Optimistic Deputy Prime Minister Ali Babacan Wows GIFF 2012 as Turkey Emerges as a New Frontier for Sukuk Origination (By MIFC)

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Last Updated : 05 Oct 2012


Turkey’s Deputy Prime Minister (DPM), Ali Babacan, could not hide his excitement at the impressive closing of the country’s debut sovereign sukuk issuance, a USD1.5 billion Sukuk Al-Ijarah, which was over-subscribed by more than five times


DPM Babacan, in fact, was a distinguished guest at the Global Islamic Finance Forum (GIFF) 2012, which was held in Sasana Kijang, Kuala Lumpur, in September, when the Turkish benchmark sovereign sukuk deal was closed. In his Public Lecture at the Plenary Session of the Forum, titled ‘Islamic Finance in the New Frontier in the Age of Global Economic Change’, DPM Babacan emphasised that the debut Turkish sovereign sukuk will help spur further issuances from Turkey.


“We feel this is going to set a benchmark for other government institutions and the private sector. We have prepared the tax and legal framework and believe there is good room for growth in this,” he added.


His speech confirmed Ankara’s support for the Islamic finance industry, which in Turkey is called Participation Banking. It also gave further insight into Turkish government thinking about the future direction and development of the industry both at home and abroad.


In Turkey, the Participation Banking sector received a major boost from the new Banking Law 2005 which created a level playing field between the Participation Banking and conventional banking sectors in the country. “Participation Banking assets in the last year or so has expanded faster than those of conventional banks. The four Turkish participation banks now account for 5.6 per cent of the total banking sector assets in Turkey and have some 762 branches throughout the country, employing 14,600 people. Participation Bank assets grew year-on-year five times in 2011. The Participation Banking sector is an indispensable and complementary element of the Turkish banking sector,” he explained.


The Islamic finance industry, especially its acceptance as an alternative system of financial intermediation has gained in stature in the last decade. Indeed, today Islamic finance is part of the global financial system. In several markets, the industry potentially constitutes the backbone of the banking system. The sukuk market, for instance, is expected to exceed USD100 billion this year. This is supported in some markets by a robust institutional framework and participation by key industry players.


“Islamic finance,” he informed, “contributes stability to the financial system resilience and to competition. Islamic banking generally is strong and was not exposed to the subprime and toxic assets. Conventional banks can learn from Islamic banks in this respect.”


But, despite the fact that Islamic finance assets have passed the USD1 trillion mark globally, “the value of the global assets of the industry are still small. The total global Islamic finance assets constitute less than 1 per cent of total global financial assets. This means that there is good room for growth in this industry especially in the private sector. Therefore, there is great potential for the industry, for instance, in financing the small-and-medium-sized enterprises (SMEs) which together with a rising global Muslim population will help propel Islamic finance to the next level.”


Market participants were indeed buoyed by the strong investor demand for the Turkish sukuk. Middle East investors accounted for some 58 per cent of the uptake, followed by European and Asian investors.

The proceeds from the issuance, which was arranged by Citigroup, HSBC and Liquidity Management House, a subsidiary of Kuwait Finance House, will be used to finance part of the Treasury’s funding requirements for fiscal year 2013.