On 29 August, the Cabinet of Ministers of the Republic of Tatarstan held a briefing on the “Participation of the Republic of Tatarstan in the Implementation of the Experiment on Partnership Financing”.
The briefing was attended by Deputy Prime Minister of the Republic of Tatarstan, Minister of Economy of the Republic of Tatarstan Midhat Shagiakhmetov, Chairman of the State Duma Committee on Economic Policy Maxim Topilin, Deputy of the State Duma of the Federal Assembly of the Russian Federation of the VIII convocation Airat Farrakhov, Manager of the Branch – National Bank for the Republic of Tatarstan of the Volga-Vyatka Main Department of the Central Bank of the Russian Federation Marat Sharifullin, Mufti of Tatarstan, Doctor of Shariah Sciences Kamil Hazrat Samigullin.
Midhat Shagiakhmetov began with an overview of the new law, the adoption of which is aimed at developing Islamic finance in Russia. From 1 September 2023 until 1 September 2025, an interesting two-year experiment will be conducted in the Republic of Bashkortostan, the Republic of Dagestan, the Republic of Tatarstan and the Chechen Republic. Its aim is to create special rules for partnership financing. The law passed on 4 August 2023 allows legal entities registered in Russia to join the register of participants in this experiment. These companies will be able to use different ways to raise money and assets from individuals and legal entities, such as providing loans, issuing bonds, accepting property for management, etc. Importantly, pilot participants cannot set interest rates for loans, but can use variable remuneration depending on the outcome of transactions. However, it is essential to note that they cannot finance tobacco and alcohol production, weapons, gambling and trade in related products. These transactions will be controlled by the Bank of Russia, and an expert council will be set up under the Russian Government to support the experiment. The new rules will come into force on 1 September 2023.
‘Tatarstan has been working in the sphere of partnership financing for more than 15 years. We have accumulated successful experience in implementing individual projects based on the principles of Islamic finance. I would like to remind you that back in 2008 the agreement on cooperation was signed with the Islamic Development Bank. The republic has experience in issuing bonds and attracting foreign financing. The deal on attraction of foreign financing was the first of its kind. Two deals on attraction of 60 and 100 million dollars were made in 2011 and 2014. Today, a number of credit and financial organizations that provide services in the field of partnership financing operate in our republic. These are business financing and housing financing. The terms of installments and leasing meet the requirements of the Shariah,’ the prime minister said.
‘It is important during the experiment to consider the possibility of adaption and other support measures in terms of taxation of Islamic finance activities. In the current format the issue has been resolved. We have received the relevant official clarification from the Ministry of Finance of our country and the Tax Service on the settlement of value added taxation and tax deductions for the period of the experiment. We have formed an appropriate action plan in our republic and one of the directions is to utilize the potential of the halal industry. At present, over 200 business entities are registered, which have received a Halal Product Certificate – these are those organizations that conduct their activities in accordance with the Shariah norms. The next direction is to increase the level of knowledge, both among the population and specialists. The development of partnership financing requires a sufficiently large number of trained employees who should know the segment, understand the rules, traditions and language. Currently, there is a shortage of qualified specialists in the field of Islamic finance. Therefore, it is necessary to ensure the implementation of short-term courses and educational programs. Today, profile educational centres are already working in our republic. These are the Russian Islamic Institute and the Bolgarian Islamic Academy. The Kazan Federal University has opened a program of Islamic finance and organized separate educational courses,’ Midhat Shagiakhmetov continued.
In his speech, Chairman of the State Duma Committee on Economic Policy Maxim Topilin noted, ‘For many years, the topic of legislative formalization and legitimization related to partnership financing in the Russian federation has been discussed. The topic was discussed at various venues, including the appeal of deputies and representatives of Tatarstan. As a result, an experimental regime was proposed, supported by the President of the Russian federation and the Bank of Russia. Practice will show what changes will be required after the end of the experiment. The experiment will last for two years, but may be prolonged. During this time, changes will be made to the legislation. The experimental approach has already been used in Russia in other areas, such as the transition to electronic documents in labor legislation. This experience shows that constant refinement of wording and harmonization of the positions of different participants play a key role in the successful implementation of the experiment. Together with our colleagues from Bashkortostan, the Chechen Republic and Dagestan, we have begun active work on issues that will enquire incorporation into legislation. We have already made partial changes to the laws on banks and microfinance organizations. This is a step towards a standardized regime rather than a pure experiment. The Ministry of Finance and the Expert Council play an important role in this. We have to control it and predetermine which laws will need to be changed. The Expert Council will consist of participants from different republics and will work on changes in legislation. It is also necessary to develop criteria to evaluate the success of the experiment. These criteria will serve as the evidence base for partnership finance. The number of clients, the amount of capital raised and successful projects in this area will have to be taken into account. The Central Bank has already issued four documents concerning accounting and register formation. The work with the program participants will begin after the register is formed. The Expert Council will be established within the coming months, and we will need to prepare proposals for legislative changes, possibly in the Tax Code and other laws. The sooner we understand the situation, the sooner we will be able to prove the effectiveness of partnership finance,’
Deputy of the State Duma of the Russian Federation and a member of the Committee on Budget and Taxes Airat Farrakhov shared his view that many companies can get interested in participating in the Islamic finance experiment. According to him, interest in this phenomenon is huge.
