IBFN (Islamic Banking & Finance Network) at Posterous

This blog explores the information about Islamic Banking and Financial Networks!

How is Islamic microfinance different?

How is Islamic microfinance different?

Islamic banking was created as a separate path of financing in order to comply with prohibitions stipulated by Islamic law. Also referred to as Sharia law, Islamic law can be considered God's law as interpreted by Muslims.

Islamic scholars called Muftis in the Sunni tradition and Mullahs in the Shia tradition are charged with interpreting this law. The central texts of Sharia law are the holy book of the Qur'an, and the examples set forth by Muhammad and his early followers are documented in a collection of texts called the Hadith. To render a legal opinion, scholars weigh an action or principle against these texts and determine if it is in accordance with the spirit of the law.

Sharia law is very clear about charging interest on loans. The Qur'an forbids usury, or riba, in four different revelations based on the belief that money is only a medium of exchange and has no value in itself. Islam has not relented to pressures from the marketplace and has maintained its stance that charging interest on loans is usurious and a violation of Islamic law.

However, by differentiating trade from usury, the Qur'an reaffirms the practice of trading as a respectable profession. The importance of trading partnerships has motivated financial intermediaries to find creative ways to help Muslims access loans without violating Islamic law.

Some of Kiva's Field Partners that serve Muslim borrowers have created loan products based on Islamic principles to better serve their clients. These products have 0% interest and vary in design and delivery mechanisms. While some charge a service fee to cover the costs of administering loans, others share risk between lenders and borrowers or lease assets to borrowers (see next section for more details).

To certify that these products are compatible with Islamic principles, it is important for a microfinance institution to receive a fatwa, a legal pronouncement made by an Islamic scholar or religious leader, that officially condones its work.

Why does Kiva support Islamic microfinance?

The prohibitions against usury in the Qur'an are designed to protect weaker individuals from exploitation. Islamic microfinance attempts to capture the spirit of Sharia law by allowing financial tools that create and maintain a just economic system -- one that protects clients through built-in mechanisms like risk sharing.

Kiva believes in supporting products that are culturally compatible and designed to protect borrowers.

What Islamic loan products appear on Kiva?

Kiva Field Partners post the following loan products to serve Muslim clients (adapted from traditional Islamic financial principles):

1) Oard Hassan: Interest free loans, usually to students or the very poor.

2) Murabaha: Purchasing goods for borrowers and charging a fee* or mark-up.

3) Musawama: The seller and buyer arrive at an agreed price for a commodity.

4) Mudaraba: A limited liability partnership (not allowing for direct investor involvement).

5) Musharaka: A joint venture with profit and loss sharing.

6) Salam: An advance purchase of goods delivered on a future date set by the buyer and seller.

7) Ijarah: Leasing of goods with a second contract to purchase them at the end of a lease period.

8) Joala: Payment of upfront fees.*

*How much are the fees associated with Islamic loans?

The fees associated with Islamic loans vary from one microfinance institution to another. As with all loans on the Kiva site, the best measure of fees paid by a borrower is the Portfolio Yield, displayed on borrower profile pages as well as Field Partner profile pages.

How is paying a fee on a loan different than paying interest?

For many Muslim borrowers, paying a fee on a loan is like paying a service fee on any other service transaction. Borrowers are purchasing the service of being provided with money. They pay a fee in the same way they would pay for consulting or advisory services.

When a borrower is about to receive a loan, he or she pays a fee to the microfinance institution before receiving the funds. In contrast, interest paid during the course of a loan is seen as money earned by the microfinance institution on the money itself, rather than a fee for the service.

Kiva lends to thousands of entrepreneurs in countries where Islamic law impacts how people can borrow money and pay it back. Below, learn how Kiva's Field Partners approach these loans, which will be identified in loan descriptions going forward.
http://kivanews.blogspot.in/2012/05/kivas-approach-to-lending-and-islamic.html

Qatar ban on Islamic windows of banks fetches no windfall!

