Converting Turkish agricultural credit cooperatives into Islamic financial institution

Abstract

Central Union of Agricultural Credit Cooperatives (ACC) is a strong candidate to be the most significant and strategic actor in the interest-free financial sector in Turkey. Although it is currently an interest-based institution, ACC was first introduced to disentangle farmers from interest and usurers through its cooperation-based structure. In recent years farmers as its partners demanded interest-free financing and management reacted to meet the need. Thus a gradual conversion process is applied based on a unique concept. This study will first dwell on the emergence of ACC. The following sections will reveal an environmental analysis by comparing the conventional banking sector and Islamic banking with ACC. The concept for conversion is included in section 3. The last section will compare the ACC business model with those of conventional banking and Islamic banking. Results are reached that reveal ACC’s legal structure and regulatory needs through the benefit that can be obtained by conversion and include proposals. This study is a pioneering work in terms of revealing the need for an interest-free conversion and setting forth a new concept needed over an existing example.