2022-07-07 10:00:00

Bashkortostan may become special administrative district as optimal system for Islamic financing model

Moscow, July 7, Interfax - The Bashkortostan State Assembly submitted a bill that adds Bashkortostan to the list of special administrative districts (SAD) to the Russian State Duma.

The bill was published in the State Duma's database.

It amends the Law on Special Administrative Districts in the Territories of the Kaliningrad Region and the Primorye Territory, which put the system into place on the Oktyabrsky and Russky islands in August 2018. The respective amendments were proposed to the laws On International Companies and International Funds and on Arbitration (Mediation) in the Russian Federation.

"The SAD legal system is optimal for implementing the Islamic financing model in the Russian Federation, as it allows to create favorable conditions for drawing investors from businesses incorporated in Arab countries to the Russian Federation," the bill's explanatory note said.

SAD conditions "are the best for testing Sharia standards under the Russian jurisdiction" in Bashkortostan, while primary features of SAD as a special legal system enable the fullest implementation of Sharia standards for structuring financial deals, the bill authors said.

"SAD is optimal for the creation of favorable investment climate in the Republic of Bashkortostan, as it allows the provision of an enhanced standard of information disclosure in compliance with the norms necessary for making transactions under Islamic law," the explanatory note said.

The bill "will help create favorable climate for Russian and foreign investors and development of the Republic of Bashkortostan through intensification of business and investment activity in this region," it said.

This is not the first attempt to expand the list of territories with the SAD status. A group of deputies proposed in May that the Sirius federal area in the Krasnodar Territory acquire the SAD status. Their bill has not even passed the first reading.

Head of the State Duma Financial Market Committee Anatoly Aksakov said earlier the Committee decided to set up a working group on Islamic finance to consider individual amendments to Russian laws for drawing investment from Islamic countries.

Islamic banking has a number of prohibitions and restrictions. For example, it bans the payment of interest (riba) and related interest-bearing transactions, uncertain transactions (gharar), and financing of particular economic sectors, such as gambling, pork production and alcoholic beverages. There is a condition of sharing the risk of profit and loss between the financing party and the client on transactions and financial transactions based on actual assets or transactions with these assets. It is also necessary to identify the actual assets underlying the transaction.