Turkey pushing for more Islamic financing

By bne IntelliNews April 11, 2013

bne -

Pushing to expand the use of Islamic bonds to diversify the country's financing sources, the Turkish government is working on new regulations to allow wider use of a range of sukuk debt.

The Turkish treasury currently only issues ijara Islamic bonds, which are among the most widely used internationally. However, that type of sukuk also has it limitations. Hence, Ankara is hoping to have legislation to support the use of of istisna, murabaha, mudaraba, musharaka and wakala bonds ready in the coming months, reports Reuters.

"Ijara has a limit - real estate or leasing revenue is necessary and that is very limiting, maybe not for the Treasury but for the corporates," an unnamed banking source told the newswire. Other sources said the Turkish Capital Markets Board will complete its work within a couple of months, as it seeks to ensure the new types are in line with internationally accepted standards for Islamic finance.

"Turkey's preparing the legal framework for the sector to use whenever it needs. These issues will not become widespread in the short term," a senior official said. "The regulation will include both the treasury and corporates, and will allow any company or the treasury to issue them whenever there's demand for such an issue. That way, we'll be able to meet the global demand whenever we need."

Turkey's heavy dependence on the shaky European banking sector is a significant concern. It stands behind the huge concern over the country's current account deficit, which dictates central bank policy and raises borrowing costs by depressing Turkey's sovereign rating. Ankara has also seen privatization efforts sabotaged in recent years by financing difficulties on the part of corporates.

At the same time, Prime Minister Recep Tayyip Erdogan is desperate to boost Turkey's standing to that of a regional leader in the Middle East. All of which makes the recent turn by the government to tap the cash rich Islamic countries of the region an obvious move as Europe lurches through its debt crisis.

After several years of almost imperceptible development of Islamic finance, Turkey issued its first sovereign sukuk in September, clearly expressing the hope that it would open the market for corporates. Ankara has since issued another two Islamic bonds for a total value of $3.25bn, while several banks have also entered the action. The treasury has announced it will issue lira-denominated sukuk twice a year.

The new regulations will give Turkish issuers more flexibility to take advantage of investor demand for various types of sukuk at certain times, sources claim to Reuters. Bankers cited the case of a perpetual sukuk - ie. without a maturity date - issued by Dubai Islamic Bank in March as an example. The $1bn issue was almost 15-times oversubscribed. "It was one of the most demanded issues in sukuk history, but it's hard to know when there will be demand for different types of issues," an Istanbul-based banker said.

Related Articles

Turkey approaches day of reckoning on economic reform

Kivanc Dundar in Istanbul -   The unexpected success of President Recep Tayyip Erdogan’s Justice and Development Party (AKP) in this month’s general election should bring much-desired political ... more

Macedonia kept on hold as Balkans edges towards EU goal

Clare Nuttall in Bucharest -   Macedonia’s EU accession progress remains stalled amid the country’s worst political crisis in 14 years, while most countries in the Southeast Europe region have ... more

Turkey and America seen on course for confrontation in Syria war

John Davison of Exaro - Military action by Turkey against Kurdish rebel forces in Syria raises the prospect of a direct clash with the ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss