24 IIBI www.newhorizon-islamicbanking.com

NEWHORIZON October–December 2009

was practically no demand for Islamic finan-cial services domestically. Time is needed tocreate this kind of demand. In a number ofRussia’s regions (Moscow, Tatarstan, Dages-tan, Chechnya, etc.) there is constantlygrowing interest in Islamic financial servicesfrom potential Muslim clients.

o Europe has almost 30 years of experiencein Islamic finance. Over this time there wereboth successes and noticeable failures. InRussia, Islamic financial services were pro-vided by Badr-Forte since the late 1990s. Inother words, an Islamic bank with a limitednumber of products consistent with Shari’ahworked in Russia for just over six years. Thistime span is too short to seriously discuss theprospects of Islamic banking.

Some experts note that one substantial ob-stacle to the development of Islamic financein Russia is lack of demand from the Russianpopulation for such services. This is trueonly in part. Many Muslims realise that conventional financial institutions build their operations on the basis of charging interest. However, they don’t know how theycan avoid participating in interest-bearingtransactions. To resolve this problem it isnecessary that as many people as possiblehave access to information on Islamic finan-cial services.

However, even when Islamic financial bodiesstart fully functioning in Russia, they willnot be able to satisfy the demand of all thosein need of this kind of service. As the experi-ence of other countries demonstrates, few Is-lamic banks in a post-industrial society wantto work in rural areas providing microfi-nancing. Moreover, one should not forget

Islamic finance in Russia: overview

At the dawn of Islamic finance, when therewere no Islamic banks, some of the scholarswere writing that it would be enough to cre-ate an effective mechanism of collecting anddistributing zakat and to restore waqfs inorder to set up a fair economic system in theMuslim world. However, even today only ahandful of countries have set up workingzakat systems and effective waqfs. Even inthe countries with developed Islamic bank-ing, investment and insurance systems zakatand waqf do not play a key role in eco-nomic development.

Russia, which according to various sourcesis home to between nine and 25 millionMuslims, is a country with a conventionalbanking system, where Islamic financial in-stitutions do not enjoy any special status.Moreover, in December 2006, the centralbank revoked Badr-Forte Bank’s licence, theonly Islamic bank in the country. And sincethen Russia has not been deemed the bestplace for developing Islamic economics, atleast in comparison with Europe.

At the same time one should not be exces-sively pessimistic about the prospects of Islamic financing in Russia due to the fol-lowing reasons:

o The establishment of Islamic banks andIslamic banking windows in Europe at theend of the 1990s and the early 2000s was aresponse to a firm interest European Mus-lims showed in such services. Badr-Fortewas thus unique not because it was the onlyIslamic financial institution in Russia butrather because it was established when there

Waqf and zakat: alleviating poverty

In the first of a two-part analysis, Dr Renat Bekkin, researcher at Moscow State Institute ofInternational Relations, Ministry of Foreign Affairs of Russia, ponders the issue of povertyalleviation by the means of waqf, in the case of Russia.

that any bank, be it Islamic or conventional,is not a charity organisation – its main goalis maximising profit.

In recent years a number of banks in Russiahave been lending to SMEs. However, thisco-operation is hardly mutually beneficial.For example, even before the US mortgagecrisis influenced Russia’s economy, a num-ber of banks raised interest rates on previ-ously granted loans, basing their decisionson the clauses in the loan agreements thatcovered possible changes in the macroeco-nomic situation. As a result, many SMEswere unable to service their debts and wentbankrupt. It is obvious that in this situationbanks need help from other classical Islamicfinancial institutions that for centuries havebeen proving their effectiveness in resolvingthe problems of economic development, in-cluding a major issue of alleviating poverty.Waqf and zakat are among these institu-tions. Nevertheless, it is fair to note that bythe mid-twentieth century waqf and zakatdid not play a key role in economic develop-ment in most of the Muslim countries.

Russia can be viewed as one of the countrieswith historically developed waqf usage,which was seemingly lost in the Soviet era.This study attempts to determine whetherthis is true and, if so, whether there are ob-jective preconditions for setting up waqfand zakat systems anew in Russia.

Waqf in Russia

Waqf is property alienated for charity.When certain property is made waqf (or, ac-cording to some Muslim theologians, whenthe intention is announced), it no longer be-

ANALYSIS

www.newhorizon-islamicbanking.com

NEWHORIZON Shawwal–Dhu Al Hijjah 1430 ANALYSIS

standing the waqf institution in the Volgaarea: the heirs of a rich industrialist, Uti-amyshev refused to fulfill his will underwhich part of his money was intended forwaqf, arguing that there was no specificprocedure for executing the will.

