Sberbank Senior Vice President Oleg Ganeev on the Islamic banking experiment

This week, an experiment on the introduction of Islamic banking begins in four regions of the Russian Federation. Senior Vice President of Sberbank talks about the prospects and features of this segment Oleg Ganeev.

— The law on Islamic banking (partnership financing) has changed a lot during the editing process. What has become the most important for you?

– Let’s start with the fact that under the law on banks and banking activities, credit institutions are prohibited from engaging in trading operations that underlie some Islamic banking products. This forces us to look for complex solutions, which in turn increases the cost of the product and the time it takes to bring it to market, and this directly affects the cost price for customers. As a result, clients wishing to receive Islamic finance products refuse them due to their uncompetitiveness.

This moment has been corrected, now we can offer customers products on similar terms with conventional banking services, but fully meeting the requirements of Islamic banking.

– What was wrong with the first option, which involved the creation of a special legal entity?

“It was a strategic issue for us. Sberbank operates a Center for Partner Financing and Special Projects, and the first partner (Islamic) financing office was opened in Kazan.

We have created the entire infrastructure for the provision of Islamic banking services. Today we offer our clients debit cards, Aman’s current account, Islamic settlement and cash services for legal entities, trade finance, investment products – the Halal Investments trust management strategy and the Halal Investments stock exchange fund.

All products comply with the international standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI is a Bahrain-based non-profit organization established to maintain and promote Sharia standards for Islamic financial institutions) and have been certified. If the law had left the requirement to create special legal entities, we would have to re-build a duplicate infrastructure.

— Who certified your products?

— Compliance of each product with Sharia norms is ensured by the Sharia Committee of Sberbank, which includes representatives of the Global Islamic Financial Services Firm accredited by AAOIFI, the world’s leading audit and consulting organization with extensive experience and practice in the field of Islamic finance.

— How promising, in your opinion, is the retail segment of Islamic finance in Russia?

— According to market analysis, the number of potential Islamic finance clients is at least 7.5 million people, and more than half of them (4.7 million people) are already Sberbank clients. The remaining 2.8 million people are potential new customers.

— How much is Islamic banking in demand among legal entities?

“We had several transactions when the customer demanded that everything should be certified by the Shariah committee. We organized this, and plus a letter of credit, also as a product that carries credit risk, we did with the Islamic Development Bank. There is a request for revolving lending, but it is more difficult to deal with it, we were waiting for the bill to be released.

— Is the share of Islamic banking in the total volume of business, according to your forecasts, large?

— The potential volume of demand for Islamic finance in Russia in 2018 was 700 billion rubles. For many years, the Islamic economic system has shown a steady pace of development and, according to the Global Islamic Economy Report, the total assets of Islamic finance in 2025 will reach $4.9 trillion.

In Russia, transactions worth more than 30 billion rubles have been completed to date.

Of these, Sberbank accounts for up to 20 billion rubles. Now in our portfolio there are transactions in the amount of 22 billion rubles.

— Are Islamic banking services provided only to Muslims?

– Products are available to everyone – this is an absolutely open ecosystem.

— Who, besides banks, will be among the participants of the pilot?

– Leasing companies, insurance companies, all those financial institutions who have shown that they can meet the requirements of the Shariah committee.

– Do foreign companies and banks show interest in Russia within the framework of Islamic banking?

— There is a very large demand for agricultural products from Russia to the countries of the Middle East, Egypt. Of those our 20 billion rubles. the largest transactions are foreign ones.

And, of course, they look at us with interest, we are probably not even talking about a turn to the East – this is a turn to the big South. And there are a lot of partners who have money, and they are looking for areas of their application. Here we are talking about assets that could be packaged into specialized bonds and receive guaranteed income.

– They are not embarrassed that Sberbank is under sanctions?

– Everyone chooses for himself, for some it is important, for others it is not. We are ready to work, look at how to properly structure transactions. There is interest in us.

– If the pilot project is successful, then it will be rolled out throughout Russia. Do you see potential demand in all regions?

“We will definitely go to pilot territories, to cities with a large number of Muslim populations. We will roll out the product line to those territories where there is also a significant demand for Islamic banking. And we will have a set of basic products that we will offer, including through our regular offices.

— Are there any special requirements for employees in Islamic banking offices?

— Those who work there must know the segment, understand the rules, traditions, language. Currently, there is a shortage of qualified specialists in the field of Islamic finance. We have a special educational program, the students of which will constitute a significant reserve of personnel in this specialty.

Interviewed by Maxim Builov