CI VIEW: Tatarstan pushes hard to become Islamic Finance hub, President Minnikhanov says UPDATE

KAZAN/WASHINGTON (CI Greater Central Asia) (Update on September 7, 2018 with comment from Central Bank of Russia Governor Elvira Nabiullina) — The Russian autonomous Republic of Tatarstan is pushing hard to make its capital city of Kazan a new center of Islamic Finance of Russia and the region, Tatarstan President Rustam Minnikhanov said.

[Republic of Tatarstan President Rustam Nugaliyevich Minnikhanov answers question from Capitol Intelligence using CI Glass during news briefing at KazanSummit, Kazan, Tatarstan (Russia). June 15, 2015]

Answering a question from Capitol Intelligence/GCA at the KazanSummit between Russia and the Organisation of Islamic Cooperation (OIC), President Minnikhanov said his  government is pushing through legislation in the Russian Duma. That would enable the issuance of Islamic financial instruments such as Sukuks on the Russian market.

As a concrete step towards bringing Islamic Finance to Russia, President Minnikhanov said that Tatarstan and the KazanSummit arranged a bilateral meeting between Russian Central Bank Governor  Elvira Nabiullina and the President of the Islamic Development Bank (IDB) Dr. Ahmad Mohamed Ali Al-Madani.

Minnikhanov recalled that the KazanSummit has been held for the seventh time and brought 750 delegates from almost 50 countries including Malaysia, Qatar, United Arab Emirates, Saudi Arabia, Nigeria, Kazakhstan and Iran.

[Russian Central Bank Governor Elvira Nabiullina speaks with Capitol Intelligence/CI GCA using CI Glass following speech with IMF Managing Director Christine Lagarde in Washington, DC. September 6, 2018]

Tatarstan is a Russian Republic with a majority of Muslim population and the site of the biggest Mosque in Central Asia.

“The world should strive to make peace and not to sow discord between people or create instability in many countries, including (those with many) Muslims,” he said.

In particular, Minnikhanov highlighted that the IDB would be pleased to cooperate with Russia in the Republic of Tatarstan, in order to make Kazan and the region a source of development and economic expansion between Russia and the OIC member countries.

IDB President HE Dr. Ahmad Mohamed Ali Al-Madani highlighted that Tatarstan will play a vital role in the relationship between members of the OIC countries, the Muslim World and the Russian Federation. He also said that, he is proud of these great global achievements.

[Islamic Development Bank (IDB) President Dr. Ahmad  Mohamed Ali Al-Madani speech at Business Breakfast covered by Capitol Intelligence using CI Glass at KazanSummit 2015 – Kazan, Tatarstan (Russia) June 15, 2015]

Dr. Ahmad Mohamed Ali Al-Madani said the IDB will work so “Tatarstan is not only a hub for the Russian Federation…Inshallah …(If God wills)…  But a hub for friendship and prosperity for all our global village.”

“In this regard, it is my pleasure to inform you that I will be heading this afternoon to Moscow 10 at the invitation of Her Excellency the Chairman of the Central Bank of Russia to meet with Her Excellency and discuss the potential of Islamic Finance,” President Ali Al-Madani said in his speech to the KazanSummit on June 15, 2015. “I will assure Her Excellency of the commitment of the IDB Group to help in whatever way in supporting the introduction of Islamic Finance with different ways and means such as organizing seminars and workshops, exchanging of experts and benefiting from the experience of other countries within or outside the OIC.”

IDB President Ali Al-Madani, citing a recent report on Islamic Finance published by International Monetary Fund during World Bank / IMF Spring meeting 2015 in Washington DC, said Islamic Finance is growing by 16% per year and its assets are forcasted to reach USD 3.4 trln by 2018.

Linar Yakupov, the founder of the KazanSummit and the President of the newly established Kazan-based Islamic Business & Investment Fund (IBFD) said the KazanSummit started in 2009 as a very small event and they “never dreamt that one day it could become the event of national importance and people from all over the globe would be coming and taking part together with Kazan.”

