Islamic Finance Report

Islamic Finance Report: Focus on Turkey

2019

Islamic Finance Report: Focus on Turkey 2019 ISBN 978 - 605 - 242 - 528 - 2

Report Team Dr. Yusuf DİNÇ (Editor) Dr. Ruslan NAGAYEV (Senior Researcher) S M Rashed JAHANGIR (Researcher) Aisha AHMED (Contributor)

Published by WPC Matbaacılık San. Tic. A.Ş.

Certificate No: 35428 Osmangazi Mah. Mehmet Deniz Kopuz Cad. No:17 Esenyurt-İstanbul Tel: (0212) 886 83 30

Beta Basım Yayım Dağıtım A.Ş.

Certificate No: 16136 Narlıbahçe Sok. No: 11 Cağaloğlu-İstanbul Tel: (0212) 511 54 32 - 519 01 77 Fax: (0212) 513 87 05 - 511 36 50 www.betayayincilik.com

“O you who have believed, do not consume one another’s wealth unjustly but only [in lawful] business by mutual consent...”

[An-Nisa: 4/29] “O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.”

[Al ‘Imran: 3/130]

A B O U T

TA S A R R U F

A K A D E M I

Tasarruf Akademi is a private academic institution that develops solutions for the Islamic finance sector, particularly for savings-based financing companies in Turkey. It aims to help the sector in building the human capacity by upskilling employees through specific tailored training programs; thus, supporting the Islamic finance professionals’ personal and carrier development. The platform trains, educates, and develops human capital through the synergy it creates. The research and development (R&D) department of Tasarruf Akademi is responsible for facilitating these programs and training as well as planning and implementing new programs for the institution.

The mission of Tasarruf Akademi is to develop ideas, assist in research programs, and provide interest-free and ethical financial solutions in Turkey and globally. It also provides Shari’ah advisory as well as Shari’ah audit services to its partner companies.

For more information www.tasarrufakademi.com

4

about

Tasarruf

Akademi,

please

visit:

Special Issue, 2019

TABLE

OF

CO NTENTS

LIST OF TABLES........................................................................................................................................................... 6 LIST OF FIGURES......................................................................................................................................................... 7 LIST OF ABBREVIATIONS ...................................................................................................................................... 8 EDITOR’S NOTE............................................................................................................................................................ 9

EXPERT’S VIEW......................................................................................................................................................... 10 EXECUTIVE SUMMARY.......................................................................................................................................... 12 1. GLOBAL ISLAMIC FINANCE OVERVIEW............................................................................................... 13

1.1. Participation banking......................................................................................................................... 13

1.3. Participation Insurance (Takaful).............................................................................................. 19

1.2. Islamic Capital Market....................................................................................................................... 18

2. ISLAMIC FINANCE INSIGHT: TURKEY.................................................................................................. 22

2.1. Participation Banking......................................................................................................................... 22

2.3. Participation Insurance (Takaful) ............................................................................................. 30

2.4. Savings-Based Finance (SBF)............................................................................................................ 35

3.1. Legal Framework for Islamic Finance.................................................................................... 41

3.3. Final Remarks........................................................................................................................................ 42

2.2. Islamic Capital Market ..................................................................................................................... 28

2.2.1. Overview of Participation Indices ........................................................................................ 28 2.3.1. Legal Framework....................................................................................................................... 30 2.4.1. Overview of Savings-based Finance................................................................................... 37 3. OIC MEMBER COUNTRY’S ISLAMIC FINANCE INSIGHT: KAZAKHSTAN............................. 40

3.2. Islamic Finance in Practice............................................................................................................ 41

4. CONCLUSION...................................................................................................................................................... 44 REFERENCE................................................................................................................................................................. 45 APPENDIX.................................................................................................................................................................... 46 INDEX............................................................................................................................................................................. 48

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LIST

O F

TA B LES

Table 1: Global Islamic Finance Service Industry by Sector and Region (US$ Billion)......... 14 Table 2: Major Concerns of Participation Banks across Regions (by score)............................. 16 Table 3: Major Risks* of Participation Banks across Regions (by score).................................... 17 Table 4: Total Banking Sector Overview for Turkey............................................................................ 23 Table 5: Banking Sector Performance in Turkey................................................................................... 24 Table 6: Financial Indicators of Participation Banks and Banking Sector ................................ 27 Table 7: Sukuk Issuance in Turkey.............................................................................................................. 28 Table 8: List of Companies in Participation Index 50.......................................................................... 29 Table 9: List of Companies in Participation Index 30.......................................................................... 29 Table 10: Various Law and Code Regarding Participation Insurance in Turkey........................ 30 Table 11: Fully-fledged Participation Insurance Companies and Windows in Turkey........... 32 Table 12: Islamic Finance Development Indicators—2018 (Turkey)............................................. 46

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LIST

OF

FIG UR ES

Figure 1: Global Participation Banking Assets Share (%) (2Q18)................................................... 14 Figure 2: CAGR of Key participation Banking Statistics (2Q16–2Q18)......................................... 14 Figure 3: Overall Sukuk Issuances by Jurisdiction (2018).................................................................. 18 Figure 4: Sovereign Sukuk Issuance by Jurisdiction (2018)............................................................... 18 Figure 5: Corporate Sukūk Issuance by Jurisdiction (2018).............................................................. 18 Figure 6: Sectoral Sukūk Issuances (2018)................................................................................................ 19 Figure 7: Islamic Fund Assets by Domicile (2018)................................................................................. 19 Figure 8: Islamic Fund Assets by Asset Class (2018)............................................................................ 19 Figure 9: Global Participation Insurance Gross Contributions (2011-17)................................... 19 Figure 10: Participation Insurance Contribution by Key Region (2017)......................................... 20 Figure 11: Number of Participation Insurance Companies and Windows Globally .................. 20 Figure 12: Number of Participation Insurance Companies by Region (2018).............................. 20 Figure 13: Total Financing of the Participation Banks in Turkey ...................................................... 24 Figure 14: Total Funds Collected by Participation Banks....................................................................... 24 Figure 15: Total Equity of Turkish Participation Banks.......................................................................... 25 Figure 16: Financial Performance of Participation Banks in Turkey (2019Q1-Q2)................... 26 Figure 17: Number of Branches of Participation Banks in Turkey..................................................... 27 Figure 18: List of Provinces Where the Branches of Participation Banks are absent................ 28 Figure 19: Total Premium of Participation Insurance Sector in Turkey.......................................... 31 Figure 20: Share of Participation Insurance Sector in Total Insurance in Turkey....................... 31 Figure 21: Islamic Finance Development Indicator (Turkey).............................................................. 33 Figure 22: Comparison of Islamic Finance Development Indicators (2013-2018).................... 34 Figure 23: The Volume of Contract Turnover and Delivery................................................................... 37 Figure 24: The Number of Contract Turnover and Delivery................................................................. 38 Figure 25: Financial Performance of the Participation Banking Industry of Kazakhstan........ 43

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LIST AAOIFI ADB AIFC BRSA CAGR CAR CIS CSR GCC GDI ICD IFDI IFMP IFSB IFSI IIFM IILM IOs ISB IsDB KZT MDBs NBK PBAT PSIFIs ROA ROE SBE SMEs TRY UAE US$

OF

ABB R EVIATIO NS

: Accounting and Auditing Organization for Islamic Financial Institutions : Asian Development Bank : Astana International Financial Centre : Banking Regulation and Supervision Agency : Compound Average Growth Rate : Capital Adequacy Ratio : Commonwealth of Independent States : Corporate Social Responsibility : Gulf Cooperation Council : General Directorate of Insurance : Islamic Corporation for the Development of the Private Sector : Islamic Finance Development Indicator : Islamic Finance Masterplan : Islamic Financial Services Board : Islamic Financial Services Industry : International Islamic Financial Market : International Islamic Liquidity Management Corporation : International Organisations : Insurance Supervision Board : Islamic Development Bank : Kazakhstan Tenge : Multilateral Development Banks : National Bank of Kazakhstan : Participation Banks Association Of Turkey : Prudential and Structural Islamic Financial Indicators : Return On Assets : Return On Equity : Savings-Based Finance : Small and Medium Enterprises : Turkish New Lira : United Arab Emirates : United States Dollar

Special Issue, 2019

ED ITO R ’S Turkey, as the 19th largest economy in the world, has become one of the main players in the global Islamic finance industry, having more than 35-years experience. Recently, Turkey has gained weight in the global Islamic finance industry reaching almost 3.5% of the total market share. The country is gaining a reputation due to the compliance-focused approach which is strengthening its position in the Islamic finance arena.

Islamic finance is one of the key pillars of the projected Istanbul International Finance Centre (IIFC). The Presidency offices for economy and finance continuously employ experts to develop policy recommendations for the Islamic finance sector in the country. Moreover, the latest 5-year plan – called the “11th Development Plan” - includes strategies for specific investments and regulatory improvements for Islamic finance, and assigning the important role to the Sovereign Wealth Fund of Turkey for development of domestic Islamic financial market. Soon, Turkey is expected to become a highly valuable actor with strong support from the Government.

In the year 2018, the participation banking sector has pooled significant funds accounting for 7% of the total banking sector’s deposits, while the share in total equities was as low as 4%. The total assets of this segment had reached about 5% in parallel to the growth of financing during the same period. Meanwhile, the participation insurance (Takaful) sector has performed well since the emergence in

NO TE

the first decade of the 21st century, accounting for 5% of the total industry’s share in terms of contributions/premiums. The Islamic capital market of Turkey is mainly driven by the issuance of Sukuk that are originated by the private sector. The performance of Turkey’s participation stock indices was relatively stable despite the volatility in the global financial markets.

Commercial credit that is widely practised in Turkey serves as an alternative source of financing for the private sector. Due to its interest-free nature, it could be considered as compliant with the principles of Islamic finance. The savings-based finance operators play an essential role in retail finance by attracting funds based on the crowdfunding concept and providing the contractual saving plans mainly for vehicle and housing finance.

This special report is prepared for the first international event on the savings-based financing to sow the seeds for an upcoming series of reports with an exclusive focus on the Islamic finance sector of Turkey and globally.

The report entails the detailed information to gain an insight into the facts of the emerging Islamic finance market. On behalf of the team, I thank the contributors and all those who supported us during the preparation of the report.

Dr. Yusuf Dinç Associate Professor Istanbul Sabahattin Zaim University

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Special Issue, 2019

EXPE RT’S Though the Turkish Islamic finance industry has emerged in the late 20th century, it has been evolving sluggishly. Eventually, only 10% of all participation banking products and services could be recognized as truly Shari’ah-compliant. On the other hand, the same 10% of conventional banking transactions unwittingly conform to the principles of participation finance.

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From this observation, unfortunately, I do not see any significant difference between the participation and conventional banking systems as practised nowadays, not only in Turkey but rather globally. Interestingly, most of the customers of participation banks have a shallow understanding of how does the system work or which methodology to be used for screening a product for Shari’ah-compliance. Indeed, they simply accept the system as Islamic.

Presently, the contribution of the participation banking sector is approximately 5% of the total banking system in Turkey. Whether this share is large enough depends on the context. Despite having a large Muslim population, if the public does not endorse participation banking because of Shari’ah issues, we consider it as a positive sign. However, if the public patronizes participation banking aiming to reap profits while neglecting whether the transactions are Shari’ah-compliant, then we can say that there is a problem.

The major challenge of the participation banks is their inability to render the quality financial services, vibrant financial instruments, and attractive promotions which ultimately led

VIEW

them to lose the public trust. I think the participation banks have failed to gain the trust of the public. Another issue is that these banks are mainly foreign-owned who are satisfied with the performance of their subsidiaries in Turkey. They came with their mission and vision to reach a certain performance level which once attained they considered themselves successful. Consequently, the public banks emerged triggering the competition in the industry.

On the other hand, the participation banks are guilty of playing legal tricks, not differentiating a form from the substance, simply presenting themselves as Islamic, while, in practice, they are not.

Another major challenge is the absence of clearly defined rules and regulations from the central authority or government regulating this sector which would affect the structure of institutions and the future of the industry. For instance, if the incumbent government permits any activity in a sector without setting a clear regulatory framework, the next government may abolish the sector due to the absence of adequate rules and regulations.

Moreover, there is a lack of confidence in the management body and top-level executives in this sector, mostly influenced by inadequate educational background and awareness. Their only aim is to maximize the profits or premiums rather than focusing on Shari’ah compliance.

The issues affecting participation banks could be addressed by ensuring that the Islamic fi-

Special Issue, 2019

nance executives have extensive knowledge and understanding as well as an academic background in Islamic finance. Also, the government and institutions (both academic and non-academic) should endeavour to improve Islamic financial literacy and spread awareness among the people.

There are plenty of opportunities for the participation banks for improvement. Considering the huge Muslim population who are potential customers of the sector, the financial institutions should practice and comply to the letter of the Shari’ah, thus, declaring themselves as true participation banks, or participation capital markets, or participation insurance. As a result, the public will likely prioritise them over conventional financial institutions.

Turkey has a rich cultural background of par-

ticipation finance. Hence, the Turkish cultural codes should be taken into account while drafting regulations for participation finance.

The evolving nature of Islamic finance led to the development of a new business concept (also interest-free) which has been materialized in recent years in Turkey, known as the savings-based finance. Truly, it is on the same tray with Islamic finance - no formal legislation binds them; no central regulation from the government has been developed to protect the stakeholders. These institutions should have clearly defined guidelines, laws, rules, and regulations.

Dr. Servet Bayindir Professor Istanbul University

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Special Issue, 2019

EXECU T IVE Islamic finance is a fast-growing industry and an increasingly important and integral part of the global financial system. After its emergence in the 1960s, the industry’s total value of Shariah-compliant assets has reached almost US$2.2 trillion in the year 2018. The participation banking sector is the largest contributor to the global Islamic finance industry (72%), followed by Islamic capital markets (27%), and participation insurance sector (1%).

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Turkey is one of the Islamic finance markets.

Though it is currently at a nascent stage, the country has huge growth potential due to the demography and geographic location. The share of participation banking assets in the total banking sector was 5.35% in the year 2018 amounting to TRY 206,931 million. The total number of branches of participation banks reached 1145 in 2019Q2. Over the last decade, a cumulative TRY 65 billion of Sukuk had been issued. Moreover, by the 2019Q1, the total volume of premiums in life and non-life participation insurance has reached TRY 1 billion (TRY 50 million and TRY 965 million respectively), and the services are rendered by 12 companies (eight are offered by windows). Another important contributor to the participation industry of Turkey is the non-banking financing sector represented by the savings-based financial institutions.

The main products of this sector are housing and vehicle financing. The total estimated turnover and delivery are TRY 13.5 (110,955 contracts) and TRY 4.1 billion (28,618 contracts), respectively, as of 2019Q3.

This report also presents the overview of Kazakhstan as an interesting new market

S UMMA RY for Islamic finance which recently revealed its ambition to become a regional hub for Islamic finance by the year 2025 supported by incredible initiatives of the government of Kazakhstan. With this aim, in the year 2018, the Astana International Financial Center (AIFC) was launched with the mandate to develop Islamic finance as one of the key pillars. The share of Islamic Finance in Kazakhstan is well below 1% of the country’s financial system. As of 2019Q3, the value of total banking assets in Kazakhstan reached KZT 25.25 trillion (US$ 65.5 billion), whereas the share of participation banks is 0.23% of total financial assets. So, the mandate of AIFC is to increase its share to 3% by the year 2025.

• Global Islamic Finance Industry is valued at US$ 2.2 Trillion.

• Turkey is one of the key Islamic finance markets. Though it is currently at a nascent stage, the country has a huge growth potential due to its demography and geographic location.

• Kazakhstan has recently revealed its ambition to become a regional hub for Islamic finance by the year 2025. Though the current share of Islamic financial assets is well below 1% of the country’s financial system, Kazakhstan aims to increase it up to 3% in the following five years.

Special Issue, 2019

1. GLOBAL ISLAMIC FINANCE OVERVIEW Islamic finance has established its significant position in the hemisphere of world economics and finance through launching various innovative and unique financial instruments and business models such as Sukuk and participation insurance (Takaful).

Verily, this position was attained after the emergence of the global financial crisis, which had shaken the world’s financial markets and traumatised the investors during the period 2007-08. However, during the financial turbulence, the Islamic finance industry not only survived but was relatively stable and flexible (Kayed & Hassan, 2011). Thus, it offered to the world an alternative model for the sustainable financial system. Since then, the industry has been promoted and amplified all over the world—both in Muslim and nonMuslim countries.

The key components of the Islamic finance industry are participation banking, capital markets, and participation insurance. As of 2018, Gulf Cooperation Council (GCC) region possesses the highest market share (42.3%) and acts as a vanguard of global Islamic financial services industry, followed

by Asia, Middle East and North Africa (MENA) (excluding GCC), and Africa (excluding North). Reportedly, despite possessing the 2nd position, the Asian region leads in Islamic capital markets – Sukuk outstanding (US$ 323.2 billion) and Islamic funds’ assets (US$ 24.2 billion) which show better diversification of the region (Table 1). It is noticeable that the Islamic finance sector is heavily concentrated on the banking sector and Sukuk outstanding (almost half of the banking assets), followed

by Islamic funds’ assets and Takaful contributions.

1.1. Participation banking Currently, Participation banking is recognized as a fast-growing industry and an increasingly important part of the global financial system.

Since its emergence half-century ago, the industry’s total assets have reached almost US$1.57 trillion (Table 1). Many countries around the globe have accepted and adopted special legislation allowing participation banks and financial institutions to operate in parallel to conventional finance.

Figure 1 in the following page reports that more than 85% of global participation banking assets are concentrated in seven countries: Iran (32%), Saudi Arabia (20%), Malaysia (11%), UAE (10%), Kuwait (6%), Qatar (6%).

• Participation banking sector is the largest contributor to the global Islamic finance industry (72%), followed by the Islamic capital markets (27%), and participation insurance sector (1%).

• The value of participation banking assets has reached US$ 1.57 Trillion.

• About 85% of global participation banking assets are concentrated in seven countries: Iran (32%), Saudi Arabia (20%), Malaysia (11%), UAE (10%), Kuwait (6%), Qatar (6%) and Turkey (2.6%).

