Confidence in Shariah compliant investments is greater in Russia than before thanks to the success of its Islamic banking pilot project, and this is drumming up demand and pushing players to enter this space, experts tell IFN Investor.
The current Islamic investment universe in Russia is extremely limited – restricted to one Islamic fund and a handful of bank-mediated offerings, but several potential products are in the making which may open new opportunities for the fledgling market.
“At the moment, there are no full-fledged Islamic investment funds in Russia that would carry out the entire range of investment operations, since there is only one mutual investment fund, Lale, from AK Bars Bank, which invests in shares of publicly listed Russian companies. And several micro-investment companies like NurFinance, As Salam, Amal, Zayed Fund, among others,” explains Eldar Yakhin, the founder of NurFinance, who added that Islamic banking deposits and investment volumes have increased by at least 50% particularly from the retail segment.
These micro-investment companies are part of an influx of Russian financial institutions joining the Islamic finance sphere encouraged by the government’s participation banking pilot project which began in 2023. Initially rolled out in four Russian republics, the experiment will be expanded to the rest of the nation following overwhelming response and promising outcomes.
So far, 30 firms (out of which seven are banks) have joined this initiative providing retail and corporate products, under the partner Finance Law adopted in August 2023.
According to Eldar, the most popular products are Murabahah mortgages and vehicle financing, Ijarah-based automotive and business equipment financing, investment and savings products for consumers as well as financing of government purchases under Murabahah and Mudarabah modalities as well as construction project financing.
While the lion share of products has been financing instruments, investment products are slowly picking up.
Last year, a member of the expert association in Islamic finance launched the As Salam platform which aims to facilitate individuals and corporates to invest into businesses, as well as providing Islamic interbank investment solutions.
“I strongly believe that the most important investment product in Islamic finance is the one that can support and share profit from local Halal businesses. Therefore, market participants should concentrate on Mudarabah-based portfolios or special Mudarabah contracts. Some of these products are already in the market,” opines Madina Kalimullina, the managing partner of Alif Consult.
Promising progress
According to market participants, Muslim institutional investors are currently investing in infrastructure, construction and agriculture with guarantees from the state. Whereas retail investors are mainly interested in highly liquid short-term investments in small businesses and real estate or savings-insurance and pension programs.
The ongoing experiment resulted in direct Halal investment opportunities in the form of regional venture funds and business development funds. One such example is the Venture Fund of the Bashkortostan Republic. Another critical element of this experiment was the launch of the Fund ‘Heritage’, developed in collaboration with two Arab funds. It aims to finance promising start-ups across Russia and the CIS.
In another development, Russia has scheduled the full launch of the AAOIFI-compliant investment platform from United Banking Technologies in May 2025. It will provide businesses access to capital, thus eliminating traditional interest rates. Investors, instead of receiving fixed interest payments, are entitled to a share of future profits, fostering a more partnership-oriented financial system.
“The goal is to integrate Russia’s Islamic finance system with BRICS financial platforms to boost cross-border investments. By ensuring compliance with AAOIFI standards, the project aims to attract capital from the Middle East and Asia, thereby strengthening Russia’s financial ties with these regions,” shares Giuliano Bifolchi, a research manager at SpecialEurasia.
