Islamic finance is the fastest growing market in ethical finance with an annual average growth of between 10 and 20 percent.
Current global Islamic finance assets stand at $800 billion and are expected to rise to $4 trillion by 2015. The credit crunch has provided Islamic finance with a unique opportunity to assert its values of ethic-based financing, which could help shape the global financial industry as a whole.
According to Moscow Times, Islamic finance distinguishes itself from conventional finance in its compliance with the principles of Islamic commercial jurisprudence.
Islamic finance seeks to promote ethical and socially responsible investment while providing an alternative to interest-based finance.
The main tenets of Islamic commercial jurisprudence prohibit interest payments on monetary loans or securities, speculation, uncertainty in certain contractual terms and anti-social business activities.
Some of the main Islamic financing techniques include murabaha (cost-plus financing), sukuk (Islamic bonds), ijara (based on the leasing of an asset), istisna'a (production/construction financing) and musharaka (equity investment).
The recent defaults in the Islamic finance industry have shown that the Persian Gulf has been affected by the same liquidity issues as the West, with central banks actively intervening to encourage interbank lending.
However, there are significant differences in the views about long-term prospects expressed by bankers in western banks, conventional local banks and Islamic banks, with the latter being the most optimistic.
The general view among all bankers is that market performance in the first two quarters of next year will verify the resilience of Islamic banks.
As European economies come to terms with the effects of the economic crisis, Islamic finance is attracting greater attention because of the ethical and socially conscious principles that underpin the industry.
A number of countries in Europe such as the United Kingdom, France and Italy are ensuring that their legal systems create a level playing field for Shariah-compliant structures.
In Asia, Singapore, Indonesia and Hong Kong are vying to be the hub for Islamic finance, despite Malaysia's traditional dominance.
The entire financial system in Iran is Shariah-compliant, while interest from China, Turkey and India is on the rise.
These are all significant trading partners for Russia.
There is a growing interest in Russia (as well as elsewhere in the CIS) among banking and corporate borrowers as well as potential arrangers in the diversification of sources of financing through access to the Islamic financial markets.
However, Islamic finance is very new to Russia and marrying the principles of Islamic finance with the legislative framework in Russia is going to be an evolutionary process.
The London and Moscow offices of Norton Rose LLP have recently been involved in structuring a Russian murabaha trade financing as well as a Russian sukuk.
During this process, they identified a number of corporate, commercial and tax issues that should be noted by any parties seeking to engage in similar transactions in the Russian market.
They were able to work within the limits of the existing Russian legislative framework to find solutions to the challenges that we faced. But it would be helpful if Russia, like the UK and France, for example, considered making certain changes to the existing tax and commercial laws to remove some of the current barriers to Islamic finance and create a level playing field with conventional transactions.
In the current economic climate, Islamic finance is a real alternative for financiers who face a lack of liquidity in the debt capital markets and are looking for attractive ways of raising finance.