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Special Issue, 2019 Table 1: Global Islamic Finance Service Industry by Sector and Region (US$ Billion)*

’‡…‹ƒŽ ••—‡ǥ ʹͲͳ͝

Islamic Banking Sukuk Takaful ’‡…‹ƒŽ ••—‡ǥ ʹͲͳ͝ Share Funds Total Outstanding Contributions (%) Table 1: Global Islamic FinanceAssets Service Industry

by Sector andAssets Region (US$ Billion)* Region

•Žƒ�‹…

—�—� by Sector and Region (US$ Takaful Table 1: Global Islamic Finance Service Industry GCC 704.80 187.90 22.70 Billion)* 11.70 ‡‰‹‘� ƒ��‹�‰ ••‡–• —�†• ‡‰‹‘�

Asia

ƒ��‹�‰ ••‡–• 266.10

͚Ͳ͜ǤͺͲ

MENA (exc-GCC) 540.20 ͚Ͳ͜ǤͺͲ •‹ƒ

ʹ͸͸ǤͳͲ •‹ƒ (exc-North) ͜͡ͲǤʹͲ ʹ͸͸ǤͳͲ Africa 13.20 ȋ‡š…nj ČŒ ȋ‡š…nj ČŒ

ˆ”‹…ƒ ȋ‡š…nj Â‘Â”Â–ÂŠČŒ

ͳ;ǤʹͲ

‘–ƒŽ ‘–ƒŽ

ͳǥ͚͡ͳǤ;Ͳ ͳǥ͚͡ͳǤ;Ͳ

Others ˆ”‹…ƒ ȋ‡š…nj Â‘Â”Â–ÂŠČŒ

–Š‡”•

–Š‡”• Total

47.10 ͳ;ǤʹͲ

͚͜ǤͳͲ

͚͜ǤͳͲ

‘Â?–”‹„—–‹‘Â?• ••‡–• Takaful —Â?†• Šƒ”‡ Č‹Î¨ČŒ 28.2% 24.20 ‘Â?–”‹„—–‹‘Â?• 4.10 ‘–ƒŽ 617.6 ʹʹǤ͚Ͳ ͳͳǤ͚Ͳ ͝ʹ͚Ǥͳ ͜ʹǤ;Ψ ••‡–•

323.20

—–•–ƒ�†‹�‰

ͳͺ͚Ǥ͝Ͳ

0.30

0.10 ͳͳǤ͚Ͳ

ͳͺ͚Ǥ͝Ͳ ;ʹ;ǤʹͲ

ʹʹǤ͚Ͳ ʹ͜ǤʹͲ

;ʹ;ǤʹͲ 2.50 ͲǤ;Ͳ

͜͡ͲǤʹͲ

ͲǤ;Ͳ

1,571.30

ʹǤ͡Ͳ ʹǤ͡Ͳ

927.1 Šƒ”‡ Č‹Î¨ČŒ 42.3% ‘–ƒŽ

•Žƒ�‹…

—–•–ƒ�†‹�‰ —�—�

͜ǤͳͲ

ʹ͜ǤʹͲ 1.50 ͜ǤͳͲ ͳͲǤ;Ͳ ͲǤͳͲ ͲǤͳͲ

ͳǤ͡Ͳ

16.50

ͳǤ͡Ͳ

ͳ͸Ǥ͡Ͳ ͳ͸Ǥ͡Ͳ

ͳ;ǤͳͲ

530.40

ͲǤͲͳ

13.10ͲǤͲͳ

ͳ;ǤͳͲ

͡;ͲǤ͜Ͳ ͡;ͲǤ͜Ͳ

ͳͲǤ;Ͳ

61.50Ͳ

͸ͳǤ͡Ͳ

Ͳ

ʹ͚Ǥ͚Ͳ

10.30 ͝ʹ͚Ǥͳ 550.9 ͜ʹǤ;Ψ 0.01 0

25.1%

͸ͳ͚Ǥ͸

ʹͺǤʹΨ

ͳ͚ǤʹͲ

ͲǤͺΨ

ʹǥͳ͝Ͳ

ͳͲͲΨ

͸ͳ͚Ǥ͸ ͡͡ͲǤ͝ ʹͺǤʹΨ ʹ͡ǤͳΨ 17.20 0.8% ͡͡ͲǤ͝ ʹ͡ǤͳΨ ͳ͚ǤʹͲ

76.70 ͲǤͺΨ

͚͸Ǥ͚Ͳ

;Ǥ͡Ψ 27.70 ͚͸Ǥ͚Ͳ 2,190

3.5%

;Ǥ͡Ψ

100%

͸ͳǤ͡Ͳ ʹ͚Ǥ͚Ͳ ʹǥͳ͝Ͳ ͳͲͲΨ * Data for Sukuk outstanding and Islamic funds are for full-year 2018; for participation banking, are as at June 2018; and for Takaful * Data *for Sukuk outstanding and Islamic funds are for full-year 2018; for participation banking, are as at June 2018; and Sukuk outstanding and Islamic funds are for full-year 2018; for participation banking, are as at June 2018; and areData as atfor end-2017. for Takaful are asare atasend-2017.

Source: Islamic Services Industry Stability Report for Takaful at end-2017.

Source: IslamicFinancial Financial Services Industry Stability Report 2019 2019 Source: Islamic Financial Services Industry Stability Report 2019

CAGR of Key Key participation Figure 1: Global Participation Banking Figure CAGR ofparticipation Key participation Figure 1: Global Participation Banking Assets Share* (%) Figure Figure2:2:2: CAGR of Banking Statistics Figure 1: Global Participation Banking Banking Statistics (2Q16–2Q18) Assets Share* (%) (2Q18) (2Q16–2Q18) Banking Statistics (2Q16–2Q18) (2Q18) Assets Share* (%) (2Q18)

14

ƒ�‹•–ƒ� ƒŠ”ƒ‹�

Â?†‘Â?‡•‹ƒ ͲǤ͚ͲΨ ƒÂ?‹•–ƒÂ? ͳǤ;ͲΨ ƒŠ”ƒ‹Â? ͳǤ͝ͲΨ

Â?†‘Â?‡•‹ƒ ͲǤ͚ͲΨ ‘”†ƒÂ? ͳǤ;ͲΨ ͳǤ͝ͲΨ ͲǤ͚ͲΨ ƒÂ?‰Žƒ†‡•Š —†ƒÂ? ‘”†ƒÂ? ͲǤ͚ͲΨ —†ƒÂ? ͳǤ͝ͲΨ ͲǤ͚ͲΨ ƒÂ?‰Žƒ†‡•Š

ͲǤ͚ͲΨ ͳǤ͝ͲΨ —”�‡› ʹǤ͸ͲΨ

—”Â?‡› ƒ–ƒ” ʹǤ͸ͲΨ ͸ǤʹͲΨ ƒ–ƒ” ͸ǤʹͲΨ —™ƒ‹– —™ƒ‹– ͸Ǥ;ͲΨ

ͳʹǤͲͲΨ

ͳͲǤͲͲΨ

ͳͲǤͲͲΨ

ͺǤͲͲΨ

ͺǤͲͲΨ ͸ǤͲͲΨ

–Š‡”• ͳǤ͚ͲΨ

͸ǤͲͲΨ ͜ǤͲͲΨ ʹǤͲͲΨ ͜ǤͲͲΨ

”ƒÂ? ;ʹǤͳͲΨ

͸Ǥ;ͲΨ

͝ǤͺͲΨ

͝ǤͺͲΨ

ͳʹǤͲͲΨ

Â?ƒÂ? ͲǤ͚ͲΨ Â?ƒÂ? ”—Â?‡‹ ͲǤ͚ͲΨ ‰›’– ͲǤ͡ͲΨ ”—Â?‡‹ ͲǤ͸ͲΨ ‰›’– ͲǤ͡ͲΨ –Š‡”• ͲǤ͸ͲΨ ͳǤ͚ͲΨ

ƒŽƒ›•‹ƒ ͳͲǤͺͲΨ

”ƒÂ? ;ʹǤͳͲΨ

ƒ—†‹ ”ƒ„‹ƒ ʹͲǤʹͲΨ

ƒ—†‹ ”ƒ„‹ƒ ʹͲǤʹͲΨ

ͲǤͲͲΨ ʹǤͲͲΨ

ͲǤͲͲΨ

ώϏϭϲ

••‡–• ”‘™–Š

ĎŽĎŹĎ­Ďł

ĎŽĎŹĎ­Ď´

‹Â?ƒÂ?…‹Â?‰ ”‘™–Š ‡’‘•‹–• ”‘™–Š ώϏϭϲ ĎŽĎŹĎ­Ďł ĎŽĎŹĎ­Ď´

Source: PSIFIs, IFSB Secretariat Workings ••‡–• ”‘™–Š ‹�ƒ�…‹�‰ ”‘™–Š

‡’‘•‹–• ”‘™–Š

‡ƒÂ?™Š‹Ž‡ǥ –Š‡ IFSB Œ—”‹•†‹…–‹‘Â?• ”‡’‘”–‡† Source: PSIFIs, Secretariatƒ”‡ Workings –‘ Source: PSIFIs, IFSB Secretariat Workings Šƒ˜‡ •’‡…‹ˆ‹… …‘Â?…‡”Â?•Ǥ • •Š‘™Â? ‹Â? Table 2ÇĄ –Š‡

”‡‰‹‘Â? –Š‡ Šƒ† Œ—”‹•†‹…–‹‘Â?• ƒÂ? ƒ˜‡”ƒ‰‡ •…‘”‡ –Š‡ ‡ƒÂ?™Š‹Ž‡ǥ ƒ”‡ ‘ˆ ”‡’‘”–‡† –‘ Â?ƒŒ‘” …‘Â?…‡”Â? ‘ˆ ͜Ǥͳͳ͡ – ‹††Ž‡ ƒ•– Č‹ š…nj Šƒ˜‡ •’‡…‹ˆ‹… …‘Â?…‡”Â?•Ǥ • •Š‘™Â? ‹Â? Table 2ÇĄ ͜Ǥͳ͚ǥ —”‘’‡ ȋ‹Â?…Ž—†‹Â?‰ —”Â?Â‡Â›ČŒ ͜Ǥ͡;ǥ Source: Islamic Services Industry Stability Š‡

Financial ‘ˆ participation ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?‹Â?‰ ÂƒÂ•Â•Â‡Â–Â•ÇĄ 7.2% between and 2018Q2.

The CAGR of banking assets, ČŒ –Š‡

”‡‰‹‘Â? 2013Q4 Šƒ† ƒÂ? ƒ˜‡”ƒ‰‡ •…‘”‡ Earlier ‘ˆ –Š‡ ‘—–Š‡ƒ•– •‹ƒ ͜Ǥʹ;ǥ ‘”–Š ˆ”‹…ƒ ͜Ǥ͜͸ǥ —„nj Reportˆ‹Â?ƒÂ?…‹Â?‰ǥ (IFSIR) 2019 †‡’‘•‹–• Šƒ˜‡ ‡š’‡”‹‡Â?…‡† ƒ ƒÂ?† in 2016Q2, the CAGR was reported 9.9%, Â?ƒŒ‘” ˆ”‹…ƒ …‘Â?…‡”Â? ‘ˆ ƒÂ?† ͜Ǥͳͳ͡ – ‹††Ž‡ financing, and deposits have experienced ƒŠƒ”ƒÂ? ͜Ǥʹʹǥ ‡•–ǥ ‡Â?–”ƒŽ ƒ•– ƒÂ?† Č‹ š…nj Â?‘†‡”ƒ–‡ „—– †‘™Â?™ƒ”† •Ž‘’‡ ‘˜‡” –Š‡ and one year later -ȋ‹Â?…Ž—†‹Â?‰ 8.8% (Figure 2). All͜Ǥ͡;ǥ are

ČŒ ͜Ǥͳ͚ǥ —”‘’‡ —”Â?Â‡Â›ČŒ moderate but downward slope over Š‡ a

‘ˆ ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?‹Â?‰ ’‡”‹‘† ˆ”‘Â? ʹͲͳ͸ Í´ –‘ ʹͲͳͺ ʹǤ Š‡ ÂƒÂ•Â•Â‡Â–Â•ÇĄ •‡…–‘” the ‘—–Š •‹ƒ ͜ǤͲǤ Š‡ ‹Â?†‹…ƒ–‘”• •—‰‰‡•– –Šƒ– –Š‡ detailing the increased though at a ‘—–Š‡ƒ•– •‹ƒ ͜Ǥʹ;ǥ ‘”–Š ˆ”‹…ƒ ͜Ǥ͜͸ǥ —„nj …‘Â?Â?‘Â? …ŠƒŽŽ‡Â?‰‡• ‘ˆ movement Â?ƒÂ?› …‘—Â?–”‹‡• ˆ‹Â?ƒÂ?…‹Â?‰ǥ ƒÂ?† Šƒ˜‡ ‡š’‡”‹‡Â?…‡† ƒ Â?‘•– period from†‡’‘•‹–• 2016Q2 to 2018Q2.

The sector ™ƒ• ƒˆˆ‡…–‡† „› …—””‡Â?…› †‡–‡”‹‘”ƒ–‹‘Â? ƒ”‡ –Š‡ Â?ƒ…”‘‡…‘Â?‘Â?‹… ‡Â?˜‹”‘Â?Â?‡Â?–ǥ

ÇĄ low pace. ˆ”‹…ƒ ͜Ǥʹʹǥ ƒÂ?† ‡•–ǥ ‡Â?–”ƒŽ ƒÂ?† ƒŠƒ”ƒÂ? ’ƒ––‡”Â?• ƒÂ?† ˆ‹Â?ƒÂ?…‹ƒŽ ˜—ŽÂ?‡”ƒ„‹Ž‹–‹‡• ‹Â? Â?ƒÂ?› Â?‘†‡”ƒ–‡ „—– †‘™Â?™ƒ”† •Ž‘’‡ deterioration ‘˜‡” –Š‡ was affected by currency Â?ƒ”Â?‡– …‘Â?†‹–‹‘Â?•ǥ „—•‹Â?॥ ‘’‡”ƒ–‹‘Â?•ǥ ƒÂ?† ‘—–Š •‹ƒ ͜ǤͲǤ Š‡ ‹Â?†‹…ƒ–‘”• •—‰‰‡•– –Šƒ– –Š‡ ‹Â?’‘”–ƒÂ?– ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?‹Â?‰ Œ—”‹•†‹…–‹‘Â?•ǥ ’‡”‹‘† ˆ”‘Â? and ʹͲͳ͸ Í´ –‘ ʹͲͳͺ ʹǤ Š‡ •‡…–‘” patterns financial vulnerabilities in many Shari’ah framework (Table 2ČŒÇ¤ ‘ˆ Â?ƒÂ?› Meanwhile, the…ŠƒŽŽ‡Â?‰‡• jurisdictions are reported to ™Š‹…Š ”‡•—Ž–‡† ‹Â? ƒÂ? ‡š’ƒÂ?•‹‘Â? ‘ˆ „› Â?‘•– …‘Â?Â?‘Â? …‘—Â?–”‹‡• ƒŽƒ›•‹ƒ Source:ͳͲǤͺͲΨ Islamic Financial Services Industry Stability Source: Islamic Financial Services Industry Stability Report Report(IFSIR) (IFSIR)2019 2019

™ƒ• ƒˆˆ‡…–‡† „› …—””‡Â?…› †‡–‡”‹‘”ƒ–‹‘Â? important participation banking jurisdictions, ͚ǤʹΨ „‡–™‡‡Â? ʹͲͳ; Íś ƒÂ?† ʹͲͳͺ ʹǤ ƒ”Ž‹‡” ‹Â? ’ƒ––‡”Â?• ƒÂ?† ˆ‹Â?ƒÂ?…‹ƒŽ ˜—ŽÂ?‡”ƒ„‹Ž‹–‹‡• ‹Â? Â?ƒÂ?› ʹͲͳ͸ Í´ÇĄ –Š‡

™ƒ• ”‡’‘”–‡† ͝Ǥ͝Ψǥ ƒÂ?† by which resulted in an expansion of CAGR ‹Â?’‘”–ƒÂ?– ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?‹Â?‰ Œ—”‹•†‹…–‹‘Â?•ǥ ‘Â?‡ ›‡ƒ” Žƒ–‡” ÇŚ ͺǤͺΨ Č‹Figure 2ČŒÇ¤ ÂŽÂŽ ƒ”‡ ™Š‹…Š ”‡•—Ž–‡† ‹Â? ƒÂ? ‡š’ƒÂ?•‹‘Â? ‘ˆ „› †‡–ƒ‹Ž‹Â?‰ –Š‡ ‹Â?…”‡ƒ•‡† Â?‘˜‡Â?‡Â?– –Š‘—‰Š ƒ– ƒ ͚ǤʹΨ „‡–™‡‡Â? ʹͲͳ; Íś ƒÂ?† ʹͲͳͺ ʹǤ ƒ”Ž‹‡” ‹Â? Ž‘™ ’ƒ…‡Ǥ ʹͲͳ͸ Í´ÇĄ –Š‡ ™ƒ• ”‡’‘”–‡† ͝Ǥ͝Ψǥ ƒÂ?† 13 | ƒ ‰ ‡ ‘Â?‡ ›‡ƒ” Žƒ–‡” ÇŚ ͺǤͺΨ Č‹Figure 2ČŒÇ¤ ÂŽÂŽ ƒ”‡ †‡–ƒ‹Ž‹Â?‰ –Š‡ ‹Â?…”‡ƒ•‡† Â?‘˜‡Â?‡Â?– –Š‘—‰Š ƒ– ƒ

Ž‘™ ’ƒ…‡Ǥ

have–Š‡ specific concerns. As ‡Â?˜‹”‘Â?Â?‡Â?–ǥ shown in Table ÇĄ 2, ƒ”‡ Â?ƒ…”‘‡…‘Â?‘Â?‹… the GCC…‘Â?†‹–‹‘Â?•ǥ region had„—•‹Â?॥ an average score of ƒÂ?† the Â?ƒ”Â?‡– ‘’‡”ƒ–‹‘Â?•ǥ Shari’ah framework (Table 2ČŒÇ¤

Special Issue, 2019

major concern of 4.115 – Middle East (ExcGCC) 4.17, Europe (including Turkey) 4.53, Southeast Asia 4.23, North Africa 4.46, SubSaharan Africa 4.22, and West, Central and South Asia 4.0. The indicators suggest that the most common challenges of many countries are the macroeconomic environment, IT, market conditions, business operations, and Shari’ah framework (Table 2).

On the other hand, the report on the major risk facing participation banks across regions appears that the midpoints scores are 3.18 for the GCC, Middle East (exc-GCC) 3.49, Europe (including Turkey) 3.5, Southeast Asia 3.04, North Africa 3.96, Sub-Saharan

Africa 3.44, and West, Central and South Asia 3.3. The global average of the major risks of participation banks is reported as 3.35 (Table 3). The region with minimal risk is Southeast Asia, while North Africa faces the maximum risk.

In terms of the number of the risks, West, Central and South Asia region has the highest number of risk indicators (seven); whereas, GCC, Middle East (exc-GCC), North Africa, and Sub-Saharan Africa have the lowest number of risk indicators (only three) The prevailing risks faced by most of the jurisdictions are credit risk, liquidity risk, foreign exchange risk, cybersecurity risk, and technology risk.

15

• An expansion of CAGR by 7.2% between 2013Q4 and 2018Q2.

• The most common challenges of many countries are the macroeconomic environment, IT, market conditions, business operations, and Shari’ah framework.

• The region with minimal risk is Southeast Asia, while North Africa faces the maximum risk.

• The prevailing risks faced by most of the jurisdictions are credit risk, liquidity risk, foreign exchange risk, cybersecurity risk, and technology risk.

Special Issue, 2019 Table 2: Major Concerns* of Participation Banks across Regions (by score) Group

Region

Group 0

Global

Group 1

Group 2

Group 3

16

Group 4 Group 5

GCC Middle East (exc-GCC) South-East Asia West, Central, and South Asia North Africa

Group 6

SubSaharan Africa

Group 7

Europe

Concerns

Score

Information technology

4.11

Shareholders’ value and expectations

Consumer attraction, relation and retention Macro-economic environment

Shareholders’ value and expectations Macro-economic environment

Product offering and innovation Business growth and expansion Political uncertainty Service quality

Risk management

Shareholders’ value and expectations Capital adequacy Service quality

Corporate governance

Human resources and talent development

Consumer attraction, relation and retention Islamic financial market infrastructure

Human resources and talent development Shareholders’ value and expectations Macro-economic environment

Consumer attraction, relation and retention Service quality

Consumer attraction, relation and retention Information technology

Shari’ah standards, compliance, and governance framework Shari’ah standards, compliance, and governance framework Information technology

Compliance (Anti-Money Laundering, Counter-Terrorist Financing, etc.)

