Touching the borders of Asia and Europe, Turkey is a splendid country full of God’s blessings that include it’s amazing geographical location. Its shoreline is a bridge between Europe, Asia and Africa, considering multiple factors, including its important role within the region and its geographical conditions. It is not wrong to say the prospects of Turkey becoming the Islamic banking and finance hub is very high due to different financial, economic and other regional issues in emerging Islamic finance centres.
Turkish banking and financial industry has notable influence in regional financial markets. Kyrgyzstan, Tajikistan, Azerbaijan, Uzbekistan, and other central Asian countries are endorsing Turkish banking and financial system while in Balkan, Albania, Bosnia, Kosovo, and the rest of Balkan countries are also influence by Turkish banking and financial industry. Turkey, being an EU member candidate state, holds a prominent position in Europe.
More than four million Turkish natives reside in Germany that consists of 4 per cent of the total population of Germany, a European country with the largest Muslim population. The statistics could cause the Turkish Islamic banking and finance image to grow in Europe. If we see the banking relations of Turkey with Arab countries, they are exemplary. There are various branches of the banking groups of Bahrain, Qatar and Kuwait in Turkey. Many UAE and KSA-based Islamic financial institutions already have good footprints in Turkey with good investment in diversified sectors, especially in real estate. Such figures and geographical facts convinced us that Turkey would be the hub of Islamic banking and finance in the near future.
There is no denying the fact that Turkey is a late starter in Islamic banking and finance in comparison with Malaysia and other Arab countries. Although Islamic banking was introduced in the country by 1980, it became popular in 2005 after getting endorsed by the government and political leadership of Turkey. The demand for Islamic banking and financial services in the country is increasing day by day, and demand-driven Islamic financial services and products are increasing at rapid pace.
There are five Islamic banks working in the country, including AlBarakah, Kuvweyt Turk Bank, Turkiye Finans, Vakif Katilim and Zirat Katilim. Meanwhile, a couple of insurance companies have also Takaful window operation and there is limited evidence of Islamic microfinance as well in the country, but the need for Islamic microfinance is emerging day by day due immense pressure of refugee’s in the economy.
It is noteworthy that Islamic banks operate as (participatory banking) in Turkey. There are about 1,400 Islamic banks’ branches working in Turkey, where more than 20,000 people are employed. It is anticipated that the Islamic banking and financial sector of Turkey would reach up to $100b by 2020. It is worth noting that there is a dire need for trained and skilled work force. Many national and international universities and colleges have introduced Islamic banking and finance programme at graduate, post-graduate and PhD level, and Islamic Finance Education trend is rapidly growing. The prominent factor of rapid increase in the trend of Islamic banking and finance is the establishment of Istanbul International Financial Centre.
The move will surely attract foreign investments in the country. After black-listing of Dubai International Financial Centre and Bahrain Financial Tax-free Zone by the EU and due to 5 per cent VAT application in UAE, it is predicted that capital and its ideal destination would be Turkey. It will be a big boost for Turkish Islamic Banking and Finance Industry to attract the foreign direct investment.
All these factors could raise the possibility of Turkey becoming the Islamic financial hub. Other financial products are also prominently raising it’s a value in Turkey including Islamic banking products; Takaful, Sukuk and other relevant are worth noticing. World Bank has established Global Islamic Finance Center in Istanbul which has gained the prominent importance in Turkey.
However, there are challenges to Turkey becoming the Islamic banking hub, including lack of a fully-fledged Islamic regulatory frame work, limited Islamic banking products, and absence of Shariah governance structures.
Mr Mughal is the chief executive officer of AlHuda Centre of Islamic Banking and Economics. [email protected]