Hoping to attract new capital, Russia will take its first step into the world of Islamic finance this month by issuing sukuk, Islamic bonds which comply with Muslim religious rules.
The bonds are to be issued by the majority Muslim Russian republic of Tatarstan in the Volga region, which has embarked on an ambitious drive to attract foreign investment.
"Russia will show that it can be interesting for Muslim countries," one of the project's backers, Linar Yakupov told Agence France-Presse. "Right now Islamic banks cannot work in Russia, because our legislation does not take into account the Koran's restrictions."
Islam forbids borrowing or paying with interest, and sukuk (the plural of the Arabic word for a financial deed) are not based on debt-like traditional bonds. Instead, buying the bonds secures partial ownership in a concrete asset like land or a building, and investors are guaranteed a part of the profits generated by this underlying asset.
The first sukuk to be issued in Tatarstan's capital Kazan on June 20 will be going toward financing a major business center in the city whose construction will cost $200 million.
"Sukuk are guaranteed by the Tatarstan government, the operator will be based in Luxembourg, and we know that the international market is ready to buy," Yakupov said.
Among the interested investors are the Jeddah-based Islamic Development Bank, and various banks in the Middle East, Malaysia, and Russia, he said.
Bringing Islamic banks to Russia is "possible and even necessary", Tatarstan's leader Rustam Minnikhanov told investors in Dubai in early May, according to the RIA Novosti agency.
In Moscow, however, federal authorities are showing greater caution.
Daily News
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