4.17 4.13 4.11 4.35 4.19 3.96 3.96 4.21 4.15 4.15 4.40 4.20 4.20 4.20 4.20 4.20 4.00 4.00 4.00 4.50 4.46 4.43 4.38 4.14 4.13 4.60 4.60 4.40

* For every group, the top three concerns of GCC region are identified, including all concerns with the same score, even if that means that more than three are listed in total. Note- 1: Extremely not Important; 2: Not Important; 3: Fairly Important; 4: Very Important; 5: Extremely Important Source: Global Islamic Bankers’ Survey 2019

Special Issue, 2019 Table 3: Major Risks* of Participation Banks across Regions (by score) Group

Region

Group 0

Global

Group 1

GCC

Group 2

Middle East (exc-GCC)

Group 3

Group 4

Group 5 Group 6

Group 7

South-East Asia

West, Central, and South Asia

North Africa

SubSaharan Africa

Europe

Risks

Score

Liquidity risk

3.38

Cyber security risk

Foreign exchange risk Technology risk Credit risk

Technology risk

Cyber security risk Cyber security risk Technology risk Credit risk

Liquidity risk Credit risk

Rate of return risk Technology risk

Cyber security risk

Foreign exchange risk Credit risk

Transactions, process, business disruption and delivery risk Legal risk

Strategic risk

Reputational risk

Money laundering and financing of terrorism risk Liquidity risk

Foreign exchange risk De-risking risk Credit risk

Collateral risk

Liquidity risk Credit risk

Technology risk Collateral risk

Foreign exchange risk Liquidity risk

Cyber security risk

3.41 3.31 3.31 3.19 3.19 3.15 3.63 3.53 3.32 3.20 3.00 3.00 3.00 3.00 3.70 3.40 3.20 3.20 3,20 3.20 3.20 4.11 3.96 3.82 3.57 3.38 3.38 3.80 3.60 3.40 3.40 3.40 3.40

* For every group, the three risks of GCC region are identified, including all risks with the same score, even if that means that more than three are listed in total. Note-1: No Risk at All; 2: Low Risk; 3: Medium Risk; 4: High Risk; 5: Extreme Risk Source: Global Islamic Bankers’ Survey 2019

17

1.2. Islamic Capital Market ʹͲͳͺ ǡ

͹ͲΨ

Figure 4Ǣ ǡ ̈́ ͻ͵ ǡ ȋFigure 5Ȍ ͵ʹǤͺʹΨ

ͳǤ͹Ψ

ʹͲͳͺǡ

ǡ Special Issue, 2019 ȋʹͲͳ͹)̶Ǥ

Ǧ 31.94%. Next, Indonesia’s share Ǥ ͳ͵Ǥ͵ͺΨǡ ͹ǤͷΨ Figure 3: Overall Ṣukuk Issuances 4: Sovereign* Ṣukuk Issuance by Jurisdiction

ǡ by Figure 1.2.

Islamic Capital Market Figure 4: Sovereign* Ṣukuk Issuance by Jurisdiction* (2018) ͷ ǡ Ǧ ͶǤ͵ͺΨǤ (2018) ȋ Ȍ ̈́ In 2018, the global capital markets were Jurisdiction (2018) ͷͻʹ ʹ͹Ψ mainly disrupted by a slow pace in economic

ǡ

ͲǤʹ͸Ψ

ȋ

Ȍ growth as well as geopolitical issues.

Despite

ͷǤ͵ͳΨ

ʹǤ͹Ψ ͳǤʹΨ

ͶͲǤͶΨ

ͲǤͷͳΨ ͲǤ͵ͺΨ ͲǤͲ͵Ψ

the presence of these challenges, the Islamic ȋ ǡ ʹͲͳͻȌǤ

͵Ǥ͹Ψ

ͲǤͳͷΨ ǡ

Ǧ ͵͸ǤͷΨǡ

ͳǤͷΨ reached capital market (ICM) has steadily

ǡ ͵Ǥ͵͸Ψ

ͲǤͲ͵Ψ Ǧ ͺǤͷΨǡ Ǧ ͸ǤͶΨǡ

US$ 592 billion for 27% of ̶ which accounted

ͺǤ͵Ψ ͶǤ͵ͺΨ

global Islamic Financial Services Industry Ǧ ͵ǤͳΨǤ ǡ ͵ͷǤʹΨ ʹͲͳͺ (IFSI) assets (IFSB, 2019). According to the ͹ͲΨ

̈́ ͻ͵ ǡ ͹ǤͶͷΨ

Islamic Financial Services Industry Stability ȋFigure 5Ȍ ͵ʹǤͺʹΨ ͳͳǤʹΨ

ͳǤ͹Ψ global

Report, “amidst the more challenging

ȋʹͲͳ͹)̶Ǥ conditions, new Sukuk issuances in 2018 ͳ͵Ǥ͵ͺΨ

reached US$ 93 billion, demonstrating the

growth 1.7% from the previous year (2017)”.

Figure Overall Ṣukuk Issuances by ͳ͵ǤͳΨof3: Issuance by

Figure 4: Sovereign* Ṣukuk Jurisdiction* (2018)

Jurisdiction (2018) ͵ͳǤͻͶΨ Figure 3: Overall Sukuk Issuances byʹ͵ǤͳΨ Jurisdiction* (2018)

ʹǤ͹Ψ ͳǤʹΨ Note: Based on obligor’s domicile. ȗExcluding multilateral

development ͵Ǥ͹Ψ banks (MDBs) and international ͳǤͷΨ organisations (IOs). Source: IFSIR, 2019

ͺǤ͵Ψ

18

all government-related entities (GREs), MDBs and IOs. * Includes

ͲǤʹ͸Ψ ͷǤ͵ͳΨ

Note: MDBs and IOs for 2018 include ṣukūk issuances by the ͲǤͷͳΨ ͲǤ͵ͺΨ ͲǤͲ͵Ψ

Islamic Development Bank (IsDB), and the Islamic Corporation *Includes all government-related entities (GREs), MDBs for IOs. the Development the IOs Private Sector (ICD), the and Note: MDBsofand for ͲǤͳͷΨ 2018 include ṣukūk

and ͵Ǥ͵͸Ψ International Islamic Liquidity Management Malaysia-based issuances (IsDB), and by the Islamic Development BankͲǤͲ͵Ψ Corporation the Islamic (IILM).

Corporation for the Development of the ͶǤ͵ͺΨ Source: Financial Servicesand Industry Report 2019 PrivateIslamic Sector (ICD), theStability Malaysia-based

International Islamic Liquidity Management Corporation Saudi Arabia - 31.94%. Next, Indonesia’s share

͹ǤͶͷΨ (IILM).

Source: Islamic Financial Services Industry is 13.38%, followed by Turkey 7.5% being ͵ʹǤͺʹΨ the

Figure 3 ͵ͷǤʹΨ

ͳ͸ ʹͲͳͺǤ

ͳͳǤʹΨ Stability Report 2019 ͵ͷǤʹΨ 5th

largest issuer, and Oman - 4.38%. ͳ͵Ǥ͵ͺΨ ǡ

As for corporate Sukuk issuance, Malaysia Ǧ ʹ͵ǤͳΨǡ Ǧ ͳ͵ǤͳΨǡ Ǧ ͳ͵ǤͳΨ

is the biggest issuer with 40.4% of total

ͳͳǤʹΨǤ

issuances, followed by the UAE 36.5%, ͵ͳǤͻͶΨ Ǧ ͺǤ͵ΨǤ ʹ͵ǤͳΨ Turkey - 8.5%, Saudi Arabia - 6.4%, and Qatar Ǥ

Note: Based on obligor’s domicile.

- 3.1%. Malaysia and the UAE together clearly on obligor’s domicile. ȗExcluding multilateral 17Note: | Based multilateral own over 70% issuances of corporate Sukuk * Excluding banks international (MDBs) and *Includes all government-related entities (GREs), MDBs development banks development (MDBs) and international organisations (IOs). and IOs. organisations (IOs). Source: IFSIR, 2019 (Figure 5) Note: MDBs and IOs for 2018 include ṣukūk

Source: IFSIR, 2019

Figure 3 3 shows the total number of Sukuk

issued in

16 ͳ͸ jurisdictions globally in 2018. ʹͲͳͺǤ Malaysia is a leading economy in terms of

Sukuk issuance accounting for 35.2% of total ͵ͷǤʹΨ global Sukuk issuance, followed by Saudi ǡ Arabia - 23.1%, UAE - 13.1%, and Indonesia Ǧ ʹ͵ǤͳΨǡ Ǧ ͳ͵ǤͳΨǡ Ǧ - 11.2%. Turkey holds the fifth position in the ͳͳǤʹΨǤ

ranking - 8.3%.

These issuances include both Ǧ ͺǤ͵ΨǤ sovereign and corporate Sukuk. Ǥ The sovereign Sukuk issued by jurisdictions are |represented in Figure 4; again, Malaysia 17

leads the row with 32.82% of global sovereign Sukuk issuance, which is closely taken after by

issuances by the Islamic Development Bank (IsDB), and the Islamic Corporation Ṣukūk for the Issuance Development Figure 5: Corporate by of the Figure 5: Corporate Issuance (2018) Private Sector Ṣukūk (ICD), and by Jurisdiction the Malaysia-based Jurisdiction (2018) International Islamic Liquidity Management Corporation

(IILM).

Source: Islamic Financial Services Industry ͵ǤͳΨ ͳǤͺΨ ͳǤʹΨ ͲǤͷΨ Stability Report 2019

͸ǤͶΨ

ͳǤ͵Ψ

ͺǤͷΨ

ͲǤ͵Ψ

ͶͲǤͶΨ

ͷǤͳ͵Ψǡ

Figure 7 Domicile

͵͸ǤͷΨ

Source: IFSIR, 2019

Source: IFSIR, 2019

Figure 6

ʹǤʹͻ

ͶǤͶͲΨ

‹••—ƒÂ?…‡•ǥ ˆ‘ŽŽ‘™‡† „› –Š‡ ˆ‹Â?ƒÂ?…‹ƒŽ• ÇŚ ʹ͜Ǥͳ͚Ψǥ —–‹Ž‹–‹‡• ÇŚ ͸Ǥͳ͝Ψǥ ‹Â?†—•–”‹‡• ÇŚ ͡Ǥ;͚Ψǥ ƒÂ?† –Š‡ ”‡ƒŽ ‡•–ƒ–‡ ÇŚ ;Ǥ͚͚ΨǤ Figure 6: Sectoral SukĹŤk Issuances Figure 6: Sectoral SukĹŤk Issuances (2018) (2018)

‘Â?Â?—Â?‹…ƒ–‹‘Â?• Â?‡”‰› ƒ–‡”‹ƒŽ• ‡…ŠÂ?‘Ž‘‰› ͳǤ;ʹΨ ‘Â?•—Â?‡” ͲǤ͜͡Ψ ͳǤͺ͚Ψ ͲǤͲ͸Ψ ‹•…”‡–‹‘Â?ƒ”› ‡ƒŽ–Š…ƒ”‡ ‡ƒŽ •–ƒ–‡ ͳǤʹ͜Ψ ͲǤ͡ͲΨ ;Ǥ͚͚Ψ ‘Â?•—Â?‡”

Â?†—•–”‹‡• –ƒ’Ž‡• ͡Ǥ;͚Ψ ͲǤͲͳΨ –‹Ž‹–‹‡• ͸Ǥͳ͝Ψ

‘˜‡”Â?Â?‡Â?– ͜͡Ǥ͝͸Ψ

‹Â?ƒÂ?…‹ƒŽ• ʹ͜Ǥͳ͚Ψ Source: IFSIR, 2019

ƒŽƒ›•‹ƒ ͜ͲǤ͜Ψ

„—–‹‘Â? ‘ˆ – ‹• –Š‡ ˆ –Š‡ –‘–ƒŽ ÇŚ ʹ͜Ǥͳ͚Ψǥ ÇĄ ƒÂ?† –Š‡

ces

‡…ŠÂ?‘Ž‘‰› ͲǤͲ͸Ψ …ƒ”‡ Ψ ‘Â?•—Â?‡” –ƒ’Ž‡•

Islamic Fund Assets by Asset ƒ—†‹ ”ƒ„‹ƒ(2018) Figure Islamic Fund Assets by Asset Class Class 8: (2018)

ƒÂ?† ʹͲͳ͚ ȋ•‡‡ •‡‡Â? ƒ– ƒÂ? ‹Â?Â… ;͜ǤͲͲΨ ʹͲͳ͜ –‘ ʹͲͳ͡ ‡ƒŽ –Š‡” ource: Bloomberg funds primary share), IFSB ‹– ‹• ”‡’‘”–‡† •–ƒ–‡ ‹š‡† (Islamic Č‹ Ž–‡”Â?ÂƒÂ–Â‹Â˜Â‡ÇĄ ͲǤ͝͡Ψ ŽŽ‘…ƒ–‹‘Â? ʹͲͳ͸ –‘ ʹͲͳ͚ ƒ Â’Â‡Â…Â‹ÂƒÂŽÂ–Â›ČŒ ‹š‡† ͚Ǥ;ͲΨ

ͲǤͲ͜Ψ

Š‡ Â?…‘Â?‡Ȁ Â?ƒŒ‘”‹–› ‘ˆ ˆ—Â?†• ƒ”‡ Â‡Â“Â—Â‹Â–Â›ÇŚÂˆÂ‘Â…Â—Â•Â‡Â† ÇŚ

—Â?—Â? “—‹–› ͜ʹǤ͜ͲΨǥ ™Š‡”‡ƒ• Â?‘Â?‡› Â?ƒ”Â?Â‡Â–ÇŚÂ„ÂƒÂ•Â‡Â† funds’ ͝Ǥ͜͝Ψ ͜ʹǤ͜ͲΨ •Šƒ”‡ ‹• ʹ͡Ǥʹ͝Ψǥ ˆ‘ŽŽ‘™‡† „› …‘Â?Â?‘†‹–‹‡• Figure ÇŚ 10: P ‘Â?Â?‘†‹–› ÍłÍśÇ¤ÍˇÍ´Î¨ÂˆÂ‹ÂšÂ‡Â† ‹Â?…‘Â?‡Ȁ —Â?—Â? ÇŚ ͝Ǥ͜͝Ψ Â?‹š‡† ͳ͜Ǥ͡ʹΨǥ Contribution Figure 8: Islamic Fund Assets by Asset ƒÂ?† ʹͲͳ͚ ȋ• ƒŽŽ‘…ƒ–‹‘Â? ÇŚ ͚Ǥ;ͲΨǥ ”‡ƒŽ ‡•–ƒ–‡ – ͲǤ͝͡Ψ ĥ ™‡ŽŽ Class (2018) ‘—– ƒ– ƒÂ? ‹ ĥ ™‹–Š ‘–Š‡”• – ͲǤͲ͜Ψ Č‹Figure 8ČŒÇ¤ Š‡ ˆ‹‰—”‡ •‡‡Â? Ͳ ‘—–Š ƒ•– ʹͲͳ͜ –‘ ʹͲͳ Â•Â‹ÂƒÇŚ ‹Â?†‹…ƒ–‡• –Šƒ– ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• ƒ”‡ Â?ƒ‹Â?Ž› ‡ƒŽ ‘Â?‡› ƒ…‹ˆ‹… –Š‡” ‹– ‹• ”‡’‘”–‡ •–ƒ–‡ ‹š‡† ;Ǥ͝ ‹Â?˜‡•–‹Â?‰ ƒ”Â?‡– ‹Â? Â‡Â“Â—Â‹Â–Â›ÇŚÂˆÂ‘Â…Â—Â•Â‡Â† ƒÂ?† Â?‘Â?‡› Č‹ Ž–‡”Â?ÂƒÂ–Â‹Â˜Â‡ÇĄ ͲǤ͝͡Ψ ʹ͡Ǥʹ͝Ψ ŽŽ‘…ƒ–‹‘Â? ʹͲͳ͸ –‘ ʹͲͳ Â’Â‡Â…Â‹ÂƒÂŽÂ–Â›ČŒ Â?ƒ”Â?Â‡Â–ÇŚÂ„ÂƒÂ•Â‡Â† ˆ—Â?†•Ǥ ‹š‡† ͚Ǥ;ͲΨ ͲǤͲ͜Ψ Source: Bloomberg, IFSB

�…‘�‡Ȁ

Bloomberg,funds IFSB “—‹–› This —Â?—Â? shows Source: that Islamic are scattered Figure 6 shows the sectoral distribution of ͝Ǥ͜͝Ψ ͜ʹǤ͜ͲΨ across various countries. However, Malaysia Source: IFSIR, 2019 Figure Sukuk issuances. The government is the 1.3. ‘—Â?–”‹‡• 10: Participation and ‘Â?Â?‘†‹–› Saudi Arabia are the highlyInsurance concentrated Č‹ š…Ž—†‹Â?‰ ͳ͜Ǥ͡ʹΨ ’‡…‹ƒŽ ••—‡ǥ ʹͲͳ͝ Contributio

largest issuer of Sukuk with 54.9% of the total jurisdictions

ČŒ hosting over 65% of the funds (Takaful) ͳͲǤ; Š‡ ’‡”ˆ‘”Â?ƒÂ?…‡ ‘ˆ ƒÂ?‘–Š‡” •—„•‡…–‘” ‘ˆ –Š‡ issuances, followed by the financials - 24.17%, (Figure 7). ‘

•ŽƒÂ?‹… …ƒ’‹–ƒŽ Â?ƒ”Â?‡– ÇŚ –Š‡ •ŽƒÂ?‹… ˆ—Â?†• ÇŚ ™ƒ• utilities - 6.19%, industries - 5.37%, and the

‘—–Š ƒ•– ƒŽƒ›•‹ƒ ÇŚ ;ͲǤͺͺΨ Č‹Figure 7ČŒÇ¤ Š‡› ƒ”‡ The majority of funds are equity-focused Figure 9: Global Participation Â•Â‹ÂƒÇŚ Â?‹š‡† ‹Â? –Š‡ ›‡ƒ” ʹͲͳͺǤ Š‡ –™‘ Â?ƒŒ‘” real estate - 3.77%. ˆ‘ŽŽ‘™‡† „›

”‡ŽƒÂ?† ÇŚ ͺǤͺͺΨǥ —š‡Â?„‘—”‰ ÇŚ 42.40%, ‘Â?‡› Insurance Gross Contributions (2011 - funds’ ƒ…‹ˆ‹… whereas money market-based ƒ”Â?‡– …‘—Â?–”‹‡• ™‹–Š –Š‡ Â?‹–‡† Š‹‰Š‡•– †‘Â?‹…‹Ž‹ƒ–‹‘Â? ‘ˆ 17) is 25.29%, ͡Ǥͳ;Ψǥ ƒÂ?† –Š‡ –ƒ–‡• ÇŚ ͡ǤͲͳΨǤ The performance of another subsector of Š‹• the share followed by commodities - ‹‰—”‡ ;Ǥ͝ ͳͲ ‹ŽŽ— ʹ͡Ǥʹ͝Ψ

•ŽƒÂ?‹… ˆ—Â?†• ƒ”‡ ƒ—†‹ ”ƒ„‹ƒ ÇŚ ;͡ǤͳʹΨ ƒÂ?† ;Ͳ fixed income/Sukuk - 9.49% mixed Š‹‰Š‡•– Islamic capital market - the Islamic funds - 14.52%, •Š‘™• –Šƒ– •ŽƒÂ?‹… ˆ—Â?†• ƒ”‡ •…ƒ––‡”‡† ƒ…”‘•• 19 …‘Â? was mixed…‘—Â?–”‹‡•Ǥ in the year 2018. The two major ˜ƒ”‹‘—• Â‘Â™Â‡Â˜Â‡Â”ÇĄ ƒŽƒ›•‹ƒ ƒÂ?† allocation - 7.30%, real estate – 0.95% as‹Â?•—”ƒÂ?…‡ •‡…– 18countries | ƒ ‰ ‡ with the highest domiciliation well asʹ͡ withSource: Bloomberg, IFSB(Figure 8). The„› –Š‡ ÇŚ others – 0.04% ƒ—†‹ ”ƒ„‹ƒ ƒ”‡ –Š‡ Š‹‰ŠŽ› …‘Â?…‡Â?–”ƒ–‡† of Islamic funds are Saudi Arabia - 35.12% figure indicates that participation banks are ƒ…‹ˆ‹… – Í„ Íľ

Œ—”‹•†‹…–‹‘Â?• Š‘•–‹Â?‰ ‘˜‡” ͸͡Ψ ‘ˆ –Š‡ ˆ—Â?†•Ǥ ʹͲ ‘—Â?–”‹‡• Insurance and Malaysia - 30.88% (Figure 7). They are 1.3. mainly Participation investing in equity-focused and money„‹ŽŽ‹‘Â?ÇĄ ƒÂ?† Č‹ š…Ž—†‹Â?‰ followed by Ireland - 8.88%, Luxembourg market-based funds.

