Turkey’s Interest-Free Islamic Finance Eyes 15% Market Share

Turkey’s Islamic finance and banking sector, or participation banking has achieved growth above conventional banks and could reach a market share of 15% by 2025, as per sector representatives, who expect Istanbul Finance Center (IFC) to make a significant contribution to the interest-free finance system.

Chairperson of the board of directors of the Participation Banks Association of Turkey (TKBB) and general manager of Vakıf Katılım, Ikram Göktaş said the public participation banks joining the sector have significantly boosted the interest-free lenders’ growth.

By the end of June this year, the assets of participation finance institutions were more than TL 504 billion ($52.16 billion), he stated.

The market share of participation finance institutions was 5% for a long time, Göktaş said adding but when the state lenders entered the game, it reached 7.5% within a short period of time.

Total funds provided by participation finance institutions have reached TL 280 billion and most of this amount is available to the real sector due to the very structure of how participation finance works, Göktaş noted.

While nearly 13.6% of the funds used are given to individual customers, 55.4% is for commercial customers and 31% for small and medium-sized enterprises (SMEs), and the rate of funds allocated to SMEs in conventional banks is 23%, he added.

“Funds collected by participation finance institutions have reached the level of TL 373.4 billion as of June. The share of the collected funds in the banking sector is 9.7%. Our total equities are at the level of TL 32 billion. It is very important to increase this even more,” he said.

Currently the sector provides services with 1,296 branches and employs over 17,000 people.

‘Resilient to crisis’

Göktaş said that the IFC will add significant value to the country’s economy.

According to Göktaş, Istanbul has very important advantages to become a hub for Islamic finance, since access to international financial centers and customers is very easy from the metropolis location.

“We are a country with a qualified workforce, regulatory environment and legislative infrastructure.”

Turkey will undoubtedly become a financial center, Göktaş stated adding that the first step toward this is to be an Islamic finance center and to address nearby regions.

He said that the participation finance grows through its internal mechanism and the system needs to grow a little more to gain foreign capital. He so underlined that the participation finance system is resistant to crises.

Interest-free finance and its economic system have been dubbed a solid, sustainable and structural alternative to the existing financial system laden with crises since they do not harm the link between the real sector and financial sector, which are often pitted against each other in the current global system, making it difficult to break free from crises.

Nevzat Bayraktar, general manager of Emlak Katılım said that Turkey’s strategic position has been strengthened with the regulations and investments made in the last 20 years, and the IFC is one of the biggest examples of these investments.

“The vision of becoming an Islamic finance center under the leadership of President Recep Tayyip Erdoğan is a fresh breath to the strong position of Istanbul” that would attract investments, Bayraktar said.

He said that the new regulations will attract investments from Gulf countries, particularly.

“The participation finance sector will continue to accelerate its growth momentum by developing new products and services that are bound to the interest-free principle and that can be a solution to market needs.”

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