A Russian First at the AAOIFI Islamic Finance Conference

 The Russian delegation presented a project to attract investment in Russia through the issuance of Islamic 'sukuk' commodity bonds

MANAMA / Bahrain / November 4 / TASS /

 

Russia for the first time took part in the international conference on Islamic banking and finance held by the Organisation for Accounting and Auditing of Islamic Financial Institutions (AAOIFI) in conjunction with the World Bank. The Russian delegation was headed by Director of the HSE-Skolkovo Institute for Law and Development, Alexey Ivanov, TASS reports.

"This is the first time that the Russian delegation fully participates in this conference as a partner of the forum. Previously, our colleagues in all likelihood went here for the simple reason that it is the world's leading platform for discussing the problems of regulation and development of the Islamic financial industry, and for developing new approaches for the functioning of the financial markets of the Islamic world", said Ivanov.

The Russian delegation at the AAOIFI conference presented a project to attract investment in the Russian Federation through the issuance of Islamic sukuk commodity bonds, in particular bonds for the supply of grain, which, according to the authors of the project, will resolve the problem of food security in Muslim countries, as well as attracting the necessary funds for the development of Russian agribusiness.

The session organised by the Russian side raising the issue of food security in the Middle East and seeking to build partnerships between Russia and Muslim countries is the first such event aimed at increasing the volume of Russian agricultural exports in the manner.

 

Project "Agrofinmost"

The Agrofinmost project, developed by the HSE-Skolkovo Institute for Law and Development, offers practical solutions aimed at creating fair market prices for agricultural products. This aims to help ensure food security in Muslim countries, on the one hand, and create fair conditions for international trade without speculation, and on the basis of Islamic legal principles, on the other.

Ivanov noted that the situation with the provision of food to Middle Eastern countries due to climate change will only worsen, and its solution will not be quick. Against this background, Agrofinmost looks not only commercially attractive, but also it is a humanitarian and even a somewhat geopolitical project, which makes it especially interesting for large financial institutions in the region, such as sovereign funds.

According to the president of the Technological Sovereignty Export Association Andrei Bezrukov, who is a member of the project council, a lot of available money has accumulated in the Islamic world, since Islamic law significantly limits investment opportunities. And these funds directed via the issue of instruments that are clear to local investors can also be directed to the development of the Russian agricultural sector. Thus, the authors of the project expect that through the issuance of Islamic grain bonds they will be able to attract up to $10 billion in the Russian Federation, which will make a significant contribution to the increase in Russian agricultural exports.

"We set the bar for ourselves at $10 billion. If we issue $10 billion, we will satisfy our own interests and those of our counterparties in the Middle East, because for them it’s an understandable amount of investment that is reasonably managed by top officials, that is, the volume that top officials are interested in considering <...> Mr. Putin set a target to reach $45 billion in agricultural exports by 2024. 10 billion is our aimed contribution, which we are ready to close by issuing sukuk," Ivanov added.

The project has already been supported by reputable experts in Islamic finance, including scholar Sheikh Usmani. Earlier, a memorandum with the HSE-Skolkovo Institute for Law and Development was signed, fixing the intention of the parties to help attract Islamic investment in Russia through the issuance of sukuk securities and thus to ensure the supply of Russian grain to the Islamic world.

 

Islamic Commodity Bonds Mechanism

Sukuk Salam is an Islamic commodity bond. Investors in sukuk salam acquire the right to receive at an agreed time in the future goods that are immediately fully paid by them on a forward basis, that is, without a subsequent change in the price of the goods. In essence, this is an advance financing of deliveries. Moreover, under Russian law, commodity bonds are completely legal, but currently poorly developed in comparison with financial bonds.

According to leading researcher at the HSE-Skolkovo Institute for Law and Development, Kirill Molodyko, sukuk salam have several advantages for the exporting country - in particular, deliveries on such commodity bonds positively affect not only the country's trade, but also the balance of payments.

 

CIPA Program

Also on the sidelines of the conference, announced to TASS by Kirill Molodyko, an agreement was signed with AAOIFI, providing the Higher School of Economics with exclusive rights to engage in the CIPA program [Certified Islamic Professional Accountant program] in Russian. “We signed the final contract with the AAOIFI organisation. The essence of this contract is that the Higher School of Economics receives the exclusive right to translate into Russian and deliver training in Russian for the CIPA certificate. AAOIFI announced an open tender at the end of last year, and the Higher School of Economics won this tender," he said.

CIPA is the only internationally recognised accounting qualification program for Islamic financial institutions which is suitable for banking institutions, investment organisations and institutions operating according to Islamic insurance standards. As part of the retraining and advanced training of personnel, it implements specialised programs and assigns qualifications in the field of Sharia, namely: the Certified Islamic Professional Accountant (CIPA) and the Certified Sharia Adviser and Auditor (CSAA).

Molodyko said that the translation of CIPA materials into Russian may take 1-1.5 years, and then an appropriate training centre will be created under the aegis of the HSE. At the same time, the HSE received the exclusive right to train not only Russian citizens, but also foreign students on the territory of the Russian Federation, provided that they receive the training in Russian. Therefore, the program may be in demand among citizens of the former Soviet republics, such as Kazakhstan, Uzbekistan, and Tajikistan.

According to Madina Kalimullina, a senior fellow at the HSE-Skolkovo Institute for Law and Development, who specialises in Islamic finance, there is a big difference between conventional accounting and Islamic accounting, which manifests itself, for example, in recognising the transfer of ownership.

"Suppose, according to the principles of Islamic law, it is forbidden to sell anything until you have it as your property and until you have acquired the right of ownership. In contrast in ordinary accounting you can sell something that you not only do not have on the balance sheet and in possession, but that which you have not even made a deal about its potential acquisition," she told TASS on the sidelines of the AAOIFI conference. Kalimullina believes that the CIPA program in Russia will be in demand "by those who plan to carry out dealings via Islamic finance." So far, there are few such companies in Russia, but the demand for professional certification in Islamic accounting is growing every year, the expert summarises.

 

About the Conference

AAOIFI is an international non-profit organisation founded in 1991 in Bahrain and it develops Sharia standards of accounting, auditing, corporate governance and ethics for the global Islamic financial industry.

AAOIFI in conjunction with the World Bank for the 14th time held this annual conference on Islamic banking and finance. The conference was held under the auspices of the Central Bank of Bahrain from November 3rd to 4th in Manama. Taking part were representatives of central banks, regulatory authorities, financial institutions, as well as a number of experts on Islamic finance from countries of the Middle East, Africa, Asia, Europe and North America.

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