The role of Islamic banks within the Turkish financial system

Abstract

Since the establishment of the first Islamic bank twenty-five years ago, the concept of Islamic banking has gained world-wide acceptance. The main feature that distinguishes Islamic banking from conventional banking is the prohibition of interest, or "riba". The choice of Turkey was made for several reasons. Firstly, although Turkey has a large and overwhelmingly Muslim population, it is also a secular state. In many ways the problems experienced by the Islamic banks in Turkey are similar to those faced by Islamic banks in non-Islamic countries. Secondly, since 1980, the Turkish economic and financial sector has undergone rapid change, with the entry of many conventional banks. Turkey therefore offers an example of how Islamic banks can survive and prosper in a very competitive financial environment. Thirdly, due to Turkey’s strategically important position between the Middle East and Europe and increasing trade and political ties with both areas, the potential for further expansion in the field of Islamic banking in Turkey is enormous. In the introductory chapter, the economy of Turkey from the founding of the Republic to the present day was examined. Chapter 2 dealt with the activities and functions of the Central Bank. The conventional banks and other financial institutions were discussed in Chapter 3. Reasons for the prohibition of interest in Islam, together with a short account of the origins of banking in the Islamic world and the emergence of Islamic banking were covered in Chapter 4. In Chapter 5, the position of Islam and the establishment of Islamic banks in Turkey were discussed, followed by details of the types of Islamic investment, accounts and services available to the committed Muslim. Finally, the concluding chapter examined the performance of the Islamic banks and assessed their role within the Turkish financial system.