A year after Qatar asked conventional banks to stop offering Islamic financial services, an expected windfall for its Islamic banks has yet to materialise. Nor is it clear that banks’ customers are benefiting from the policy.
The episode illustrates the difficulties that countries face as they manage the relationship between conventional and Islamic banking. Trying to adjust that relationship carries risk, for both regulators and the banks themselves.
The Qatar Central Bank (QCB) last year announced that at the end of 2011, conventional banks would no longer be allowed to run “Islamic windows” — sections of the banks which operated according to religious, or Shariah, principles. Islamic banking services could only be offered by separate, dedicated institutions, QCB said.
The central bank’s move was designed to ensure the purity of Islamic finance, by removing any possibility that Islamic loans and deposits could mingle with conventional funds bearing interest, which is forbidden to Muslims.
Before the ban, Islamic windows saw a significant amount of business in Qatar; they accounted for QR54.6bn ($15bn) or 31% of all Islamic banking assets in the country during 2010, according to the International Monetary Fund. Combined assets at all banks, both conventional and Islamic, totalled QR572bn.
So the QCB move looked set to have a seismic impact on Qatar’s banking industry. One institution affected was HSBC Amanah, the Islamic arm of global giant HSBC Holdings; it opened its doors in Qatar in 2010, only to have to close months later.
In the wake of the decision, the shares of the country’s several full-fledged Islamic banks, such as Qatar Islamic Bank and Masraf Al Rayan, surged on expectations that they would attract money leaving the defunct windows.
“We’ll have a much bigger customer base. We see it as a very positive move,” Adel Mustafawi, chief executive of Masraf Al Rayan, said at the time.
Credit rating agency Moody’s Investors Service declared the “segregation of Islamic banking in Qatar is credit negative for conventional banks, positive for Islamic banks.”
It predicted Islamic banks would benefit from access to a larger pool of customers and improve their profit margins. Conventional banks would lose between 8% and 16% of their deposit bases, assets and profits, Moody’s estimated.
It hasn’t happened that way. There was little sign of the expected flow of money into Qatar’s Islamic banks last year; their total assets grew 35%, according to central bank data, but that marked a slowdown from 39% expansion in the previous year.
Masraf Al Rayan’s assets soared 59% last year but profitability declined as measured by return on assets, dropping to 2.55% in 2011 from 3.49% a year earlier.
Meanwhile, the performance of Qatar’s conventional banks improved; their assets grew 23% in 2011, up from a 16% rise in 2010. The biggest negative impact, Moody’s predicted, would be felt by the country’s largest lender, QNB.
But assets at QNB jumped 35% last year and its return on assets actually improved slightly.
The figures suggest that either depositors kept much of their money in conventional banks as Islamic windows closed, or Islamic banks suffered a growth slowdown that more than offset the benefits of the windows closing - or a combination of both.
Globally, banks’ customers can be divided into three categories, according to consultants AT Kearney: loyalists of conventional banks, loyalists of Islamic ones, and a “floating mass” — by some estimates, 60% or 70% of the total — who base their choice of bank primarily on pricing and service quality rather than religious permissibility.
Qatar’s data implies many conventional banks continued to attract the floating mass after their Islamic windows closed.
Most of Qatar’s conventional banks have still not fully divested their Islamic loan portfolios; instead, they have taken advantage of a provision in the ban which, according to commercial bankers, allows them to hold existing Islamic loans until maturity, as long as they do not extend fresh ones.
At Doha Bank, for example, Islamic financing activities represented 7.4% of total loans for 2011, down from 12.6% in the previous year.
Qatar’s move on Islamic windows contrasts with most Muslim countries, which permit the windows to operate as long as the banks show they are taking steps to prevent any mingling of their conventional and Islamic funds.
Islamic banking resembles conventional banking in many respects, with modifications to respect religious principles. For example, depositors do not receive interest but may get a share of profits from funds invested by the bank; loans do not charge interest but may carry certain fees.
Commercial bankers said that in addition to protecting the purity of Islamic finance, the QCB apparently wanted to level the playing field in banking: conventional institutions with Islamic windows were larger than pure Islamic banks, and so enjoyed better economies of scale.
More competition in one area, however, may be offset by the loss of it in another area. Islamic finance customers now have fewer options; an IMF report in January this year said there was a need to “manage the impact on banking sector competition in view of the decline in the number of institutions providing Islamic banking services from 12 to 4.”

AAOIFI in wide review of Islamic finance standards!

Islamic finance may face its biggest shake-up in years as a top standard-setting body seeks to reform the way the industry does business, including the role of highly paid scholars in enforcing religious principles.

Khaled Al Fakih, the new secretary-general of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), outlined plans for a sweeping review of its guidelines in an interview with Reuters.