Prominent Tatar enlightener of the 19th century, Shigabuddin Mardjani, resolutely rejected this interpretation of waqf ex-ploited by rich merchants to control the economic life of the community (mahallya).It was mainly thanks to his efforts that thequestion regarding the direct purpose ofwaqf, which corresponded to the Shari’ah,was raised and a system of collective self-administration in individual Muslimparishes established. The number of embez-zlements in the charity sphere decreasedalong with, first, the power of the patrons in the Yunusov brothers’ mahallya and thenof other Tatar merchants who had beendominating their communities. Thus, ap-proximately since the mid-nineteenth cen-tury in the Volga region waqf started beingused for its main social purpose, that of aninstitute for protecting economic interests ofMuslim communities and their individualrepresentatives.

In the late 19th century, the mechanism for transforming property into waqf waslegally registered. Under the newly estab-lished legal procedure, a waqf institutor applied in writing to the assembly of parish-ioners representing the community. He wasduty bound to describe in detail the prop-erty to be turned into waqf, state its value,and enumerate the owners and the condi-tions for managing and disposing of thisproperty. The community empowered themosque leaders to apply to the governorwith a request to seek permission from theMinistry of the Interior Affairs. The latter’spermission was sent to the Orenburg Ma-homeddan Spiritual Assembly which, inturn, approved the permission and informedthe parishioners of the ministry’s decision.After a dedicatory inscription was made on the property transferred to waqf, a no-tary procedure completed the process. Thecommunity was responsible for annual re-porting about waqf management and book-keeping.

longs to the waqf institutor (waqif), but noris it transferred as property to those who re-ceive the waqf and manage it in the interestsof the receivers (designated by the waqif) ofwaqf-created profits. Using waqf propertyfor purposes other than those designated bythe waqif is prohibited.

The renaissance of waqfs in the Muslimworld happened in the eleventh century.History testifies to the existence of a broadrange of waqf, contributing to the develop-ment of medicine, education, and enabledthe provision of food essentials to the needy.For centuries, waqf was the only regularsource of funding for higher education inMuslim countries.

A few years ago, Kazan hosted ‘Waqf and Its Prospects in Modern Russia’ – an all-Russian seminar of the heads of Muslim religious boards. According to the imamswho spoke at the event, today, waqf is theonly chance for Russia’s Muslim religiousorganisations to preserve their financial in-dependence. Judging by what was said atthe seminar and by the information pre-sented at previous similar seminars, theMuslim spiritual leaders do not alwaysclearly understand the purpose of waqf.

Sometimes waqf is confused with other Is-lamic institutions: gyshar (‘ushr is the morecorrect name, that is, tithe, or a tenth partof the yield), zakat, as well as the revenuesproduced by some religious rituals: khatem-lar (gatherings that pray for the dead),janaza (burial rites), etc.

Quite often waqf is treated as a fund for fi-nancing of the operational expenditure ofmosques and Muslim clergymen. It is hardto start a constructive dialogue if those whowant to develop the waqf system have vagueideas about it.

Significantly, similar problems also existedin Russia before the revolution: one of thefirst officially registered waqfs bequeathedin 1830 to the First Main Mosque of Kazanby merchant Gabdulla Yunusov did notspecify the rules of its management and con-trol over the revenue it produced. This wasby far not the only example of misunder-

Russian Muslims, instead ofrestoring waqfs that arequestionable from the point of view of Shari’ah, have achance to set up new waqfs,capable of coping with thechallenges of the 21st century,one of which is the demand ofIslamic SMEs for financing.

Dr Renat Bekkin,Moscow State Institute of International Relations

IIBI 25

darabah mechanism, but instead is providedas a loan with an interest rate, where the interest is transferred to the beneficiary.

The modern world provides plenty of otherways to use cash waqf in compliance withShari’ah rules. One example is transferringshares that have been approved by Islamicscholars into waqf. The shareholder mightdecide that all of the dividends on shares orpart of them will be used for charity pur-poses. An institute of waqf may also play

26 IIBI www.newhorizon-islamicbanking.com

NEWHORIZON October–December 2009ANALYSIS

It should be said that in pre-revolutionaryRussia, so-called cash waqf was very popu-lar: the institutor allotted a certain sum, the interest on which was used by themosques, Muslim clergy, students (shakirds)of religious schools etc. for which the waqfwas intended. In this way, while one of theprovisions of Islamic law was strictly ob-served practically everywhere, another,much more important provision, the ban onusury repeatedly formulated in the Quran,was violated.

