The term "Islamic finance" refers to a system of financing or financial activity that is consistent with Islamic rules and principles. The model outlined under the Islamic finance is generally based on two main pillars, namely the sharing of profit and loss; and the prohibition of charging interest. There are several modes of financing currently being used in Islamic finance practice, certain of which can be considered as similar to conventional banking products. However, the main rule dominating the financial instruments in Islamic finance is the prohibition of recovering interest, which gives rise to the essential mode of financing based on the deferred sale of a commodity, namely "Murabaha".
Murabaha, which was originally a contract of sale in which a commodity is sold on profit, has been modified for application in the financial sector and has thereby become the single most popular technique of financing amongst Islamic banks all over the world. A Murabaha transaction is completed in two stages. In the first stage, the client requests the financial institution to undertake a Murabaha transaction and promises to buy the commodity specified by him if the bank acquires the same commodity. In the second stage, the client purchases the good acquired by the bank on a deferred payment basis and agrees to a payment schedule. In sum, the Murabaha transaction consists of two sales contracts, one through which the bank acquires the commodity, and the other through which it sells it to the client.
The Murabaha form of financing is widely used by Islamic banks to satisfy various kinds of financing requirements. It is used to provide financing in a variety of diverse sectors (e.g. in consumer finance, for the purchase of consumer durables such as cars and household appliances; in real estate, to provide housing finance; and in the production sector, to finance the purchase of machinery, equipment and raw material).
Islamic Financing and its Aspects in the Turkish Market
Turkey has been institutionally utilizing Islamic finance techniques since the late 1980s through financial institutions known as "Special Finance Houses" (Özel Finans Kurumu), which became the "Participation Banks" (Katılım Bankası) with the enactment of the Banking Act No. 5411 ("Banking Act") on 1 November 2005. There are currently four participation banks operating in Turkey, whose activities are under the supervision of the Banking Regulation and Supervision Agency. Participation banks are authorized by the Banking Act to collect deposit funds from the public under the "profit-and-loss participation accounts" and the "special current accounts". The profit-and-loss accounts can be considered as a version of the Islamic finance instrument known as the "Mudaraba", where the bank utilizes the funds deposited by account holders and that are accumulated in a pool for specific business activities. Any profits earned are shared between the account holder and the bank, in proportion to an agreed ratio.
Participation banks mainly offer two types of financing. The first is Murabaha, under which the funds are made available to companies in need of capital. The other is financial leasing, with terms similar to those offered by other leasing companies.
Apart from the institutionalized Islamic finance activities described above, a large number of syndicated loans in the form of Murabaha were made available to major Turkish companies such as Turkcell, Petrol Ofisi and Vestel in recent years. Under these transactions, the companies mentioned were provided with syndicated loans in the Murabaha form made available by credit consortiums consisting of financial institutions from the Persian Gulf region, led by the major actors of the global financial market. Considering that rising oil prices cause considerable capital accumulation in the Gulf Region, the Murabaha syndications can be considered as serious financing alternatives for Turkish companies.
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A trustee in bankruptcy's rights to obtain a possession order and order for sale against a bankrupt's property will not be suspended indefinitely even where there are exceptional circumstances.
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