News & Events

Russia: A Vast Opportunity for Islamic Finance

Islamic finance in Russia is a quietly growing industry with an impending sovereign Sukuk announced and a noteworthy Murabahah Islamic financing facility secured by AK BARS Bank. Rebecca Simmonds investigates the country’s developing Islamic finance industry.

Legal and regulatory

There have been no legislative changes affecting Islamic finance in Russia over the last six months, with providers of Islamic financial products operating within the country’s existing regulations. However the main financial regulator, the Central Bank of Russia, has made recent enquires with financial institutions in the country currently offering Islamic finance products regarding their facilitation and implementation under the existing legislation.


Business environment

In February, the IDB reaffirmed its support of the development of Islamic finance in Russia as a non-member country with a prominent Muslim community; and IDB president Dr Ahmad Mohammad Ali was invited to discuss the development of the country’s Islamic finance provision with banking officials by Russian Federation Council deputy speaker Ilyas Umakhanov.

In 2013, the Russian National Rating Agency began issuing ratings regarding Shariah compliance for native companies, and a number of regional banks have also started promoting Islamic finance solutions for trading and other commercial operations. The fifth International Economic Summit of Russia and the countries of the OIC was held in October and attracted country and banking representatives from the UAE, Pakistan and Turkey among others. The summit concluded with the signing of investment agreements worth US$951 million and followed news issued in May 2013 by Rustam Minnikhanov, the president of Tatarstan, that a sovereign Sukuk issuance of US$200 million to finance the Smart City Kazan project had been confirmed.

Banking and finance

According to a 2012 survey by Pew Research, Muslims make up between 8-10% of the country’s population of 140 million, although some estimates place the number at closer to 25 million self-identified Muslims in Russia. The Islamic finance industry with the Federation began in the retail sector,
with consumer financing and  in microfinance; the industry continues to grow in these sectors although the biggest news in the last six months has come from the commercial sector with the procurement of a US$100 million Murabahah Islamic financing facility by Tatarstan-based AK BARS Bank (ABB).

ABB secured the deal in January — its second Islamic financing facility, with proceeds being used to fund Shariah compliant assets and investment projects across Tatarstan and the regional states in which ABB operates. The deal involved participation by 11 banks including Citi, Commerzbank and Emirates NBD Capital acting as mandated lead arrangers and bookrunners and generated a lot of interest from investors resulting in oversubscription. Islamic Finance news obtained an exclusive interview with ABB1 in which the bank outlined the background of the deal. ABB is also aiming to create greater awareness in the GCC and the Middle East about the interest for Islamic finance in Russia through its investor relation service.

Islamic leasing is an area which is growing increasingly popular in the region, with backers of the Eurasian Leasing Capital increasing its equity to US$10 million in response to a positive uptake in the company’s leasing services and a good pipeline of business. Eurasian Leasing is an Ijarah company funded by the Bahrain-based Ijara Management Company, a fully-owned subsidiary of the Islamic Corporation for the Development of the Private Sector (ICD), a private investment arm of the IDB.

In November, IBA-Bank of Moscow, a wholly-owned subsidiary of the International Bank of Azerba?an, was granted a preliminary permit by the Central Bank of Russia to develop Shariah compliant financial instruments, with Shariah compliant banking to be introduced in stages between 2014 and 2015. Reports have stated that ABB is also considering the introduction of Islamic finance retail products at the end of the year.

Following the Sochi Winter Olympics it was reported that two Russian banks with entities that offered Shariah compliant banking had been struck from JPMorgan Chase and Co’s list of correspondent banks. Sberbank and VTB have since established new correspondent banking relationships; Sberbank with Bank of America and Bank of New York and VTB with Bank of America and Citi.

Challenges and opportunities

Russia was identified as a potential market for Takaful and Shariah compliant bancassurance products in a recent report, with rapid economic growth highlighted as a driver of and low awareness levels as a hindrance to market growth. Education of the market has been identified as a challenge and a growing need for the country’s Islamic finance industry as an interpretation of Islamic financing as ‘free money’ is still prevalent in many of those seeking out a Shariah compliant option.

Given the lack of regulations specific to Islamic finance, greater knowledge regarding Islamic finance tenets and structures is also required by the national financial regulators. The current situation between Russia and the Ukraine could have a negative impact on the conventional market, but given the fledgling status of the country’s Islamic finance industry and the international ties between Russia and the Middle East it seems unlikely that the industry will be adversely affected.


Within the Federation, Islamic finance is a steadily growing industry with a large potential market. The growing ties between Russia and the Middle East and the OIC countries provide a likely resource for aid in developing the country’s Islamic finance provision and as a potential pipeline for Islamic finance investment.

This article first appeared in Islamic Finance News (15 April 2014, Volume 11, Issue 13, Page 21). For more information, please visit