113 / 521
Prominence of Sukuk in Turkey as an Islamic Finance
Instrument
*
Prof. Dr. H. Ercument Erdem
Turkey’s first regulation for Islamic Finance was realized during
the 1980s, during a period of liberalization as part of a plan to attract
foreign direct investments. Interest free banking was introduced with
the legalization of “special finance houses” which did not possess bank
status and therefore did not benefit from banks’ privileges.
The Islamic Finance sector kept evolving steadily in the 1980s and
1990s with Arab Gulf investors setting up finance houses and com-
mencing lending activities, accommodating mainly specific religious
clientele.
The leap for interest free banking came after the 2001 economic
crisis. Banking finance legislation went through a major overhaul after
the crisis. A union was formed to provide a certain level of state con-
trol and support for special finance houses. 2006 saw the introduction
of Banking Law No. 5411, which legitimized participation banking
and provided insurance through the Savings Deposit Insurance Fund
for participation deposits. Along with these changes, the special
finance houses union became the Participation Banks Association of
Turkey (“TKBB”), which sets forth the ethical, professional principles
for participation banks. All participation banks had to be a member of
TKBB. The following years saw a rapid increase in participation bank-
ing and the 2008 global crisis highlighted the need for more stable
financing. In line with the government’s support of Islamic Finance
and interest free finance instruments, the World Bank Global Islamic
Finance Development Center was launched on the premises of the
Istanbul Stock Exchange in late 2013.
*
Article of June 2014