Few people in Pakistan are aware that Russia has introduced interest-free Islamic banking in four of its Muslim-majority regions. On August 4 of last year, Russian President Vladimir Putin signed a law allowing the experimental implementation of an Islamic banking system in these areas: Tatarstan, Bashkortostan, Chechnya, and Dagestan. Across Russia, there are more than 25 million Muslims.
This trial period for interest-free banking will conclude in September 2025. However, this does not mean the system will be terminated in 2025. Instead, the trial will evaluate any deficiencies or challenges encountered while transitioning from the conventional global banking system to an Islamic model. If this system demonstrates better economic indicators than the existing one, it may be expanded nationwide. The concept began in 2008, with actual implementation starting last year.
Madina Kalimulina, Executive Secretary of the Russian Association of Experts, states that Islamic banking does not allow banks to exploit clients’ vulnerabilities. In traditional banking, clients often face harsh treatment if they cannot repay loans. In contrast, Islamic banking provides protection from such treatment, emphasizing partnership as its core principle. Another significant difference is that, unlike traditional banking, Islamic banking does not rely on hypothetical guarantees or assumptions. Due to flaws in the traditional system, global financial crises have occurred repeatedly.
Russian economists believe that the annual growth rate of Islamic banking is around 40%, and it is projected to reach a volume of $7.7 trillion by 2025. During the 2008 financial crisis, Russia recognized the need for alternative capital sources. Later, in 2014, when Russia reincorporated Crimea from Ukraine, Western sanctions were imposed. In this crisis, the Association of Russian Banks advised the government to permit Islamic banking, given that preliminary work had been done in 2008.
Consequently, a committee was formed within the structure of Russia’s central bank to finalize regulations for Islamic banking activities. In a way, the Ukraine conflict accelerated the slow progress toward establishing Islamic banking. A sequence of events has gradually distanced Russia from the West, bringing it closer to the East. The future economic and financial landscape appears to prioritize economic relations with Muslim-majority countries. In September, Iran hosted the 34th Islamic Banking Conference. Iran and Russia share a common ground: both face Western sanctions and seek economic independence from the Western financial system.
The presence of an Islamic financial system in Russia has facilitated significant trade and investment between Russia and Iran, allowing them to avoid reliance on Western financial institutions. Speeches at this conference highlighted that the global Islamic finance sector is currently valued at around $4.2 trillion. The governor of Iran’s Central Bank, Ali Salehabadi, stated that Islamic finance is not merely a religious requirement but a solution to current economic pressures. He added that the promotion of Islamic banking in Russia serves as a model for integrating non-Muslim-majority countries into the Islamic financial system.
Tatarstan took the first step in Russia, collaborating with Iran to issue a joint “Islamic bond.” In a July session of Russia’s State Duma, Anatoly Aksakov, head of the Financial Market Committee, announced that Islamic banking could generate $11–14 billion in projects with Islamic countries. Economists predict that if the challenges in implementation are effectively managed, Islamic financial systems will yield extraordinary results.
The number of customers utilizing this system in Russia is rapidly increasing, with a new financial market expanding quickly. The Russian government has established a council of experts to oversee these matters. Russian experts assert that Russia has the strategic potential to become a global hub for Islamic finance, contingent upon fostering close relations with the Islamic world based on shared interests.
Reflecting on the success of the Islamic financial system in Russia, I am reminded of a story involving Pakistan. In the early 1980s, Pakistan gifted a pair of blackbucks (antelope) to Canada, where they do not naturally exist. Canada bred these animals, and today, they roam its forests in large numbers. Unfortunately, we almost eradicated these antelope in Pakistan due to hunting. Decades later, blackbucks are once again being reintroduced in Pakistan, thanks to Canada gifting us a few pairs to revive their population here.