ČŒ „‹ŽŽ‹‘Â?Ǥ (Takaful) ͳ͡ ͳͲǤ; - 5.13%, and the United States - 5.01%. „‹ŽŽ‹‘Â?•

‡–Š‡”ŽƒÂ?†• ͲǤ;Ψ

Special Issue, 2019

”‡ŽƒÂ?† ͺǤͺͺΨ8: Figure

Figure 7: Islamic Fund Assets by Figure 7: Islamic Fund Assets by Domicile (2018) Domicile (2018) ‡”•‡› ‘—–Š ˆ”‹…ƒ ͲǤ͜;Ψ ʹǤʹ͝Ψ ƒÂ?‹•–ƒÂ?

Â?†‘Â?‡•‹ƒ ʹǤʹʹΨ ͜Ǥ͜ͲΨ —™ƒ‹– ʹǤ͝͡Ψ —š‡Â?„‘—”‰ ͡Ǥͳ;Ψ

ƒ›�ƒ�

•ŽƒÂ?†• ͲǤ;ʹΨ

ͲǤ;ͲΨ

–Š‡”• ͳǤ͚ͺΨ

ƒŽƒ›•‹ƒ ;ͲǤͺͺΨ

Â?‹–‡† –ƒ–‡• ͡ǤͲͳΨ

”‡ŽƒÂ?† ͺǤͺͺΨ

ƒ—†‹ ”ƒ„‹ƒ ;͜ǤͲͲΨ

Source: Bloomberg (Islamic funds primary share), IFSB

ource: Bloomberg (Islamic funds primary share), IFSB

ͳͲ 1.3. Participation Insurance (Takaful) Figure 9: Global Participation Figure 9: Global Participation Insurance Gross Insurance Gross Contributions (2011 ͡ Contributions (2011-17)

17) ‹‰—”‡ ͳͲ ‹ ;ͲͲ Š‹‰Š‡•– …‘ ʹͲͳͳ ʹͲͳʹ ʹͲͳ; ʹͲͳ͜ ʹͲͳ͡ ʹͲͳ͸ ʹͲͳ͚ ‹Â?•—”ƒÂ?…‡ •‡ ʹ͡ Note: Dataset from 24 countries. „› –Š‡ Source: IFSIR, 2019 ƒ…‹ˆ‹… – Í„ ʹͲ „‹ŽŽ‹‘Â?ÇĄ ƒÂ?†

„‹ŽŽ‹‘�Ǥ ͳ͡

Š‡ …‘Â?’‘—Â?† ƒÂ?Â?—ƒŽ ‰”‘™–Š ”ƒ–‡ ‘ˆ ͸Ǥ͝Ψ

ͳͲ ™ƒ• Â?‘–‹…‡† ‹Â? –Š‡ ’ƒ”–‹…‹’ƒ–‹‘Â? ‹Â?•—”ƒÂ?…‡ Č‹TakafulČŒ ‹Â?†—•–”› ‹Â? –Š‡ ’‡”‹‘† „‡–™‡‡Â? ʹͲͳʹ

„‹ŽŽ‹‘�•

nce by

Â?‹–‡† –ƒ–‡• ͡ǤͲͳΨ

͡

19 | ƒ ‰ ‡

Ͳ

ʹͲͳͳ ʹͲͳʹ ʹͲͳ; ʹͲͳ͜ ʹͲͳ͡ ʹͲͳ͸ ʹͲͳ͚

Note: Dataset Note: Dataset from from24 24countries. countries.

Source: IFSIR, Source: IFSIR,2019 2019

Š‡ Â?ƒŒ‘”‹–› ‘ˆ ˆ—Â?†• ƒ”‡ Â‡Â“Â—Â‹Â–Â›ÇŚÂˆÂ‘Â…Â—Â•Â‡Â† ÇŚ ͜ʹǤ͜ͲΨǥ ™Š‡”‡ƒ• Â?‘Â?‡› Â?ƒ”Â?Â‡Â–ÇŚÂ„ÂƒÂ•Â‡Â† funds’

ʹͲͳͶ ʹͲͳͷ ͳǤʹ͹Ǥ ʹͲͳͷ ʹͲͳ͸ ͳǤ͸ͻǡ ǡ ʹͲͳ͸ ʹͲͳ͹ ͲǤͻͻǤ Special Issue, 2019

ȋ ǡ Ȍ ͲǤͲͶΨ

ͶʹǤͶͲΨ

Figure 10: Participation Insurance Contribution by Key Region (2017) Figure 10: Participation Insurance Contribution by Key Region (2017)

Ǧ

͵Ǥͻ

ͲǤʹ

ȋ

Ȍ ͳͲǤ͵

Insurance

Source: IFSIR, 2019

(2011 -

20

ͷ ʹͲͳ͸ ʹͲͳ͹

͸ǤͻΨ

ʹͲͳʹ

Ǧ

…

ͳͳǤ͹

Source: IFSIR, 2019

ʹͷΨǡ ͹͸

͵ͷΨǡ ͳͲ͹

- US$ 10.3 billion, Southeast Asia Pacific – US$ 3.9 billion, South Asia – US$ 0.2 billion, and Sub-Saharan Africa – US$ 0.01 billion.

In 2018, the total number of participation ͳͷΨǡ Ͷͷ

insurance operators were 306 (Figure ͳͺΨǡ ͷ͹ 11), out of which General Takaful - 107, Family Takaful - 57, Composite - 45, Windows - 76, Source: Global Takāful Directory 2019 and Re-Takaful - 21

Figure 12 shows the distribution of Takaful

ʹͲͳͺǡ

institutions by the region.

The GCC and South ͵Ͳ͸ ȋ ͳͳȌǡ East Takaful Ǧ ͳͲ͹ǡ Takaful Asia region possess more than 50% of theǦ participation companies in Ǧ 2018.

The ͷ͹ǡ Ǧ Ͷͷǡ ͹͸ǡ Ǧ Southeast Takaful Ǧ ʹͳ

Figure 12: Number of Participation Insurance Companies Figure 12: Number of Participation The compound annual growth rate of 6.9% ͳͲ

by Region (2018) Insurance Companies by Region (2018) was noticed in the participation insurance

(Takaful) industry theͳͳǤ͹ period between 2012

Ǧ in ̈́ ǡ

Ǧ and 2017 (see Figure 9). The growth trend is Ǧ ̈́ ͳͲǤ͵ ǡ

͵Ψ

– ̈́ ͵Ǥͻ ǡ – ̈́ ͲǤʹ seen at an increasing rate with growth from ͳͶΨ ǡ Ǧ 2015 – ̈́ toͲǤͲͳ 2014 to 2015 being 1.27. From 2016

ǡ ʹͲͳͻ

Ǥ ʹ͹Ψ it is reported at 1.69, however, seen from 2016 to 2017 at 0.99.

Figure 11: Number of Participation ͳʹ Takaful

Insurance Companies and Windows Figure 11: Number of Participation Insurance Companies Ǥ Globally and Windows Globally ȋ͵ͲΨȌ

ǡ

Ǧ ʹ͹Ψǡ Ǧ ʹ͸Ψǡ – ͳͶΨǡ

͹Ψǡ ʹͳ

Ǧ – ͵ΨǤ

ʹͷΨǡ ͹͸

͵ͷΨǡ ͳͲ͹

ͳͷΨǡ Ͷͷ

Source: Global Takāful Directory 2019 Source: Global Takāful Directory 2019

ͳͺΨǡ ͷ͹

Figure 10 illustrates that the GCC has the

ʹͲͳͺǡ

highest contribution to participation insurance ͵Ͳ͸ ȋ ͳͳȌǡ sector - US$ 11.7 billion, followed by the MENA

Takaful Ǧ ͳͲ͹ǡ Takaful Ǧ ͷ͹ǡ Ǧ Ͷͷǡ Ǧ ͹͸ǡ Ǧ Takaful Ǧ ʹͳ Figure 12: Number of Participation

͵ͲΨ

Source: Global Takaful Directory 2019.

ʹ͸Ψ

Source: Global Takaful Directory 2019.

Asia has the highest percentage (30%) of participation insurance companies, followed

by GCC 20 |- 27%, MENA - 26%, South Asia – 14%, and Sub-Saharan Africa – 3%.

TURKEY

Special Issue, 2019

2. ISLAMIC FINANCE INSIGHT: TURKEY

22

Turkey is one of the emerging players in the global Islamic finance sector having the 19th largest economy in the world (according to the World Bank). The country’s approach to strengthening its position in the global Islamic financial market is compliancefocused, through both public and private investments. On the other hand, Islamic finance is one of the main components of the Istanbul Finance Centre plan1. The offices of the Presidency for economy and finance are continuously employing experts who develop policy recommendations for the Islamic finance sector. There is also the latest 11th Development Plan which is a 5-year plan for development which includes investments and regulatory improvements with the Sovereign Wealth Fund of Turkey targeting Islamic finance markets, as its major strategies (SBB, 2019). Turkey is expected to be a key player in the global Islamic finance market in the near future with its continued government support for the sector.

2.1. Participation Banking

In Turkey, participation banking is the main player in the Islamic finance sector whose growth performance is influenced by several existing factors such as the supportive regulatory environment, role of the ruling party, rapid growth of financial assets, increasing economic confidence, and the distinctively bright future of Islamic finance (Looney, 2008).

“The project for Istanbul International Finance Center (IIFC) has strategic importance for the Turkish economy. Initial efforts for the IIFC were made in 2011 and the Ministry of Development published a relevant Action Plan in December 2014. The plan consists of seven subcomponents in the scope of the 10th Development Plan.

One of the plan’s essential components is the Islamic Finance Center. Accordingly, the 7th component of the Action Plan is entitled “Participation Banking and Developing an Interest-Free Financial System” and consists of four policies and 31 action stages.

1

Table 4 shows the asset size of the first five participation banks in comparison with other conventional banks. Even though the asset size of Islamic banking was only 5.35% in the year 2018, an upward growth trend is conspicuous in the total asset size of participation banks (Table 5). Besides, some other aspects can also be noticed in the positive growth of the Turkish participation banking sector. For instance, i) currently there are six (6) participation banks in Turkey; ii) whereas the total asset size of participation banks was almost TRY 10 billion in the year 2005 with the market share of only 2.44% of the country’s total banking assets, by the year 2018 it remarkably reached TRY 207 billion (BRSA, n.d.) (Table 5).

• Islamic finance is one of the main components of the Istanbul Finance Centre plan.

• By the year 2018 it remarkably reached TRY 207 billion.

Some of the headings in the action plan are: “Improving existing perception towards an interest-free financial system”, “Improving human resources and literature in the area of interest-free finance”, “Improving the institutional structure and legal substructure of interest-free financial system”, and “Increasing interest-free finance products and service diversities.” It is critical to expeditiously accomplish the Action Plan with such a comprehensive structure.” (Özdemir & Aslan, 2018).

Special Issue, 2019 Table 4: Total Banking Sector Overview for Turkey Assets

Deposits

Credits

Number of Banks

Million TL

Share (%)

Million TL

Share (%)

Million TL

Share (%)

Deposit Banks

33

3,403,305

88.00%

1,899,352

93.29%

2,088,599

87.23%

Development & Investment Banks

13

257,190

6.65%

Nil

Nil

193,352

8.08%

Banks

Participation Banks Total

5*

51

206,931

3,867,425

5.35% 100

136,613

2,035,964

6.71% 100

112,475

2,394,425

4.70% 100

Notes: As of December 2018, the deposits are NIL for Development and Investment Banks due to the Law does not allow them to accept the deposit. * Emlak Participation Bank has started its operations in 2019.

Source: BRSA Monthly Bulletin

In comparison with other peer countries, the capital adequacy ratio (CAR) of the Turkish banking sector stood at 15.78%, which was beyond the legal ratio (8%) and the target ratio (12%) of the BRSA as at December 2018.

Furthermore, the Turkish banking sector demonstrated its healthy condition during the 2008 financial crisis due to the profitability of the banking sector. For instance, the return on equity (ROE) was 18.28% and return on assets (ROA) was around 1.45% in 2018 (Table 5).

Additionally, in regards to the international best standards, the Turkish banking sector enhanced its regulatory and supervisory frameworks synchronising them with its banking sector (BDDK, 2016).

The total asset size of the niche area which comprises of five Turkish participation banks operating is reported to be around TRY207 billion in 2018. The market share of the participation banks is 5.35% of the total asset size of the Turkish Banking System. Turkey’s local and global share in participation banking is expected to increase hand-in-hand with the increase in strategic investments by the Turkish Government and the private sector.

Figure 13 shows that total credits of participation banks have reached TRY112

billion in 2018 which was only around TRY6.5 billion in the year 2005. This impressive growth had taken place due to the participation banks’ penetration of retail financing services, especially in the SME segment (PBAT, 2017).

The figure also evinces the upward trend in the growth of total financing of participation banks.

• The capital adequacy ratio (CAR) of the Turkish banking sector stood at 15.78%.

• Turkish banking sector enhanced its regulatory and supervisory frameworks synchronising them with its banking sector.

• The market share of the participation banks is 5.35% of the total asset size of the Turkish Banking System.

23

ͳ;ǥ͚͝Ψ

ͳ͜ǥ͡͡Ψ

ͳ͜ǥ͝͸Ψ

ͳ͸ǥͳ͚Ψ

ͳ͸ǥ͝ͺΨ

ͳ͡ǥ͚ͺΨ

‡–—”Â? ‘Â? ‡“—‹–› Č‹ ČŒ

ͳ͸ǥ͡͸Ψ

͜ǥʹ͜Ψ

͚ǥͲͳΨ

ͳʹǥ͚͜Ψ

ͳ͸ǥͳ͡Ψ

ͳͺǥʹͺΨ

‹“—‹† ƒ••‡–• ”ƒ–‹‘

͡;ǥͲ͸Ψ

͜ͺǥ͸͝Ψ

͡;ǥͲ;Ψ

͜;ǥͺʹΨ

͡;ǥͺͳΨ

‡–—”Â? ‘Â? ƒ••‡–• Č‹ ČŒ

Special Issue, 2019 ‡– ’”‘ˆ‹– �ƒ”‰‹�

ͳǥ͡͡Ψ

ʹ͜ǥͺ͚Ψ

Table 5: Banking Sector Performance in Turkey Table 5: Banking Sector Performance in Turkey ͝͸ǥͲ͚͜ ‘–ƒŽ ƒ••‡–• Č‹Â?‹ŽŽ‹‘Â? ČŒ

͸ǥ͡͡Ψ

ͳͳǥͲ͸Ψ

͜ͺǥ͝͝Ψ

ͳͲ͜ǥ;ͳ͝ ͳʹͲǥͳͺʹ

ͳǥ͜͡Ψ

ʹͲǥ͚ͺΨ ’‡…‹ƒŽ ••—‡ǥ ʹͲͳ͝ ʹ͡ǥͲͲΨ ʹ;ǥ͡ͳΨ ͳ;ʹǥͺ͚;

ͳ͸Ͳǥͳ;͸

ʹͲ͸ǥͺͲ͸

͡;ǥͲ͸Ψ

Total assets (million TRY)

‘–ƒŽ ƒ••‡–• Č‹Â?‹ŽŽ‹‘Â? ČŒ ͳʹͲǤͲͲ

Total revenues (million TRY)

‘–ƒŽ ”‡˜‡Â?—‡• Č‹Â?‹ŽŽ‹‘Â? ČŒ ͳͲͲǤͲͲ

Earnings before taxes and zakah (million TRY) ƒ”Â?‹Â?‰• „‡ˆ‘”‡ –ƒš‡• ƒÂ?† zakah Č‹Â?‹ŽŽ‹‘Â? ČŒ

Source: IFSB ͺͲǤͲͲ „‹ŽŽ‹‘�

Source: IFSB

53,06% 96,074

͝͸ǥͲ͚͜

7,847

͚ǥͺ͚͜

1,294

ͳǥʹ͜͝

Figure 13: Total Financing of the Participation Banks in ͸ͲǤͲͲ Figure 13: Total Financing of the Turkey ͜ͲǤͲͲ Participation Banks in Turkey ʹͲǤͲͲ ͳʹͲǤͲͲ

ʹͲͲ͡ ʹͲͲ͸ ʹͲͲ͚ ʹͲͲͺ ʹͲͲ͝ ʹͲͳͲ ʹͲͳͳ ʹͲͳʹ ʹͲͳ; ʹͲͳ͜ ʹͲͳ͡ ʹͲͳ͸ ʹͲͳ͚ ʹͲͳͺ

ͲǤͲͲ ͳͲͲǤͲͲ ͸ͲǤͲͲ

††‹–‹‘Â?ÂƒÂŽÂŽÂ›ÇĄ –Š‡ ”‡•—Ž–• ˆ‘” ˆ—Â?† …‘ŽŽ‡…–‹‘Â? ͜ͲǤͲͲ ’‡”ˆ‘”Â?ƒÂ?…‡ „› –Š‡ ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• ƒ”‡ ʹͲǤͲͲ ˆŽ‘—”‹•Š‹Â?‰Ǥ – ‹• •‡‡Â? –Šƒ– –Š‡ ˆ—Â?† …‘ŽŽ‡…–‹‘Â? Â?‘†‡Žǥ ͲǤͲͲ ™Š‹…Š ‹• ‹–• †‹•–‹Â?‰—‹•Š‹Â?‰ „—•‹Â?॥ Â?‘†‡Ž ‹• Â?‘”‡ ƒ……‡’–ƒ„Ž‡ –‘ •‘…‹‡–›Ǥ ƒ”Â?‡– •Šƒ”‡ ‘ˆ …‘ŽŽ‡…–‡† ˆ—Â?†• ‹• ͸Ǥ͡Ψ ˆ‘” –Š‡ ›‡ƒ” Source: BRSA ʹͲͳͺ ȋ•‡‡ Figure 14ČŒÇĄ ™Š‹…Š ”‡ˆ‡”• –‘ ͳ;͚ Source: BRSA „‹ŽŽ‹‘Â? ™Š‹Ž‡ ‹– ™ƒ• ‘Â?Ž› ƒ”‘—Â?† ͺǤ;͚ Additionally, the for ˆ—Â?† fund …‘ŽŽ‡…–‹‘Â? collection „‹ŽŽ‹‘Â? ‹Â? –Š‡ ›‡ƒ” ʹͲͲ͡Ǥ ††‹–‹‘Â?ÂƒÂŽÂŽÂ›ÇĄ –Š‡ results ”‡•—Ž–• ˆ‘” performance by the participation banks are ’‡”ˆ‘”Â?ƒÂ?…‡ „› –Š‡ ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• ƒ”‡ ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• Šƒ˜‡ ͜Ψ Â?ƒ”Â?‡– •Šƒ”‡ ‹Â? flourishing.

