Islamic finance in Russia: A market review and the legal environment
The article provides an overview of the Islamic finance market in Russia. It accumulated data on 30+ Islamic finance institutions and products launched between 2010 and 2019, including discontinued ones. The range includes banks, non-banking microfinance institutions, mutual investment funds, housing cooperatives, investment companies and others. The article provides the author’s assessment of the market size and its dynamics between 2011 and 2019. It analyzes the range of Islamic finance products rendered by the market players, including the industry break down of certain Islamic finance companies. The article summarizes the results of the survey, conducted among the owners and managers of the Islamic finance institutions. It shows the range of opinions regarding the lack of market special regulation and elicits factors influencing the market and impeding its development. The main legal and tax hurdles for the Islamic finance market, in Russia, are analyzed. The results show that the market is still not mature and lacks internal competition. The geographical reach of Islamic financial services is limited. Despite the lack of Islamic banking law, the market size is comparable to that of Kazakhstan. The lack of market regulation is a negative side that holds back the potential newcomers and clients, and, on the contrary, the relative market freedom allows the existing companies to experiment and make use of the emerging niche segment. There is an acute necessity of a tax-friendly regime for murabaha financing and mudaraba-based investment accounts, and a level playing field concerning the mechanisms of state subsidies. Among potential solutions that could contribute to the market development is the creation of a self-regulatory organization that could establish internal standards, develop liquidity management tools and create a proper mediation of arbitrage system, as well as organize takaful funds. Based on the analysis, the author makes a forecast for further market development.