Tag: Islamic banking

  • Turkish Central Bank Appoints Islamic Economist, Credit Expert to Board

    Turkish Central Bank Appoints Islamic Economist, Credit Expert to Board

    Turkey’s central bank elected credit expert Ahmet Faruk Aysan and Sabri Orman, a specialist in Islamic economics, as members to the bank’s board, in a meeting held yesterday.

    Aysan and Orman filled two empty seats on the board, the central bank in Ankara said in an e-mailed statement today. The board is composed of the governor and six members and makes decisions on monetary policy and sets forth regulations, according to the bank’s website.

    Orman has served as the rector of Istanbul Commerce University, the central bank said. He was a research scholar at the London School of Economics and worked at the International Islamic University and the Islamic Thought and Civilization University in Malaysia, it said. He has published papers and contributions on the origins of Islamic economic thought, Ottoman economic thought and the economic principles of Islamic theologian and jurist Abu Hamid al-Ghazali, according to a biography on the Istanbul university’s website. Published works include “Money, Interest and Islam” (the Foundation for Islamic Research, 1987.)

    Aysan has a doctorate from the University of Maryland College Park, the bank said. He was previously an adviser to the World Bank, the central bank and works as a lecturer at Istanbul’s Bosporus University, it said. Aysan has published work on the credit markets in Turkey. He has also written about determinants of Turkish exports, interbank funds, non-price competition in credit cards, and net interest rate margins during the global crisis.

    To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

    To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

    via Turkish Central Bank Appoints Islamic Economist, Credit Expert to Board – Bloomberg.

  • How the Rise of Islamic Banking is Changing Turkey

    How the Rise of Islamic Banking is Changing Turkey

    Islamic banks do not charge interest, and share the profit and loss risks of their customers. What that means for their success and for Turkey.

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    People withdraw Turkish Liras from automatic teller machines in Istanbul / Reuters

    Amid Turkey’s turn away from strict secularism, Islamic banking practices in the country are gaining currency. But they still face significant obstacles as they strive to enter the financial mainstream.

    Turkey at present has four Islamic banks — three that are partially owned by companies based in the Persian Gulf — which accounted for 5 percent of Turkey’s 1-trillion-lira ($559 billion) banking sector in late 2010, according to data from the Participation Banks’ Association of Turkey, a lobbyist group for Islamic banks.

    The banks are known as “participation banks,” since, in keeping with Islamic tenets, depositors and borrowers share the risk of financial transactions with the banks themselves. Interest is not charged. Clients are mostly pious entrepreneurs from the central region of Anatolia, especially in cities such as Gaziantep, Konya, and Kayseri. The area is home to several companies that have become known as “Anatolian Tigers” for their rapid growth.

    Until sharia-compliant banking was introduced to Turkey in the 1980s, many such individuals kept their money “under the mattress,” both because of mistrust of traditional banking, and their desire to avoid breaking religious tenets regarding the payment of interest, said Osman Akyuz, secretary-general of the Participation Banks’ Association of Turkey. No longer. While still tiny, Islamic banks’ share of Turkey’s banking market is nearly twice as large as it was in 2005, when consumer wariness of such banks was stronger. In a September report, the international ratings agency Standard & Poor’s said that Islamic banking in Turkey is set for further growth, particularly if the country cultivates stronger ties with wealthy Gulf states.

    Turkey’s booming real estate sector accounts for the bulk of Islamic banking activity, but the banks also provide working capital and equipment to companies involved in construction, trade and industry, three of the country’s strongest economic sectors. To encourage the development of Islamic banks, Turkey’s governing Islamist-rooted Justice and Development Party (AKP) has granted them tax-neutral status. At the beginning of the year, an index of sharia-compliant companies also was listed on the Istanbul Stock Exchange.

    As some financial experts see it, the growth rate in Islamic banks hasn’t matched expectations, taking into account the AKP’s prolonged tenure in power. One Islamic finance expert cautions that the sector’s growth, in fact, has been “very sluggish.”

    “[T]he AKP has 50-percent popularity and Islamic banking is 4 to 5 percent of the banking sector,” noted Mehmet Asutay, the director of a postgraduate program in Islamic finance at Durham University in the United Kingdom. While Turkey’s overall banking index has gained 19 percent since August, sharia-compliant Bank Asya and Albaraka Turk gained only 12 percent and 4.9 percent, respectively, Bloomberg reported in September.

    Investors reportedly are concerned that Turkey’s slowing pace of economic growth will hurt the banks’ ability to turn a profit on its lending. That becomes even more critical for Islamic banks since they do not charge interest, and share the profit and loss risks of their customers.

    Other obstacles could hinder growth possibilities. First and foremost are Turkey’s 50-some conventional banks, which hold a large share of the country’s private-sector assets. Drawing customers’ attention away from these banks has been a problem, specialists say, since Islamic banks suffer from a lack of qualified personnel to smooth the transition from conventional banking.

