National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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4.11. Turkey
After the initiations of the economic and financial liberalisation programmes in 1980, the
initial institutional approach for the development of Islamic banking, which is called
‘participation banking’ in Turkey, matured in 1983 with the issuance of a government decree
that allowed the establishment and operation of Islamic financial institutions (IFIs).
Consequently, in 1985, the first Islamic financial institution, namely Albaraka Turk, started to
operate leading to the creation of other IFIs. However, the institutions were called ‘Special
Finance Houses’ (SFHs), which meant that they were not legally ‘banks’, and hence they were
not subjectto the legal framework applied to banks and could not benefit from the facilitatory
opportunities of the financial system.
In furthering liberalisation and consolidating the economy and financial sector over the years,
a number of regulative and legal changes and amendments have taken place which has also
shaped the development trajectory of Islamic banks as well. In 1999, Banking Law amended
and SFHs were included in the Banking Law. However, the main development has been the
elevation of the status of SFHs into bank with the title of ‘Participation Bank’ in 2005 through
the new Banking Act No. 5411 of 2005. This implies that Islamic banks are now subject to the
same regulations and legal forms in their dealings as their conventional counterparts.
Participation Banks Association of Turkey (PBAT), an industry trade association, plays an
important role in promoting the interest of the Islamic banks in Turkey. Regulations require
every participation bank to become member of the PBAT. It was founded as the SFH
Association with a Cabinet Decision in 2001 parallel to the Banking Association of Turkey,
which serves for conventional banks. SFH Association was transformed into PBAT after the
status of SFHs was elevated to 'Participation Bank' in 2005 and given a new mandate and form
with a Cabinet Decree in 2006. From 2006 onward, the institutions intending to get a license to
open a participation bank were obliged to become a member of the PBAT within one month
from the receipt of permission, according to the above-mentioned cabinet decree published in
the Official Gazette dated February 28, 2006. One of the aims of PBAT is to work for the
advancement of the industry.
BRSA (Banking Regulation and Supervision Agency) and PBAT developed a report in July 2014
after ‘The Participation Banking and Interest-Free Finance Workshop’ and it has become one of
the essential steps for the development of the sector. In following up recommendations of the
Report, PBAT published its strategic vision (in consultation with the relevant authorities) in
2015 titled as ‘Turkey Participation Banking Strategy Document, 2015-2025’. The document
outlines a number of strategies, actions, and responsible and relevant institutions are
identified in order to develop an effective system of ‘completing the identified tasks’ for the
development of the industry.
In addition, the recognition of the importance of participation banking and finance resulted in
having “Strengthening Interest-free Finance and Participation Banking” component added into
Istanbul International Financial Centre Program Action Plan that was published with the
decision of High Planning Council on 16/02/2015 (Yabanli, 2016). All these efforts have
culminated into establishment of a steering mechanism, namely ‘Interest-Free Finance
Coordination Board’ that was established by The Prime Ministry Circular on 15th December
2015. “The goal of the Board is to advance sound participation banking and participation