Turkey has the objective of becoming an important player in the Islamic finance industry. As a result of this intention, the government has been promoting the private sector’s Sukuk issuances and participation banks’ activities in the Turkish market. The legal structure for Islamic finance instruments and participation banks is being amended to make them more favorable for the Islamic finance investor.
Although legal structure amendments have been made to promote Islamic finance, the framework still does not meet requirements. Deputy prime minister Ali Babaçan recently stated that the participation banks’ 5% share in the market is below expectations.
“The number of participation bank branches has reached 869, with 16,190 staff members. Their size of assets has increased to TRY81.5 billion (US$42.29 billion), as their funds provided real sector worth of TRY60 billion (US$31.13 billion). The participation banks’ share in assets is 5% and in funds it’s 6%. These figures are below our desires,” said the minister during an Islamic finance conference. Babacan also stated that the private sector started Sukuk issuances following the sovereign Sukuk issuance by the treasury; and the tax difference between the conventional bonds and Sukuk was removed.
During the above mentioned conference, Bahrain-based Albaraka CEO Adnan Ahmed Yousif stated that the bank is planning to establish an Islamic insurance company in Turkey. Additionally, Adnan stated that Turkey does not have a legal basis to incorporate an Islamic insurance company, however the firm has expressed its intention to the Turkish authorities.
As part of the legislation changes concerning Sukuk, last month a new communiqué was published on the Official Gazette dated the 7th June 2013 and numbered 28670. This communiqué introduced new lease certificates to the Turkish Islamic financial market. It is expected that this kind of legislation change will continue and will be more frequent in the future.
Ali Ceylan is a partner at Baspinar & Partners Law Firm. He can be contacted at
[email protected]
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