Delays surrounding legislation that would enable Turkey to enter the interest-free bond market underscore the wariness of many Turks toward Muslim banking practices.
Turkey's deeply entrenched secular tradition exerts heavy influence over economic decision-making. Turkish trade, for example, is firmly oriented toward the West, with around 70 percent of exports going to European Union countries. A considerable segment of Turkey's political-military elite tend to see investment from their Muslim neighbors as a potential threat to Turkey's secular system.
With the global market in interest-free bonds booming, leaders of the moderate Islamist governing Justice and Development Party wanted to win passage of an Islamic bond bill before the end of the legislative year. In order to avoid interest payments, the bill would offer investors a cut of the cash flow of projects financed by the bonds. However, the future of the bill is in doubt, as parliament is in recess until September.
The caution over Islamic bonds may be depriving Turkey considerable foreign investment. Governments and corporate interests in the Muslim world, especially in the Gulf region, now find themselves with lots of cash on hand given the high price of oil and gas, and they are looking for sound investment opportunities. "Turkey has always been an important market for Gulf investors," says Adnan Yousef, CEO of Albaraka, a Bahrain-based bank. "But in the past only the big players invested. Now everybody is interested."
Hence, say proponents, the importance of Islamic bonds, which offer potential investors of all sizes the chance of immediate gains.
Passing bond legislation is "common sense, nothing more," says one senior Turkish banker. "Turkey may continue to make easy money off Europe, but more diversity means more profit."
Today, Islamic banking accounts for barely 3 percent of the activity of the country's financial sector, compared to over 10 percent in Malaysia and 22 percent in Kuwait. Analysts say Turkish religious pragmatism has a lot to do with the disparity, as well as two decades of economic instability, which have slowed efforts at innovation.
But ideology has also played a role. Bankers point out that interest-free banks were only fully accepted into the banking community last year. "We used to pay taxes three times higher than normal banks", says Unal Kabaca, head of interest-free Bank Asya.
Even today, interest-free banks in Turkey often go by the deliberately neutral name of participation banks to sidestep restrictions on the public use of Islam in Turkey. "In the past, we were called
Nicolas Birch specializes in Turkey, Iran and the Middle East.