In the Volga region a large number of Mus-lim parishes were financed by the interestfrom bank deposits. After the October revolution in 1917, waqfs were abolished invarious regions of Russia, although thishappened over time. Waqf institutions ex-isted for longest in the North-Eastern Cau-casus. Only ten years after the revolution, in1927, a decree nationalising the waqf prop-erty was issued by the local authorities ofthe Dagestan Autonomous Socialist SovietRepublic.

The waqf issue is repeatedly discussed inpresent-day Tatarstan at the highest level. In the mid-1990s, at one of the first meet-ings, members of the Muslim clergy and therepublic’s president, Mintimer Shaimiev,discussed the possibility of setting up awaqf system badly needed for the construc-tion and maintenance of mosques andmadrasahs, and for public activities. Thepresident set up a special commission tostudy the issue in depth. Specialists weresent to Turkey to gain experience. A fewyears later, a united congress of the repub-lic’s Muslims created the post of chairmanof the waqfs, in the rank of first deputymufti, and a waqf department under themufti. The very concept of waqf was firstintroduced into Russia’s legislation by theLaw of Tatarstan on the Freedom of Con-science and Religious Associations.

The provision on the waqf property and itsinalienability, contained in this law, was justa declaration of intentions rather than alegal norm that was spelling out existingpractices. However, even this provision overtime has raised questions on its compliancewith federal legislation, and the law was

subsequently amended. Nevertheless, theprovision on waqf property, although non-existent in practice, was retained.

The deputies of the State Council ofTatarstan have insisted that all efforts toprovide a legal framework for non-existentwaqfs are useless unless necessary changesare made in federal laws. In June 2008,they came up with an initiative to includethe notion of ‘waqf property’ into Russianlegislation. Earlier that year, the chairmanof the Muslim Religious Board of the Re-public of Tatarstan, Gusman Iskhakov, pro-posed the same measures. There has beenno reaction from the federal authorities sofar.

The issue of spelling out the notion of waqfin federal legislation is also important interms of restoring Muslim ownership of the waqf property, nationalised after the1917 revolution. For example, in the Au-tonomous Republic of Crimea (Ukraine),when local Tatars argue for restoring theirownership of the lands confiscated in Soviettimes, they refer among other things to theexistence of waqf property in the tsaristtimes in Russia. As was mentioned before,work is done by Tatarstan historians andlaw scholars on finding previously existingwaqfs in the Volga region. However, even ifthe notion of waqf is introduced in federallegislation, it will not guarantee the Mus-lims that their waqf property, confiscatedafter the revolution, would be returned,since the major part of documentation onsetting up waqfs has not been preserved.

And in terms of setting up new waqfs, then,even without the notion of ‘waqf property’spelled out in the Russian federal legisla-tion, those willing to do so can use manyother legal mechanisms at their disposal.For example, in order to set up the afore-mentioned cash waqf there is no need tocreate any institutional structure.

Cash waqfs exist in two forms. In the firstcase, cash turned into waqf is given to thebeneficiary as a loan with no interest rate.This form raises no objections on the side of Islamic law scholars. In the other formmoney is invested not based on the mu-

Kremlin of Kazan,Tatarstan

www.newhorizon-islamicbanking.com IIBI 27

NEWHORIZON Shawwal–Dhu Al Hijjah 1430 ANALYSIS

an important role in dealing with Islamicbonds (sukuk).

In terms of Russian legislation, it is inad-visable to include cash waqf in the trustlaw structure. In accordance with the Civil Code of Russia, money cannot be an independent object for a trust, exceptfor the cases specified by law (art. 1013,point 2, Civil Code of Russian Federation).An alternative solution is in acquiringshares and other equities, allowed by the

Shari’ah, in the name of the beneficiary.

As for the real estate as the base for waqfproperty, in 2004 the State Duma (Russia’slegislative body) passed amendments to theLand Code, which transferred, free ofcharge, land under the buildings and otherfacilities used for religious and charity pur-poses to the religious organisations thatowned them. Those religious organisationsthat do not own the buildings in which theyfunction will receive the land under them

© Andrew Veretennikov, Dreamstime.com

gratis for the entire period they continueusing the buildings. These amendmentswere intended to favour the Russian Ortho-dox Church, but other faiths benefited fromthem as well.

