Need to Know

September 25, 2023

Halal Cash

Russia

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Russia launched a pilot program this month for Islamic banks in the Muslim-majority regions of Tatarstan, Bashkortostan, Chechnya, and Dagestan.

Islamic law holds that banks can’t charge interest. But they can share in the client’s profits and risks. Additionally, Islamic banks don’t support endeavors involving alcohol, tobacco, gambling, or speculation that entails financing intangible assets, like financial derivatives.

“No bank can benefit from the client’s financial problems and insolvency that often happens in conventional finance,” Russian Association of Experts in Islamic Finance executive secretary Madina Kalimullina told Al Jazeera. “Islamic finance promotes partnership-based relations, which is rarely the case in conventional finance.”

Russia’s approximately 25 million Muslims have engaged in Islamic banking for years, but the state has not sanctioned these institutions until now. The pilot is expected to begin Feb. 1 and last for two years.

Behind this initiative is a lot of realpolitik.

For example, analysts say that Western sanctions imposed on Russia as punishment for invading Ukraine likely led Russian officials to consider Islamic banking as an alternative to the US-dominated global financial system, reported Al Arabiya.

In fact, they maintain that in this sense, this new move toward Islamic banking is an example of a broader realignment involving Russia, the Middle East, and Asia. Russian President Vladimir Putin, for example, might be seeking to develop financial institutions that could garner and deploy capital from other energy-rich states like those in the Gulf, who, by the way, haven’t taken sides in the Ukrainian conflict.

Russia – along with Brazil, China, India, and South Africa – recently invited Saudi Arabia, Iran, Egypt, and the United Arab Emirates (among other, non-Islamic countries) to join the BRICS group of non-Western countries that have long complained about the dominance of the US, Europe and Japan in global political and economic affairs, the Sydney Morning Herald wrote.

Russia has also started to link its banking system to Iran, which has also been struggling with Western sanctions, according to the New York Times. Under an agreement revealed in January, Iranian banks could use Russian services to make payments and other transactions, bypassing Western prohibitions on Iranian banks using the Belgium-based Society for Worldwide Interbank Financial Telecommunications (SWIFT) system.

That move came after China had given significant financial and logistical support to Russia despite the Ukraine invasion, and Chinese diplomats helped negotiate a rapprochement between Saudi Arabia and Iran that was announced earlier this year.

Russia also has ramped up its soft power toward Islam, holding events like the recent XVIII International Muslim Forum that drew religious luminaries from throughout the Muslim world, the Arab News wrote. Many attendees were highly critical of Western imperialism and celebrated the prospect of a new world order.

Whether or not Russia’s vision for the world is new or represents order is, of course, a matter for debate.

This story originally appeared in the September 25, 2023 newsletter, Halal Cash.