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Russia, a country that is well known for its multidimensional religious composition and cultural patrimony, has endorsed the operation of Islamic banking. It is a country that is predominantly dominated by Christians and has about 6% Muslims. According to the Grand Mufti of the Muslim Community in Russia, Sheikh Rawil Gaynetdin, the Muslim population is growing up to 25 million out of the 146 million population in the country.

The launch of Islamic banking in the country is for the first time a part of a two-year pilot programme and the first time in the history of the country that it has official backing. This financial development in the federation is proclaimed by Russian President Vladimir Putin, who signed the law announcing its operation in the country. Interestingly, the model programme will be operating in four Muslim-majority republics – Tatarstan, Bashkortostan, Chechnya and Dagestan. And, if it is successful, the plan is to introduce the new regulation to the rest of the country.

Islamic banking is a system that operates with the principle of Shariah. In other words, it is the Islamic legal system that outlaws businesses involving usury and Riba in comparison with conventional finance. Islamic banking is considered to be asset-based, with profit and risks shared between the financial institution and the client as part of a partnership

Curiously, with the minimum percentage of the Muslim population in the country, one will be forced to ask a question why Russia is introducing Islamic banking. The accurate answer has been provided by the senior vice president, Oleg Ganeev, of Sberbank, Russia’s largest lender, who said that the Islamic banking sector had an annual growth rate of 40 percent and is reportedly expected to reach a value of $7.7 trillion by 2025. Kalimullina also added that “the growing market needs regulation and investors and clients’ protection”, but the Islamic finance market could not use the benefits of state support programmes for mortgage financing and for small and medium enterprises as they are all based on interest-bearing loans, contrary to Shariah. She further expatiated that “These obstacles are partly solved for mortgage finance in the adopted law. It’s expected that the experiment will allow to develop further conditions for Islamic finance development.”

Diana Galeeva, an academic visitor at Oxford University in the United Kingdom, see the introduction as “a long-awaited initiative”, because when banks faced a shortage of liquidity and began to look for alternative sources of cash, the Association of Russian Banks proposed allowing Islamic banking in the Russian Federation and establishing a committee within the Central Bank to regulate the activities of Sharia banks which was followed by the annexation of Crimea from Ukraine in 2014, with Russian banks feeling the squeeze of Western sanctions.

With the launch of Islamic banking by the Russian government, it is expected that the Russian economy will remain strongly undefeated, as it has remained resistant to Western sanctions due to its energy revenues.

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