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Global Economic Uncertainties and The Expanding Sukuk Market in Turkey

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It is no surprise that in times of global and local economic uncertainties, people are more tend to look for a safe haven to wait for the fluctuations to come to an end. Islamic compliant Sukuk instruments have increasingly been associated with such low risk instruments that can serve as a more reliable form of investment for the possible investors. The financial instruments with high rates of leverages that had created toxic mortgage assets and led to the last global financial meltdown usually create such a complex system of transactions that neither the lender nor the barrower anymore know to whom the money belongs or to how many pieces the money has been chopped and re-bundled as a new financial product and sold to someone else.

But the Islamic Law Sharia prohibits not only the interest payments but also such toxic asset generating high leverage financial instruments. Such Islamic compliant instruments are simple and safer as the traditional banking ethos had envisaged in the first place. Such perception of low risk and more reliable financial instrument lies behind the recent increasing global interest for such Islamic compliant financial instruments. The volume of the Sukuk market which was only USD$ 2 billion in 2003 had reached USD$ 100 billion in 2013. Obviously, this is a clear indication that such instruments are not only preferred by people with Islamic sensitivities vis-a-vis the interest payments but by other people looking for a safer way to invest their money.

Turkish Sukuk Market and The New Draft Resolution

Turkish authorities have been working to augment the Turkish market for the Islamic compliant financial tools. A regulation dating back to June 2013 diversified the base of these Islamic compliant financial tools by allowing the introduction of istisna, murabaha, mudaraba, musharaka and wakala bonds to the Turkish market. In Turkey participatory banks play a prominent role in the sale of such Sukuk instruments. In order to strengthen the Sukuk market Turkish authorities have recently been working on a draft legislation that envisages an establishment of a new participatory bank by a joint effort of two well know Turkish public banks, Ziraat Bankası and Halk Bankası. The participatory banks which had only consisted 1% of the total banking system in early 2000s, currently consist 5% of the Turkish banking sector and by the establishment of new banks with such initiatives their clout within the system will increase as well as Turkey's potential to attract more funds from the Gulf countries. In 2013 the participatory banks managed to grow both faster than the rest of the banking sector and the national economy. The regulatory framework in Turkey favors such Islamic compliant instruments with corporate, income and vat tax exemptions. And there still are additional advantages for the Sukuk investors such as exemptions from red-tape related costs, cadastral surveys, registry fees and public fees.  With such Sukuk friendly legislations and the efforts for the establishment of more participatory banks, Turkey is trying to attract more investment for the Islamic compliant instruments and to be a significant player in global Sukuk market.

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