It is no surprise that in times of global and local economic
uncertainties, people are more tend to look for a safe haven to
wait for the fluctuations to come to an end. Islamic compliant
Sukuk instruments have increasingly been associated with such low
risk instruments that can serve as a more reliable form of
investment for the possible investors. The financial instruments
with high rates of leverages that had created toxic mortgage assets
and led to the last global financial meltdown usually create such a
complex system of transactions that neither the lender nor the
barrower anymore know to whom the money belongs or to how many
pieces the money has been chopped and re-bundled as a new financial
product and sold to someone else.
But the Islamic Law Sharia prohibits not only the interest
payments but also such toxic asset generating high leverage
financial instruments. Such Islamic compliant instruments are
simple and safer as the traditional banking ethos had envisaged in
the first place. Such perception of low risk and more reliable
financial instrument lies behind the recent increasing global
interest for such Islamic compliant financial instruments. The
volume of the Sukuk market which was only USD$ 2 billion in 2003
had reached USD$ 100 billion in 2013. Obviously this is a clear
indication that such instruments are not only preferred by people
with Islamic sensitivities vis-a-vis the interest payments but by
other people looking for a safer way to invest their money.
Turkish Sukuk Market and The New Draft Resolution
Turkish authorities have been working to augment the Turkish
market for the Islamic compliant financial tools. A regulation
dating back to June 2013 diversified the base of these Islamic
compliant financial tools by allowing the introduction of istisna,
murabaha, mudaraba, musharaka and wakala bonds to the Turkish
market. In Turkey participatory banks play a prominent role in the
sale of such Sukuk instruments. In order to strengthen the Sukuk
market Turkish authorities have recently been working on a draft
legislation that envisages an establishment of a new participatory
bank by a joint effort of two well know Turkish public banks,
Ziraat Bankası and Halk Bankası. The participatory banks
which had only consisted 1% of the total banking system in early
2000s, currently consist 5% of the Turkish banking sector and by
the establishment of new banks with such initiatives their clout
within the system will increase as well as Turkey's potential
to attract more funds from the Gulf countries. In 2013 the
participatory banks managed to grow both faster than the rest of
the banking sector and the national economy. The regulatory
framework in Turkey favors such Islamic compliant instruments with
corporate, income and vat tax exemptions. And there still are
additional advantages for the Sukuk investors such as exemptions
from red-tape related costs, cadastral surveys, registry fees and
public fees. With such Sukuk friendly legislations and the efforts
for the establishment of more participatory banks, Turkey is trying
to attract more investment for the Islamic compliant instruments
and to be a significant player in global Sukuk market.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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