It is seen that the fund collection ˆŽ‘—”‹•Š‹Â?‰Ǥ – ‹• •‡‡Â? –Šƒ– –Š‡ ˆ—Â?† …‘ŽŽ‡…–‹‘Â? ‡“—‹–› ™‹–Š –‘–ƒŽ ͳ͸Ǥͺ „‹ŽŽ‹‘Â? ‹Â? –Š‡ model, which its‘ˆ distinguishing business Â?‘†‡Žǥ ™Š‹…Š ƒ is ‹• ‹–• †‹•–‹Â?‰—‹•Š‹Â?‰ „—•‹Â?॥ ›‡ƒ” ʹͲͳͺǥ ™Š‹…Š ™ƒ• Ž‡•• ‘Â?‡ „‹ŽŽ‹‘Â? model is acceptable to–ŠƒÂ? society.

Market Â?‘†‡Ž ‹• more Â?‘”‡ ƒ……‡’–ƒ„Ž‡ –‘ •‘…‹‡–›Ǥ ƒ”Â?‡– —”Â?‹•Š Ž‹”ƒ ‹Â? –Š‡ ›‡ƒ” ʹͲͲ͡Ǥ ‡‰—Žƒ–‘”› share of collected funds is 6.5% for the year •Šƒ”‡ ‘ˆ …‘ŽŽ‡…–‡† ˆ—Â?†• ‹• ͸Ǥ͡Ψ ˆ‘” –Š‡ ›‡ƒ” †‹ˆˆ‡”‡Â?…‡• ˆ‘” 14ČŒÇĄ ™Š‹…Š ”‡ˆ‡”• –‘ ͳ;͚ –Š‡ ‘ˆ to …ƒ’‹–ƒŽ 2018 (see Figure 14),…ƒŽ…—Žƒ–‹‘Â? which refers TRY ʹͲͳͺ ȋ•‡‡ Figure ʹͲͲ͡ ʹͲͲ͸ ʹͲͲ͚ ʹͲͲͺ ʹͲͲ͝ ʹͲͳͲ ʹͲͳͳ ʹͲͳʹ ʹͲͳ; ʹͲͳ͜ ʹͲͳ͡ ʹͲͳ͸ ʹͲͳ͚ ʹͲͳͺ

24

„‹ŽŽ‹‘�

ͺͲǤͲͲ

Source: BRSA

137 billion while it was only around TRYͺǤ;͚ 8.37 „‹ŽŽ‹‘Â? ™Š‹Ž‡ ‹– ™ƒ• ‘Â?Ž› ƒ”‘—Â?†

24 | ƒ ‰ ‡ billion in the year 2005. „‹ŽŽ‹‘Â? ‹Â? –Š‡ ›‡ƒ” ʹͲͲ͡Ǥ

Participation banks have 4% market share in ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• Šƒ˜‡ ͜Ψ Â?ƒ”Â?‡– •Šƒ”‡ ‹Â? equity with a total of TRY 16.8 billion in the year ‡“—‹–› ™‹–Š ƒ –‘–ƒŽ ‘ˆ ͳ͸Ǥͺ „‹ŽŽ‹‘Â? ‹Â? –Š‡ 2018, which was less than one billion Turkish ›‡ƒ” ʹͲͳͺǥ ™Š‹…Š ™ƒ• Ž‡•• –ŠƒÂ? ‘Â?‡ „‹ŽŽ‹‘Â? lira in the year 2005. Regulatory differences —”Â?‹•Š Ž‹”ƒ ‹Â? –Š‡ ›‡ƒ” ʹͲͲ͡Ǥ ‡‰—Žƒ–‘”› for the calculation of capital adequacy ratio †‹ˆˆ‡”‡Â?…‡• ˆ‘” –Š‡ …ƒŽ…—Žƒ–‹‘Â? ‘ˆ …ƒ’‹–ƒŽ provide flexibility to the participation banks 24 | ƒ ‰ ‡

7,01%

͚ǥͲͳΨ

12,47%

ͳʹǥ͚͜Ψ

2017 ͳ;ǥ;͝Ͳ

16,15%

ͳ͸ǥͳ͡Ψ

18,28%

ͳͺǥʹͺΨ

ƒ†‡“—ƒ…› ”ƒ–‹‘ ’”‘˜‹†‡ –Š‡ 6,55% 11,06% 20,78% ˆŽ‡š‹„‹Ž‹–› 25,00% –‘ 23,51% ͸ǥ͡͡Ψ ͳͳǥͲ͸Ψ ʹͲǥ͚ͺΨ ʹ͡ǥͲͲΨ ʹ;ǥ͡ͳΨ ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• –‘ ‰ƒ‹Â? Š‹‰Š‡” Ž‡˜‡”ƒ‰‡ 48,99% 48,69% 53,03% 43,82% 53,81% ͜ͺǥ͝͝Ψ ͜ͺǥ͸͝Ψ ͡;ǥͲ;Ψ ͜;ǥͺʹΨ ͡;ǥͺͳΨ Č‹ ÇĄ Â?Ç¤Â†Ç¤ČŒÇ¤ Â? –Š‹• ”‡•’‡…–ǥ ‹– ‹• ‡˜‹†‡Â?– –Šƒ– 104,319 120,182 132,873 160,136 206,806 ͳͲ͜ǥ;ͳ͝ ͳʹͲǥͳͺʹ ͳ;ʹǥͺ͚; ͳ͸Ͳǥͳ;͸ ʹͲ͸ǥͺͲ͸ –Š‡”‡ ‹• ƒ Â?‡‡† ˆ‘” –Š‡ ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• –‘ 9,311 10,091 10,879 13,390 21,060 ͝ǥ;ͳͳ ͳͲǥͺ͚͝ ͳ;ǥ;͝Ͳ ʹͳǥͲ͸Ͳ „‡ Â?‘”‡ ͳͲǥͲ͝ͳ ƒ‰‰”‡••‹˜‡ ‹Â? –‡”Â?• ‘ˆ †‡˜‡Ž‘’‹Â?‰ 390 697 1,363 1,967 2,727 ‡“—‹–› ƒ†˜ƒÂ?–ƒ‰‡‘—• •–”—…–—”‡ ;͝Ͳ ‹Â? •’‹–‡ ͸͚͝ ‘ˆ ‹–• ͳǥ;͸; ͳǥ͝͸͚ ʹǥ͚ʹ͚ ™‹–Š‹Â? –Š‡ „ƒÂ?Â?‹Â?‰ •›•–‡Â? Č‹Figure 15ČŒÇ¤

Figure 14: Total Funds Collected by Participation Banks Figure 14: Total Funds ˆŽ‡š‹„‹Ž‹–› Collected –‘ by –Š‡ ƒ†‡“—ƒ…› ”ƒ–‹‘ ’”‘˜‹†‡ Participation Banks ’ƒ”–‹…‹’ƒ–‹‘� „ƒ��• –‘ ‰ƒ‹� Š‹‰Š‡” Ž‡˜‡”ƒ‰‡

Č‹ ÇĄ Â?Ç¤Â†Ç¤ČŒÇ¤ Â? –Š‹• ”‡•’‡…–ǥ ‹– ‹• ‡˜‹†‡Â?– –Šƒ– ͳ͸ͲǤͲͲ –Š‡”‡ ‹• ƒ Â?‡‡† ˆ‘” –Š‡ ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• –‘ ͳ͜ͲǤͲͲ „‡ Â?‘”‡ ƒ‰‰”‡••‹˜‡ ‹Â? –‡”Â?• ‘ˆ †‡˜‡Ž‘’‹Â?‰ ‡“—‹–› ͳʹͲǤͲͲ ‹Â? •’‹–‡ ‘ˆ ‹–• ƒ†˜ƒÂ?–ƒ‰‡‘—• •–”—…–—”‡ ™‹–Š‹Â? –Š‡ „ƒÂ?Â?‹Â?‰ •›•–‡Â? Č‹Figure 15ČŒÇ¤ ͳͲͲǤͲͲ ͺͲǤͲͲ

Figure͸ͲǤͲͲ 14: Total Funds Collected by Participation Banks ͜ͲǤͲͲ

ʹͲǤͲͲ ͳ͸ͲǤͲͲ ͲǤͲͲ ͳ͜ͲǤͲͲ ͳʹͲǤͲͲ

ʹͲͲ͡ ʹͲͲ͸ ʹͲͲ͚ ʹͲͲͺ ʹͲͲ͝ ʹͲͳͲ ʹͲͳͳ ʹͲͳʹ ʹͲͳ; ʹͲͳ͜ ʹͲͳ͡ ʹͲͳ͸ ʹͲͳ͚ ʹͲͳͺ

‹“—‹† ƒ••‡–• ”ƒ–‹‘

Liquid assets ratio

24,87%

ʹ͜ǥͺ͚Ψ

4,24%

͜ǥʹ͜Ψ

2016 ͳͲǥͺ͚͝

ͳͲͲǤͲͲ Source: BRSA

Source: ͺͲǤͲͲ BRSA

to Â? –Š‡ Í´Â?† “—ƒ”–‡” ‘ˆ ʹͲͳ͝ǥ –Š‡ ’‡”ˆ‘”Â?ƒÂ?…‡ ‘ˆ gain͸ͲǤͲͲ higher leverage (BRSA, n.d.). In this ͜ͲǤͲͲ –Š‡ ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• —”Â?‡› “—‹–‡ respect, it is evident that‹Â? there is a ‹• need for †‹ˆˆ‡”‡Â?– ˆ”‘Â? –Š‡ ’”‡˜‹‘—• ›‡ƒ”•Ǥ Â?‡ ‘ˆ –Š‡ the participation banks to be more aggressive ʹͲǤͲͲ ”‡ƒ•‘Â?• …‘—Ž† „‡ equity –Š‡ …‘Â?•‹†‡”ƒ–‹‘Â? inÂ?ƒŒ‘” terms of developing in spite of ‘ˆ its ͲǤͲͲ †›Â?ƒÂ?‹… Č‹Â?‘Â?Â–ÂŠÂŽÂ›ČŒ †ƒ–ƒǤ

Â? ʹͲͳ͝ Í´ÇĄ –Š‡ advantageous structure within the banking ’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• ‡šŠ‹„‹–‡† –Š‡ –‡Â?†‡Â?…› ‘ˆ system (Figure 15). ʹͲͲ͡ ʹͲͲ͸ ʹͲͲ͚ ʹͲͲͺ ʹͲͲ͝ ʹͲͳͲ ʹͲͳͳ ʹͲͳʹ ʹͲͳ; ʹͲͳ͜ ʹͲͳ͡ ʹͲͳ͸ ʹͲͳ͚ ʹͲͳͺ

ͳ͸ǥ͡͸Ψ

2015 ͳͲǥͲ͝ͳ

ͳǥ;͸Ψ

„‹ŽŽ‹‘�

16,56%

‡–—”Â? ‘Â? ‡“—‹–› Č‹ ČŒ

Figure 13: Total Financing of the Net profit margin ‡– ’”‘ˆ‹– �ƒ”‰‹� Banks in Turkey Participation

2014 ͝ǥ;ͳͳ

ͳǥͳͲΨ

2018 ʹͳǥͲ͸Ͳ Indicator 2013 2014 2015 2016 2017 2018 CAR 14,55% 14,96% 16,17% ͳǥ͝͸͚ 16,98% ʹǥ͚ʹ͚ 15,78% ƒ”Â?‹Â?‰• „‡ˆ‘”‡ –ƒš‡• ƒÂ?† zakah Č‹Â?‹ŽŽ‹‘Â? ČŒ 13,97% ͳǥʹ͜͝ ;͝Ͳ ͸͚͝ ͳǥ;͸;

ͳ;ǥ͚͝Ψ ͳ͜ǥ͡͡Ψ ͳ͜ǥ͝͸Ψ ͳ͸ǥͳ͚Ψ ͳ͸ǥ͝ͺΨ ͳ͡ǥ͚ͺΨ Return assets (ROA) 1,55% 0,39% 0,61% 1,10% 1,36% 1,45% Source:on IFSB ‡–—”Â? ‘Â? ƒ••‡–• Č‹ ČŒ ͳǥ͡͡Ψ Ͳǥ;͝Ψ Ͳǥ͸ͳΨ ͳǥͳͲΨ ͳǥ;͸Ψ ͳǥ͜͡Ψ Return on equity (ROE)

2013 ͚ǥͺ͚͜

Ͳǥ͸ͳΨ

„‹ŽŽ‹‘�

Indicator ‘–ƒŽ ”‡˜‡Â?—‡• Č‹Â?‹ŽŽ‹‘Â? ČŒ

Ͳǥ;͝Ψ

Source: BRSA ƒ Žƒ…Â?ƒ†ƒ‹•‹…ƒŽ ‰”‘™–Š ‹Â? –‡”Â?• ‘ˆ –‘–ƒŽ ÂƒÂ•Â•Â‡Â–Â•ÇĄ

In the 2nd quarter of 2019, the performance of the participation banks in Turkey is quite

Â? –Š‡ Í´Â?† “—ƒ”–‡” ‘ˆ ʹͲͳ͝ǥ –Š‡ ’‡”ˆ‘”Â?ƒÂ?…‡ ‘ˆ different from the„ƒÂ?Â?• previous years. One of the –Š‡ ’ƒ”–‹…‹’ƒ–‹‘Â? ‹Â? —”Â?‡› ‹• “—‹–‡ major reasons could be the consideration †‹ˆˆ‡”‡Â?– ˆ”‘Â? –Š‡ ’”‡˜‹‘—• ›‡ƒ”•Ǥ Â?‡ ‘ˆ –Š‡ of dynamic (monthly) In 2019Q2, ‘ˆ the Â?ƒŒ‘” ”‡ƒ•‘Â?• …‘—Ž† „‡ data. –Š‡ …‘Â?•‹†‡”ƒ–‹‘Â? participation banks exhibited the tendency †›Â?ƒÂ?‹… Č‹Â?‘Â?Â–ÂŠÂŽÂ›ČŒ †ƒ–ƒǤ Â? ʹͲͳ͝ Í´ÇĄ –Š‡ of a’ƒ”–‹…‹’ƒ–‹‘Â? „ƒÂ?Â?• ‡šŠ‹„‹–‡† –Š‡ –‡Â?†‡Â?…› ‘ˆ lackadaisical growth in terms of total assets, total net income, and total shareholders’ ƒ Žƒ…Â?ƒ†ƒ‹•‹…ƒŽ ‰”‘™–Š ‹Â? –‡”Â?• ‘ˆ –‘–ƒŽ ÂƒÂ•Â•Â‡Â–Â•ÇĄ equity; with a negative growth regarding

ǡ hareholders’ Ǣ

ȋ Figure 16 ȋ Ȍ ȋ ȌȌǤ

Special Issue, 2019

Figure Turkish Banks Figure 15:15: TotalTotal Equity Equity of TurkishofParticipation Participation Banks ͳͺ

ͳ͸ ͳͶ

ͳʹ ͳͲ ͺ ͸ ʹ Ͳ

ʹͲͲͷ ʹͲͲ͸ ʹͲͲ͹ ʹͲͲͺ ʹͲͲͻ ʹͲͳͲ ʹͲͳͳ ʹͲͳʹ ʹͲͳ͵ ʹͲͳͶ ʹͲͳͷ ʹͲͳ͸ ʹͲͳ͹ ʹͲͳͺ

Ͷ

Source: BRSA

Source: BRSA

ǡ participation fund and total credit during the in theperiod volume(see of participation banks’ financial same Figure 16 (c) and (d)). ʹͲͳͺ

However, considering cumulative changes ʹͲͳͻǡ the

in the volume of participation banks’ financial the participation banks’ financial indicators indicators between December and

2018 ȋǦ͵ǤͶΨȌǤ August 2019, positive growth is observed ǡ in the participation banks’ financial

indicators

with the exception of net profit ȋ Table 6Ȍ (-3.4%).

Surprisingly, this growth rate is considerably

Ǥ

higher than the cumulative growth rate of banks

Table

conventional (see 6) which

indicates the prosperity of participation ʹͲͳͻ ͵ –

banks in Turkey. This prosperity becomes

comparatively obvious by observing the ȋ Figure 16 ȋ ȌȌ Ǥ market share of participation banks in 2019Q3 – the value of all the financial indicators

augmented in a gradual manner (see Figure 16 (f)).

