Djabiev is one of the founders and CEO of the latest Islamic financial institution to be set up in the Russian Federation, Al-Shams Capital. “Al-Shams Capital is an investment and financial company incorporated in Russia and regulated by the Russian Securities Commission. Al-Shams is by nature and through the company’s articles of memorandum, a Shariah-compliant company, although the Russian Securities Commission does not classify nor register any company as conventional or Islamic,” said Djabiev.

He believes there is significant demand for Islamic financial products and services in the CIS countries and in Eastern Europe, especially retail, investment, Takaful (insurance) and capital markets products such as sukuk.

The company’s license allows it to offer brokerage, dealership and trust management services to clients in Russia. Al-Shams has also applied for a fund management license for mutual funds, which according to Djabiev are similar to CIS (collective investment schemes) under Russian legislation and ideal for Muslims to utilize as a saving instrument. This could also be a good platform for Islamic financial institutions (IFIs) from abroad to invest into the Russian equity market.

The shareholder of Al-Shams Capital Russia is Al-Shams Capital Group, which is domiciled in Cyprus and whose shareholders include Djabiev and a number of Russian investors.

Djabiev, who comes across as the archetypal technocrat, has ambitious plans for Al-Shams, which he stressed are an updated version for the plan for Badr-Forte Bank, the first Islamic bank to be established in Russia in the mid-1990s and of which he was president and CEO. The bank was forced to surrender its license about four years ago, after a clash with the Russian Central Bank over some minor reporting anomalies, which Djabiev maintains may have been politically motivated.

“I have spent over 15 years promoting Islamic finance in Russia and will continue to do so in a positive vein. I have nothing to be ashamed of. We had a disagreement with the Russian Central Bank, and Badr Forte Bank was unequivocally supported by the Association of Russian Banks and the bank’s auditor, which is the largest independent auditing company in the federation. I do not recognize any claim from the Russian Central Bank,” he explained.

A decade or so later, the socio-political and economic climate in Russia and attitudes to Islamic finance has changed up to a point. In light of the global financial crisis and the near collapse of casino market capitalism, the public is coming back to the idea that Islamic finance is good for the Russian economy. What is encouraging is that demand from Russian Muslims and those in the other CIS countries for Islamic financial services and investments is increasing year-on-year.

“I have learnt from my mistakes,” claims Djabiev. “I cannot risk funds depending on the whims of Russian bureaucrats. We will diversify and invest where we are welcome. Our Russian registration gives us a good platform to use Moscow as a hub for the CIS and Eastern Europe. As such, Al-Shams Capital Group intends to eventually have a presence in different countries in the region as a whole – both to invest in and to mobilize investments from.”

His vision is to set up a halal Industries Hub for the CIS countries where Al-Shams is welcomed, encompassing Islamic financial services, the halal food industry (both processing and distribution), and halal food outlets throughout these countries. This strategy, he acknowledges, would require strategic alliances with regional and international partners.

In the past in Russia, he maintains, Islamic finance was brought in through the back door. Today, he wants to promote Islamic finance through the front door – upfront and transparent. Indeed, a core feature of Islamic finance is transparency. As such, Al-Shams is ready to talk to regulators and other parties. “Whoever shares our vision, we do believe will be happy to work with us,” he said.

Like other bankers in Russia such as Maxim Osintsev, managing director of the Oil & Gas Department at Sberbank, the largest commercial bank in Russia, he passionately believes that the business proposition for Islamic finance in Russia and even the rest of the CIS is proven. But he also wants to go a step further – to create an Islamic financial and economic environment for Muslims in the CIS so as to give them a choice of having access to Shariah-compliant products and services, as in countries such as Malaysia for instance.

CIS governments, in the wake of the credit crunch and global financial crisis, are starting to recognize the potential of Islamic finance and the need to have such products and services if only because of diversification of sources of funding and the overall health of the economy. Islamic finance has been less affected by the crisis and those few cases where there have been defaults, stressed Djabiev, is not because of the Islamic finance system, but because of mismanagement.

He points out the growing disillusionment amongst many Russians and others in the CIS about market and casino capitalism. The socially responsible investment (SRI) movement in the CIS is nascent but many technocrats are wary of working their lives for “casino stock exchanges” in which the market maker has been the loser and the speculator the winner. Even Russian Prime Minister Vladimir Putin recently stressed that the government is concerned about the activities of the speculator in Russian capital markets.