Some of AAOIFI's reforms may prove controversial by challenging entrenched interests in the fast-growing business. Islamic financial assets hit $1.3 trillion globally last year, a 150 percent rise in the past five years as the industry expanded beyond core markets in the Middle East and Malaysia, financial lobby group TheCityUK estimates.

"We would like to see insightful debate...that can help us develop standards that can benefit the industry," Fakih said by email from Bahrain, ahead of AAOIFI's annual meeting there on May 7 and 8.

His organisation plans to start consultations on reforming the operations of sharia boards, the groups of Islamic scholars which rule on whether financial institutions' activities and products are religiously acceptable, by the middle of this year. A final draft of the reforms is not expected to be ready before the end of next year at the earliest.

AAOIFI will also work on a new framework for disclosing financial data, and will look at revising standards for takaful (Islamic insurance), investment accounts and other products.

Fakih, a Lebanese-born commercial banker who took over at AAOIFI in February, said basic elements of Islamic finance such as murabaha, mudaraba and ijara - structures designed to permit investment while obeying religious bans on paying interest and pure monetary speculation - would be reviewed next year.

CONTROVERSY

For many in the industry, AAOIFI's review cannot come too soon. Although far smaller than conventional banking, which has tens of trillions of dollars of assets, Islamic finance has grown much more quickly in the last few years, so its flaws could start to affect banking systems and economies.

Much of its growth has occurred because it can count on the support of large pools of sharia-compliant funds in the booming Gulf and southeast Asia, which have not pulled back during the global financial crisis as Western funds have.

Last year's Arab Spring uprisings in the Middle East promise a fresh wave of growth; new, Islamist-led governments want to promote the industry after their authoritarian predecessors discouraged it for ideological reasons.

But the growth has exposed weaknesses in Islamic finance. One is the lack of a clear consensus on what products and procedures are permissible; the sharia boards of individual banks and investment firms can issue conflicting rulings.

This can create big controversies. When Goldman Sachs (GS.N) announced last October that it planned a $2 billion sukuk issue, which would make it one of the first top Western banks to raise money in that way, its own sharia advisors approved the plan. But some other scholars criticised it; six months later, the sukuk has not been issued and it is not clear when it might be.

The sharia board system is open to accusations of conflict of interest because scholars are paid handsomely - in some cases, with hourly fees of $1,000 or more - by the very firms whose behaviour they are supervising.

The ambiguity in regulation has let some Islamic financial institutions, such as Kuwait's Investment Dar, argue in court that contracts into which they had entered were not valid because they were not sharia-compliant in the first place.

AAOIFI plans to improve the operations of sharia boards by strengthening the certification process for scholars, Fakih said. The organisation currently offers scholars two professional credentials, but they have been criticised as not sufficiently rigorous and too easy to obtain.

In addition, AAOIFI is developing new guidance on the relationship between Islamic financial firms and their sharia boards, "similar to international best practices on terms of reference for financial institutions' board of directors".

One way to reduce conflicts of interest might be to limit the length of scholars' tenure at individual firms, to prevent them from forming excessively close relationships with their employers that might compromise their objectivity. However, Fakih did not mention this idea. Current AAOIFI standards acknowledge "engagement over a prolonged period of time may pose a threat to independence", but do not prescribe specific limits.

AAOIFI will also look at ways of fostering the rise of a new, younger generation of Islamic scholars, through steps such as training courses, Fakih said. This could remove a bottleneck to growth in the industry by loosening the dominance of about two dozen veteran scholars who have practiced for decades and hold multiple board positions.

RESISTANCE

It is not yet clear whether reformers in AAOIFI will be able to push through changes over the potential opposition of many veteran scholars and financiers who profit from the status quo.

Yasser Dalhawi, chief executive of Syariah Review Bureau, an Islamic finance advisory firm in Saudi Arabia, said change would be difficult. But he added that many people in the wider industry would support change as a way of ensuring growth and bringing Islamic finance closer to its religious principles.

A survey of customers' attitudes to sharia boards, conducted a few years ago by a Gulf financial firm, found widespread dissatisfaction which was expressed in some cases with expletives, one prominent scholar told Reuters, declining to be named because of the sensitivity of the issue.

To balance opposition to change within AAOIFI, Fakih seems to want to involve the widest possible range of industry interests in the debate; he called for "rigorous and meaningful discussions...not only among scholars but also with all participants of Islamic finance."

