The Islamic finance industry has been on the rise with the Islamic banking sector growing throughout crises. Turkey’s Islamic banking sector is said to have shown just a moderate growth compared to its actual potential and global developments. The country’s Islamic banks are said to grow further depending on whether they’re able to improve investments, and to find sources of mid- to long-term funding for their investment activities. In the Islamic finance industry Sukuk, a form of Shariah-compliant securitization, emerged as a viable form of finance for both sovereign and corporate entities that seek for Shariah-compliant long-term financing sources. Since the international breakthrough in 2001, Sukuk certificates have been increasingly issued in various jurisdictions throughout the Middle East and Asia, and in parts of the western world. The upward rise supposedly represents the need of Islamic financial institutions for longer-term funding sources to overcome their short-term liquidity constraints.
This paper provides a comparative analysis (quantitative and qualitative) of developments and the current state of applications of Sukuk financing in Turkey and the global Islamic finance sector. Sukuk markets have surely become one of the main sections of the Islamic finance industry. Islamic banks in Turkey just recently tapped the market, though. In line with trends in global Sukuk issuances, Turkish Sukuk were sponsored by corporate entities and of the Ijarah and Murabaha Sukuk types. However, sovereign / quasi-sovereign Sukuk issuance has been globally on the rise lately. In the near future, this trend could happen to be also true for the Turkish Sukuk market.
Table of Contents
1 Introduction
2 Literature Review
3 Developments of the Islamic Banking Sector of Turkey
3.1 Market Size and Sectoral Developments
3.2 Market Participants
4 Sukuk – Islamic Capital Market Securities
4.1 Definition
4.2 Securitization in Sukuk
4.2.1 Issuance of Sukuk
4.2.2 Contracts Underlying Sukuk – Types of Sukuk
4.2.3 Structures of Sukuk
5 Developments of Global Sukuk Markets
5.1 Global Sukuk Issuance
5.2 Sovereign, Quasi-Sovereign, and Corporate Sukuk Markets
5.3 International and Domestic Sukuk Markets
5.4 Global Sukuk Market by Underlying Contract
6 Developments and Current State of Sukuk Applications in Turkey
7 Conclusion
I Turkey’s Economy and Banking Sector
I.I Turkey’s Economy At A Glance
I.II Developments and Current State of The Overall Banking Sector of Turkey
II Contracts Underlying Sukuk: Basic Types of Islamic Financial Instruments
III Figure
Research Objectives and Key Topics
This paper aims to provide a comprehensive comparative analysis, both quantitative and qualitative, of the developments and current state of Sukuk financing within Turkey in the context of the broader global Islamic finance industry to establish a foundation for further academic evaluation.
- Analysis of Turkey's Islamic banking sector and its growth potential.
- Examination of Sukuk as a Shariah-compliant securitization instrument.
- Review of global Sukuk market trends, including issuer types and structures.
- Evaluation of Turkish Sukuk market applications and recent corporate issuances.
- Identification of economic, legal, and structural challenges in Islamic capital markets.
Excerpt from the Book
4.2.3 Structures of Sukuk
Sukuk transactions can be distinguished into four structures depending on whether a Special Purpose Vehicle (SPV) issues notes or not, and whether Sukuk convey ownership rights in the underlying assets to the investors (asset-backed) or not (asset-based):
(1) In an asset-backed Sukuk structure without a SPV, the asset originator himself issues Sukuk backed by Shariah-compliant assets, whereas (2) in such a structure with a SPV, the asset originator sells Shariah-compliant assets and the proceeds of them to a separate SPV that issues the Sukuk to finance the purchase of the asset.
