Written by John Guzman

Islamic finance in Russia is largely unheard of for hosting only four institutions for a Muslim population of 10 million or 7% of the country’s total population. Analysts believe that the global rise of the industry will catapult Russia’s Islamic finance to greater heights. Catalyst for such growth is not apparent coupled with Ukraine crisis.

According to Moscow Times, Russian Muslims are slow to change their financial habits, while non-believers are plagued by a deep-rooted distrust of Islam to some extent, the financial authorities included. This is a constraint for a banking legislation to facilitate Islamic banking, analysts said. After all, Muslims are a minority in Russia. The four institutions offering Islamic products are limited in the republics of Tatarstan and Dagestan with two institutions each.

The current regulations prohibit banks to engage in trading which Islamic banks are likely to perform in the course of their business, the report noted. This prompted the current four institutions offering Islamic products to register as ‘finance house’ rather than as banks to legally operate. Although, circumvention of the current regulations is plausible for Islamic products to be offered, significant growth over the short to medium term is unlikely unless banking reforms take place. Russian halal financial institutions hold USD 10 million, a blip on the radar for the country’s banking system, whose total assets stood at USD 1.7 trillion in 2013, the report concluded.

Meanwhile, Moscow Halal Expo 2014 was held last June 5 to 8 to exhibit the largest and multifaceted development platform of halal business in Russia, Commonwealth of Independent States, and Europe. According to the expo’s official site, the expo had more than 3,000 square meters of space and a total of 160 companies from 20 countries were represented, across 10 industries including food, tourism, education, and finance and investment among others. The exhibition was attended by companies from Muslim-majority countries and western countries which made the expo successful in promoting the halal industry. Russia, by hosting the event, is stamping its footprint on the rise of halal industry growth across the world.

In a separate development, conventional banking in Russia feels the blow of the Ukraine crisis and economic slump as US and European nations posed sanctions on the country. According to Moscow Times, Moscow bankers need to get creative in offering local firms different ways to raise capital instead of the standard fare of international share and bond issues. As a result of the economic slump, Russian investment banking fee income has fallen by about a third to USD 166 million in the year to date compared with the same period last year, with a marked squeeze in the last few months, according to Thomson Reuters data. One banker noted that banks which used to focus on Russian market already left the country and staffs are being relocated somewhere else, the report noted.

The effects of the Ukraine crisis and sanctions by western countries are vital signs that Russia is not shock-proof and remains vulnerable to external forces. At present, the crisis does not pose any sign to be resolved anytime soon, and for the time being, Russian banks have to find creative ways to stay in the business.

–Edited by Kristine Diaz

By Ray