[Islamic Business & Finance Development Fund (IBFD Fund) President and Kazansummit founder Linar Yakupov filmed by Capitol Intelligence using CI Glass at Business Breakfast at KazanSummit 2015]

In fact, Tatarstan President Minnikhanov remarked that “when we started seven years ago taking about Islamic Finance everyone thought we are strange people talking about weird things. Now we have the Chairman of (Russia’s largest bank) Sberbank, German Gref, wanting to talk to us.”

In fact, Kazan has already attracted the attention and investment of major companies and investment funds from Qatar, UAE, Bahrain and Oman.

Speaking at the VIP Business Breakfast meeting at the start of the KazanSummit, Undersecretary for the Qatar Economy Ministry, HE Sultan Al-Khater, said he believes that there are huge untapped opportunities in trade and cross-border investment between Qatar and Russia.

[Qatar Undersecretary for Economy HE Sultan Al-Khater speech at Business Breakfast covered by Capitol Intelligence using CI Glass at KazanSummit Kazan, Tatarstan (Russia). June 15, 2015]

He specifically highlighted the importance of free trade between the two countries. Sultan Al-Khater believes that creating an “easy” environment, sensible laws and regulations are the best way to welcome the investors.

“The more obstacles you put, the less constructive you are and the less investors you get,” says Sultan Al-Khater

In fact, Tatarstan is one of the few regions to benefit from the current economic crisis in Russia caused by US and EU sanctions related to the annexation of Crimea.

The central authorities in Moscow and major Russian financial institutions have never given much thought about Islamic finance until today as the country seeks new sources of foreign capital and avoid an over-reliance on funds and investment from Russia’s historic geo-political rival and neighbor, China.

There is draft legislation already prepared to enable Islamic finance in the Russian Upper House (Senat) and Lower House (Duma) and that there is no political opposition from getting such legislation passed into law, political adviser to the Russian Senat Vice Chairman, Andrey Baklanov said.

Baklanov said that the draft legislation frames Islamic finance in Russia in terms of “moral investment” and that the draft law also addresses forms of investment by Christian groups.

Baklanov said he expects the draft to become fully effective by year-end but does not exclude the Kremlin fast-tracking the legislation considering the lobbying efforts by President Minnikhanov, arguably the third most powerful man in Russia after President Vladimir Putin and Prime Minister Dmitri Medvedev.

During the KazanSummit, Tatarstan had not won the technical support of the Islamic Development Bank to help develop Islamic finance in Kazan but also hands on legal help from noted Emirati attorney,  Al Suwaidi & Company Managing Partner Mohammed R. Al Suwaidi and St. Petersburg-based international attorney Inese Tenberga.

IDB President Ali Al-Madani said “Tatarstan could be promoted as the ‘Islamic Finance Hub’ in Russian Federation and the IDB will help the Russian Federation in developing a full-fledged masterplan for Islamic finance.

While Russian parliamentary approval for Islamic finance seems to be a given, some at the KazanSummit had doubts whether Kazan is ready and prepared to issue Islamic financial products and compete with major financial Islamic centers such as London and Dubai.

Aidyn Tairov, the Chief Financial Officer of Almaty, Kazakhstan-based Al Hilal Bank, said he believes it will be a great challenge for Kazan to become the center of Islamic banking in Central Asia.

[Al Hilal bank Chief Financial Officer Aidyn Tairov speaks with Capitol Intelligence using CI Glass at KazanSummit 2015. Kazan, Tatarstan (Russia). June 15, 2015]

But with the support of the  Russian Central Bank, the mission of making Kazan the center of Islamic banking for Russia, and possibly the region, becomes a more realistic possibility, Tariov said.

The many reasons some may dismiss Kazan and Tatarstan as a global center of Islamic Finance —  is its isolation from major financial centers; Russia’s relatively small Muslim population (circa 20m) and the novelty of Islamic finance in Russia – could be in fact the best arguments for Kazan becoming the center of Islamic finance in Russia and Central Asia but potentially a global center for advanced Islamic Finance.

