Thursday, April 26, 2007

Window on Eurasia: Russia Said to Need Islamic Banks to Regularize Cash Flows

Paul Goble

Vienna, April 26 – The Russian Federation would benefit from the creation of a network of financial institutions operating according to Islamic norms because Muslims there would then place their money in “a transparent and legitimate banking system” rather than rely on informal and unregulated channels, according to a Muslim banker.
In an interview on today, Adelet Dzhabiyev, head of Russia’s first Islamic bank, said Russian security officials understand this but many other Russians believe that an Islamic bank would engage in “money-laundering and the financing of terrorism” (
Those who think so could not be more wrong, the founder of the Badr-Forte Bank continued. Indeed, by attracting the funds Russia’s Muslims now hold into the banking system, he argued, Moscow could limit, as the United States and other Western governments already have, possibilities for transfer payments to Islamist radicals.
(The Russian Muslim banker notes that Western countries provide a range of approaches that Moscow might want to try, from allowing the creation of distinctively Muslim banks or supporting the establishment of Islamic sections within larger commercial banks.)
Islam prescribes precise rules for banking operations, rules that are very different from those generally used by Western-style financial institutions. Perhaps the most significant of these differences concerns the payment or acceptance of interest: Western banks allow it; Islamic banks do not.
Until recently, few of Russia’s Muslims either understood or appeared to care about such distinctions and generally deposited their money in one of the 1200 regular Russian banks at roughly the same rate as non-Muslims in the Russian Federation. But that is now changing and changing fast, Dzhabiyev said.
Ever more Muslims in the Russian Federation are following the provisions of the Koran and the Sunna, and many of them are now refusing to deposit money in banks that do not conform to Islamic rules. As a result, Muslims there hold a great deal of their funds in cash, something that limits the ability of the state to regulate how it is used.
Given their increasing numbers and wealth, however, the share of the financial pie in Russia occupied by Muslims is growing, a development that he suggests Russian officials have a self-interest in ensuring that such monies are available for investment in the country’s economy.
Unfortunately, Dzhabiyev continued, many Russian officials and politicians still fail to think “strategically” on this question, and the Russian government continues to put obstacles on the path to the development of a banking system and other financial institutions operating in conformity to Islamic precepts.
This situation could be easily remedied, he said, were the authorities to “create conditions so that the funds of Muslims could leave the informal channels and to as large an extent as possible, be included in the economic exchange of the country through various officially registered and legitimate structures.”
And to take advantage of such possibilities, Dzhabiyev argued, the Muslims of the Russian Federation “in turn must create suitable structures everywhere and in large quantities” – perhaps at first not banks but rather other financial institutions like cooperatives that the faithful could use if these structures follow Islamic law.
Despite this description of what might be possible, Dzhabiyev did not sound optimistic about the prospects for Islamic banking in Russia anytime soon. But another development this week suggests that the Muslims there may soon be flexing their economic muscle -- albeit in a more traditional way.
At a conference in Kazan on Tuesday, academics, religious leaders, and Tatarstan officials jointly called on the Russian State Duma to pass legislation that would allow the reestablishment of waqfs, the self-sustaining economic bodies created by Muslim contributions that support mosques and organize welfare among the faithful.
Such institutions were widespread in the Middle Volga and Central Asia prior to 1917 and in the first decade of Soviet power, and conference participants pointedly suggested that the “federal authorities [should] reanimate this pre-revolutionary system”
If Moscow does agree, such a step would make the more than 8,000 parishes of Russian Islam more financially independent not only from the state but also from foreign donors. And that change in turn would focus new attention on the financial clout of Russia’s Islamic community and could provide the foundation for Islamic banking there.

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