Islamic 'Sharia-Compliant' Banking Takes Root in Russia

Moscow, September 2, 2023 – Russia has embarked on a groundbreaking two-year pilot program introducing Islamic banking for the first time, aiming to explore the feasibility of this financial system. The initiative, which began on September 1, has sparked debate and concerns, both domestically and internationally, over its implications.

Despite the presence of Islamic financial institutions within Russia, this marks the first time the country’s legislation officially supports such a venture. The decision follows the signing of a law by Russian President Vladimir Putin on August 4, signaling the government’s commitment to assessing the viability of Islamic banking.

The pilot program will be implemented in four regions with substantial Muslim populations: Tatarstan, Bashkortostan, Chechnya, and Dagestan. These areas have already amassed significant experience in the realm of Islamic finance, making them suitable candidates for the trial. Success in these regions could pave the way for expanding Islamic banking regulations across the country.

The move aligns with a broader trend in Europe, where Islamic banks establish branches, Western financial institutions offer Sharia-compliant financial services, and European governments actively compete to attract such institutions. Proponents of Islamic banking often claim that it is a more ethical alternative to the conventional capitalist system.

Islamic banking distinguishes itself from regular banking practices in two major ways. First, it strictly prohibits the charging of interest in all monetary transactions in accordance with the Quranic commandment. Second, Islamic banks are supervised by a board of Islamic scholars and clerics who ensure compliance with Sharia law and receive compensation for approving businesses as Sharia-compliant.

However, critics argue that Islamic banks, like all banks, effectively charge interest, albeit under a different name. Additionally, there have been allegations that some clerics overseeing these banks have ties to extremist or even terrorist groups with agendas to promote Islamization and world dominance.

Sharia principles extend beyond interest avoidance; they also forbid investing in companies involved in gambling, alcohol, tobacco, pornography, and pork production. Furthermore, women may be required to obtain their husband’s approval to open bank accounts, raising concerns about gender equality.

Critics further assert that while conventional capitalist finance may involve practices that do not require interest, it is virtually impossible to create a financial system entirely devoid of interest, risk, or uncertainty. Consequently, many Islamic banking transactions involve complex legal structures that circumvent Sharia prohibitions on interest.

Some view the expansion of Islamic finance in the West as a political strategy with potentially ominous objectives. They believe it could serve to legitimize and institutionalize Sharia law, which is fundamentally at odds with Western values. Critics argue that it could also isolate Muslim communities in the West from mainstream society, fostering Islamic parallel societies controlled by Sharia law.

Additionally, there are concerns that profits derived from Islamic banking operations in the West may be channeled into Islamic charities associated with groups hostile to Western interests. The Islamic concept of zakat mandates that a portion of revenue, typically 2.5%, be donated to Islamic charities. Among the eligible categories are those “in the cause of Allah,” a term often used by jihadists.

With an estimated Muslim population of up to 25 million, the introduction of Islamic banking is seen as a strategic step toward tapping into a growing market and expanding economic ties with countries that operate under Sharia finance principles, Al Jazeera reports. Russia’s pilot program for Islamic banking is set to run for two years, during which its success and impact on the nation’s financial landscape will be closely monitored. The program’s outcomes could hold implications not only for Russia but for the broader international discourse surrounding Islamic banking and its integration into Western financial systems.