Islamic Finance Report: Focus on Turkey 2019

Abstract

Editor's note: Turkey, as the 19th largest economy in the world, has become one of the main players in the global Islamic finance industry, having more than 35-years experience. Recently, Turkey has gained weight in the global Islamic finance industry reaching almost 3.5% of the total market share. The country is gaining a reputation due to the compliance-focused approach which is strengthening its position in the Islamic finance arena. Islamic finance is one of the key pillars of the projected Istanbul International Finance Centre (IIFC). The Presidency offices for economy and finance continuously employ experts to develop policy recommendations for the Islamic finance sector in the country. Moreover, the latest 5-year plan – called the “11th Development Plan” - includes strategies for specific investments and regulatory improvements for Islamic finance, and assigning the important role to the Sovereign Wealth Fund of Turkey for development of domestic Islamic financial market. Soon, Turkey is expected to become a highly valuable actor with strong support from the Government. In the year 2018, the participation banking sector has pooled significant funds accounting for 7% of the total banking sector’s deposits, while the share in total equities was as low as 4%. The total assets of this segment had reached about 5% in parallel to the growth of financing during the same period. Meanwhile, the participation insurance (Takaful) sector has performed well since the emergence in the first decade of the 21st century, accounting for 5% of the total industry’s share in terms of contributions/premiums. The Islamic capital market of Turkey is mainly driven by the issuance of Sukuk that are originated by the private sector. The performance of Turkey’s participation stock indices was relatively stable despite the volatility in the global financial markets. Commercial credit that is widely practised in Turkey serves as an alternative source of financing for the private sector. Due to its interest-free nature, it could be considered as compliant with the principles of Islamic finance. The savings- based finance operators play an essential role in retail finance by attracting funds based on the crowdfunding concept and providing the contractual saving plans mainly for vehicle and housing finance. This special report is prepared for the first international event on the savings-based financing to sow the seeds for an upcoming series of reports with an exclusive focus on the Islamic finance sector of Turkey and globally. The report entails the detailed information to gain an insight into the facts of the emerging Islamic finance market. On behalf of the team, I thank the contributors and all those who supported us during the preparation of the report. Dr. Yusuf Dinç Associate Professor Istanbul Sabahattin Zaim University