National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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Since there is no particular law for participation banks in Turkey, there is no provision for
Shari’ah boards and Shari’ah governance either. The existing Banking Law No. 5411 and the
regulation provided by BRSA do not incorporate and include Shari’ah governance or
supervision. Therefore, there is no legal requirement for Islamic banks to establish Shari’ah
boards in ensuring Shari’ah compliancy (Thomson Reuters, 2014: 115). However, all the
participation banks in Turkey have their own individual Shari’ah board as an advisory and
supervisory body. Therefore, they do not appear in the governance structure of participation
banks nor do they issue the annual Shari’ah Supervision Reports. This is an important
shortcoming in terms of disclosure for Islamic banks as identified in AAOIFI standards.
Since there is no provision regulating the Shari’ah boards or recognising them as part of the
governance system, there are no limits in terms of the maximum and minimum numbers of
Shari’ah scholars can sit at each of the Shari’ah boards operating in every participation banks
in Turkey (Thomson Reuters, 2014: 115). The members for the Shari’ah boards are drawn by
each participation banks from leading religious scholars, academic or otherwise, who have
special interest in muamalat or Islamic financial transactions. The decisions of the Fatwa
Council of the Presidency of Religious Affairs are not legally binding or institutional.
Istanbul International Financial Center Program Action Plan also identified the importance of
establishing Advisory Boards as well as the Turkey Participation Banking Strategy Document,
2015-2025 (PBAT, 2015), which essentialised the establishment of a General Advisory Board
and making the presence of Advisory Board in participation banks as a standard (PBAT, 2015,
53). In support of this, BRSA has also raised similar expectations after it engaged with Islamic
banking and strengthened its structure by forming a separate department.
4.11.4. Liquidity Infrastructure
Compared to countries such as Malaysia, Turkish Islamic banks do not have a particular
liquidity infrastructure to facilitate their liquidity management. Conventional instruments for
liquidity management, such as interbank market, secondary market financial instruments and
facilities from the central bank as the lender of last resort ease the liquidity tensions and helps
to effectively manage their liquidity. However, due to Shari’ah compliancy, such instruments
and mechanism are not available for Islamic banks.
In responding to the problem in the global level, the International Islamic Liquidity
Management Corporation (IILM) was established on 25/10/2010 by a number of countries
including Turkey as a stakeholder. As an international organization intending to support cross-
border liquidity management, IILM, aims to provide liquidity needs of Islamic banks and
financial institutions in times of financial stress, which is also available for Turkish Islamic
banks also.
In facilitating the liquidity management of Islamic banks in Turkey, “the Undersecretariat of
Treasury started the issuance of Revenue Indexed Bonds (RIB), which are purchased by the
participation banks” (Yilmaz, 2011) too for ease of their liquidity, and this was available
between 2009-2012, although since 2012 the treasury has not issued any RIB. However, with
the legislation and provision of sukuk in 2011, sukuk has been an important instrument for
liquidity management for participation banks in Turkey and elsewhere.