His plans to release a series of draft proposals for public consultation mark a change from AAOIFI's past style, which relied more on decisions made behind closed doors.

ENFORCEMENT

In its review, AAOIFI is also expected to discuss strengthening enforcement of its standards across the globe. They are not backed by any legal sanction, so national financial regulators decide whether to enforce them.

Currently only a small number of countries, including Bahrain and Qatar, have adopted AAOIFI standards wholesale; others use them as references without making them compulsory.

"Unless you have a global rule, it is not really going to work as it creates arbitrage opportunities," said Murat Unal, board member at Funds@Work, a German-based consultancy. He added that in some cases, scholars had avoided strict local regulation by offering their services in countries with looser standards.

At an Islamic finance seminar in Dubai this month, Muddassir Siddiqui, a prominent scholar from Malaysia, pressed his fellow panellists on who could strengthen global enforcement. There was no concrete response except for the vague idea of an international body of some sort.

AAOIFI might conceivably work around this by requiring all scholars, regardless of the country where they are located, to adhere to a code of conduct that would effectively transcend legal or territorial boundaries. But powerful figures inside AAOIFI might oppose anything which limited their room for manoeuvre so drastically.

In any case, the 21-year-old organisation is likely to have to grapple with such issues as it tries to preserve its status in the industry. So much money is now flowing into Islamic finance that other bodies, such as national regulators, may jump in if AAOIFI does not solve problems.

Some are already doing so. Last year Qatar's central bank banned Islamic windows, which allow conventional banks to offer sharia-compliant products. AAOIFI already had standards which let Islamic windows function if their funds were segregated from the banks' conventional operations. But Qatar decided those standards were not sufficient - a warning sign for AAOIFI as it tries to win industry support for its reforms.

(Additional reporting by Anjuli Davies; Editing by Andrew Torchia)

Islamic finance: A window of hope

BY HATEM Y. EZZ ELDIN

We should not expect the popular uprisings that have swept the Arab region since the beginning of last year to have a quick, positive impact on political and economic systems of the now-troubled countries. It is not easy to fight in one or two years the deeply-rooted corruption in the Arab Spring countries or in other countries which have witnessed social unrest. Indeed, we will observe political struggles here and there and we should expect slower economic growth. Although I am concerned with the struggles that are going on between different political powers in pursuit of more control and influence, I always prefer to concentrate more on the opportunities that could be created for a better future for our generation.

One of those opportunities that has been intensively discussed in the last couple of weeks in the north African region is the integration of massive Islamic financing operations into banking systems. The nearly $1.2 trillion rapidly growing Islamic finance industry in several parts of the globe has taken center stage in the north African region following the Islamist’s recent electoral triumph in Morocco, Tunisia, Libya and Egypt. Economy experts and legislators have claimed that the development of such finance in these countries at the current time would add to their annual gross domestic product (GDP) growth, cut their projected deficit and open tens of thousands of job opportunities for the unemployed. The 15 percent annual growth of the industry globally clearly shows that the experience is having success and that it should be given more concern and care in our region.

Last week, a Malaysian Islamic finance group announced plans to launch a $500 million Islamic fund in Egypt to invest in infrastructure, agriculture and renewable energy projects. In Morocco, a draft bill to integrate Islamic financing operations into the country’s banking system is under preparation and is expected to be implemented by the end of this year, amid reports of the launch of the country’s first fully-fledged Islamic bank in 2013. Tunisia is on the same track. Earlier this month, the Tunisian government announced plans to issue the country’s first Islamic bond before the end of this year in a move to cover part of the anticipated budget deficit. Libya is also no exception. The country’s central bank is reportedly preparing legislation and training staff for introducing a solid Shariah-compliant banking structure within a year from now.

The Islamic finance industry will help the troubled economies of the north African region to revive as they will be able to attract more investments especially from the oil-rich Gulf countries. Of course there will be challenges, one of which is the shortage of qualified scholars in the field. Until now, there seems to be no structured governmental program designed to train them. There is also not much effort being made to educate people about how Islamic finance can maximize their benefits. Yet by setting up a comprehensive vision of the new governments in the region for learning and training, this problem can be solved.

Most Arab people have the idea that Islamic portfolios must not contain shares of firms producing alcohol, weapons, adult entertainment or interest-bearing financial products like their conventional counterparts. But very few of them understand how such an industry can boost economic growth and affect standards of living. It is never too late to learn. There is now an excellent and appropriate opportunity in the north African region to raise awareness about the industry and get the economies of the region back on their feet.

