Russia is set to introduce Islamic banking for the first time through a two-year pilot program beginning on September 1, Al Jazeera reported.
Despite the existence of Islamic financial institutions in Russia, this marks the first instance where the country’s legislation officially supports such a launch. The move comes after Russian President Vladimir Putin signed a law on August 4 to test the viability of Islamic banking.
The pilot program will be conducted in four regions with significant Muslim populations: Tatarstan, Bashkortostan, Chechnya, and Dagestan. These areas already possess considerable experience in the realm of Islamic finance. The success of this program could lead to the expansion of these regulations to the rest of the country.
Islamic banking adheres to the principles of Shariah, the Islamic legal system. Under Shariah, transactions involving usury or interest are prohibited as they are viewed as unfair exchanges.
In contrast to conventional finance, which relies on debt and places all transaction risk and liability on the client, Islamic banking is based on assets. It involves a partnership between the financial institution and the client, where profits and risks are shared.
Madina Kalimullina, the executive secretary of the Russian Association of Experts in Islamic Finance, explained that Islamic finance fosters partnership-based relationships, in contrast to the more common dynamic in conventional finance where banks can benefit from clients’ financial troubles and insolvency. This shift toward partnership-based relations is a distinguishing feature of Islamic banking.