Russia on Wednesday will start an experimental pilot project on implementing Islamic financial practices in several regions with Muslim-dominated population.
The experiment will take place in Dagestan, Chechnya, Bashkiria and Tatarstan and will last for two years. After that, the authorities will decide on the suitability of the Islamic model for Russia.
Alexandr Kazakov, a senior expert at the Russian Association of Experts in Islamic Finance, told Anadolu that it is "time to forget" about the Western financial markets and focus on cooperation with the Arab and Asian countries.
"At the corporate level, it is already obvious that all Western financial centers are closed to Russian capital, we have no choice but to develop affordable alternatives. It's time to forget about the existence of London and concentrate on Beijing, New Delhi, Singapore, Kuala Lumpur and the Gulf countries," the expert said.
Kazakov said the State Duma passed in the first hearing the bill on partner financing, where the term "partner financing" suggests financial products based on Islamic principles.
"Once it is adopted, the existence of alternative financial instruments will be recognized at the legislative level in Russia. This is an important political step both within the country and in relation to our real foreign partners," he said.
According to Kazakov, the Islamic banking has been actively developing in recent years with the Middle East being the biggest center for Islamic banking and Malaysia for Islamic security market.
Asked if the Islamic financial model can oppose the Western financial system, Kazakov said: "We will live and we will see. The Western financial system is now in a serious crisis. Everything will depend on how it survives this crisis and if it survives it."
In Russia, there are several successfully functioning retail Islamic financial organizations, he added, and the Islamic finance system has good prospects due to "very voluminous demand" from more than 20 million Russian Muslims, he said.
Speaking about the sticking points of Islamic finance, Kazakov said the principal difference is that Islamic finance prohibits charging interests.
He recalled that the traditional financial system in both the Christian and Muslim world prohibited usury, however, the interest-bearing loans eventually found their way to European business.
"The Islamic banking offers the partnership, which involves participation in both profits and losses, while interest-based loans should be repaid regardless of the result of the borrower's activities," he said.
The Islamic finance includes two basic models -- partnership or Musharakah and payment in installments or Murabaha.
"Let's show how both systems work using the example of a conventional mortgage loan. Within partnership -- Musharakah -- structure the bank together with the client acquires real estate in shared ownership. The client moves into the purchased object and pays the rent to the bank in proportion to the shares, and the client gradually buys out the bank's share.
"In the second case -- Murabaha -- the bank, according to client's instructions, purchases real estate at the spot (current) price -- and sells it to the client, who pays in installments with a certain margin to spot price. Technically, the margin can be calculated as a percentage of the purchase price, but from the Sharia point of view, such a trade margin is permissible and does not qualify as usury," he noted.
Another feature of the Islamic finance is the absence of interest bearing credit cards, the expert added.
He also emphasized that Islamic banks in all cases have to ensure that any financial operation is closely linked to sharia-compliant investment or trade and does not hide interest-bearing lending.
"The general principle of Islamic finance is the inextricable connection of financing with the real economy and the impossibility of using money as an object of sale," he said.
Religious affiliation does not impose any limitations for using Islamic finance system, Kazakov continued, noting that legal entities, which also use bank services, cannot practice religion in principle.