(3) In a so-called “pay-through” asset-based Sukuk structure with a repurchase undertaking (no SPV), the asset originator (sovereign or corporate entity) sells the Shariah-compliant asset to the issuer (Islamic financial institution) and enters into a so-called repurchase undertaking (binding promise to repurchase the asset at maturity). The issuer leases back the asset to the originator on behalf of the investors and issues the Sukuk. Such structure is often executed in case of a Ijarah Sukuk, and is referred to as “pay-through”, because income from the underlying assets (less commission of the issuer) is paid to the investors by the issuer.
(4) In a so-called “pass-through” asset-based Sukuk structure with a SPV, the asset originator (Islamic financial institution) sells Shariah-compliant assets to a separate SPV that packages the assets into a pool and securitizes the pool by issuing the Sukuk. The issuing entity requires the originator to give investors the right of recourse in case of default, and guarantees repayment in case of default of the originator (Shariah-compliant credit enhancement). The latter two structures are referred to as “asset-based” in Islamic finance, when “the ownership rights over the underlying asset may not reliably result in an effective right of possession in case of default, and in consequence, the sukuk holders need to have a right of recourse to the originator in case of default.”
Summary of Chapters
1 Introduction: Provides an overview of the rapid growth of the global Islamic finance industry and outlines the specific research objective concerning the status of Sukuk in Turkey.
2 Literature Review: Synthesizes existing scientific publications regarding securitization in Islamic finance and the challenges associated with Sukuk development.
3 Developments of the Islamic Banking Sector of Turkey: Examines the market size, asset distribution, and the key players within the Turkish participation banking sector between 2000 and 2010.
4 Sukuk – Islamic Capital Market Securities: Defines the nature of Sukuk, the process of securitization, the various contract types, and the diverse structural frameworks used in issuance.
5 Developments of Global Sukuk Markets: Offers a quantitative analysis of global issuance trends, categorizing markets by issuer type, geography, and underlying financial instruments.
6 Developments and Current State of Sukuk Applications in Turkey: Documents the implementation of the first corporate Sukuk issuances in Turkey and the impact of the 2010 legal framework on market growth.
7 Conclusion: Summarizes the findings on the Turkish Sukuk market and identifies areas for future legal and regulatory research.
Keywords
Islamic Finance, Islamic Banking, Turkey, Sukuk, Securitization, Shariah-compliant, Participation Banks, Capital Markets, Asset-backed Securities, Ijarah, Murabaha, Sovereign Issuances, Corporate Finance, Liquidity Management, Financial Regulation
Frequently Asked Questions
What is the primary focus of this research paper?
The paper focuses on the development and current application of Sukuk, a form of Shariah-compliant securitization, within Turkey compared to the global landscape.
What are the central thematic areas covered?
The research covers the Turkish Islamic banking sector, the mechanics of Sukuk securitization, global market trends, and the specific regulatory environment in Turkey.
What is the main objective of the study?
The objective is to provide a comparative analysis of the current state of Sukuk financing in Turkey to help lay the groundwork for future research.
Which scientific methodology is applied?
The study is a descriptive analysis that utilizes both quantitative data on banking sectors and qualitative research on securitization processes through desk research.
What does the main body of the work address?
It details the evolution of the Turkish banking sector, defines the technical structures of Sukuk, reviews global issuance patterns, and examines specific Turkish corporate cases.
How would you characterize the keywords of this work?
The keywords center on the intersection of Islamic finance principles, capital market securities like Sukuk, and the specific emerging market environment in Turkey.
How has the Turkish Sukuk market performed since 2010?
After the enactment of a 2010 law granting tax exemptions for leasing certificates, Turkey saw its debut Sukuk issuance; however, the market remains modest compared to global volumes.
What challenges do Turkish banks face in the Sukuk market?
Beyond existing Shariah compliance requirements, banks have encountered challenges such as adverse international market conditions leading to the postponement of planned issuances.
- Quote paper
- Atilla Yücel (Author), 2012, Islamic Finance Application in Turkey in Comparison with Other Countries: Developments and Current State of Sukuk, Munich, GRIN Verlag, https://www.grin.com/document/194276
