A year ago, when Tatagroprombank launched The Partnership Banking Center, which operated under Sharia (Islamic laws), many analysts believed in its success. The center also hoped that investments would start flowing to Kazan, the so-called Muslim capital of Russia, which is the capital of the internal republic of Tatarstan.
The Partnership Banking Center started operations in March 2016 as a subsidiary of LLC Tatagroprombank. The center says it provides a wide range of banking services irrespective of the religious beliefs of clients. It works with both individuals and companies and has an agreement with the Islamic Development Bank in Saudi Arabia.
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At the moment, Robert Musin, one of the main shareholders of Tatagroprombank is facing criminal charges for alleged large-scale fraud. His arrest is tightly connected with his activity in another major bank in Kazan. Tatfondbank, where he was chairman, lost its license in March 2017.
It is still unknown whether Tatagroprombank will share the same fate, although there have been rumors of clients withdrawing funds from their accounts. The bank’s representatives did not provide any information on the fate of the center in the light of recent events.
In addition to these developments, on March 9 the Russian State Duma (lower house of parliament) decided to reject the bill that would let Islamic banking fully and legally operate in Russia. Rais Suleimanov from the National Strategy Institute believes that one of the reasons for the rejection was the vague statement from Deputy Dmitriy Savelyev who brought in the bill, according to a report on EADaily.
Islamic banking in Russia
Although the first attempts at introducing Islamic banking date back to 1997, most of them never succeeded, despite the fact that Muslim-populated cities were targeted.
The first bank to implement the Islamic financial system in Russia was Badr-Forte bank in Moscow. It was licensed in 1991 and started using Islamic finance methods in 1997. It “carefully lined up the bridges between Russia and the Islamic world,” Adalet Jabiyev, Chairman of Badr-Forte Bank told Global Islamic Finance magazine.
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In December 2006 the Central Bank of Russia suddenly stripped the bank of its license on account of continuous noncompliance to standard banking regulations and the Russian federal law on countering the legalization of illegal earnings (money laundering) and the financing of terrorism.
The law states that every first transaction of each client requires a notification of a bank supervisor. Badr-Forte bank, according to the regulator, did not fully comply with this law and had suspicious transactions to the tune of 33.9 billion rubles (about $550 million).
“This did not happen because of the Islamic banking system, there were other reasons,” Nina Mamedova, Head of the Iranian sector at the Institute of Oriental Studies of the Russian Academy of Science told RBTH
No adequate demand
Since then many other Islamic banking organizations were set up, but most eventually closed down: Amal Financial House, a subsidiary of Bulgar Bank in Yaroslavl, lost its license in 2017, Ellips Bank in Nizhniy Novgorod and Express Bank in Dagestan, established in 2011, were also branded as inefficient and eventually got liquidated in 2013.
They were not banks, but Islamic “windows” inside conventional banks. Since Sharia laws prohibit acceptance of specific interest or fees, these “windows” helped bypass Russian law that states that banks must always charge fees.