Turkey: Islamic Finance In Turkey


Islamic finance has emerged as a rapidly growing industry with an increasingly global presence. It continues to be the topic of choice at prestigious finance conferences in Europe, Asia Pacific and in the United States.

The Islamic financial services industry currently represents approximately 1% of global assets, however, it has been growing by more than 12% annually over the last 10 years.1 This makes Islamic finance the fastest growing sector in the global financial industry.

More significantly, it is estimated that by 2019, collective profits would reach US$37 billion as the industry continues its double digit annual growth.2 On this basis, it is now more common to read about Islamic finance on a daily basis and hear the announcements of financial centres in an attempt to gain some market share.


Islamic finance has emerged as one of the fastest growing components of the financial market over the last decade and has gained further momentum in the wake of the financial crisis.3 This has led investors to perceive Islamic finance as a safe haven during global economic downturns.

Islamic finance refers to the provision of financial services in accordance with Islamic law which is based on sharia rules (The Islamic Law) 4 The basic principle of conventional instruments such as bonds, commercial paper and medium term notes is that, they all have a fundamental interest. On the other hand, Sharia law dictates that money should not be viewed as commodities, but rather as means of exchange.

Within this context, the Islamic finance framework is based on certain prohibitions. For example, Sharia law does not permit "riba" interest, gambling "maysir" and short sales or financing activities.5 It aims to create a society where prosperity is more broadly and equally distributed, instead of becoming concentrated in the hands of a few. Furthermore, because it has, at its core, both parties to a transaction explicitly sharing the risk, the argument has been made that Islamic finance is, in fact, more sustainable than its western counterpart.6


The practice of Islamic finance in the banking sector first gained legitimacy in Turkey in 1983 when 'special finance houses' were introduced. Shifts in government's priorities allowed Islamic finance to gradually acquire legitimacy in Turkey.

Particularly in the last decade, Turkey reaffirmed its commitment by stepping up to play a pivotal role in the world of Islamic finance. Recent developments also reveal that the future looks promising in this field. For example, in 2013 The World Bank Global Islamic finance Development Centre was launched.

Last year, largest state-owned bank T.C. Ziraat Bankası A.Ş., also received approval to proceed in establishing a Turkish Islamic Bank.7 This was followed by another state-owned lender, Vakıfbank, to receive approval in establishing participation banking division.

More recently, one of Turkey's largest state-owned banks, Türkiye Halk Bankası A.Ş. (also known as Halkbank)8, announced that it has now received approval from the Turkish Banking Regulatory and Supervisory Authority to launch an Islamic bank division in Turkey with a share capital of TRY 1 billion.

Finally, investors will also recall that in July 2015, Turkish lender Kuveyt Turk said that it would launch Germany's first full-fledged Islamic bank, a first step intended at offering sharia-compliant retail banking services across the continent.9


Islamic finance have developed different structures that aim to encourage investors to participate in the financial transactions in various methods, such as: leasing (ljarah), Islamic bonds (sukuk), trade with mark or cost-plus sale (murabahah), profit-sharing agreement (mudarabah), and equity participation (musharakah).

  1. Leasing (Ijarah)

    In Islamic jurisprudence, this method of financing involves leasing an asset and receiving rentals; so long as the asset is on lease, the lessor owns the asset and the risk and reward of its ownership.10 The rental payments can be either fixed or calculated with reference to a market rate. The subject of the lease must be valuable and identifiable, so aircraft, buildings, vessels and power station turbines are ideal subjects for Ijarah financings.
  2. Islamic Bonds (Sukuk)

    This innovative instrument of Islamic finance attracted wide applications outside the Muslim countries. Sukuk, also referred as an 'Islamic Bond', defined by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) as: 'certificates of equal value representing undivided shares in the ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity'11

    According to Islamic finance, the charging or receiving of interest (riba) is prohibited. An investor should realise no profit or gain and the return to an investor must be linked to the profits of an enterprise (subject to the usual commercial risks).

    In addition, Sukuk must be backed by real underlying assets12 and assets must be Sharia compliant. The assets or businesses underlying the sukuk cannot be related, for instance, to gambling or to the production or sale of alcohol or pork and there must be full transparency as to the rights and obligations of all parties.

    It is also important to note that there are different types of sukuk that aim to satisfy both lenders and entrepreneurs. The most significant and common among those are provided below:

    1. Trade with mark or cost-plus sale (Murabahah Sukuk)

      One of the more common instruments of Islamic finance is known as 'murabahah', is based on the traditional method of debt financing. The parties incorporate a mutually agreed contract (murabahah contract) for resale of the asset to the client and a mutually negotiated (murabahah) margin. Repayments for the asset may be in full or by instalments with a certain period of time.13
    2. Profit-sharing agreement (Mudarabah Sukuk)

      This method of financing can be described as contractual relationship between two parties both of whom are governed by the principles of Sharia (the Islamic Law). Mudarabah is an Islamic contract in which one party supplies the money and the other provides management expertise to carry out a specific trade.14
    3. Equity participation (Musharakah Sukuk)

      Another structure that gained popularity as an alternative financing principle is musharakah. It involves an investor and entrepreneur both contributing capital and sharing the risk and reward together. At first instance the arrangement appears to be identical to conventional joint venture. However, the difference between Musharakah arrangements and conventional banking is that, with Musharakah, you can set any kind of profit sharing ratio, but losses must be proportionate to the amount invested.15


The scope of Turkey's Islamic finance market is widening and the growing presence of Islamic banking needs to be accompanied by the development of effective regulation and supervision.