There are very deep ties between the most innovative practitioners of Islamic Finance, Malaysia and Kazan, due to the long history of Malaysia sending students to the University of Kazan.

Delegates attending the KazanSummit remarked that they felt Tatarstan, especially its efforts to promote religious tolerance and economic growth, is a neutral place for Muslims to discuss Islamic Finance and economic cooperation.

“Whenever someone talks about creating a Islamic financial capital, everyone wants it to be headquartered in their country whether it be Kuala Lumpur, Dubai, Jeddah, Almaty and even London,” a senior Islamic finance official said. “But when you mention Kazan, people do not see it as a loss of prestige or a threat.”

German and European insurance giant Allianz AG has already begun selling Islamic finance insurance and investment products on the Russian market in cooperation with US asset management giant Blackrock, Allianz Russia Deputy Head of Sales Vladimir Trukhin said.

[Allianz AG (Russia) Deputy Head of Sales Vladimir Trukhin speaks at KazanSummit VII International Economic Summit of Russia and OIC Countries. Kazan, Tatarstan (Russia) June 15, 2015]

In fact, it may take a decade for Kazan to become a rival to Dubai or London in the issuance of Sukuks (Islamic bonds) and Islamic finance but its ability to bring out the best brains in the Islamic Finance world has already started.

The financial crisis in Russia has also opened the door for Tatarstan to poach the best investment bankers and private equity specialists from Moscow, many of whom have been flooding Dubai-based institution with their CVs.

Tatarstan is a small Republic with great ambitions.  One topic discussed on the sidelines of the KazanSummit was the creation of Islamic complaint derivative exchange trading so Muslim commodity producers can effectively hedge their risks as do other in the West.

Currently, commodity producers in the Gulf and Africa are cheated by the large New York and London-based investment banks on over-the-counter contracts rather than trading on regulated exchanges such as the Chicago Mercantile Exchange (CME) or New York’s Intercontinental Exchange (ICE).

A debate has already been started by Malaysian, Chicago and Gulf-based participants whether derivative instruments, if traded for legitimate hedging purposes, can be considered compliant under broad Islamic financial principles.

Tatarstan President Rustam Minnikhanov even entertaining the notion of Kazan eventually linking-up with Chicago as global financial centers — considering the history of the Tatar people —  may not be as far fetched as one may be lead to believe.

[Russian Central Bank Governor Elvira Nabiullina fimed by Capitol Intelligence/CI GCA using CI Glass giving Michel Camdessus speech and interview with IMF Managing Direct Christine Lagarde in Washington, DC. September 6, 2018]

Governor Nabiullina, a native of Tatarstan, is likely desitined to much higher office in the Russian Federation thanks to her heroic efforts of stablizing the Russian economy that has been hit by lower oil prices and wide ranging sanctions following the annexation of Crimea.

St.Peterburg liberals such as former Russian Finance Minister Alexei Kudrin and former Russian Economy and Sberbank chief German Gref lobbied their close friend, Russian President Vladmir Putin, to appoint Governor Elvira Nabiulllina rather than re-appoint Dmitri Medvedev as Russia’s Prime Minister.

Putin may reconsider his decision to replace Medvedev with Nabiullina as the Russian president is now facing the fiercest popular backlash in his presidency following his government’s decision to raise the retirement age to 65 from 60 for men and 63 from 55 for women.

As Putin was elevated by President Boris Yeltsin from prime minister to president, Nabiullina may be elevated by Putin from prime minister to become Russia’s first woman President.

by PK Semler and Maria-Luisa Sparta in Kazan, Tatarstan (Russian Federation) and Washington, DC.

For more information please call 202-549-3399 or email: pks@capitolintelgroup.com

Copyright of Capitol Intelligence Group, Inc – Turning Swords into Equity ®