25 |

25

Special Issue, 2019

ǡ ʹͲͳͻ

ǡ ʹͲͳͻ

Figure 16: Financial Performance of Participation Banks in Turkey (2019Q1-Q2)

Figure 16: Figure 16: Financial Financial Performance Performance of of Participation Participation Banks Banks in in Turkey Turkey (2019Q1 (2019Q1-Q2) -Q2)

ͲǤͲ͸ ͲǤͲ͸ ͲǤͲͶ ͲǤͲͶ ͲǤͲͶ

ʹ͵ͲͲͲͲ ʹ͵ͲͲͲͲ ʹ͵ͲͲͲͲ ʹʹͲͲͲͲ ʹʹͲͲͲͲ

ͲǤͲʹ ͲǤͲʹ ͲǤͲʹ ͲͲ

ʹͳͲͲͲͲ ʹͳͲͲͲͲ ʹͳͲͲͲͲ ʹͲͲͲͲͲ ʹͲͲͲͲͲ

ǦͲǤͲʹ ǦͲǤͲʹ ǦͲǤͲͶ ǦͲǤͲͶ ǦͲǤͲͶ

ͳͻͲͲͲͲ ͳͻͲͲͲͲ

ʹͲͲͲͲͲ ʹͲͲͲͲͲ ʹͲͲͲͲͲ ͳͺͲͲͲͲ ͳͺͲͲͲͲ ͳ͸ͲͲͲͲ ͳ͸ͲͲͲͲ ͳ͸ͲͲͲͲ ͳͶͲͲͲͲ ͳͶͲͲͲͲ ͳʹͲͲͲͲ ͳʹͲͲͲͲ ͳͲͲͲͲͲ ͳͲͲͲͲͲ ͺͲͲͲͲ ͺͲͲͲͲ ͸ͲͲͲͲ ͸ͲͲͲͲ ͶͲͲͲͲ ͶͲͲͲͲ ͶͲͲͲͲ ʹͲͲͲͲ ʹͲͲͲͲ ͲͲ Ͳ

ͲǤͳ ͲǤͳ ͲǤͳ ͲǤͲͻ ͲǤͲͻ ͲǤͲͻ ͲǤͲͺ ͲǤͲͺ ͲǤͲ͹ ͲǤͲ͹ ͲǤͲ͹ ͲǤͲ͸ ͲǤͲ͸ ͲǤͲ͸ ͲǤͲͷ ͲǤͲͷ ͲǤͲͷ ͲǤͲͶ ͲǤͲͶ ͲǤͲ͵ ͲǤͲ͵ ͲǤͲ͵ ͲǤͲʹ ͲǤͲʹ ͲǤͲʹ ͲǤͲͳ ͲǤͲͳ ͲǤͲͳ ͲͲ ǦͲǤͲͳ ǦͲǤͲͳ ǦͲǤͲͳ

̵ ̵ ̵ ȋ Ȍ ȋ Ȍ ȋ Ȍ

ͲǤͳʹ ͲǤͳʹ ͲǤͳʹ ͲǤͳ ͲǤͳ ͲǤͳ

ͳ͹ǡͲͲͲǤͲͲ ͳ͹ǡͲͲͲǤͲͲ ͳ͹ǡͲͲͲǤͲͲ ͳ͸ǡͲͲͲǤͲͲ ͳ͸ǡͲͲͲǤͲͲ ͳ͸ǡͲͲͲǤͲͲ

ͲǤͲͶ ͲǤͲͶ ͲǤͲͶ ͲǤͲʹ ͲǤͲʹ ͲǤͲʹ

ʹͳǡͲͲͲǤͲͲ ʹͳǡͲͲͲǤͲͲ ʹͳǡͲͲͲǤͲͲ ʹͲǡͲͲͲǤͲͲ ʹͲǡͲͲͲǤͲͲ ʹͲǡͲͲͲǤͲͲ ͳͻǡͲͲͲǤͲͲ ͳͻǡͲͲͲǤͲͲ ͳͺǡͲͲͲǤͲͲ ͳͺǡͲͲͲǤͲͲ

ͲǤͲͺ ͲǤͲͺ ͲǤͲ͸ ͲǤͲ͸

ͳͷǡͲͲͲǤͲͲ ͳͷǡͲͲͲǤͲͲ ͳͷǡͲͲͲǤͲͲ

̵ ̵

ͲͲ

Source: Participation Banks Association Of Turkey (PBAT)

Source: Participation Banks Association Of Turkey (PBAT) Source: Source:Participation ParticipationBanks BanksAssociation AssociationOf OfTurkey Turkey(PBAT) (PBAT)

26 || 26

Ͳ ͲͲ ǦͲǤͷ ǦͲǤͷ ǦͲǤͷ

Ǧͳ Ǧͳ ǦͳǤͷ ǦͳǤͷ ǦͳǤͷ

ͳ͵ͲͲͲͲ ͳ͵ͲͲͲͲ

ȋ Ȍ ȋ Ȍ ȋ Ȍ

ͲǤͲͷ ͲǤͲͷ ͲǤͲͷ ͲǤͲͶ ͲǤͲͶ ͲǤͲͶ

ͳʹͷͲͲͲ ͳʹͷͲͲͲ

ͲǤͲ͵ ͲǤͲ͵ ͲǤͲ͵ ͲǤͲʹ ͲǤͲʹ ͲǤͲʹ

ͳʹͲͲͲͲ ͳʹͲͲͲͲ ͳʹͲͲͲͲ

ͲǤͲͳ ͲǤͲͳ ͲǤͲͳ Ͳ ͲͲ

ͳͳͷͲͲͲ ͳͳͷͲͲͲ ͳͳͷͲͲͲ

ǦͲǤͲͳ ǦͲǤͲͳ ǦͲǤͲʹ ǦͲǤͲʹ

ͳͳͲͲͲͲ ͳͳͲͲͲͲ ͳͲͷͲͲͲ ͳͲͷͲͲͲ

ǦͲǤͲ͵ ǦͲǤͲ͵

ʹ ʹʹ ͳǤͷ ͳǤͷ ͳͳ ͲǤͷ ͲǤͷ ͲǤͷ

ȋ Ȍ ȋ Ȍ ȋ Ȍ ȋ Ȍ

26

ϭϲϬϬ ϭϲϬϬ ϭϲϬϬ ϭϰϬϬ ϭϰϬϬ ϭϰϬϬ ϭϮϬϬ ϭϮϬϬ ϭϮϬϬ ϭϬϬϬ ϭϬϬϬ ϴϬϬ ϴϬϬ ϲϬϬ ϲϬϬ ϲϬϬ ϰϬϬ ϰϬϬ ϰϬϬ ϮϬϬ ϮϬϬ ϮϬϬ ϬϬ Ϭ

ʹͶͲͲͲͲ ʹͶͲͲͲͲ ʹͶͲͲͲͲ

ͲǤͳ ͲǤͳ ͲǤͳ ͲǤͲͺ ͲǤͲͺ

ȋ Ȍ

ȋ Ȍ

ʹͷͲͲͲͲ ʹͷͲͲͲͲ

ȋ Ȍ ȋ Ȍ

͵ͳȀͺȀʹͲͳͻ ȋ Ȍ ͵ͳȀͺȀʹͲͳͻ ȋ Ȍ

ϬϬ

ϮϮ

Ǧͳͺ Ǧͳͺ

ϰϰ Ǧͳͺ Ǧͳͺ

ϲϲ

ϴϴ

ϭϬ ϭϬ

Special Issue, 2019 Table 6: Financial Indicators of Participation Banks and Banking Sector Financial Topics

Participation Banks (TRY million) Aug.2019 Dec.2018 Change(%) Funds Collected ** 183,764 137,220 33.9 Funds Allocated *** 138,486 124,562 11.2 Non-Performing Loans (Gross) 6,818 5,050 35.0 Total Assets 252,229 206,806 22.0 20,291 16,780 20.9 Shareholders Equity Net Profit **** Number Of Staff Number Of Domestic Branches Overseas Total

1,785 15,910 1,142 3 1,145

1,847 15,654 1,120 2 1,122

* Prepared according to BRSA’s report. ** Funds collected from banks are excluded. *** Non-performing loans and the foreign Murabaha are excluded. **** Net profit is compared based on the same month of the previous year.

Source: Participation Banks Association Of Turkey (PBAT)

Furthermore, a similar growth pattern is conspicuous in both contribution of staff and branches (domestic and overseas) – conventional banks experienced negative changes (-1.1%), whereas participation banks got just the opposite (2%) (see Table 6). According to data reports of August 2019, the total number of branches in participation banks reached 1145 which is derived from

-3.4 1.6 2.0 50.0 2.0

Banking Sector (TRY million) Aug.2019 Dec.2018 Change(%) 2,370,615 2,051,166 15.6 2,631,381 2,465,582 6.7 123,798 96,611 28.1 4,270,409 3,867,135 10.4 456,282 421,185 8.3 32,838 205,415 11,367 73 11,440

38,046 207,716 11,493 72 11,565

adding Kuveyt Turk (419), Turkiye Finans (310), Albaraka Turk(232), Vakif (94), Ziraat (88), and Turkiye Emlak participation bank (2) (see Table 6 and Figure 17).

Realistically, within a short period of time, the participation banks have proliferated their branches across Turkey as well as overseas; however, there are eight provinces in Turkey

Figure 17: Number of Branches of Participation Banks in Turkey 232

310 94 2

88

419

AlbarakaTürk

Türkiye Emlak Vakıf

Source: Participation Banks Association Of Turkey (PBAT)

-13.7 -1.1 -1.1 1.4 -1.1

KuveytTürk Ziraat

Türkiye Finance

27

Special Issue, 2019

such as Ardahan, Artvin, Bayburt, Hakkari, Kilis, KÄąrklareli, Sinop, and Tunceli (see Figure 18) where no single branch of any participation bank is opened yet. However, the absence of

branches in the following provinces opens a door for the participation banking sector to expand their business operations.

Figure 18: List of Provinces Where the Branches of Participation Banks are absent

Source: Participation Banks Association Of Turkey (PBAT)

28

2.2. Islamic Capital Market

2.2.1. Overview of Participation Indices

Turkey is also a key actor in the global Islamic capital market. As seen in Table 7 below, a cumulative TRY 65 billion Sukuk was issued between 2010 and 2018, which indicates an increase of TRY 21 billion from that of last year.

Presumably, the issuances which are usually seen as murabahah Sukuk will continue to increase in the next following years to come.

Islamic financial institutions are encouraged and advised to invest in Sukuk for better risk management and diversify their portfolio as an alternative investment tool. The market demand for Sukuk is high since it is the primary investment tool for Islamic insurance, pension sector, and portfolio management. The issuance of alternative Sukuk types is instrumental in attracting more global attention. However, there is particularly the need for cost-effective Istisna’ Sukuk for ongoing infrastructure investment plans in the economy of Turkey.

Another important aspect of the Islamic capital market is the Islamic index through which Turkey is receiving direct inflow in its capital market. Noticeably, Turkish Participation indices receive attention with its upward trend due to the lower leverage standard of Islamic index. There are two types of participation indices: i) Participation 50 Index, and ii) participation 30 index, which are coded as KAT50 and KATLM respectively. Measuring the price and share return performance is the primary objective of both Participation Indices; these indices are published to entice people and encourage customers so that they can invest in Participation Banks considering their working principles. Every three months, the indices are reviewed to measure their validity.

Table 8 and 9 summarize the companies which are listed under these indices.

Table 7: Sukuk Issuance in Turkey Cumulative Sukuk Issuance Participation Banks Treasury Total

In Domestic Currency (TL Millions) 36.015 29.296 65.311

Source: Participation Banks Association Of Turkey (PBAT)

In Foreign Currency (US$ Millions) 4.276 6.000 10.276

Growth (%)

55 45 100

Special Issue, 2019 Table 8: List of Companies in Participation Index 50 CODE

COMPANY NAME

CODE

COMPANY NAME

AGYO AKSUE ALBRK ALCAR ALKIM ASELS ASLAN ATEKS BANVT BFREN BIMAS BUCIM CEMTS CEOEM CMENT DENCM DESPC EGEEN EGGUB EGSER FLAP FMIZP FONET FORMT FROTO

Atakule GMYO Aksu Enerji Albaraka Türk Alarko Carrier Alkim Kimya Aselsan Aslan Çimento Akın Tekstil Banvit Bosch Fren Sistemleri Bim Mağazalar Bursa Çimento Çemtaş Ceo Event Medya Çimentaş Denizli Cam Despec Bilgisayar Ege Endüstri Ege Gübre Ege Seramik Flap Kongre Toplantı Hizm.

F-M İzmit Piston Fonet Bilgi Teknolojileri Formet Çelik Kapı Ford Otosan

GENTS HLGYO IHEVA ISDMR IZOCM JANTS KARTN KERVT KFEIN KNFRT KONYA KRONT KRSTL LOGO MAKTK MAVI MIPAZ ORGE PETUN SANEL SELEC SMART TKNSA ULUSE YKGYO

Gentaş Halk GMYO İhlas Ev Aletleri İskenderun Demir Çelik İzocam Jantsa Jant Sanayi Kartonsan Kerevitaş Gıda Kafein Yazılım Konfrut Gıda Konya Çimento Kron Telekominikasyon Kristal Kola Logo Yazılım Makina Takım Mavi Giyim Milpa Orge Enerji Elektrik Pınar Et Ve Un Sanel Mühendislik Selçuk Ecza Deposu Smart Yazılım Teknosa İç Ve Dış Ticaret Ulusoy Elektrik Yapı Kredi Koray GMYO

Source: Participation Index

Table 9: List of Companies in Participation Index 30 CODE

COMPANY NAME

CODE

COMPANY NAME

AKSUE ALBRK ALKIM ASELS BANVT BIMAS BUCIM CEMTS EGEEN EGGUB EGSER FLAP FORMT FROTO GENTS

Aksu Enerji Albaraka Türk Alkim Kimya Aselsan Banvit Bim Mağazalar Bursa Çimento Çemtaş Ege Endüstri Ege Gübre Ege Seramik Flap Kongre Topl. Hizm.

Formet Çelik Kapı Ford Otosan Gentaş

HLGYO IHEVA ISDMR KARTN KERVT KFEIN KONYA KRONT KRSTL LOGO MAVI ORGE PETUN SELEC ULUSE

Halk GMYO İhlas Ev Aletleri İskenderun Demir Çelik Kartonsan Kerevitaş Gıda Kafein Yazılım Konya Çimento Kron Telekomünikasyon Kristal Kola Logo Yazılım Mavi Giyim Orge Enerji Elektrik Pınar Et Ve Un Selçuk Ecza Deposu Ulusoy Elektrik

Source: Participation Index

29

Special Issue, 2019

2.3. Participation Insurance (Takaful) Turkey’s Ministry of Finance is saddled with the responsibility of regulating and supervising the insurance and private pensions; this is done principally through two departments: i) General Directorate of Insurance (GDI) and ii) Insurance Supervision Board (ISB). The GDI is mainly responsible for insurance licensing, monitoring the insurance sector and its intermediaries, pension companies and reinsurance, auxiliary services to insurance and all other entities wishing to assess capital adequacy by using off-site reports, operate in the market, assess financial control measures, review insurer technical reserves and financial performance, and initiate enforcement measures, comprising of those associated with strengthening the financial structure of insurers. On the other

hand, the ISB mainly supervises (on-site) insurers and intermediaries along with individuals operating and other legal entities in the sector (IMF, 2017).

Participation insurance companies are different from conventional insurance companies and are regulated by Participation Insurance Regulation. Ministry of Commerce is responsible for the approval of the establishment of the company and cooperative status.

2.3.1. Legal Framework

The participation insurance sector in Turkey is subject to the primary legal framework regulated by various laws and codes which are summarised in Table 10.

Table 10: Various Law and Code Regarding Participation Insurance in Turkey Law and Code

30

No.

Commercial Code (for insurance contracts)

6102

Turkish Obligations Code

6098

Insurance Law

Law on Consumer Protection

Private Pension Saving and Investment System Law

Source: Ministry of Treasury and Finance of Turkey

In the first quarter of 2019, the total premium in life and non-life insurance are approximately TRY 50 million and TRY 965 million respectively, summing up to an approximate TRY 1 billion for entire participation sector (see Figure 19).

In the same period, the share of the participation insurance sector out of the total insurance sector is approximately 5.7% (Figure 20). This ratio was 2.7% for the same first quarter in the previous year. In terms of premium production, the participation insurance sector grew 2.5 times compared to the same period in the previous year.

5684 6502 4632

’‡…‹ƒŽ ••—‡ǥ ʹͲͳ͝

’‡…‹ƒŽ ••—‡ǥ ʹͲͳ͝

Special Issue, 2019

Figure 19: Total Premiumofof ‹Â?…”‡ƒ•‡ ‹Â? Â?‘Â?nj‹Â?–‡”‡•– ˆ—Â?†• ‹Â? ’”‹˜ƒ–‡ –Š‡ ’”‹˜ƒ–‡ Figure Total Premium ‹Â?…”‡ƒ•‡ ‹Â? Â?‘Â?nj‹Â?–‡”‡•– ˆ—Â?†• ‹Â? –Š‡ Figure 19: 19: Total Premium of Participation Insurance system are approximately TRY 4.6 billion.

The Participation Insurance Sector in ’‡�•‹‘� •›•–‡� ‹• …‘�’ƒ”ƒ–‹˜‡Ž› Š‹‰Š‡” –Šƒ�

Participation ’‡�•‹‘� •›•–‡� ‹• …‘�’ƒ”ƒ–‹˜‡Ž› Š‹‰Š‡” –Šƒ�

Sector in Turkey Insurance Sector in increase in non-interest funds in the private Turkey Turkey –Š‡ ‹Â?…”‡ƒ•‡ ‹Â? …‘Â?˜‡Â?–‹‘Â?ƒŽ ˆ—Â?†• ™‹–Š ;͝ǤʹΨ –Š‡ ‹Â?…”‡ƒ•‡ ‹Â? …‘Â?˜‡Â?–‹‘Â?ƒŽ ˆ—Â?†• ™‹–Š ;͝ǤʹΨ pension system is comparatively higher than •‹Â?…‡ „‡‰‹Â?Â?‹Â?‰ ‘ˆ –Š‡ ›‡ƒ” ƒÂ?† ͜ͺǤ͡Ψ •‹Â?…‡ –Š‡ –Š‡ „‡‰‹Â?Â?‹Â?‰ ‘ˆ –Š‡ ›‡ƒ” ƒÂ?† ͜ͺǤ͡Ψ the increase in conventional funds with 39.2% ‹ˆ‡ ‹ˆ‡ ͡Ψ •‹Â?…‡ –Š‡ Žƒ•– ›‡ƒ”Ǥ Š‡”‡ƒ• –Š‡ …‘Â?˜‡Â?–‹‘Â?ƒŽ ͡Ψ •‹Â?…‡ –Š‡ Žƒ•– ›‡ƒ”Ǥ Š‡”‡ƒ• –Š‡ …‘Â?˜‡Â?–‹‘Â?ƒŽ since the beginning of the year and 48.5% ˆ—Â?†• ‹Â?…”‡ƒ•‡† „› „› ͝Ψ conventional ƒÂ?† ƒÂ?† ͳ;ǤʹΨ ‹Â?…”‡ƒ•‡† ͝Ψ ͳ;ǤʹΨ sinceˆ—Â?†• the last year. Whereas the ”‡•’‡…–‹˜‡Ž›Ǥ ”‡•’‡…–‹˜‡Ž›Ǥ funds increased by 9% and 13.2% respectively.