Therefore, from a legal point of view, thereare no problems with instituting waqfs inRussia or, to be correct, institutions close to waqfs. Neither were there such problemsin the previous legislation, which was morevague about waqf property. However, thisstudy refers to the institutions close to waqf,or so-called quasiwaqfs. Waqfs in their clas-sical interpretation in the Muslim law can-not be set up in modern Russia – except forthe cash waqf mentioned by a Hanafi jurist,Zufar ibn Hudhayl. When the status of allparties to a waqf is not clear, it is hard toguarantee that waqf will be used for thepurposes it was initially set up for and thatthe rights and obligations of the parties willbe within the Shari’ah.

Those who propose using a trust agreement(chapter 53 of the Civil Code) in order toset up a waqf forget that a trust agreementin contrast to a waqf is limited in time andcannot be concluded for a period over fiveyears (art. 1016, point 2 of the Civil Code).Moreover, current legislation does not en-visage any mechanism of managing the trustif it is managed by a citizen who is not abusinessman or by a non-commercial organ-isation (art. 1015, point 1 of the CivilCode).

Naturally, this situation requires appropri-ate amendments to the legislation. Certainlyit would be naive to talk about introducingprovisions of Islamic law on waqf propertyinto Russian legislation. And the problem isnot even in the political complications. Amore serious obstacle lies in the loss of Is-lamic legal culture in Russia.

After analysing the recent experience of reviving waqf property in the Republic ofDagestan (federal subject of Russia), wherea few waqfs appeared here and there in the early 1990s, Russian researcher V. Bobrovnikov concluded that even this re-public, which is arguably the most Islamicamong Russia’s republics, lacks the prereq-

associated with religious waqfs, not thephilanthropic ones.

One of the leading contemporary waqf specialists, Monzer Kahf, divides waqfsinto the following categories: philan-thropic, religious (mosques, graves of thereligious leaders, gravestones etc.) and pri-vate. At the same time, a waqf in any ofthe three groups can be direct or second-ary. In the first case, waqfs directly per-form their charitable, religious or socialrole: e.g. a well transferred into waqf is a free source of water for everybody. Inthe case of the secondary waqf, materialobjects or revenue from them are initiallyinvested in various spheres and only after-wards are the revenues from these invest-ments donated for charity purposes. Anexample of secondary waqf is cash waqf.

In modern Russia, direct waqfs are practi-cally ignored while they are in fact an example of non-targeted help to the im-poverished. For example, a waqf in theform of a public library, given the highprices of books, may practically be theonly source for the poor to raise their so-cial status by increasing their knowledge.

As is known, revenues from waqfs as wellas from zakat and sadaqah can be trans-ferred gratis to those who are not capableof providing for themselves (children, dis-abled etc.), as well as to those who are intemporary need of resources, including re-sources for implementing specific projects.

And as for the waqfs that have their pri-mary goal as receiving revenues, there isno need to reinvent the wheel. The experi-ence of Western states, where waqf andquasiwaqf enterprises effectively function,can be borrowed. The managing organisa-tion, specialising in managing waqf prop-erty, plays the role of a collectivemutawalli.

Although the main goal of the RussianUmmah lies in developing charity waqfs,the philanthropic enterprises that want toprovide various services and not generaterevenue should not be left unnoticed. It ishard to deny the importance for Muslim

28 IIBI www.newhorizon-islamicbanking.com

NEWHORIZON October–December 2009ANALYSIS

uisites for further development of the waqfsystem as it was known before the revolu-tion. The most important reason is that theinstitution of waqf lost its former social andcultural meaning. Today, Muslim schoolsand higher educational establishments inDagestan are mainly functioning on per-sonal donations (sadaqah) and incomes de-rived from leasing out property and traderather than on waqf-created incomes. Thesame is true of the Volga region where thewaqf culture was lost even earlier than inDagestan.

In view of the above, waqf today and to-morrow is a different phenomenon that haslittle in common with the classical waqf ofthe Islamic law. It seems that in the contextof the lost Islamic legal culture in Russia asa whole (and Dagestan in particular), mostwaqf-related issues will be regulated byRussian legislation and adats, while Islamiclaw will no longer affect this institution inthe old way.

