Istanbul Finance Centre And Interest-Free Banking

The participation banking entered Turkey’s agenda nearly thirty years ago. Twenty years of this period consisted of baby steps. However, a rapid branching and growth trend started after participation banks’ deposits were covered by the SDIF and subjected to the Banking Law. Although this growth is not at the desired level yet, it continues to proceed day by day.

ISLAMIC FINANCE SEEKS NEW CENTRES

Exceeding $2 trillion worldwide, Islamic Finance seeks new centres in line with its current acceleration. For this purpose, in order to make Istanbul an international financial centre, the Istanbul International Financial Centre Strategy and Action Plan were prepared in 2009. One of the seven components of the action plan was to develop the participation banking and interest-free finance system. The task was given to the Banking Regulation and Supervision Agency (BRSA). Istanbul Financial Centre is based on revealing the current status and future vision of the participation banking in international finance and also providing mutual support of the two areas. While the Turkish economy is growing rapidly and the demand for Islamic finance is increasing day by day, the participation banking in Turkey has had a fluctuating journey. Can participation banking have this breakthrough with Istanbul Finance Centre? If Istanbul becomes a financial centre, how would it contribute to participation banking? Let us find an answer to these questions together.

WHAT SHOULD BE DONE TO MAKE ISTANBUL A FINANCIAL CENTRE?

Istanbul entered the Global Financial Centres Index for the first time in 2009 at the 72nd place. And then ranked up the 56th place in 2012 and the 42nd in 2014. Later, it dropped to 68th place due to various reasons, but in March 2019, it ranked up to 59th place again. In order for Istanbul to continue its claim to become a financial centre, it has to increase its place further and rank the 20-30th in the short term and 15-20th place in the medium term. Such a ranking will contribute significantly to the goal of becoming an international financial centre. What we need to consider in this regard:

1. Improving the business environment,
2. Having sufficient and effective human capital,
3. Having a proper infrastructure; especially in communication, transportation, and environmental planning,
4. Diversifying and developing the financial services sector,
5. Increasing the city’s reputation and image.

On the other hand, many steps have been taken consecutively to make Istanbul a financial centre. The Banking Law was renewed in 2005, interest-free financial institutions were made subject to this Law and took the name of participation banks. Again, the headquarters of institutions such as banks, insurance, stock exchange, and capital markets moved to Istanbul. The Code of Obligations, Capital Markets Law, and regulations were updated and brought into line with international standards. Istanbul Stock Exchange, Futures Exchange, and Gold Exchange were merged under Borsa Istanbul (BIST). Istanbul Arbitration Centre became operational. The Finance Office of the Presidency of Turkey was assigned to be the financial centre of Istanbul. In the 11th Development Plan for the years 2019-2023, a separate title was opened for Islamic finance, and the idea of making Istanbul an attractive global financial centre was confirmed. After all these steps, approximately 40 per cent of the construction of IFC was completed and important steps have been taken in the legal infrastructure. But more work is needed for the system to work.

FUTURE PREDICTIONS BIDE WELL FOR PARTICIPATION BANKS

In our opinion, within the scope of the 2023 vision, both the service quality, product variety, and numbers of participation banking will be much better than today. When the banking sector and macroeconomic indicators for the last eighteen years are analysed, future projections show that the volume of participation banks will double, branching will increase, and the share in the total banking sector will be between 10 to 12 per cent. In the current period, the deposit and loan growth of participation banks (excluding the years 2014-2016) is between 1.5 to 2 times that of the banking sector. If participation banks continue to grow in this way, they will continue to get a share from the banking sector. Of course, it will take some time to reach the objectives. However, they should not be seen as too difficult or impossible. Maintaining stability, good management of financial institutions’ customer satisfaction and personnel policies, analysing the markets, launching new products, and developing the customer portfolio will make it easier to reach the objectives. Unfortunately, having a volume of $2 trillion in the world, Islamic finance has no centre. And Istanbul has the potential to bridge the gap.

Istanbul University Faculty of Political Sciences - Prof. Dr. Adem Esen,

Kuveyt Turk Participation Bank - Mustafa Velioğlu