(Hatem Y. Ezz Eldin is a political researcher based in Jeddah. He can be reached at hatemym@gmail.com)

Islam: interest in 'halal' finance growing in Italy

Islamic finance has existed in Europe for more than forty years, with the United Kingdom one of the world's leading countries in the field, and others, such as Malta and Luxembourg, also at the forefront. In Italy, where the sector is more or less non-existent, results of the first experiments are now beginning to be seen.

In 2009, for instance, Deloitte set up a sector dedicated to Islamic finance. ''At the moment, we are developing products compatible with Italian regulations,'' says Alberto Liotta, a director at the consultancy firm, a guest at a conference organised by Islamic Relief Italia. ''Attention is mainly focussed on conventional financing instruments, such as leasing, the concept of which can be brought closer to those of Islamic finance''.

''In the West, there is strong financing demand based on religious principles as a result of the growth of the Muslim middle-class, due to interest in ''halal'' products by ethical finance and because there is a serious amount of money to be made,'' says Alberto Brugnoni, a director at Assaif, another consultancy firm. ''Major investment funds are also focussing on this not so much for interests as to diversify their portfolio''.

Yet although the issue has been discussed for a few years now, the time appears not yet right for the birth of a retail Islamic bank in Italy following the model of the Islamic Bank of Britain. ''In truth, it would be possible to create it in Italy because the regulations here are harmonised with the rest of Europe,'' says Valentino Cattelan, a sector expert and professor at Rome's Tor Vergata University. ''From an investor's point of view, the problem is that it would not yet be very profitable business because of tax problems and because there is not yet a market considered to be useful''.

PAKISTAN - Islamic Banking Industry far from achieving10-year target!

Islamic Banking Industry far from achieving10-year target!

By Muhammad Yasir

The Islamic Banking Industry (IBI) will miss its 10-year growth target to achieve 12 percent share of overall banking industry, staying currently at an average of 7.6 percent in terms of assets and deposits that may attain level of 9 percent by 2012 provided with the improving economic and business situation.
IBI has witnessed impressive growth over a period of decade with significant number of banks and branches established particularly for banking services in accordance with Sharia Compliance.
There are currently five full-fledged Islamic banks and 12 conventional banks having Islamic banking divisions with a network of more than 840 branches in more than 70 districts across the country.
The industry has been maintaining strong growth momentum with over 30 percent average annual growth during the last six to seven years.
According to the latest available data, the total assets of the IBI stood at Rs 568 billion, constituting 7.3 percent share of the overall banking industry.
The deposits of IBI reached Rs 463 billion during the quarter under review and its share increased to 8 percent of the overall banking industry from 7.6 percent in the last quarter (April-June 2011).
The banking regulator has re-launched Islamic banking in 2002 on the experiences of other countries in the world that are currently known for their lead role in Islamic finance sector like Malaysia and Bahrain.
The State Bank of Pakistan (SBP) devised strategy based on these five pillars. The plan is to take the market share from of 4 percent in 2002 to 12 percent by 2012.
The target was set to achieve through increasing outreach in current urban consumer and corporate markets and extending the market to cover new segments of Islamic micro finance, agriculture finance and SME finance. However, the industry steadily explored the markets’ potential with all available options but it still failed to attain the targets.
According to the set benchmarks, the overall should have been increased to Rs 907.064 billion in terms of deposits held by Islamic banks. Similarly, the assets target was set to increase to Rs 731.591 billion by 2012.
Experts in the banking industry said the economic slowdown has hampered the growth businesses significantly since 2008, which has also hurt the progress of the IBI.
The decline in growth of business and industrial production has taken a toll on the business and operational expansion of the IBI. Moreover, the stubborn inflation also hit middle class significantly that caused steep cut in lending loans and leasing cars and houses.
Besides, there was an emerging competition between Islamic banking and conventional banking in the country and most of the professional bankers, who are against interest-free financial system, spread negative propaganda about Islamic banking, experts said.
The misconception has been widespread about the concept of riba-free banking system and laymen continued to be confused about Islamic banking at large.
The situation has been improved currently but is slightly stable, not perfect at present, bankers said, adding the banks are very much involved in lending loans to exporters but on the customers’ side banking is at a standstill because of high inflationary pressure on the middle class’ affordability.

