The region is rich in natural resources, especially oil, gas, minerals and cotton, and has a combined Muslim population in excess of 120 million. Not surprisingly, the Jeddah-based Islamic Development Bank (IDB) is organizing the annual meeting of its board of governors in Baku, Azerbaijan on June 23-24. Last year, the IDB held its annual meeting in Ashkhabad, the capital of Turkmenistan - this is the second successive year that the IDB has held its annual meeting in the CIS.

In fact, the IDB recently took out an equity stake in the Tatarstan International Investment Company, an Islamic investment company that will invest in projects in the Muslim-populated regions of the Russian Federation and in the CIS.

On Wednesday, bankers and allied professionals from all over the world will converge on the Russian capital for the Moscow Forum on Islamic Finance and Investments, which is sponsored inter alia by the newly-established Shariah-compliant asset management firm, Al-Shams Capital, which is authorized by the Securities Commission of Russia. Al-Shams CEO, Adalet Djabiev, believes that there is significant demand for Islamic financial products and services in CIS countries and in Eastern Europe, especially retail, investment, Takaful (insurance) and capital markets products such as Sukuk.

As such, the Moscow Forum on Islamic Finance and Investments is a window for Islamic bankers and others looking into the Russian and CIS markets for new opportunities; and for Russian banks, companies and entities looking for new investments, partnerships and co-financing opportunities in sectors which impact especially on the real economy and in wealth creation. Not surprisingly, the forum will focus on the latest trends in the global industry, developments in Russia and Europe, sukuk, project finance, insurance, developing the halal food business activities, and small and medium enterprises.

There are already encouraging signs that sukuk issuances may prove to be an attractive alternative for Russian banks and corporates raising financing from the international markets for projects in the federation and the region. VTB Capital, a subsidiary of Vneshtorgbank (VTB Bank), the Russian foreign trade bank, for instance, has resumed work to facilitate sukuk in the Russian market, while VTB itself is looking at Islamic retail finance products.

At a recent conference in Moscow, Masroor Haq, head of Middle East and Africa at VTB Capital Dubai, stressed that the "Islamic bond (sukuk) market has just stepped on the growing path. A number of non-Islamic international issuers are focusing on attracting Shariah-compliant funds, GE and IFC being recent examples. Russian corporates should also benefit from this avenue by using appropriate structures."

He sees a good fit between Islamic finance and project finance and infrastructure investments in Russia and the CIS. The Russian Federation needs more than $1 trillion in infrastructure investments over the next 10 years. In this respect, an investor-friendly framework that facilitates ease in attracting international capital flows including Shariah-compliant funding is critical. At the end of last year, VTB Capital signed a memorandum of understanding with Liquidity Management House (a wholly owned subsidiary of Kuwait Finance House - one of the largest Islamic banks in the world) to develop sukuk and other Islamic products for Russian corporates.

Other recent developments include the launch by Malaysia's AmanahRaya Investment Bank Ltd. (ARIB), a wholly-owned subsidiary of Amanah Raya Berhad, and Capital Partners Holdings (Bahrain) (CPH) of the Global Halal Ventures Fund earlier in May 2010.

The launch took place in Manama, Bahrain, as part of the Malaysia International Islamic Finance Centre (MIFC) promotional program on Islamic finance in the presence of Nezar Al-Baharnah, the Bahraini minister of state for foreign affairs, Mahatir Mohamed, BNM Deputy Gov. Mohd Razif Abd Kadir and several other dignitaries from Bahrain and Malaysia.

The Global Halal Ventures Fund is a catalyst for business flow between various regions of the world. The global halal food market alone, according to one estimate, is in excess of $500 billion, and Malaysia is an acknowledged pioneer and leader in this industry. Chairman Ayub of ARIB confirmed that the focus of this fund is halal-related businesses in Muslim countries, which have a limited number of halal products but for which the demand is huge and untapped.

A major target is the CIS countries and Russia, which has a combined Muslim population of about 120 million. The fund plans to initiate projects in this sector involving SMEs in Tataristan and Kazakhstan.

ARIB and CPH have also forged a partnership with the Islamic Corporation for the Financing of the Private Sector (ICD), the private sector funding arm of the IDB Group, to establish a fund to invest in halal-related SMEs in Tatarstan.

Even India's largest asset management company, Reliance Capital Asset Management (RCAM), part of the Reliance Anil Dhirubhai Ambani Group, is getting into the act.

Through its wholly-owned Malaysian standalone Islamic subsidiary, Reliance Asset Management (Malaysia) Sdn Bhd (RAMMy), which got a license from the Securities Commission Malaysia (SC) last August, RCAM is soon to launch an Islamic BRIC (Brazil, Russia, India and China) Fund, which will inter alia investment in the equities of selected Russian companies.

Aziza Atta, associate, Islamic Finance Team, Norton Rose LLP, the international law firm which has pioneered many Islamic transactions over the last two decades, speaking at a recent Islamic finance conference in Moscow, stressed that 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," she added, "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 iteractive 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, we identified a number of corporate, commercial and tax issues that should be noted by parties seeking to engage in similar transactions in the Russian market. 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 alternative ways of raising finance."