The successful sovereign Sukuk raised money for the Turkish government, but the participation banks in Turkey are listed companies and therefore there is no direct link with government finances. Nevertheless the sovereign Sukuk provides a pricing benchmark for corporate Sukuk issuances by the participation banks, and Bank Asya, one of the largest participation banks, has already announced that it is planning a Sukuk.
Nevertheless it is important to realize that Sukuk issuance increases debt obligations and bank leverage. Sukuk can be a useful source of funding, but new equity issuance should accompany Sukuk funding in the longer term to ensure a balance. Sukuk funding should not be viewed as a substitute for bank deposits, and Turkish participation banks should continue to raise most of their funding from customer deposits which tend to be stable in the longer-term. Sukuk behave like bonds and therefore should not be relied on excessively to fuel banking growth.
Emeritus Professor, Durham University
Turkey’s successful sovereign Sukuk formally puts the country on the global Sukuk map as a recipient destination for investment and might trigger a follow up at the sovereign and corporate level. Whilst corporate Sukuk probably will be restricted to the participation banks, surprise issuance by big Turkish corporates is not to be excluded.
So far, the participation banking industry has been growing organically as predicted, and in a sustainable way. Acceleration could come from a new market entry that has been in the pipeline for some time now. The creation of the Istanbul Financial Center might also trigger the possibility of foreign Islamic windows, which in turn might offer such rights to local conventional banks. The balance is shifting – time will tell how fast.
Lawyer Antwerp Bar Association (Belgium), Azmi & Associates — Advocates & Solicitors (Singapore) and Senturiyon Global (Indonesia)
Turkey is right on track to become the next hub of Islamic banking and finance. Given the historical legacy of leadership of the Muslim world (reference to the Ottoman empire), the Turkish government needed to show its commitment to Islamic finance so that other players in the industry would join in building a vibrant Islamic banking industry. The recent successful US$1.5 billion sovereign Sukuk issuance has put Turkey on the global platform of Islamic banking and finance. It is expected that many Middle Eastern Islamic banks and financial institutions will now contemplate entering the Turkish market.
The likes of Kuwait Finance House (KFH) went to Turkey in 1989, well before an explicit commitment came from the government of the time, which was rather hostile towards any non-secular developments. It was also far ahead of KFH’s move to enter the Malaysian market. Similarly, Albaraka Bank set up a participation bank in 1984 in Turkey, although it is until today yet to enter the Malaysian market. I am not suggesting that Turkey is going to pose any competitive threat to Malaysia, but it remains a fact that for many institutions in the Middle East it makes more logistic sense to do business in Turkey rather than travelling to Asia.
Both Malaysia and Turkey are certainly aware of the value of close cooperation in order to mutually benefit from the global growth in Islamic banking and finance. Malaysia must adopt the Middle Eastern Shariah standards to remain attractive to most of the global players in Islamic finance, and Turkey must learn from the Malaysian experience if it wants to be considered a credible player in Islamic banking and finance.
The recent visit by Ali Babacan, the Turkish deputy prime minister, and his keynote speech at a recent conference in Kuala Lumpur, along with the warm welcome accorded to him by the governor of Bank Negara Malaysia, Dr Zeti Akhtar Aziz, point towards a possible Turkey-Malaysia alliance to promote Islamic banking and finance. In order to promote Islamic banking in the country, Turkey must commit itself to the global Islamic financial services industry by investing in an enabling infrastructure similar to that which Malaysia has achieved in the last two decades. Being a predominantly Hanafi (a stricter school of Islamic jurisprudence) country, Turkey is bound to bring the kind of Shariah authenticity that Malaysia has yet to develop. Hence, a Turkey-Malaysia alliance will not only help to promote Islamic banking in Turkey but is also expected to bring a new juristic approach to product development and structuring.
Turkey and Malaysia together can achieve a lot, which Malaysia alone could not do in its past attempts to convince Middle Eastern Islamic financial institutions to do business together. It is important for Malaysia to strike a deal with Turkey to have a physical presence in the country of institutions such as the Islamic Financial Services Board, International Islamic Liquidity Management Corporation and INCEIF, before Turkey decides to develop such institutions independently.
Sharing its leadership role with others is in the best interests of Malaysia. Allowing Malaysia to export its Islamic financial expertise is an efficient way of acquiring the required skills for Turkey to promote Islamic banking domestically.
Turkey is also poised to further develop Islamic banking and finance in Europe, given its strategic location. It has the potential to serve as a bridge between the west and the central Asian Muslim states. Islamic banking and finance offers a strategic opportunity for Turkey to promote a moderate and modern Islamic lifestyle built around Islamic banking and finance, a phenomenon already known and accepted in many western European countries, especially in the UK. The idea of Islamic (or participation) banking is very close to the German model of cooperative banking. Turkey can strengthen cooperative banking in Germany by helping its participation banks to develop their operations therein.
PROFESSOR HUMAYON DAR
Chairman, president & CEO, Edbiz Consulting