Participation banking and utilization tools of Islamic finance and economics will provide a solid, sustainable and structural alternative to the existing financial system laden with crises, President Recep Tayyip Erdoğan said Sunday.
He added that Istanbul’s newly built financial center will also make it a leader in the sector, given its geostrategic advantage. He was speaking at the 12th International Conference on Islamic Economics and Finance via videoconference.
This year’s conference was organized by Istanbul Sabahattin Zaim University and the Islamic Development Bank‘s Islamic Research and Education Institute (IRTI) between June 14 and June 20.
Erdoğan said the current global financing system needs restructuring. It was supposed to contribute to the increase in welfare along with contributing sustainable economic activity after the 2008 global financial crisis, but the outcome was the other way around, he said, noting that those kinds of crises extended into entire economies and the real sector, “creating huge armies of unemployed people.”
Turkey, in the last 18 years has taken very important steps to integrate alternative models based on participation, especially with the recent initiatives by state lenders with their participating financial institutions.
According to a report by Fitch Ratings published in March, growth in Turkish participation banking has surpassed the growth of conventional banks in recent years, despite the increasing market volatility.
In a statement, the international credit rating agency said that although “Turkish Islamic banks’ (participation banks) share of sector assets remains small and concentrated” it is growing and the “segment growth has consistently outpaced that of conventional banks in recent years despite heightened market volatility reflective of the entrance of three state-owned banks since 2014 and the segment’s generally above-average risk appetite.”
The participation banks’ share of sector assets was 6.3% at end-2019 compared with the government’s target of 15% for 2025 while it was less than 2% during the early 2000s.
“Taking all these into account, Islamic finance is our exit out of this system,” Erdoğan said, stressing the importance of interest-free, participatory and thus an alternative financial system.
Erdoğan also emphasized the importance of ever-advancing technology and the new fintech practices that are becoming widespread.
Also speaking at the conference, Treasury and Finance Minister Berat Albayrak said Turkey considers sustainable development very important for the real economy and that the recent developments showed “we should be going forward in terms of participating financial institutions, which are crucial for Turkey and the interest-free alternative system.”
Islamic banking assets in Turkey are set to double within 10 years as government initiatives drive growth in the sector, a report published by Moody’s Investors Service in January said. The Turkish government founded three new state-owned Islamic banks between 2015 to 2019, broadening access and increasing competition.
In February last year, the country’s Banking Regulation and Supervision Agency (BDDK) granted a banking license to Türkiye Emlak Katılım Bankası (EmlakBank), bringing the number of Islamic banks – known as participation banks locally – to six in the country.
The other five Islamic banks are state-controlled Ziraat Bankası and VakifBank, which received licenses to conduct Islamic banking in 2015 and 2016, respectively, along with Albaraka Türk, Kuveyt Türk, majority-owned by Kuwait Finance House, and Turkiye Finans.
However, the minister went on to say that despite all those positive developments those institutions are not realizing their full potential. The banks need to be competitive with other finance instructions in the market, he said.
“In Turkey when we talk about the interest-free system, we always talk about participant financial systems; however, we should also be talking about insurance systems as well,” Albayrak said, stressing the need for legislation and regulations in this regard.
“The interest-free system is crucial in Turkey’s economy,” he said, highlighting their aim to make Turkey an interest-free financial center by benefiting from the Istanbul Finance Center.
Source Daily Sabah