The MP believes that organizations involved in halal products, agriculture, construction and mortgage lending, as well as loan companies and other businesses will want to take part in the experiment.
Farrakhov stressed that Islamic finance is currently growing much faster than traditional financial instruments. This trend opens up great prospects, especially in the context of strengthening relations with the states of the Organization of Islamic Cooperation. He highlighted that these countries are constant supporting partners for Russia, having significant investment potential and developing innovative economy.
The deputy also emphasized that the introduction of Islamic finance would help reduce Russia’s dependence on the dollar. In addition, the adoption of the relevant law will make it possible to meet the needs of people who due to their religious beliefs could not use conventional financial instruments, including loans and other services.
‘Thanks to this law and the experiment that has begun, 20 million Muslims in the Russian federation are being given an opportunity to express their values and make decisions consistent with their faith. Some 30 years ago, a similar solution was adopted by the UK for five million Muslims. Singapore also realized a successful Islamic finance experience. These changes allowed Islamic finance to grow faster and attract more investment. Adoption of the bill is just the beginning. We have a huge amount of work in front of us,’ Airat Farrakhov added.
In his speech, the MP also mentioned the creation of the digital ruble, ‘With the new law on the digital ruble, which came into force on 1 August, new prospects for development and growth are opening up. This creates systemic opportunities for overcoming sanctions restrictions. There is a lot of hard work ahead of us. I can say with confidence that new proposals, including changes in tax legislation, will emerge over the year. This experiment will give us an opportunity to introduce the best practices of partnership financing’.
Manager of the Branch – National Bank for the Republic of Tatarstan of the Volga-Vyatka Main Department of the Central Bank of the Russian Federation Marat Sharifullin said that according to the adopted law, the Bank of Russia becomes a regulatory and supervisory body within the framework of the experiment.
He noted that for the successful implementation of the experiment it is crucial to define approaches to the regulation of partnership financial services. Regulatory acts are now being actively prepared, which will clarify the requirements for participants in the experiment. Maxim Topilin also emphasized the importance of these approaches and the development of accounting, registers and reporting. The experiment participants will provide the Bank of Russia with regular reports, and the regulator will determine the instructions for their compilation. A public discussion of the regulations has already taken place on the website of the Bank of Russia, and proposals have emerged. The full regulatory framework is expected to be finished in the nearest future. The first applications for participation in the experiment will have to be confirmed by meeting the requirements, including the issue of self-organization of organizations in the pilot regions. Partnership financial products will be available to all, regardless of the organization’s location. The experiment participants will be included in the Bank of Russia’s register and will be published on its official website.
‘The experiment promotes the development of the sector and increases financial inclusion through the emergence of new actors and products. The experience of the experiment participants will be analyzed, problem points will be identified and proposals for the development of the regulatory framework will be prepared. The success of the experiment depends on the market participants, as well as on the understanding of partnership finance by citizens and businesses,’ the speaker stressed.
Mufti of Tatarstan Kamil Hazrat Samigullin spoke about the work already done and Tatarstan’s success in the field of Islamic finance, ‘In my opinion, Tatarstan will have even more achievements in this field in the future, especially in light of the introduction of the experiment with the use of Islamic finance. Financial organizations, such as the Amal Financial House, Ak Bars Bank, Ak Bars Capital, Mir Business Bank and NurFinance, can cooperate to develop joint products. When the law comes into force, new organizations offering halal banking products are expected to emerge. It is important to note that the Spiritual Administration considers financial products to be halal if they are approved by competent specialists in Islamic law and economics and subject to Shariah control. The Spiritual Administration in Tatarstan actively interacts with banks and monitors the implementation of Islamic financial products. Experts monitor the realization of products, conduct audits and controls. They also ensure that the products comply with Islamic norms and Russian laws. Tatarstan already has experience in Islamic finance, including cooperation with foreign partners and the establishment of the Centre for Islamic Economics and Finance. Educational activities are aimed at training qualified personnel for the development of this industry. Certified specialists are already working in Tatarstan and are ready to develop, monitor and support Islamic financial products. The community in Tatarstan is also showing interest in Islamic finance. The Muftiate suggests the use of halal banking products such as halal securities, debit cards, murabaha instalments, ijarah. Through the cooperation of bankers and theologians, they are gradually being introduced into the Islamic finance system. In general, Islamic finance in Tatarstan has great potential and can become a successful factor in the development of the financial sphere of the region and the whole country’.
During the briefing, the experts noted that in Russia there are only 10 specialists in Islamic finance who have the relevant certificate and 8 of them live in the Republic of Tatarstan. Five of them directly work in the Spiritual Administration of Muslims of the Republic of Tatarstan.
In conclusion, the briefing participants added that today the country is entering the legal field that is necessary for Islamic finance to develop actively, so there is full confidence that the experiment will be successful.
GSV "Russia - Islamic world"
Photo: Spiritual Administration of Muslims of the republic of Tatarstan