Does all of the above mean that waqf incontemporary Russia has no prospects? Notat all. The author of this article believes thatRussia losing its waqf culture, which existedbefore the revolution, is positive rather thannegative. Contemporary Tatar historiansoften recall the experience of using waqfs in the Volga region in mid-19th century.However, the fact that a substantial part of these waqfs functioned in violation of afundamental Islamic law on the prohibitionof usury is omitted. A large part of waqfs inthe Volga region were the results of usuriousoperations. That means that Russian Mus-lims, instead of restoring waqfs that are questionable from the point of view of Shari’ah, have a chance to set up newwaqfs, capable of coping with the challengesof the 21st century, one of which is the de-mand of Islamic SMEs for financing. Theprocess of creating new characteristics forthe waqf institute is inevitable. In contrastto zakat, waqf is open to a wider interpreta-tion within specific provisions of the Quranand Sunnah on charity.

Since the problem of waqfs is mostly raisedby Muslim clerics and people associatedwith them, waqf in modern Russia is usually

people of a waqf in the form of a public li-brary, where besides access to books thevisitors can enjoy free access to the inter-net, including access to scientific and otherarticles on various aspects of Muslim faith.

The institute of waqf can prove to be effec-tive in the sphere of helping Muslim mi-grants in Russia to adapt. It is commonknowledge that there are large numbers of migrants from Central Asia working inthe country: according to some sources between 500,000 and one million citizensof Tajikistan temporarily live and work inRussia. Most do not speak proper Russian,do not know basic information about thecountry, its laws etc. It is the migrantsfrom former Soviet republics who are mostactively involved in developing SMEs. In-creasing their knowledge will undoubtedlyfacilitate an increase in the effectiveness oftheir businesses.

To help Muslims from other countriesadapt to the Russian environment it is nec-essary to set up a non-governmental cen-tre, where migrants can study the Russianlanguage, Russian legislation, and evenmaster a new profession. It is even possibleto pay stipends to needy Muslim studentsfrom the funds of this quasiwaqf. The cen-tre can be set up either by one legal entityor by a number of individuals.

The real support to SMEs belonging to Muslims in Russia is provided by their fellow believers. This way, given the highrent prices for commercial real estate,some owners or renters of the buildingsprovide them gratis. Specifically, there areknown cases when publishers, specialisingin Islamic literature, were given offices tosell books and other printed matters forfree. Moreover, these premises can be used for an extended period of time. Statis-tics on this kind of activity are hard to find since businessmen try not to make itpublic.

In other words, help for SMEs does nothave to take the form of cash, but can alsobe a substantial decrease in their expenses.In this respect, information and consul-tancy services financed through a waqf

o Help for SMEs does not necessarily have to be expressed in cash, but can also be given in the form of decreasing the ex-penses of these entities. In this respect, free premises for business providing free information or consultancy services, fi-nanced through waqf or quasiwaqf, can be priceless.

www.newhorizon-islamicbanking.com IIBI 29

NEWHORIZON Shawwal–Dhu Al Hijjah 1430 ANALYSIS

or quasiwaqf can also be priceless. As for the financing of Muslim religiousboards and mosques, at present the most effective sources of their financing in Russiaare sadaqah and partly zakat, not waqf.

Main conclusions

o Banks are not reliable partners for SMEsin Russia. As a result of the global financialcrisis, many of them increased the interestrates on loans, making businessmen unableto service their debt.

o Although the notion of waqf is absent inthe federal legislation, Russia has a real op-portunity to create institutions close to waqf(quasiwaqf).

o The fact that the waqf culture was lost in modern Russia is positive, since alarge part of waqfs in pre-revolution timesin the Volga region were functioning with violations of the Islamic law against usury.

o Raising the issue of returning the pre-revolution waqfs to the Muslims is point-less, since most of legal papers on setting up those waqfs have been lost.

o When there is no clear definition of the status of all sides to the waqf agreementin the federal legislation, it is hard to guarantee that waqf will serve the pur-poses it is created for and that the rights and responsibilities of the parties will not violate the Shari’ah.

o Trust institutions, stipulated in the Russian legislation, do not suit waqf princi-ples for a number of reasons. Many func-tions of a charity waqf can be performed bya charity fund, combining targeted help tothe impoverished and the needy with educa-tional and art sponsoring activities.

o Nowadays in Russia waqf is mostly perceived as religious waqf for Muslim religious boards and mosques, whereas the most effective waqf that does not require any amendments to the current legislation is the charity cash waqf that can be used for wide-ranging support ofSMEs.

The second part of our perspectives of poverty alleviation series will focus on zakat, and will appear in the next edition of NewHorizon.

Mosque, St Petersburg, Russia

© Nikolaev, Dreamstime.com