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6.3. Case Study: Turkey
6.3.1. Background
According to the World Bank Report (2019), Turkey is the 19th largest economy in the world
and the 7th leading country within Europe. Its GDP is valued at US$767 billion in 2018. It started
recording high positive rates of growth since the last quarter of 2009. More importantly, Turkey
was able to manage and mitigate the adverse effects of the global financial crisis in 2008 and
2009 with its strong economic fundamentals (Saiti, 2017). In other words, the Turkish economy
was relatively less affected during the 2008 global financial crisis, compared to the global level
of influence that affected most financial institutions worldwide. However, the geopolitical risks,
the internal political situation, the coup attempt in 2016, and the currency crash in 2018, have,
all, caused some degree of uncertainty in the Turkish economy. Besides, global negativities, like
the so-called "trade war" have caused a decrease in tourism and in trade volumes and incomes.
Despite the negative internal and external elements, the Turkish economy has sustained an
average growth rate of 4.9% per annum for the period of 2014-2018. The country is targeting
an average growth rate of 4.3% per annum for the next 5-years (2018-2023). This is outlined in
the 11th Development Plan (SBB, 2019). The development of Islamic finance, with a special
emphasis on Takaful and on Istanbul as a prospective international financial hub, forms an
integral part of the Turkish economic strategy for its continued economic growth.
Even though the Islamic financial services industry started late in the country, theWorld Islamic
Banking Competitiveness Report (2016) reported that Turkey is very important to the global
growth of the Islamic financial services industry, due to the strong support it receives from the
Turkish government (Saiti, 2017). The early development of Islamic finance in Turkey began in
1983, when the government issued a decree (16/12/1983, 83/7506) called “Establishment of
Special Finance Houses”. However, the industry did not attract enough attention by the market
until the new Banking Act No 5411 in 2005, which converted the special finance houses into
participation banks (TKBB, 2016). Besides, the Islamic financial system was able to develop an
ecosystem, which led to the establishment of the first General Takaful company, Neova
Insurance, that was introduced to the Turkish economy in 2009 as an initiative of Kuveyt Turk
Participation Bank. Four years later, the first Family Takaful company, Katilim Pension and Life,
was launched in Turkey by Albaraka Turk and Kuveyt Turk participation banks as a joint
initiative.
The Islamic financial ecosystem was developed further with the establishment of three new
state-owned participation banks, beginning from the year 2015. As of December 2018, there
were 52 banks in Turkey. These include 34 conventional banks, 13 development and investment
banks and five (5) participation banks (BRSA, n.d.). The five (5) participation banks are: Ziraat
Participation Bank, Vakif Participation Bank, Turkiye Finance Participation Bank, Albaraka Turk
Participation Bank and Kuveyt Turk Participation Bank. They have between them a 5.35%
market share in the volume of the Turkish financial assets by December 2018 (BRSA, n.d).