While 37% (TRY 1.5ͳǤ͡ billion) of ‘ˆ the –Š‡ total–‘–ƒŽ Š‹Ž‡ ;͚Ψ Č‹ „‹ŽŽ‹‘Â?ČŒ Š‹Ž‡ ;͚Ψ Č‹ ͳǤ͡ „‹ŽŽ‹‘Â?ČŒ ‘ˆ –Š‡ –‘–ƒŽ amount of funds in the auto-enrolment ƒÂ?‘—Â?– ‘ˆ ˆ—Â?†• ‹Â? –Š‡ ÂƒÂ—Â–Â‘ÇŚÂ‡Â?”‘ŽÂ?‡Â?– •›•–‡Â? ƒÂ?‘—Â?– ‘ˆ ˆ—Â?†• ‹Â? –Š‡ ÂƒÂ—Â–Â‘ÇŚÂ‡Â?”‘ŽÂ?‡Â?– •›•–‡Â? system is invested conventional funds; the –Š‡ ‹• ‹• ‹Â?˜‡•–‡† ‹Â? in‹Â? …‘Â?˜‡Â?–‹‘Â?ƒŽ ˆ—Â?†•Ǣ ‹Â?˜‡•–‡† …‘Â?˜‡Â?–‹‘Â?ƒŽ ˆ—Â?†•Ǣ –Š‡ remaining 63% (TRY 2.6 billion) is invested in ”‡Â?ƒ‹Â?‹Â?‰ ͸;Ψ Č‹ ʹǤ͸ „‹ŽŽ‹‘Â?ČŒ ‹• ‹Â?˜‡•–‡† ‹Â? ”‡Â?ƒ‹Â?‹Â?‰ ͸;Ψ Č‹ ʹǤ͸ „‹ŽŽ‹‘Â?ČŒ ‹• ‹Â?˜‡•–‡† ‹Â? non-interest funds. Â?‘Â?nj‹Â?–‡”‡•– ˆ—Â?†•Ǥ

Â?‘Â?nj‹Â?–‡”‡•– ˆ—Â?†•Ǥ

‘Â?ÇŚÂŽÂ‹ÂˆÂ‡

͝͡Ψ ‘Â?ÇŚÂŽÂ‹ÂˆÂ‡ ͝͡Ψ

Source: Ministry of Treasury and Finance of Turkey

Source: Ministry of Treasury and Finance of Turkey Source: Ministry of Treasury and Finance of Turkey

Figure 20: Share of Participation Figure 20: Share of Participation Insurance Sector in Insurance inofTotal Insurance in Figure 20:Sector Share Participation Total Insurance in Turkey Turkey Insurance Sector in Total Insurance in

Turkey

ƒ”–‹…‹’ƒ–‹‘�

Â?•—”ƒÂ?…‡ ƒ”–‹…‹’ƒ–‹‘Â? ͡Ǥ͚ͲΨ

Â?•—”ƒÂ?…‡ ͡Ǥ͚ͲΨ

‘�˜‡�–‹‘�ƒŽ

Â?•—”ƒÂ?…‡ ͜͝Ǥ;ͲΨ

‘�˜‡�–‹‘�ƒŽ

�•—”ƒ�…‡ Source: Ministry of Treasury and Finance of Turkey

͜͝Ǥ;ͲΨ Source: Ministry of Treasury and Finance of Turkey

According to–Š‡ the ‹�‹•–”› Ministry of ”‡ƒ•—”› Treasury ……‘”†‹�‰ –‘ of ‘ˆ Source: Ministry Treasury and Finance of Turkeyƒ�† and

Finance, MarchʹͲͳ͝ǥ 2019,–Š‡ theÂ?‡– net˜ƒŽ—‡• values ‘ˆ of ‹Â?ƒÂ?…‡ǥ ĥ as‘ˆ of ƒ”…Š non-interestˆ—Â?†• funds‹Â? in–Š‡ the ’”‹˜ƒ–‡ private ’‡Â?•‹‘Â? pension Â?‘Â?nj‹Â?–‡”‡•– ……‘”†‹Â?‰ –‘ –Š‡ ‹Â?‹•–”› ‘ˆ ”‡ƒ•—”› ƒÂ?† •›•–‡Â? ƒ”‡ ƒ’’”‘š‹Â?ƒ–‡Ž› ͜Ǥ͸ „‹ŽŽ‹‘Â?Ǥ Š‡

Currently, twelve companies (8 of which are —””‡Â?–Ž›ǥ –™‡Ž˜‡ Č‹Íş ‘ˆ ™Š‹…Š ƒ”‡ windows) operate in …‘Â?’ƒÂ?‹‡• the …‘Â?’ƒÂ?‹‡• field of participation —””‡Â?–Ž›ǥ –™‡Ž˜‡ Č‹Íş ‘ˆ ™Š‹…Š ƒ”‡ ™‹Â?Â†Â‘Â™Â•ČŒ ‘’‡”ƒ–‡ ‹Â? –Š‡ ˆ‹‡Ž† ‘ˆ ’ƒ”–‹…‹’ƒ–‹‘Â? insurance in Turkey.

Table 11 gives a summary ™‹Â?Â†Â‘Â™Â•ČŒ ‘’‡”ƒ–‡ ‹Â? –Š‡ ˆ‹‡Ž† ‘ˆ ’ƒ”–‹…‹’ƒ–‹‘Â? —”Â?‡›Ǥ ͳͳ ‰‹˜‡• ƒ of‹Â?•—”ƒÂ?…‡ the names‹Â? and types ƒ„Ž‡ of participation ‹Â?•—”ƒÂ?…‡ ‹Â? —”Â?‡›Ǥ ƒ„Ž‡ ͳͳ ‰‹˜‡• ƒ •—Â?Â?ƒ”› ‘ˆ –Š‡ and Â?ƒÂ?‡• ƒÂ?† –›’‡• ‘ˆ insurance companies windows. •—Â?Â?ƒ”› ‘ˆ –Š‡ Â?ƒÂ?‡• ƒÂ?† –›’‡• ’ƒ”–‹…‹’ƒ–‹‘Â? ‹Â?•—”ƒÂ?…‡ …‘Â?’ƒÂ?‹‡• ƒÂ?† ‘ˆ ’ƒ”–‹…‹’ƒ–‹‘Â? ‹Â?•—”ƒÂ?…‡ …‘Â?’ƒÂ?‹‡• ƒÂ?† ™‹Â?†‘™•Ǥ

™‹�†‘™•Ǥ

31

• Total premium in life and non-life insurance • are The approximately total premium inTRY life and non-life insurance are965 50 million and TRY • approximately The total premium in life and TRY 50 million and million respectively. non-life insurance are TRY 965 million respectively. approximately TRY 50 million and • The increase in nonTRY 965 million respectively. • interest The increase in in non-interest funds the funds in the private pension private pension system system is comparatively higher • is The increase inhigher non-interest comparatively than the increase in conventional funds the private than the in increase in pension funds. system is comparatively higher conventional funds. than the increase in conventional funds.

‹Â?ƒÂ?…‡ǥ ĥ ‘ˆ ƒ”…Š ʹͲͳ͝ǥ –Š‡ Â?‡– ˜ƒŽ—‡• ‘ˆ Â?‘Â?nj‹Â?–‡”‡•– ˆ—Â?†• ‹Â? –Š‡ ’”‹˜ƒ–‡ ’‡Â?•‹‘Â? •›•–‡Â? ƒ”‡ ƒ’’”‘š‹Â?ƒ–‡Ž› ͜Ǥ͸ „‹ŽŽ‹‘Â?Ǥ Š‡ Table 11: Fully-fledged Participation Insurance Companies and Windows in Turkey

Special Issue, 2019 Table 11: Fully-fledged Participation Insurance Companies and Windows in Turkey Company Name

Participation Insurance Type

Neova Insurance

General Takaful

Bereket Insurance

General Takaful

Katilim Pension and Life Bereket Pension and Life Güneş Insurance Unico Insurance

Groupama Insurance

Vakıf Pension and Life HDI Insurance

Ziraat Insurance

Ziraat Pension and Life Doga Insurance

Source: COMCEC, 2019.

32

Figure 21 illustrates the most recent development in Turkey in terms of five Islamic finance development indicators: quantitative development, governance, knowledge, corporate social responsibility (CSR), and awareness. Each indicator represents the cumulative result of the various sub-indicators, which are also based on other indicators (see Appendix). According to the Islamic Finance Development Indicator (IFDI) score, Turkey has the highest development score (33.31) in corporate social responsibility (CSR); whereas the lowest score (12.28) regarding quantitative development indicator in 2018.

Interestingly, after comparing the yearly indicators from 2013 to 2018, the most recent report positions Turkey as gaining more strength compared to the previous years (Figure 22) although there are two indicators – CSR and Governance – which demonstrate a marginal downturn in the most recent year compared to the previous year (2017).

Family Takaful Family Takaful Window Window Window Window Window Window Window Window

• Currently, twelve companies (8 of which are windows) operate in the field of participation insurance in Turkey.

• In 2018, CSR and Governance demonstrate a marginal downturn regarding IFDI score in Turkey.

ǡ ʹͲͳͻ

ǡ ʹͲͳͻ Special Issue, 2019

Figure 21:21: Islamic FinanceFinancial DevelopmentDevelopment Indicator (Turkey) Figure Figure 21: Islamic Islamic Financial Development Indicator Indicator(Tureky) (Tureky)

ͳͷǤͲͺ ͳͷǤͲͺ ͳͷǤͲͺ

ͶǤͳͳ ͶǤͳͳ ͶǤͳͳ

ͳͺǤͻ͸ ͳͺǤͻ͸ ͳͺǤͻ͸

ͳǤͷͶ ͳǤͷͶ ͳǤͷͶ

ʹͳǤ͹ͳ ʹͳǤ͹ͳ ʹͳǤ͹ͳ

͵͵Ǥ͵͵ ͵͵Ǥ͵͵ ͵͵Ǥ͵͵

ͳͶǤͻͳ ͳͶǤͻͳ ͳͶǤͻͳ

ͳͲǤ͸ͳ ͳͲǤ͸ͳ ͳͲǤ͸ͳ

ͳǤͺ ͳǤͺ ͳǤͺ

͸ͶǤͺʹ ͸ͶǤͺʹ ͸ͶǤͺʹ

ʹͲǤͲ͵ ʹͲǤͲ͵ ʹͲǤͲ͵

ͳ͸ǤͶ͸ ͳ͸ǤͶ͸ ͳ͸ǤͶ͸

ʹ͵Ǥʹͷ ʹ͵Ǥʹͷ ʹ͵Ǥʹͷ

ͳͳǤʹ ͳͳǤʹ ͳͳǤʹ

ʹͳǤͺͶ ʹͳǤͺͶ ʹͳǤͺͶ

33

ͳʹǤʹͺ ͳʹǤʹͺ ͳʹǤʹͺ

ͳͷǤ͵ʹ ͳͷǤ͵ʹ ͳͷǤ͵ʹ

Source: Thomson Reuters (2018) Source: Source: Thomson Reuters (2018) Source:Thomson ThomsonReuters Reuters(2018) (2018)

35 35| |

͵͹Ǥͺ͸ ͵͹Ǥͺ͸ ͵͹Ǥͺ͸

ʹ͵Ǥͺ͵ ʹ͵Ǥͺ͵ ʹ͵Ǥͺ͵

͵͵Ǥ͵ͳ ͵͵Ǥ͵ͳ ͵͵Ǥ͵ͳ

Special Issue, 2019

’‡…‹ƒŽ ••—‡ǥ ʹͲͳ͝

Figure 22: Comparison of Islamic Finance Development Indicators (2013-2018) Figure 22: Comparison of Islamic Financial Development Indicators (2013-2018) �‘™Ž‡†‰‡

ʹ͡

ͺͲ ͚Ͳ

ʹͲ

͸Ͳ

͡Ͳ

ͳ͡

͜Ͳ

ͳͲ

;Ͳ ʹͲ

͡ Ͳ

ʹͲͳ;

ʹͲͳ͜

ʹͲͳ͡

†—…ƒ–‹‘�

ʹͲͳ͸

‡•‡ƒ”…Š

͜Ͳ ;͡

ʹͲͳ͚

ʹͲͳͺ

ͳͲ Ͳ

ʹͲͳ;

ʹͲͳ͜

ʹͲͳ͡

^Z &ƾŜĚĆ? Ĺ?Ć?Ä?ĆľĆŒĆ?ĞĚ

ʹͲͳ͸

ʹͲͳ͚

ʹͲͳͺ

^Z Ĺ?Ć?Ä?ĹŻĹ˝Ć?ĆľĆŒÄž

—ƒ�–‹–ƒ–‹˜‡ ‡˜‡Ž‘’�‡�–

;Ͳ ʹ͡ ʹͲ

ͳ͡

34

ͳͲ ͡ Ͳ

ʹͲͳ;

ʹͲͳ͜

•Žƒ�‹… ƒ��‹�‰

™ƒ”‡�‡••

͜͡ ͜Ͳ

ƒ�ƒˆ—Ž

ʹͲͳ͡

–Š‡” •ŽƒÂ?‹… ‹Â?ƒÂ?…‹ƒŽ Â?•–‹–—–‹‘Â?• ͸Ͳ

—�—�

—�†•

ʹͲͳͺ

‘˜‡”�ƒ�…‡

͜Ͳ

;Ͳ ʹ͡

;Ͳ

ʹͲ

ʹͲ

ͳ͡

ͳͲ

ͳͲ Ͳ

ʹͲͳ͚

͡Ͳ

;͡

͡

ʹͲͳ͸

ʹͲͳ;

ʹͲͳ͜

‡�‹�ƒ”•

ʹͲͳ͡

ʹͲͳ͸

‘�ˆ‡”‡�…‡•

Source: Thomson Reuters (2018)

Source: Thomson Reuters (2018)

36 | ƒ ‰ ‡

ʹͲͳ͚

થ

ʹͲͳͺ

Ͳ

ʹͲͳ;

ʹͲͳ͜

‡‰—Žƒ–‹‘�

ʹͲͳ͡

‘”’‘”ƒ–‡ ‘˜‡”�ƒ�…‡

ʹͲͳ͸

ʹͲͳ͚

ʹͲͳͺ

Šƒ”‹ƒŠ ‘˜‡”�ƒ�…‡

Special Issue, 2019

2.4. Savings-based Finance (SBF) The saving-based finance (SBF) companies are playing a significant role in the Turkish economy, since the last three decades. There is a growing body of literature, that recognizes the importance of SBF as an alternative interest-free financing model. SBF is a process of agreement among a group of people, who agree that each of them contributes a specific amount of money, to be used to meet each participant’s targeted amount of financing needs, based on mutual solidarity and collaboration. The model is similar to contractual saving concept, with the main motive of fulfilling the positive savings with the negative savings for the total targeted amount on wakalah basis (Dinc, 2019).

Erguven and Kaya (2016) defined the SBF system as a mode of cooperative activity, based on the characteristics of solidarity and the joint-fulfilment of common needs. Some studies (Kumbasar, 2016; Esin and Duran, 2017) simply define the system as an interestfree housing finance model.

SBF model is considered as an appropriate tool for both retail and corporate finance.

Through this model, the SBF companies convert the fiscal power of participants to their financial power. This can be considered as the main difference from the banks, which have different parities on fund-demand and fund-supply sides. The SBF companies are holding the role for organizing the group and clearing the transfers between positive and negative savings. The model is mostly recognized and accepted by the participants as an alternative Islamic financial concept, where the companies operate, based on the participation finance principles, that bring strength for the companies to compete on

collecting positive savings, which is the core competition area in the overall financial system.

Saving-based finance companies offer individualized savings plan for the participants based on their personal savings capacity. The participants are simply guided by their savings plan during the whole period.

The SBF company disburses the total agreed amounts to the participants within a specified time period as pre-agreed in the contract.

Savings-based finance operation was inaugurated in 1951, since then it has been evolving at a significant pace. The brief history of this system is illustrated in the following timeline:

35

• SBF is a process of agreement among a group of people, who agree that each of them contributes a specific amount of money, to be used to meet each participant’s targeted amount of financing needs, based on mutual solidarity and collaboration

ǡ ʹͲͳͻ

Special Issue, 2019

ϮϬϭϵ

ϮϬϭϳ

ϭϵϵϭ

ϭϵϱϭ

36

ϮϬϭϲ

ϭϵϵϮ

Savings-Based Finance

ϮϬϭϴ

38 |

d

Ǧ

ǡ ʹͲͳͻ

ǡ ʹͲͳͻ

ǡ ʹͲͳͻ Special Issue, 2019

slope

2.4.2.

2.4.2.

Overview Overview ofofSavings-based of Savings-based is conspicuous for both the turnover and 2.4.1.

Overview Savings-based

Ǥ

of

Ǥ At Ǥ

Finance delivery in terms housing and vehicle. the Finance Finance

ʹͲͳͻ ͵ǡ of

ʹͲͳͻ ͵ǡ

2019Q3, theʹͲͳͻ ͵ǡ total turnover and delivery In this section, the report illustrates the end

regarding housing and vehicle reached TRY

estimated

ǡ volume ǡ and

number

of housing

ͳ͵Ǥͷ

ͶǤͳ

13.5 and TRY 4.1 billion respectively.

In the

ͳ͵Ǥͷ ͳ͵Ǥͷ

ͶǤͳ ͶǤͳ

and vehicle contracts of companies that Ǥ

Ǥ the total turnover ratio is 70/30 – Ǥ

ǡ ǡ

ǡ

operate their operation based on savings- meantime, 70% for housing and 30% for the vehicle; the ͹ͲȀ͵Ͳ – ͹ͲΨ ͹ͲȀ͵Ͳ – ͹ͲΨ

Ǧ Ǧ based finance.

Figure 23 reports a gradual ͹ͲȀ͵Ͳ – ͹ͲΨ total delivery ratio is 86/14 – 86% for housing ͵ͲΨ Ǣ ͵ͲΨ Ǣ increase in the23 volume of housing and vehicle ͵ͲΨ Ǣ Ǥ Figure Ǥ Figure 23 and 14% for the vehicle. ͺ͸ȀͳͶ – throughout ͺ͸Ψ this ͳͶΨ ͺ͸ȀͳͶ ͺ͸ȀͳͶ – ͺ͸Ψ – ͺ͸Ψ

ͳͶΨ ͳͶΨ

contracts the year; upward

Ǥ Ǥ Ǥ

Ǣ Ǣ

Figure 23: The Volume of Contract Turnover and Delivery

act Turnover and Delivery Figure Figure 23: The 23: Volume The Volume of Contract of Contract Turnover Turnover and Delivery and Delivery

͵ͲΨ ʹͲͲͲ ʹͲͲͲ ͳͺͲͲ ͳ͸ͲͲ ͳͶͲͲ ͳʹͲͲ ͳͲͲͲ ͺͲͲ ͸ͲͲ ͶͲͲ ʹͲͲ

͵ͲΨ ͵ͲΨ

ͳͺͲͲ ͳ͸ͲͲ ͳͶͲͲ ͳʹͲͲ ͳͲͲͲ ͺͲͲ ͸ͲͲ ͶͲͲ ʹͲͲ

ͻǦ ͻǦ

ŽƚĂů

,ŽƵƐŝŶŐ,ŽƵƐŝŶŐ sĞŚŝĐůĞ sĞŚŝĐůĞ dŽƚĂů

͸ͲͲ

͸ͲͲ

ͶͲͲ

ͶͲͲ

ͷͲͲ

ĞůŝǀĞƌLJ ĞůŝǀĞƌLJ

ͳͲͲ

ʹͲͲ

͵ͲͲ ʹͲͲ ͳͲͲ

ͺ͸Ψ

emi

ͳͶΨ ͳͶΨ

͵ͲͲ

͹ͲΨ ͹ͲΨ

dŽƚĂů

ͷͲͲ

ͳͶΨ

37

͹ͲΨ

Note: Estimated Note: Estimated Data, Source: Data, Source: Tasarruf Tasarruf Akademi Akademi Note: Estimated Data Tasarruf Akademi Source:

39 | 39 |

ͺ͸Ψ ͺ͸Ψ

ǡ ʹͲͳͻ Special Issue, 2019

Figure 24

Figure 24 also reports a gradual increase in ʹͲͳͻǢ the number of finance contracts for housing and vehicle from January to September 2019; ǡ reportedly, this upward slope is conspicuous

for both the turnover and delivery in terms of Ǥ ʹͲͳͻ ͵ǡ housing and vehicle.