Islamic financial market fast expanding

Islamic financial market fast expanding   

Despite a challenging market environment, Islamic finance made progress in
2011, supported by vigorous underlying trends. The industry saw growth in
terms of volume, geographic reach and quality increase due to strong
demographic growth and rise in the size of Islamic financial market, Bank
Sarasin’s 2012 Islamic Wealth Management Report said. (more...)
http://www.opalesque.com/IFB15439/Newsletter_02232012.html


Islamic Banking News

Al Hilal Bank unveils Middle East's first-ever 'Money Station' bank branch

Al Hilal Bank, a progressive Islamic bank, launched the Middle East’s first
‘Money Station’ branch in Dubai. Customers using the facility will be able
to perform essential banking transactions from the convenience of their own
cars, said a statement. (more...)

-----------------------------------------------------------------------------

BLME signs first Islamic banking deal in UK renewable energy sector

Bank of London and The Middle East (BLME) has signed a £14 million leasing
deal with Global Marine Systems, the largest independent provider of
submarine cable installation, maintenance and engineering services
worldwide. (more...)

Islamic finance for investment managers


Islamic finance for investment managers - Five steps to creating a Shariah
compliant portfolio

According to the Global Islamic Finance Report 2011,1 the Islamic finance
industry is valued at $1.14 trillion across more than 70 countries and is
growing at an annual rate of 10%. It has been performing extremely well
since its creation 40 years ago, and its expansion has accelerated in the
past few years, within emerging economies around the world but also in
non-Muslim majority regions like Europe.  (more...)

http://www.opalesque.com/IFB15388/Newsletter_02202012.html

Islamic banks never invest in pork, alcohol and tobacco

Russia's Finance Ministry is working on legal acts to sign an unusual investment agreement with the United Arab Emirates. Mutual investments will avoid taxation, whereas the Arabs will not have their profit taxed. However, the documents encourage only state-run corporations and funds.

The agreement between the government of the Russian Federation and the UAE "About taxation of the income from the investments of the contracting states and their financial and investment institutions" was signed in Abu-Dhabi on December 7, 2011. However, the information about the document has become available only recently.

Chechen President Ramzan Kadyrov visited Abu Dhabi, the largest and the most financially powerful emirate of the country, in November 2011. In February, Kadyrov had a meeting with the sheikhs of the UAE to discuss opportunities of Arab investments in the development of Chechnya. In February 2011, Russian Prime Minister Vladimir Putin ordered the Finance Ministry to prepare such an agreement, The Kommersant reports.

In accordance with the document, tax privileges will be guaranteed only to state economic agents of the two countries. The agreement indicated central banks and state-run pension funds, as well as central and regional governments and the organizations that they control. As for the UAE, it goes about the Investment Administration of Abu Dhabi and the Emirate Investment Administration.

The agreement stipulates income tax privileges in Russia, zero tax rates for dividend, percentage and income from the sale of property (save for real estate) and derivative instruments. Russian state-run companies will have guarantees of special terms for taxes on corporations and income in the UAE.
The signed agreement takes account of the laws of both countries. In particular, the Russian Finance Ministry supposedly could not sign the standard agreement to avoid double taxation because of the actual presence of the UAE on the Russian lists of offshores. That's why a special format for Arab partners was elaborated.

The agreement also takes account of the peculiarities of the so-called Islamic funding and Islamic bank system. The Islamic system does not practice the use of the borrowing rate of interest. Nevertheless, Islamic banks make money as they receive some sort of a bonus from borrowers. This bonus is not predetermined, whereas a client is not supposed to grant bail either. However, Islamic banks are very scrupulous when it comes to choosing borrowers. Unlike in the rest of the world, Shariah financiers will not work with speculative securities, such as futures and options - they do not buy and sell the rights for the parts of the future harvest and yet-unexctracted resources.

The norms of the Islamic banking do not allow any investments in the companies that deal with the production and sales of pork, alcohol and tobacco. Investments in the entertainment sector and financial structures that work on the basis of the borrowing rate of interest are banned too. Most investments are wired via the sovereign investment funds of the monarchies of the Persian Gulf.

The UAE delegation that visited Chechnya last year set the basic directions for Arab investments in the Russian region. The Arabs plan to invest in real estate and agriculture.

Vladimir Shabanov