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The Russian Republic of Tatarstan is planning on being the first Russian republic to issue sukuk (Islamic bond equivalent). Tatarstan is one of the wealthier Russian republics with a majority Muslim population. Its entry into the sukuk market is another sign of the growing interest in Islamic finance, not only from the Middle East and Malaysia, but also from countries looking to tap into a new source of funding.
The Russian republic of Tatarstan is preparing to make Russia’s first issue of Islamic bonds and will discuss ways to facilitate the growth of Islamic finance with authorities in Moscow, Tatarstan’s president said on Wednesday.
“We are getting ready – it all depends on the financial market,” Rustam Minnikhanov, speaking through a translator, said in an interview while on a visit to the United Arab Emirates, where he is seeking investment in Tatarstan.
Linar Yakupov, chief executive of the Tatarstan Investment Development Agency, told Reuters that the sukuk would be for $100 million to $200 million but that other details including the timing, maturity and currency of issue had not been decided yet.
However, Tatarstan has chosen the asset that will back the sukuk, Yakupov said: the Kazan Smart City, a big area in the capital Kazan which officials aim to develop as a business
and technology district.
Because of Islam’s ban on interest, sukuk pays returns derived from specific assets. Yakupov said proceeds from the sukuk would be ploughed back into the Smart City project, with money being used to fund construction of key facilities.
Sukuk issues within the Gulf have failed to satisfy the strong demand from cash-rich Islamic funds, so a sukuk issue from Tatarstan could find buyers.
Tatarstan, 800 kilometres (500 miles) east of Moscow, has a predominantly Muslim population of about 3.8 million.
In September 2011, Kazan-based AK BARS Bank obtained a $60 million, one-year loan using the Islamic murabaha structure, in the first international Islamic deal arranged for a Russian institution.
Other institutions have not followed suit, however. Minnikhanov said he saw great potential to develop Islamic finance in Tatarstan but Russian banking regulations needed to be changed to accommodate the industry.
Tatarstan is therefore helping to arrange a visit by senior officials of the Islamic Development Bank, a Jeddah-based multilateral organisation, to Moscow to discuss ways to facilitate Islamic finance, Minnikhanov said. Russian central bank officials would be involved in the talks.
The original story is from CPI Financial.