Diversification of Islamic Financial Instruments

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been instrumental in developing a detailed strategy document (2015-2025) in consultation

with Treasury, BRSA, CMB and CBRT. The strategy has laid down a detailed ‘Action Plan’ to

help promote Islamic Finance in Turkey.

The Undersecretariat of Treasury and BRSA, in the context of participation banks, are

responsible for identifying the objectives of PBs in line with the sector strategies. They also

determine the duties and responsibilities of public institutions in accordance with the sector

strategies.

CBRT

, the

Central Bank of Turkey

, is the Sui Generis Institution, looking after the price and

financial stability of the economy as a whole. The Central Bank of Turkey (CBRT) has made

changes in its operational framework to provide access to liquidity facilities to the

participation banks (Undersecretariat of Treasury (2016)). These facilities are divided into

two main sections, depending on their roles and functions. First, the maximum maturity of

CBRT liquidity facility is for 91 days, these come under the Open Market Operations (OMOs)

and Lender of last Resort. Second, the central bank can inject/sterilize liquidity into/from

banking system as per requirement. This is done through purchase/sales of sovereign debt

securities (Sukuk). However, some other provisions of liquidity support, such as deposit

lending, intraday liquidity and late overnight liquidity deposits are only accessible by the

conventional banks only. CBRT has also established the International Islamic Liquidity

Management Corporation (IILM) to further facilitate the liquidity concerns of the Participation

Banks in Turkey. These measures have been aimed at providing level playing field for these

banks (Undersecretariat of Treasury (2016).

3.5.3 ISLAMIC BANKING IN TURKEY

The Banking Law (Law No. 5411) that was published in November 2005 in the official gazette

brought these SFH into the mainstream banking in Turkey. The new law gave official

acknowledgement to PBs and allowed treating these banks in line with the provisions for the

conventional banks

(Birben 2013). The dual deposit insurance system was revised and the

management of the Islamic deposit insurance system was given to Savings Deposit Insurance

Fund (SDIF). BRSA has ensured implementation of Basel II and Basel III standards compulsory

for all banks in Turkey, conventional and PBs. The statuary capital adequacy ratio is set at 8%.

Banks are also required to maintain liquidity sufficiency according to the procedures of BRSA.

All banks are required to prepare a consolidated financial report that includes information

about the financial position

The distribution of types of deposits and lending methods are summarized in the Table

(Assets/ Liabilites of PBs). Murabahah takes the bulk of financial support extended by the

participatory banks. Some of the reasons for the dominance of Murabahah include lack of legal

framework and short-term nature of the deposits of the PBs.

Until 1999, the establishment and functioning of the SFHs were regulated by decree. In 1999, with a sgnificant

amendment to the decree, these houses were covered in the scope of the Banking Law. Prior to 2000, UnderSecretariat of

Treasury was responsible in regulation of these banks. However, new regulations have made these banks subject to

inspections by BRSA, the main regulatory body of the conventional banks.

The Article 3 of the Banking Law No. 5411 defined ‘bank’ as deposit bank, participation bank, development bank and

investment bank, so all legal requirements applicable to banks are also valid for participation banks (Kizmaz 2015)