Diversification of Islamic Financial Instruments
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 Lack of adequate legal and technical infrastructure also limits PBs to indulge in other
modes of financing such as ‘Musharakah’.
 Participation Banks Association in Turkey (PBAT) has proposed that the first step for
the diversification Islamic products is formation a permanent and independent
regulatory body to look after the regulations pertaining to the development of other
products (PBAT, 2015)85.
 One of the actions documented in the 2015-2025 strategy report of PBAT, is to ensure
the physical exchange of commodities in the Borsa-Istanbul. This will open up an
important opportunity for PBs (IFN, 2016).
 The two of the state-owned banks, Ziraat Katlim Bankasi and Vakif Katlim Bankasi,
have also started their Islamic Banking operations in 2015. This is expected to
contribute to the growth of the Islamic Banking in Turkey.
3.5.4 ISLAMIC CAPITAL MARKETS IN TURKEY
Despite encouraging developments in Turkish Sukuk market in recent years, there have been
limited issuances of domestic corporate Sukuk with the exception of Participation Bank
issuances86. However, given the demand for alternative sources of financing by the Turkish
corporations, Sukuk market development may facilitate in reducing the financing gap in
Turkey, particularly the planned mega projects and Public-Private-Partnership (PPP) projects.
According to one estimate the Turkish corporations needed additional financing of US$350
billion to complete projects in line with the 2023 development plan87 .
In 2012, an important amendment was enacted by the parliament. It allowed for the first time
the UnderSecretariat of Treasury to issue ‘Sovereign Lease Certificates’. This provision allowed
Sovereign to transfer public assets to SPVs in the sale-and-lease-back model of Islamic Finance.
In this context assets held by the central banks, state-owned enterprises can be used to issue
lease certificates both in the domestic and international markets. In the first issuance of the
Sukuk, it was sold to the investors of Middle East region. 15 such Sukuk have been issued by
the end of 2016. All these Sukuk were based on standard ‘Ijarah’ Sukuk model.
In the current legal framework, Sukuk holder obtains partial ownership over a specific asset
getting the profit that such asset may generate and from the proceeds of its sale. The
communiqué introduced five types of these certificates consisting of certificates based on
ownership (Ijarah), management (Musharakah), trading (Murabahah), partnership
(Musharakah) and engineering, procurement and construction (EPC) contracts (Istisna). The
legislation also regulates the establishment of ALCs. The ALCs can be established by banks,
intermediary institutions, real estate investment trusts and public corporations. Five types of
85 PBAT is a private professional body, playing an important role in promoting and developing strategies to help future
growth of Islamic Finance in this country.
86 Debashis Day (2016),
87 Ibid: 1.