Kazakhstan is drawing on Dubai’s experience in efforts to bring more sukuk products to its stock exchange. It hopes to position itself as a regional Islamic finance hub, but neighbouring Russia is moving fast in the same direction.
Nasdaq Dubai and the Kazakhstan Stock Exchange signed a memorandum of understanding on Tuesday, part of which involves co-operation on promoting Islamic capital markets products and solutions.
“We’ve discussed launching more sukuk products on our exchange using the example of Nasdaq Dubai,” Amina Turgulova, head of business development at the Kazakh stock exchange in Almaty, told EmergingMarkets. The exchange has only one sukuk — the only one issued by a Kazakh entity — a M$240m five year note sold by state-owed Development Bank of Kazakhstan in 2012.
But that is likely to change soon. The country adopted new laws on Islamic finance in April, and is expected to amend it sukuk legislation ahead of a debut Islamic bond.
“There’s a genuine idea to try to develop a regional finance centre in Kazakhstan that would allow countries in central Asia to issue Islamic finance products,” Turgulova said. Parts of Russia, like Tatarstan, also have Muslim populations and could use a Kazakh Islamic finance hub, she added.
But Russia is working hard on an Islamic finance industry of its own. Tatarstan’s government and a Russian-Malaysian consortium launched a feasibility study in April as part of an effort to set up Russia’s first Islamic bank. The consortium includes the Russia-based Islamic Business and Finance Development Fund (IBFD) and has support from the Islamic Development Bank.
Kazakhstan already has one Islamic bank, a subsidiary of Abu Dhabi-owned Al Hilal Bank, and other foreign Islamic lenders are considering entering the market, according to Kazakhstan’s central bank. But Russia is not far behind.
“This year is very important for Islamic banking and finance in Russia,” Linar Yakupov, president of the IBFD, told Emerging Markets. “We think we’ll finally have solid substance to come up with proper changes to the legal system in order to accommodate Islamic banking, and not just in Tatarstan.”
Islamic finance would offer Shariah-compliant banking to Russia’s growing Muslim population. Kazan-based Ak Bars Bank structured Shariah-compliant transactions in 2011 and 2013 to raise money from Middle East investors. The hope is that specific regulation would allow other banks to do the same and with greater ease.
There are Islamic finance working groups in both houses of Russia’s parliament, which will draw on the feasibility study results, scheduled for publication in September, Yakupov said.
One option would be to give special status to an Islamic pilot project. The other would be to alter Russian law first, which would mean three readings for any amendment in the Duma before a vote in the Federation Council, he said. The two options are not mutually exclusive, but the former would mean Russia would have to wait till the second quarter of 2016 for its first Islamic lender, said Yakupov.
The Tatarstan government, federal banks and the central bank are all involved in the discussions. But it is not yet clear whether the bank will be private or state-owned, or whether it will be Tatarstan-based.
“We think Tatarstan is the best place to start,” he said. “But we’re still considering different options.”