In terms of market size, there are between 100 million to 120 million Muslims in the CIS and Eastern Europe. Countries such as Kazakhstan, Azerbaijan and Kyrghiz Republic have already started to introduce enabling legislation to facilitate Islamic financial products in their jurisdictions, although there is still a long way to go.

In Russia itself, the government recently introduced a law allowing Russian investors to invest abroad in hard currency. However, in terms of introducing tax neutrality and other measures to facilitate Islamic finance in Russia is still some way off. For instance, there is no ad hoc Islamic finance advisory group at the Russian Central Bank, or any taskforce to look at Islamic finance regulation and supervision.

The other problem may be ideological, because many of the key senior officials including the chairman of the Russian Central Bank, Sergey Ignatiev, are diehard converts to monetarism, especially of the Milton Friedman variant, and worship the interest-based economic and financial model. Any developments in the Islamic finance field in the UK and the European Union countries such as France and Luxembourg have been dismissed in the past by some Russian Central Bank officials.

Djabiev believes that the Securities Commission of Russia may be more receptive to facilitating Islamic capital markets products, especially retail Sukuk.

There is also the fear factor because Islamic finance has been erroneously associated with political Islam as opposed to an alternative system of financial management. This has influenced many governments – both Muslim and non-Muslim – about their Islamic finance policy. Moscow may fear that the growth and facilitation of Islamic finance may embolden its own Muslim republics, which could cause political problems in the future.

However, to Djabiev, the market drivers are important. He believes that if Russian banks and business become drivers of interest in Islamic finance, the Russian authorities may be forced to review their policy and consider facilitating it through the relevant legal changes. “As in the UK, the word Islamic does not have to appear in the Russian legislation. They can call it alternative investments or finance. The UK has recognized that for London to be a serious international financial center, it cannot leave out Islamic finance, which is growing at such a rapid rate. Russia as the hub for CIS should also see the important role Islamic finance can play in the CIS economies and as a tool to raise finance and mobilize savings and even to manage monetary policy,” he added.

Djabiev believes that the Jeddah-based Islamic Development Bank (IDB) could be an important facilitator for Islamic finance in CIS countries, including Russia. IDB President Ahmad Muhammed Ali in 2007 wrote to Chairman Ignatiev of the Russian Central Bank suggesting cooperation in the field of Islamic finance. After three years, his letter has still not been acknowledged.

Russia’s own representative to the OIC, Kamil Ishakov was a prime mover to foster cooperation between the IDB and the Russian Central Bank. As such many Russians rue the fact that the Russian Central Bank did not have the courtesy to respond to the IDB, and that it is losing out in an industry that is experiencing 20 percent annual growth and where rival countries such as Kazakhstan are gaining the first mover advantage. President Nursultan Nazarbayev of Kazakhstan, according to Djabiev, is the most proactive leader in the CIS supporting Islamic finance. The Kazakhstan developments could very well change the landscape for Islamic finance in the CIS.

As far as Al-Shams Capital is concerned, the company is in the process of launching its first Islamic private equity fund for the CIS & Eastern Europe which will invest in regional IFIs, and the halal food industry at the small and medium sized enterprise level.

Al-Shams has also penned a preliminary agreement with CIMB Islamic Bank to supply Shariah advisory services, and has signed a strategic alliance agreement with First International Consultants (IFC) of Malaysia to provide Shariah-compliant product structuring and Takaful consultancy. Some of the partners in IFC include Wan Abdul Rahim Kamil, former CEO of Abrar Discounts Berhad; Tajuddin Abdul Rahman, former managing director of Bank Islam Malaysia; and Fadzli Yusof, former managing director of Syarikat Takaful Malaysia.

Al-Shams has a verbal agreement with CIMB Principal to white label some of their Islamic asset management products to investors in the CIS. However, this is subject to a final agreement. Djabiev acknowledges that human capital resources are a major bottleneck in the CIS both from a Shariah product knowledge and English language point of view. As such, he is looking to established Islamic financial markets in the Middle East and Malaysia to cooperate in this respect. The aim is not only to train Al-Shams staff but also the personnel of other institutions in the CIS such as Kauthar bank, the only Islamic bank in Azerbaijan.

Another important development is the imminent establishment of a non-profit Islamic banking professional body for the CIS. The project has the support of several banks in Azerbaijan, Russia, Kazakhstan, the Baltic countries and the Kyrghiz Republic, and should be established in the first half of 2010.

Djabiev sees himself as a facilitator and not a competitor to any CIS market. As such, he welcomes cooperation and any alliances in taking Islamic finance to its next stage of development in the CIS.