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Russian authorities are drafting a new law that would legalize and regulate Islamic banking in the country, initially to be introduced across four Muslim-majority republics as part of a pilot scheme, including Chechnya, Dagestan, Tatarstan, and Russian Bashkiria.

The implementation of non-credit banking institutions would function as Financing Partnership Organisations (FPO), offering Sharia-compliant financial products catering to Muslim customers, according to a report by Russian daily Kommersant.

The report added that the FPOs would be under the jurisdiction of Russia’s Central Bank, which would oversee their operations.

In a statement on Friday announcing the project, the Chairman of the State Duma Committee on Financial Markets, Anatoly Aksakov said: “We have long received many relevant requests from activists in Bashkiria, Tatarstan, Chechnya, and other republics of the North Caucasus.”

“These initiatives are gaining attention because some countries in the Middle East and Asia have shown their interest in investing in these Russian regions, but they have not made this investment for religious reasons,” Aksakov added.

The move comes as Russia’s state banks have been hit with Western-imposed sanctions in response to ongoing military operations in Ukraine launched in February and is seen as a bid to lure alternative investors from Muslim countries.

Last year the State Duma Committee on Financial Markets reportedly established a working group on Islamic finance, aimed at stimulating investment from the UAE and other Muslim states.

The global Islamic banking sector is said to be growing at an annual rate of 14 percent and is estimated to be worth $1.99 trillion, accounting for a six percent share in the non-Islamic global banking industry.

Muslim-majority countries such as Qatar, Turkiye, Saudi Arabia, Malaysia, UAE, Kuwait, and Pakistan account for the vast majority of Islamic banking assets 93 percent. The first Islamic bank established outside the Muslim world was in Britain in 2004.

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