Advocates of Islamic finance in Russia have a powerful new friend: the country’s biggest church.
After Russia’s finance ministry rejected a draft law last month that would have paved the way for more so-called alternative finance, including Shariah-compliant transactions, the Russian Orthodox Church said it’s working with the lower house of Parliament and consulting with experts in a bid to develop a system of finance that eschews the payment of interest.
Support from the Orthodox Church is a boon to the Islamic finance lobby. The more than 500-year-old institution represents the predominant faith of Russia’s 142 million population, of which 15 percent are Muslims, while its influence has thrived under the rule of President Vladimir Putin. New types of finance are increasingly attracting the backing of Russia’s banks as the country heads for its first recession since 2009 amid U.S. and European sanctions imposed over the Ukraine conflict.
“The ethical underpinnings of true Islamic finance would be appealing to the Orthodox Church,” Emad Mostaque, a London-based strategist at emerging-markets consultancy company Ecstrat Ltd. in London, said by e-mail on June 2. “As Western sanctions continue, tapping into the $1.3 trillion of Islamic capital has become increasingly appealing to Russia.”
Russia’s grosss domestic product shrank 4.2 percent in April from a year earlier, following a 2.7 percent decline in the prior month, according to government data.
“It’s good that the topic of alternative financing is being discussed in Russia,” Vsevolod Chaplin, spokesman of church, also known as the Moscow Patriarchate, said in a phone interview from Moscow on May 27. “Over centuries Christians started paying less attention to this principle than Muslims, but I think that today we should look at this more carefully.”
The lower house of Parliament, known as the Duma, plans to reintroduce its proposed law changes along with additions to ease technical hurdles to alternative finance, including double taxation, according to Dmitry Saveliev, the deputy chairman of Duma’s financial markets committee. The Russian Orthodox Church is part of the committee negotiating the legal changes.
The church is “a tremendous political force at home,” Theodore Karasik, a Dubai-based independent geopolitical analyst, said by phone on Tuesday. “This shows the church is positioning itself as a tolerant force towards this type of finance.”
In Shariah-compliant finance deals are structured to comply with Islam’s ban on interest, for example by sharing in profits. The industry is poised to almost double in the four years through 2018, according to Ernst & Young LLP estimates.
Banks in Russia are starting to pay more attention. The state news agency Interfax last week quoted the chief executive officer of OAO Sberbank, Russia’s biggest lender, as saying the bank will “be doing all we can to facilitate” development of the industry. Vnesheconombank, Russia’s state development bank, in December expressed interest in selling its first Islamic bonds.
Russia’s need to diversify its financial system may not be as quite as urgent as expected. The World Bank said this week Russia’s gross domestic product will shrink 2.7 percent this year, less than the previous estimate of a 3.8 percent contraction. The deputy finance minister said on May 27 the ministry has no plans to approve any legal changes to implement elements of Islamic finance.
Still, the Jeddah-based Islamic Development Bank, a multinational institution committed to expanding the industry, plans to meet with Russia’s central bank this month to discuss cooperation in Shariah-compliant banking, according to IDB.
“After the latest crisis wave has eased, some people decided that everything will go back to normal,” the Russian Orthodox Church’s Chaplin said. “We have to keep discussing the problem and we have to do it in the current environment of relative calm, not when we’re at the start of a new wave of a financial crisis.”