How Turkey Can Become Leader in Islamic Finance
The president of Turkey Recep Teyyip Erdogan has recently expressed his desire to make Turkey the international centre of Islamic economics and finance. While there have been developments in recent years to promote Islamic banking and finance in Turkey in recent years in the form of increasing the number of participation banks as well as Takaful companies, Turkey still needs to do more to become the global leader of Islamic finance.
Here are some of the important measures that could be taken towards journey to lead the international Islamic finance industry.
Like political and economic goals set by the Turkish government, specific goals for Islamic finance industry also need to be set. Turkey is currently running on parallel banking system; both the conventional and participation banks are operating in the country. The goals should be set to increase the market share of participation banks in country which could be done by either issuing license to new banks or creating conducive environment to convert the existing conventional banks into participation banks. The experiment of conversion of conventional banks into participation/Islamic bans has been successfully done in many jurisdictions. This is not only the easy process compared to establishing the new bank from the scratch but also helps existing customers to meet their financial needs in Shari`a compliant way and reduces the efforts and time spent in switching their existing relationship from conventional banks to Islamic banks.
Strengthening the Shari`a Compliance
The entire Islamic finance industry stands on the single word; “Shari`a compliant”. The minute deficit of trust in this one word can bring the biggest challenge to an Islamic finance entity. Therefore, the Shari`a compliance of the business operations of an entity that claims to be an Islamic entity is the utmost need. There have been structures and transaction in Islamic finance world which were criticized by the majority of Shari`a scholars. However, Turkey may develop and promulgate a regime of such Shari`a compliant structures and products which are the closest to the socio-economic objectives of Shari`a and can become an example for other Islamic finance jurisdictions in the world as well.
The financial world in the developed countries is considering ESG issues more than before. The concept of corporate governance is now changing. The objective and aim of a corporation is shifting from “value creation and profit maximization for shareholders” towards “value creation for all the stakeholders”. Similar is the case with moral values and code of ethics and profession conduct which are being promoted in financial and investment world. Turkish policy makers may also want to lead the Islamic finance in this field and introduce and launch such instruments and products which take into consideration ESGs.