Turkey’s interest-free finance system eyes 15% market share

Turkey’s Islamic finance and banking sector, or participation banking as it is widely known in the country, has achieved growth above conventional banks and could reach a market share of 15% by 2025, according to sector representatives, who expect Istanbul Finance Center (IFC) to make a significant contribution to the interest-free finance system.

Ikram Göktaş, the chairperson of the board of directors of the Participation Banks Association of Turkey (TKBB) and general manager of Vakıf Katılım, said that the public participation banks joining the sector have significantly boosted the interest-free lenders’ growth.

As of the end of June, the assets of participation finance institutions were over TL 504 billion ($52.16 billion), he said.

Göktaş stated that the market share of participation finance institutions was 5% for a long time but when the state lenders entered the game, this reached 7.5% in a short time.

Stating that the total funds provided by participation finance institutions have reached TL 280 billion, Göktaş said most of this amount is available to the real sector due to the very structure of how participation finance works.


Some 13.6% of the funds used are given to individual customers, while 55.4% is for commercial customers and 31% for small and medium-sized enterprises (SMEs), he said. The rate of funds allocated to SMEs in conventional banks is 23%.

He went on to say that the “funds collected by participation finance institutions have reached the level of TL 373.4 billion as of June. The share of the collected funds in the banking sector is 9.7%. Our total equities are at the level of TL 32 billion. It is very important to increase this even more.”

Meanwhile, the sector currently provides services with 1,296 branches and employs over 17,000 people.

Explaining that they are working with participation banks and sector stakeholders to improve the perception in the sector, Göktaş said: “We have prepared a study to examine existing and new practices that will set an example, and to determine the steps to be taken in line with the development and growth of the sector, taking into account the economic, social and legal conditions.”

One of the topics set to be the focus of the next five years is “strengthening the communication of participation banking with its target customers,” which Göktaş sees as very important.

“We need to increase the number of our customers. We see that our market share in the number of customers is lower than our market share in our asset size. Even though this means that we get more efficiency from fewer customers, it does not prevent the need for reaching more customers. It is also an important issue to convey the functioning of the financial system to the customers in detail,” he said.

“We have to explain each product we will produce in detail to our customers and make them adapt. When people have an alternative, they prefer products with interest-free mechanisms. It is very important to use technology and digital channels. We see that digital has come to the fore in the banking and finance sector. As participation finance institutions, we make very serious investments in digital areas. We believe that growth will come from digitalism. Branches will not lose their importance, but the digital side seems to reduce the need for additional branches,” Göktaş explained.

‘Resilient to crisis’

Göktaş further commented that the IFC will add significant value to the country’s economy.

Istanbul has very important advantages to become a hub for Islamic finance, according to Göktaş, since access to international financial centers and customers is very easy from the metropolis thanks to its location.

“We are a country with a qualified workforce, regulatory environment and legislative infrastructure.”

Göktaş stated that Turkey will undoubtedly become a financial center and the first step toward this is to be an Islamic finance center and to address nearby regions.

Stating that participation finance grows through its internal mechanism and that the system needs to grow a little more to gain foreign capital, Göktaş underlined that the participation finance system is resistant to crises.

Participation banks were more successful than conventional banks in overcoming the 2008 financial crisis, he said as an example.

Interest-free finance and its economic system have been dubbed a solid, sustainable and structural alternative to the existing financial system laden with crises since they do not harm the link between the real sector and financial sector, which are often pitted against each other in the current global system, making it difficult to break free from crises.

Metin Özdemir, general manager of Ziraat Katılım, also said that with the initiation of public participation institutions, a new competitive environment has emerged in the sector and it is an important factor in increasing the share it receives from the banking sector.

Özdemir stated that it took a long time for participation finance to increase its share in the sector above 5% and that its market share has now exceeded 7.5%.

Emphasizing that in the last four to five years participation in finance has grown far above the conventional banking sector, Özdemir said: “We have a target to increase the share of participation finance to 15% in 2025.”

“As long as we continue at this pace,” he said, “this target will easily be reached.”

Emlak Katılım General Manager Nevzat Bayraktar also mirrored similar beliefs regarding the IFC.

Stating that Turkey’s strategic position has been strengthened with the regulations and investments made in the last 20 years, Bayraktar said that the IFC is one of the biggest examples of these investments.

“The vision of becoming an Islamic finance center under the leadership of President Recep Tayyip Erdoğan is a fresh breath to the strong position of Istanbul” that would attract investments, he said.

The new regulations will attract investments from Gulf countries, in particular, he said.

“The participation finance sector will continue to accelerate its growth momentum by developing new products and services that are bound to the interest-free principle and that can be a solution to market needs.”

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