Islamic finance products such as sukuk (Islamic bonds), and takaful (insurance) are offered by financial institutions (participation banks) whose activities are in compliance with the Islamic rules. These institutions are governed by the same legislation as conventional banks and their activities are overseen by the same authority (Banking Regulation & Supervision Agency and the Savings Deposit Insurance Fund).

In this context, Turkish Banking Law No. 5411 (the "Banking Law") is the main legislation. This legislation established the "Participation Banks Association of Turkey" (TKBB)16 and enabled participation banks to have the same privileges and status as conventional banks.17

Another substantial development on the regulatory front includes "Communiqué Serial III no: 43 on Principals regarding Lease Certificates and Asset Leasing Companies." This was the first regulation concerning the lease certificates which essentially aimed to introduce the principle of sukuk to the Turkish financial market.18

Government's more recent attempt came with the introduction of the "Communiqué Serial III-61.1 No. 28670 on lease certificates" which regulates the matters such as the guidelines for determining the lease certificate classes and allows companies to raise funds from the capital markets by issuing lease certificates.19

With that in mind, existing conventional banks are in the process of establishing their Islamic finance divisions in order to align many of their managerial and financial procedures to Sharia rules. Evidence for this can be found in the figures provided by the Participation Banks Association of Turkey (TKBB) which strongly indicate that in general, participation banks increased their asset growth, raised funds, allocated funds, shareholders equity, number of total branches and personnel as they did in previous years.20


Islamic finance is making great strides from London to Hong Kong. The UK issued £200 million Islamic bond, or sukuk, making it the first non-Muslim country to step into Islamic financing. The UK government also reaffirmed its commitment to Islamic finance in March 2015 by announcing the issuance of Emirates sukuk. These announcements demonstrate the UK's desire to capture a share of the growing Islamic finance market.

Islamic finance also piqued the interest of other non-Muslim countries such as Hong Kong, South Africa and Luxemburg. For example, Hong Kong's 1 Billion issuing attracted $4.7 billion in orders. These investors did not sink their money into sukuk for religious purposes: they did it because Hong Kong's product was a five-year dollar-denominated asset at 2.005%21 or 23 basis points above five year US Treasuries.

Changing dynamics in world trade and capital flows also signify an important opportunity for Islamic banks that have global presence. For example, Société Générale and Bank of Tokyo-Mitsubishi UFJ, General Electric and Goldman Sachs issued sukuk to investors worldwide.22 These deals indicate that Islamic finance service and products are becoming more attractive globally.

That said, despite strong recent growth, there are potential pitfalls. Goldman Sachs' previous attempt foundered amid claims its proposed sukuk was not sharia-compliant. Government of Indonesia has also scaled back its issuance due to similar complaints. These notable experiments signal the need for a greater international standardisation of Islamic finance.


With a history dating back to 1983, Islamic finance has grown remarkably in Turkey and many different factors have been attributed to this growth. In particular, developments within the legal and regulatory framework, by and large, demonstrate Turkey's commitment to Islamic finance which will undoubtedly have a positive impact upon the upcoming transactions in this sector.

In that respect, to further enhance financial stability and promote sustainable growth in this area, there is a need for strengthening the sector with the appropriate legal and regulatory framework. Recent progress in this field clearly demonstrates that the government is taking major steps towards developing the instruments of Islamic finance.

Developments in other jurisdictions also indicate that the Islamic finance products have seen significant expansion throughout the world and thus they have become appealing not only to devout Muslims who are seeking sharia compliant products, but to all investors as a pure value proposition. It is, therefore, crucial for companies to be aware of what is new, how they should take action and by when in order to comply with the new and upcoming regulations.


