelligent specialists that can found an organisation, prepare agreements and a financial model complying with Sharia norms: “We created it all and went through expert discussions for more than a year. The physical realisation of the new financial instrument can take several years,” he is convinced.

Source: Real Noevremya