Islamic fund managers and investors in the Middle East and beyond are being advised to turn their attention to Russia and former Soviet republics that now make up the Commonwealth of Independent States (CIS) especially those in central Asia, while the region’s banks investigate the potential of offering Shariah-compliant products for overseas investors and local consumers.
Speaking recently in Russia at the Moscow Forum for Islamic Finance & Investments, Mark Smyth, Executive Director at Dubai-based Amanie Islamic Finance Consultancy and Education (AIFCE), highlighted the huge potential in Russia as well as the other CIS countries such as Kazakhstan.
“In an effort to grow the Islamic Finance industry, the world-renowned Shariah scholar Dr Mohammed Daud Bakar has urged industry professionals to expand into untapped geographical markets such as Russia and other CIS countries. There is growing demand from financial institutions there, which represents an excellent grass roots opportunity,” said Smyth.
It is also interesting to note that according to official government figures, Russia, the 8th largest economy in the world, is home to some 20 million Muslims. Despite being hit hard by falling oil prices last year, Russia still has an income per capita of $15,100.
Oil-rich Kazakhstan is a regional economic powerhouse in central Asia, with revenue from oil exports topping $24 billion per annum. Its Muslim population is currently stands at over 7 million, with a per capita income of $11,400.
“Naturally banks in this part of the world are keen to engage with the Middle East to create Shariah-compliant investment opportunities in their own market,” added Smyth.
“Per capita incomes in some of the CIS countries may be modest by western standards, but they are going to grow significantly and their economies will have to develop to keep pace, producing real time opportunities for Shariah compliance. Imagine a population greater than the GCC, relatively untouched,” said Smyth.
According to Thomson Reuters’ data, Islamic assets under management currently amount to almost $37 billion across 560 worldwide funds. Over 50% of funds are dedicated to equities, although in terms of value, money markets account for over 40%. In terms of geographical spread, Malaysia and Saudi Arabia dominate, being home to 36 and 26% of Islamic funds respectively.
Smyth stated that there are well documented reasons why the growth of Islamic Finance has been slow but steady to date. “It has occasionally been difficult to find reliable information on Islamic alternatives and there have traditionally been gaps in available asset-classes compared to conventional funds. Furthermore many Islamic funds are new and have short histories. But that is changing and it also highlights the need to open up new markets.”
However, overall Smyth remains upbeat, “Developing untapped markets in Russia will be a core focus for our group. The various initiatives underway in this part of the world will increase the range of opportunities not only for GCC investors but Muslim investors globally and allow for the construction of more diverse Shariah-compliant portfolios,” he said.
