Recently in Russia, which is facing the need to find new partners to overcome the current crisis arising from, among other things, multiple levels of sanctions, an idea to attract additional funds into the economy by using Islamic financial instruments is being actively promoted. For these purposes, a set of documents was introduced in the State Duma, aimed at harmonizing the Russian legislation with the norms the strict adherence to which is a key condition for using Islamic financial instruments. 

The latest drafts in this field are Bill No.960422-6 "On amendments and additions to certain legislative acts of the Russian Federation (on traditional instruments (partnership) of banking)" and Bill No.960451-6 "On amendments and additions to Federal Law ‘On banks and banking activity’ (in terms of trust management of property).” 

Bill No.960422-6 is aimed at legislative consolidation of non-usurious investment instruments. The bill implies changes to such legislative acts of the Russian Federation as the Civil Code, Federal Law "On banks and banking activity" and Federal Law "On securities market." 

One of the goals of the Bill is included in the Federal Law "On securities market" – the "investment bond” financial instrument. This term means an equity security that provides for the right of its holder to receive from the issuer rights to a share of the property which is created as a result of the relevant investment activity. 

In addition, the Bill provides for an amendment to the Russian civil legislation, according to which interest-free funds may be provided under a credit agreement to the borrower. 

The second document – Bill No.960451-6 proposes amendments to Federal Law "On banks and banking activity," that is complemented with chapter on “Trust management” which provides for the right of credit institutions to create bank-managed General Funds. 

According to the Bill, a bank-managed General Fund is understood to be a form of collective investment, where a bank creates a general fund comprised of property of individuals and companies for trust management. In other words, the General Fund is a property pool comprised of the property of various persons handed over for trust management and is based on the right of joint ownership.

The yield for the General Fund participants, in contrast, for instance, to the deposit which is provided in return for payment of a fixed percentage, depends on the results of investing the fund's assets (shares in proportion to their share of the fund). The General Fund is unlike deposits and is consistent with the principles of Islamic finance based on interest-free borrowings. 

Recently both Bills were submitted for analysis to the Committee of the State Duma for financial markets and most likely will be adopted in 2016. 

Vladislav Zabrodin    Managing Partner  Moscow      Tel.: +7 (495) 970 10 90

Valentina Alikova     Associate    Moscow      Tel.: +7 (495) 970 10 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Vladislav Zabrodin or Valentina Alikova, Moscow Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.