    Akyuz concedes that the expansion has been lackluster. “Presently, four Islamic banks [are] not enough for Turkey,” he asserted. “It should be six to seven at [this] stage.”

    But that involves convincing the country’s banking officials of the need. While in the past, Islamic banks were not included under Turkish banking law, they now are subject to the same rules. Amid concerns about the Turkish lira’s strength, the Central Bank is in no hurry to authorize the opening of more banks, sharia-compliant or otherwise.

    Ilham Mehraliyev, a specialist in Islamic finance in Turkey at DinarStandard, a research firm specializing in Muslim markets, believes Islamic banks retain growth potential. But they will have to choose their spots carefully, manage growth prudently and address their “lack of qualified human resources,” he said. If all goes well, expansion into foreign financial markets eventually may become “within [their] capacity.” The Turkish owned Bank Asya is already an investor in Tamweel Holding, a company that provides Islamic banking services in several African countries.

    In the meantime, Akyuz, the Islamic banking advocate, maintains that there are no competitive tensions between Turkey’s traditional financial institutions and Islamic banks. “In the last 25 years, we have reached a consensus,” he said. “The only difference is in the methods of collecting money, and loaning money.”

    This article originally appeared at Eurasianet.org, an Atlantic partner site.

    via How the Rise of Islamic Banking is Changing Turkey – Justin Vela – International – The Atlantic.

  • Islamic banking offers a different model

    Islamic banking offers a different model

    Although they command only 5% of the market share in Turkey, “participation banks” see room for growth.

    By Henry Shapiro for Southeast European Times in Istanbul – 01/07/11  photo
    By Henry Shapiro for Southeast European Times in Istanbul – 01/07/11 photo

    The Istanbul Stock Exchange opened an index on Sharia compliant banks and companies this year. [Reuters]

    Earlier this year, the Istanbul Stock Exchange launched an index of Sharia compliant banks and companies. Since then, the emergence of “Islamic banking” — also known as “participation banking” — has garnered considerable media attention.

    It has been widely reported that these banks do not charge interest, or “riba”, because it is forbidden according to Islamic law. The actual mechanisms by which the banks operate, however, and the ways in which they differentiate themselves from the mainstream financial sector, remain poorly understood.

    Four participation banks are currently operational in Turkey: al Baraka, Bank Asya, Kuveyt Türk, and Türkiye Finans. Like mainstream financial institutions, these banks offer a wide range of services, including savings and checking accounts, house and automobile financing, and even Islamic bonds, or “sukuk”, offered through Kuveyt Turk.

    But for each of these services, an alternative mechanism has been developed to make profits without violating Islamic law regarding transactions and trade.

    For example, customers with savings accounts at participation banks do not receive monthly interest payments at a certain rate. The banks use funds to supply goods and services directly according to a profit/loss investment model.

    Savings funds are invested in tangible goods, real estate, or industry, and at the end of the month profit and loss is shared with the customer. A profit margin is not guaranteed, and no investment is made in companies dealing with pork, alcohol, or other banned commodities, according to the Participation Bank Association of Turkey.

    Whereas car financing at a conventional bank entails a loan repaid with interest, Kuveyt Türk buys automobiles on behalf of customers, then sells them in installments at a higher price. Instead of charging interest, they see the transaction as buying and selling at a profit.

    Currently, about 5% of deposits, assets and loans in Turkey are held by participation banks, but the Participation Bank Association of Turkey foresees massive growth.

    The assistant to the association’s General-Secretary Osman Nihat Yılmaz told SETimes that he predicts participation banks’ market share to double in size, reaching ten percent in the next ten years.

    According to Yilmaz, participation banks in Turkey faced the current financial crisis “from a sound position”.

    “The banking sector in Turkey is more resilient compared to Western banks,” he says, because of precautions made after the banking crisis of 2001. Moreover, he said participation banks in particular do not “get interest risk because we don’t deal in interest transactions”.

    Turkish participation banks now control a very small share of the total assets held in Islamic banks worldwide, approximately ninety percent of which are held in Iran, the Persian Gulf, and Malaysia, according to The Banker.

    Yilmaz says that Islamic banking is aimed primarily at conservative people in Turkey, which he describes as consisting of twenty percent of the Turkish population, adding that “it may rise to 40 or 50”. But he admits that participation banks need to persuade target segments as well other people about the banks’ services

    When asked whether or not instability in the Middle East created an opportunity for Turkish banks to increase their market share, Yilmaz told SETimes, “we worry for our neighbours” and don’t want to profit at their expense.

    But someday “we want Istanbul to become the centre” of banking in the Middle East, he added.

    This content was commissioned for SETimes.com.

    via Islamic banking offers a different model (SETimes.com).