[1] Wyman, O. (2009). The Next Chapter in Islamic Finance: Higher Rewards but Higher Risks. Zaher, T., & Hassan, M. K. (2001). A Comparative Literature Survey of Islamic Finance and Banking. Financial Markets, Institutions and Instruments, 10, 155-199 in Newaz, Farhana. Raman, Revti. Fam, Kim-Shyan, Aiken, Carolina. "Understanding the Nature and Market for Islamic Financial Products." Asian Journal of Business Research. DOI 10.14707/ajbr.150002 (2015): 21-22. Print

[2] EY (Ernst & Young). World Islamic Competitiveness Report 2014-15 Accessed 02 Sept. 2015. If it interests the reader the full text is accessible at: http://www.ey.com/Publication/vwLUAssets/EY-world-islamic-banking-competitiveness-report-2014-15/$FILE/EY-world-islamic-banking-competitiveness-report-2014-15.pdf

[3] Di Mauro, Filippo. Caristi, Pierluigi. Couderc, Stéphane. Di Maria, Angela. Ho, Lauren. Grewal, Baljeet, Kaur. Masciantonio, Sergio. Ongena, Steven and Zaher, Sajjad. (2013), "Islamic Finance in Europe," Occasional Paper Series, European Central Bank, June 2013, no 146 (Frankfurt am Main, Germany)

[4] Kammer, A., M. Norat, M. Pinon, A. Prasad, C. Towe, Z. Zeidane, and and IMF Staff Team (2015), "Islamic Finance: Opportunities, Challenges, and Policy Options," IMF Staff Discussion Note 15/05, (Washington: International Monetary Fund).

[5] Islamic Finance and the role of the IMF. March 2015, International Monetary Fund Forum. Retrieved from http://www.imf.org/external/themes/islamicfinance/index.htm

[6] Spangler, Timothy. (2013, October 18). Could principles of Islamic finance feed into a sustainable economic system? The Guardian. Retrieved from http://www.theguardian.com/sustainable-business/islamic-finance-sustainable-economic-system

[7] Vizcaino, Bernardo, and Shri Navaratnam. "UPDATE 1-Turkey's Ziraat Bank Gets Fast-track Approval for Islamic Unit." Reuters. Thomson Reuters, 15 Oct. 2014. Web. 4 Sept. 2015.

[8] Vizcaino, Bernardo. "Kuveyt Turk Preps July Launch of Germany's First Islamic Bank." Reuters. Ed. Eric Meijer. Thomson Reuters, 22 Mar. 2015. Web. 4 Sept. 2015.

[9] Vizcaino, Bernardo. "Kuveyt Turk Preps July Launch of Germany's First Islamic Bank." Reuters. Ed. Eric Meijer. Thomson Reuters, 22 Mar. 2015. Web. 4 Sept. 2015.

[10] Ayub, Muhammad. Understanding Islamic Finance. 2007. John Wiley & Sons Ltd, West Sussex, England. Google books. N. pag. Web. 07 Sept 2015.

[11] Definition in paragraph 2 of page 307 of Sharia Standards for Financial Institutions 2008, published by Accounting and Auditing Organisation for Islamic Financial Institutions.

[12] Umar, Abu. Umar. Ahmad, Faruq. Theory and Practice of Modern Islamic Finance: The Case Analysis from Australia. First Edition, 2010. Brown Walker Press, Florida, USA. p. 319

[13] Ismal, Rifki: Islamic Banking in Indonesia: New Perspectives on Monetary and Financial Issues. June 2013. Google books. N. pag. Web. 03 Sept 2015.

[14] Iqbal, Munawar, Llewelly T. David. Islamic Banking and Finance: New Perspectives on Profit Sharing and Risk. 29 Jan. 2002. Edward Elgar Publishing Limited, United Kingdom. p. 57-59.

[15] Kettell, Brian. The Islamic Banking and Finance Workbook. Step-by-Step Exercises on Fundamentals of Islamic Finance. First Edition, 2011. John Wiley & Sons Ltd, West Sussex, England. p. 75

[16] Hardy, Liam. "The Evolution of Participation Banking in Turkey." Online Journal of Southwest Asia and Islamic Civilisation. (Winter 2012): p. 4-5 Web. 02 September 2015.

[17] Ustaoglu, Murat. Incekara, Ahmet. Islamic Finance Alternatives for Emerging Economies: Emperiacal Evidence from Turkey. 2014. Palgrave Macmillan. New York. p. 80-81

[18] Buyukatak, Aytug. Gencoglu, Burak. Turkey: A bumper Year for Islamic Finance (2011). Islamic Finance News. . Accessed September 29, 2015.Retrieved from http://islamicfinancenews.com/authors/aytug-buyukatak-and-burak-gencoglu

[19] Borsa Istanbul. Lease Certificates. Accessed September 24, 2015.Retrived from http://borsaistanbul.com/data/kilavuzlar/Lease_Certificates.pdf

[20] Zawya Islamic. (2014). Turkey Islamic Finance Report 2014: Fundamentals and the Promise of Groth. Thomson Reuters. Istanbul: Islamic Finance Gateway. Accessed September 24, 2015. http://www.irti.org/English/Research/Documents/Report-5.pdf

[21] "HKSAR Government's inaugural sukuk offering." September 11, 2014. [Press Release] Retrieved from http://www.info.gov.hk/gia/general/201409/11/P201409110077.htm

[22] Islamic Finance: Big interest, No interest (2014, September 13). The Economist. Retrieved from http://www.economist.com/news/finance-and-economics/21617014-market-islamic-financial-products-growing-fast-big-interest-no-interest

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions