Diversification of Islamic Financial Instruments
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The strategy document prepared by the Participation Banks Association of Turkey (PBAT,
2015) has laid down a detailed plan to develop and support the growth of Islamic Finance. The
strategy aims:
 To develop and improve product range and service quality;
 To improve corporate communication and perception about Islamic banking;
 To further develop legislation, standards and regulations related to the principles of
Islamic banking.
Sukuk - in the form of asset-backed debt instruments (lease certificates) - were first
introduced through an overseas issuance by Kuveyt Turk to the Turkish market in April 2010.
The legal framework for local issuance was also initiated in the same year. However, this
remained inapplicable until the enactment of Omnibus Bill in 2011 which introduced tax
neutrality on Sukuk Ijra issuances (IFN 2016). In June 2012, another amendment to the Public
Finance Law had been made to permit the issuance of sovereign Sukuk. The Turkish treasury
issued $1.5 billion Sukuk, as a benchmark, in September 2012 (White and case 2016).
In 2009, the State Planning Organization initiated its plan(s) to implement “Istanbul Finance
Center Strategy Document”. The objective of the strategy is to make Istanbul a regional finance
center in short-run and aiming to make it global financial hub in the long-run78. One of the
objectives of the strategy is to significantly increase the market share of Participation Banks in
the sector79. Furthermore, to complement the strategy, Borsa Istanbul has also prepared its
policies to support the vision.
The chairman of Borsa Istanbul, has recently explained some of the ‘exchange’ future policies
in response to Turkish vision to make Istanbul a regional financial hub (IFN 2016, pp13-14).
The chairman explained that the exchange is working with the Turkish Capital Market
Association to initiate an International Shariah Board and is planning to develop range of
innovative new products. Some of these new products include Islamic real-estate certificates
financing urban transformation projects in collaboration with Turkish real-estate agencies80.
Furthermore, Borsa Istanbul is also thriving on a radically innovative idea of introducing asset-
backed Sukuk, based on the revenues from large infrastructure projects. These Sukuk have
been modeled for Public-Private- Partnership (PPP) projects, covering bridges, toll roads and
other public sector projects that can generate stable and high-revenue (IFN 2016)81.
By the end of 2016, five banks, two of which are state-owned, have been operational in
providing Islamic finance services. The opening of these two state-owned participation banks
is seen as an important step in promoting and developing Islamic Banking in Turkey. A recent
report of S&P, entitled “The Emergence of New Turkish Islamic lenders: A Game Changer?”
concluded that growth of Islamic banking may take a giant leap forward with the involvement
of State-owned banks in Turkey.
The recent trends in the Islamic Finance sector are promising and country has great potential
to make significant contributions in promoting and developing the sector. Recent studies have
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79 The objectıve is also part of the strategy laid down on the “Istanbul International Financial Centre Program Action Plan
(2015-2018)”.
80 The chairman expressed these views in one the exclusive interview, published in IFN (2016).
81 These views may not necessarily reflect the official position of the Turkish Government.