At the end of 2019Q3,

the

total number of contracts in terms of turnovers

ȋ Ȍ

ͳͳͲǡͻͷͷ reached ʹͺǡ͸ͳͺ and deliveries (housing and vehicle) Ǥ 28,618 respectively. ǡ As

at 110,955 and of that period, the total turnover ratio is 70:30 – ͹Ͳǣ͵Ͳ – ͹ͲΨ 70% and 30% ǡ for vehicles; the ͵ͲΨ for housing Ǣ

in meantime, the total delivery ratio is 86:14 – ͺ͸ǣͳͶ – ͺ͸Ψ 86% for housingǤ and 14% for vehicle. ͳͶΨ

Figure 24: The Number of Contract Turnover and Delivery Figure 24: The Number of Contract Turnover and Delivery ͳ͸ͲͲͲ ͳͶͲͲͲ

͵ͲΨ

ͳʹͲͲͲ ͳͲͲͲͲ ͺͲͲͲ ͸ͲͲͲ ͶͲͲͲ

ʹͲͲͲ Ͳ

38

ͶͲͲͲ

sĞŚŝĐůĞ ϯϯй

͵ͷͲͲ

͹ͲΨ

͵ͲͲͲ ʹͷͲͲ ʹͲͲͲ ͳͷͲͲ ͳͲͲͲ ͷͲͲ Ͳ

,ŽƵƐŝŶŐ

sĞŚŝĐůĞ

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KAZ AKHSTAN

Special Issue, 2019

3. OIC MEMBER COUNTRY’S ISLAMIC FINANCE INSIGHT: KAZAKHSTAN Kazakhstan is the 9th largest country in the world situated in Central Asia on the crossroads of Europe and Asia. It is a landlocked country sharing borders with five countries: Russia, China, Kyrgyzstan, Turkmenistan, and Uzbekistan.

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Kazakhstan has a two-tiered banking system with the National Bank of Kazakhstan (NBK) in the first tier which reports to the President. In addition to its monetary policy responsibilities, the NBK is charged with overall supervision of the banking sector, insurance, pension system, stock market, microcredit organisations, debt collecting agencies, and credit bureaus. The second tier comprises of 28 commercial banks, including one state-owned bank and 14 banks in which foreigners hold 30% or more of the bank’s shares; 12 of which are subsidiaries of foreign banks (including 2 participation banks). As of 2018Q3, the value of total banking assets in Kazakhstan was KZT 25.25 trillion (65.5 billion US$), and the share of participation banks in total assets was KZT 57.45 billion (accounting for 0.23% of total financial assets).

Kazakhstan is an attractive site for the development of Islamic Finance in the region.

Thomson Reuter’s investment outlook (2015) ranked the country in the 5th position out of 57 OIC member countries, which makes it a top-tiered Islamic investment destination.

Recently, as a part of the realisation of the National Plan, the special regulatory ecosystem on the platform of the Astana International Financial Centre (AIFC) was set up. It adopts the model of the International Financial Centre of Dubai. Starting from the year 2018, Islamic financial instruments are placed and traded on the AIFC exchange, including Sukuk – both sovereign and corporate. The aim is to attract institutional investors from the Middle East,

South-East Asia, and the EU. In less than one year since the launching the platform, more than 250 companies have been registered under the jurisdiction of AIFC.

The share of Islamic Finance in Kazakhstan is well below 1% of the country’s financial system. So, the mandate of AIFC is to increase its share to 3% by the year 2025.

The participation banking sector will grow faster as commercial banks start offering Islamic finance services. According to Kazakhstani legislation, conventional banks in the mainland are not allowed to open Islamic windows. However, the jurisdiction of AIFC could offer this opportunity on its platform. Besides, AIFC established a Shari’ah Advisory Committee earlier this year to promote the development of Islamic Finance in anticipation of becoming a regional hub for Islamic finance. It is estimated that 80% out of 1.2 million entrepreneurs in Kazakhstan lack access to banking loans. Developing the new products would attract SMEs and other new clients, thus, contributing to the development of the ecosystem.

Since the domestic market for Islamic finance in Kazakhstan is relatively small, the growth of Islamic financial institutions – in terms of size and strength – will increasingly depend on their ability to integrate with the regional markets and the rest of the world for easier access to larger Islamic finance markets.

With stronger economic fundamentals and resilient financial sector, Kazakhstan could take advantage of emerging opportunities in the region and globally. AIFC has a key role in supporting the future growth and development of the Islamic financial services industry in Kazakhstan.

The economy of Kazakhstan is prone to oil price fluctuations. Slumping oil prices in 2013-2016 resulted in a 40% currency depreciation causing the economic slowdown which further weakened the financial sector.

Special Issue, 2019

Hence, as a mechanism to mitigate these risks, Islamic finance could contribute to the diversification of the economy.

3.1. Legal framework for Islamic Finance

The developments in the regulatory and legal framework can be presented in the following chronological order:

• In 2009, for the first time in the Commonwealth of Independent States (CIS) and Central Asia, Kazakhstan introduced the law on Islamic finance which provided the opportunity for the emergence of participation banks and investment funds, as well as the issuance of Islamic investment certificates (Sukuk).

• In 2011, to facilitate the development of Islamic capital market in Kazakhstan, amendments were made to the regulations to include the issuance of sovereign Sukuk, and extending the list of Sukuk originators – residents of Kazakhstan. Also, the National Bank of Kazakhstan (NBK) has become a member of the Islamic Financial Services Board (IFSB).

• In 2012, the government of Kazakhstan approved the roadmap for the development of Islamic finance in the country.

• In 2014, the NBK became a member of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the International Islamic Financial Market (IIFM).

• In 2015, amendments were made to the regulations to include rules and laws on leasing (Ijarah), participation insurance institutions (Takaful), as well as approval of “commodity Murabaha” as a banking product.

3.2. Islamic Finance in practice Currently, there are two banking institutions in Kazakhstan that render Islamic finance services:

a) “Al Hilal Islamic Bank” JSC is the first participation bank in Kazakhstan and the CIS region. Incorporated in 2010, it is a subsidiary of Al Hilal Bank PJSC (UAE) with 100% government ownership of Abu Dhabi; and

b) Participation Bank “Zaman-Bank” JSC is the second participation bank converted from a conventional bank in the year 2017 which offers the retail banking services.

Also, two non-banking institutions offer services in line with the principles of Islamic finance:

a) “Kazakhstan Ijara Company” is a leasing company established in the year 2014, acting under the principles of Islamic Finance offering Islamic financing products to Small and Medium Enterprises (SMEs) and corporate sector. b) “Al Saqr Finance” is a universal Islamic finance company which was reorganized from a conventional leasing company in the year 2016. It offers a wide range of Islamic financial services to the corporate and retail sectors.

Moreover, Kazakhstan has gained exposure to the Takaful sector, though within a short while.

“MIS Takaful” was set up in 2010 in the form of Islamic mutual insurance company. It was structured based on Wakalah-Waqf business model, and offering a range of participation insurance products such as i) insurance for citizens travelling abroad to perform Hajj and Umrah, tourism, education, business trips and employment; ii) voluntary accident insurance;

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Special Issue, 2019

and iii) voluntary health insurance. However, due to amendments in the “Insurance Activities” Act, it ceased its operations after five years of commencement. Currently, there is no company offering Takaful products in the country

this masterplan is to advise on further steps necessary in creating an industry level playing field for Islamic finance institutions through highlighting the inherent issues and proffering solutions based on the best practices in the Islamic finance industry.

As part of the ‘vision Kazakhstan-2050’, the country calls for comprehensive reform of its social, economic, and political structure to accommodate its aim of becoming one of the leading 30 global economies by 2050.

To achieve this target, the government of Kazakhstan in 2015 announced five plans comprising 100 concrete steps that are essential for setting up a new economic model that is sustainable in the long run. As a result, the Astana International Finance Centre (AIFC) was launched as a financial hub providing an ideal platform to support the future growth and development of a sustainable economy. The AIFC has six strategic pillars for development: green finance, capital market, asset management, fintech, private banking, and Islamic finance.

• As of 2018Q3, the value of total banking assets in Kazakhstan was KZT 25.25 trillion (65.5 billion US$), and the share of participation banks in total assets was KZT 57.45 billion (accounting for 0.23% of total financial assets).

3.3. Final Remarks

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In intensive cooperation with the Islamic Development Bank (IsDB) and Asian Development Bank (ADB), the AIFC is setting up a special legal and regulatory bases, and designing the roadmap for the development of Islamic finance. One of the strategic plans and ambitions of the AIFC is to become an Islamic finance hub in the region, and ultimately a key component of the global financial architecture.

It is developing products and instruments that would attract investment funds from Central Asia, the Middle East, and South-East Asia. Much of the developments are expected to be guided by the implementation of the Islamic Finance Masterplan (IFMP) which is being prepared these days. The aim of

• The share of Islamic finance in Kazakhstan is well below 1% of the country’s financial system.

• As part of the ‘vision Kazakhstan-2050’, the country calls for comprehensive reform of its social, economic, and political structure to accommodate its aim of becoming one of the leading 30 global economies by 2050.

Special Issue, 2019 Figure 25: Financial Performance of the Participation Banking Industry of Kazakhstan

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Source: IFSB

Special Issue, 2019

4. CONCLUSION In summary, the global Islamic finance industry is growing at a faster pace compared to conventional finance. After its emergence in the 1960s, the industry’s total value of Shariah-compliant assets has reached almost US$2.2 trillion in 2018 which comprises such segments as participation banking, Islamic capital markets, and participation insurance (Takaful).

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The report is dwelling on Turkey, giving an overview of the performance of Islamic financial institutions. The market share of the participation banks is 5.35% of the total asset size of the Turkish banking system.

Turkey’s domestic and global shares in participation banking is expected to grow hand-in-hand with the increase in strategic investments by both the public and private sectors. In this report, the various modes of operations, performance, and sizes of Islamic finance sectors are described based on the recent data. There is also an overview of the history, nature of operations, performance of savings-based finance institutions. Giving due consideration to the savings-based finance institutions’ contract turnover and delivery.

As of 2019Q3, the total turnover and delivery of housing and vehicle reached TRY 13.5 and TRY 4.1 billion respectively.

Finally, this report provides an overview of another emerging Islamic finance market – the Republic of Kazakhstan. Though currently, the share of Islamic finance in the country is well below 1% of the total financial assets, the government of Kazakhstan has set a clear vision to develop the Islamic finance industry and increase its share ten-fold by the year 2025. The country has set up the regulatory framework and amended legislation to facilitate the operations of Islamic financial institutions. Recently, the Astana International

Financial Centre (AIFC) was launched with the special regulatory ecosystem onboard aiming to become the regional finance hub with Islamic finance as one of its key pillars.

• After its emergence in the 1960s, the industry’s total value of Shariahcompliant assets has reached almost US$2.2 trillion in 2018.

• The market share of the participation banks is 5.35% of the total asset size of the Turkish banking system.

• In the first quarter of 2019, the total premium in life and non-life insurance are approximately TRY 50 million and TRY 965 million • Though currently, the share of Islamic finance in the country is well below 1% of the total financial assets, the government of Kazakhstan has set a clear vision to develop the Islamic finance industry and increase its share tenfold by the year 2025.

Special Issue, 2019

REFER ENCE BRSA (n.d.). Monthly Bulletin. Banking Regulation and Supervision Agency.

Available at: https://www.bddk.org.tr/ Data/Monthly-Bulletin/21

CIBAFI (May 2019). Global Islamic Bankers’ Survey 2019. General Council of Islamic Banks and Financial Institutions. Retrieved from: https://tinyurl.com/yxg6p5yg, accessed date: 16/10/2019 COMCEC (2019, October). Improving the Takaful Sector in Islamic Countries. COMCEC Coordination Office.

Dinc, Y. (2019). Tasarrufa Dayali Finans. Beta.

Istanbul

Erguven, M., & Kaya, F. (2016). Konut Finansmaninda Elbiriligi Sistemi: Musterilerin Elbiriligi Sistemi Tercih Nedenleri Uzerine Bir Arastirma.

Kastamonu Universitesi Iktisadi Ve Idari Bilimler Fakultesi Dergisi, 13(3), 24-39

Ersin, I. & Duran, S. (2017). Faizsiz Finans Dongusunu Olusturma Acisindan Adil Ekonomik Duzen Soyleminin Kredilesme Ilkeleri Ve Uygulanabilirliginin Degerlendirilmesi. Electronic Turkish Studies, 12 (8). 109-132

IFSB (2019). Islamic Financial Services Industry Stability Report 2019. Islamic Financial Services Board. Retrieved from: https://www.ifsb.org/download

IMF (2017). Turkey Financial Sector Assessment Program.

International Monetary Fund. Retrieved from: https:// w w w. i m f . o r g / ~ / m e d i a / F i l e s / Publications/CR/2017cr1747.ashx Kayed, R. N., & Hassan, M. K. (2011). The global financial crisis and Islamic finance.

Thunderbird International Business Review, 53(5), 551-564.

Kumbasar, M. (2016). Ev Sahibi Olmak Ve Eminievim Ornegi. Kafkas Univresitesi Ilahiyat Fakultesi Dergisi, 3(5). 153-166

MEIR (2019). Global Takaful Directory 2019.

Middle East Insurance Review. Retrieved from: http://apps.meinsurancereview. com/GTD/, accessed date: 16/10/2019 Ministry of Treasury and Finance of Turkey (n.d.). Retrieved from: https://en.hmb.gov. tr/, accessed date: 12.10.2019

Participation Index (n.d.). Participation 50 Index. Retrieved from: http://www. katilimendeksi.org/subpage/118/index_ companies, accessed date: 12.10.2019

Participation Index (n.d.). Participation 30 Index. Retrieved from: http://www. katilimendeksi.org/subpage/113/index_ companies, accessed date: 12.10.2019

PBAT (n.d.). Statistical Reports. Participation Banks Association of Turkey. Retrieved from: http://www.tkbb.org.tr/statisticalreports, accessed date: 08.10.2019

PBAT (n.d.). Sector Comparison Table.

Participation Banks Association of Turkey.

Retrieved from: http://www.tkbb.org. tr/sector-comparison, accessed date: 08.10.2019 PBAT (n.d.). Member Banks. Participation Banks Association of Turkey. Retrieved from: http://www.tkbb.org.tr/memberbanks, accessed date: 08.10.2019

Thomson Reuters (n.d.). ICD-Thomson Reuters Islamic Finance Development Indicator.

Retrieved from: http://www.zawya.com/ islamic-finance-development-indicator.

Access date: 29/08/2018

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APPENDIX Table 12: Islamic Finance Development Indicators—2018 (Turkey)

INDICATORS (2018)

Islamic Finance Development Indicator (IFDI)

QUANTITATIVE DEVELOPMENT

Islamic Banking Islamic Banking Assets (US$ Million) Number of Islamic Banks

Number of Islamic Banking Windows Number of Listed Islamic Banks Islamic Banking Return on Assets

Takaful

Takaful / Re-Takaful Assets (US$ Million)

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Number of Takaful / Re-Takaful Operators

Number of Listed Takaful / Re-Takaful Operators

Takaful Operators Return on Assets Other IFIs

Other Financial Institutions Assets (US$ Million)

Number of Other Financial Institutions

Number of Listed Other Financial Institutions

Return on Assets for Other Financial Institutions Sukuk

Number of Sukuk Issued

Number of Outstanding Sukuk

Value of Sukuk issued (US$ Million)

Value of Outstanding Sukuk (US$ Million)

Number of Listed Sukuk

Bid / Ask spread Funds

Number of Islamic Funds

Net Asset Value of Islamic Funds (US$ Million)

Number of Islamic Funds launched

Number of Islamic Asset Managers

Cumulative Performance KNOWLEDGE Education

Number of Institutions Offering Training Courses on Islamic Finance

Number of Institutions Offering Degrees in Islamic Finance Research

Number of Peer-Reviewed / Journal Articles on Islamic Finance (Past 3 Years)

Number of Published Research Papers on Islamic Finance (Past 3 Years)

TURKEY 21.32

12.28

18.96 41,379 5 1 1.07% 21.71 704 9

3.54% 1.54 5

15.08

58 58

3,421

12,106 58

4.11 6 31

4 378% 15.32 10.61 10 2 20.03 33 49

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CORPORATE SOCIAL RESPONSIBILITY (CSR) CSR Funds Disbursed

Disclosed Funds Distributed to Charity, Zakat and Qard Al Hasan (US$ Million) CSR Disclosure

Average CSR Disclosure Index Score

GOVERNANCE

Regulation

Islamic Banking Regulations

Accounting / Auditing Regulations for Islamic Finance Institutions

Shari’ah Governance Regulations for Islamic Finance Institutions Takaful / Re-Takaful Operators Regulations Sukuk Regulations Islamic Funds Regulations

Shari’ah Governance

Centralized Shari’ah Committee

Number of Scholars with SSB Memberships

Number of Scholars with More Than 5 SSB Memberships

Number of Institutions with More Than 3 SSB Members Corporate Governance

Average Number of Independent Chairman of the Board

Average Number of Independent Directors

Average Disclosure Index Score (Out of 70)

AWARENESS

Seminars

Number of Seminars (<100 Participants) Conferences

Number of Conferences (>100 Participants) News

Number of Exclusive and Regional News Articles

Source: Thomson Reuters

33.31 1.80 2.65 64.82 4.00 23.83

33.33 1

1

14.91

10

3 23.25

46.20

21.84

11.20 5 37.86 10 16.46 231

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INDEX A Agencies · 40 Asset management · 42 Awareness · 10, 110 32

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C Capital markets · 11, 12, 13, 18, 44 Commodity · 41 Commodity Murabahah · 28 Compliance-focused approach · 9, 30 Composite · 9, 22 Compound annual growth rate · 20 Conventional ·10, 11, 13, 22, 25, 27, 30, 31, 40, 41, 44 Corporate Sukuk · 18 Credit · 9, 15, 23, 25, 35, 40 D Delivery · 12, 17, 37, 38, 44 Domestic · 9, 27, 40, 44 E Economy · 9, 18, 22, 28, 40, 41, 42 Ecosystem · 40, 44 Equity · 19, 23, 24, 25 F Family Takaful · 20, 32 Fintech · 42 G General Takaful · 20, 32 Global average · 15 Global financial system · 12, 13 Governance · 16, 32, 47 Green finance · 42 H Housing · 9, 12, 35, 37, 38, 44 Housing finance · 9, 35 I Ijarah · 41 Interest-free · 4, 9, 11, 35, 22 Investment banks · 23 Islamic banking · 22, 46, 47 Islamic capital market · 9, 12, 13, 18, 19, 28, 41, 44 Islamic Finance · 4, 9, 10, 11, 12, 13, 14, 22, 40, 41, 42, 44 Islamic Finance Development Indicator · 32, 33 Islamic financial institutions · 28, 40, 41, 44 Islamic funds · 13, 14, 19, 46, 47 Islamic index · 28 Islamic windows · 40 Istisna · 28

J Jurisdictions · 14, 15, 18, 19 K Knowledge · 11, 32 L Leasing · 41 Legal entities · 30 M Market share · 9, 13, 22, 23, 24, 25, 44 Medium Risk · 17 Money market-based funds · 19 Mortgage · 35 Murabahah · 28 O Overseas · 27 P Participation Bank · 9, 10, 11, 12, 13, 14, 15, 16, 17, 22, 23, 24, 25, 27, 28, 40, 41, 44 Participation indices · 28 Participation insurance · 9, 11, 12, 13, 19, 20, 30, 31, 41, 44 Pension system · 31, 40 Premium · 9, 10, 12, 30, 31 Q Quantitative development · 32 R Re-Takaful · 20 S Savings-based finance · 9, 11, 35, 37, 44 Shari’ah · 4, 10, 11, 15, 16, 40 Shariah-compliant · 12, 44 SMEs · 40, 41 Sovereign Sukuk · 18, 41 Sukuk · 9, 12, 13, 14, 18, 19, 28, 40, 41 Sukuk outstanding · 13, 14 Supervision · 24 T Takaful · 9, 13, 14, 19, 20, 32, 41, 44 Takaful contributions · 13, 14 Top-tiered · 40 Turnover · 12, 37, 38, 44 V Vehicle · 9, 112, 37, 38, 44 W Windows · 12, 20, 31, 32, 40