Diversification of Islamic Financial Instruments
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3.5.6 POLICY RECOMMENDATIONS
The present regulatory structure of Islamic Finance in the country is devoid of an independent
Shariah Council or Board to supervise the services and activities of participation banks in
accordance with Islamic guidelines. Formation of such a council will be vital in promoting
appropriate financial products in compliance with Islamic Shariah principles and help
restoring the credibility of Islamic Financial Markets in the country89. The future of Islamic
Finance in Turkey is promising with its predominantly Muslim population. One of the
conferences on financial inclusion, organized by World Bank in 2014, noted that the unbanked
proportion of population is around 48% in Turkey, and growth of Islamic Finance can help in
improving financial inclusion90. HoweverHowever, dominance of conventional banking with
their large market share, lack of general public awareness about interest-free banking and lack
of qualified personnel in the industry, will be challenging in making this transition from
conventional banking to Islamic Finance. In short:
 Turkey must establish a Shariah Advisory Board. This will bring clarity to the
development of instruments compatible with Islamic Finance Principles. Furthermore
this will create better awareness about Islamic Finance among general public and
restore confidence and trust in these institutions;
 Takaful has great potential in Turkey, however the regulatory framework is quite new
to make assessment of the reflections on the progress in this sector.
 PBs must develop other modes of financing, such as ‘Mudharabah’ and ‘Musharakah’.
90% financing of PBs is ‘Murabaha’ based and this has created some misperceptions
about the similarity between the operations of conventional banks and PBs among
customers, scholars and public.
 The deposit insurance clause is also applicable to PBs. PBs financing is based on the
notion risk-sharing, provisions of such insurance are in conflict with the Shariah;
 Government, institutions and higher education institutions need to focus on improving
the general literacy about the products of Islamic Finance and highlighting the
differences with the conventional banking practices,
 Turkey has great potential in becoming Islamic Finance center with its size of Muslim
population, macroeconomic conditions and its ambitions in making Istanbul as one of
the leading financial centers of the world. Turkey may take the leading role in bringing
top 5 Islamic countries (Saudi Arabia, Malaysia, Pakistan, Indonesia and Turkey) to
form I-5 (Islamic-Five) group (Dar H, 2013). These countries can strategically form a
block in developing Islamic banking and finance instead of indulging in unhealthy
competition.
89 Gun Musa (2016).
90 World Bank (2014)