Contact: Prof. Dr. H. Ercüment Erdem; Erdem & Erdem (Turkey)
Turkey's first regulation for Islamic Finance was realized during the 1980s, during a period of liberalization as part of a plan to attract foreign direct investments. Interest free banking was introduced with the legalization of "special finance houses" which did not possess bank status and therefore did not benefit from banks' privileges.
The Islamic Finance sector kept evolving steadily in the 1980s and 1990s with Arab Gulf investors setting up finance houses and commencing lending activities, accommodating mainly specific religious clientele.
The leap for interest free banking came after the 2001 economic crisis. Banking finance legislation went through a major overhaul after the crisis. A union was formed to provide a certain level of state control and support for special finance houses. 2006 saw the introduction of Banking Law No. 5411, which legitimized participation banking and provided insurance through the Savings Deposit Insurance Fund for participation deposits. Along with these changes, the special finance houses union became the Participation Banks Association of Turkey ("TKBB"), which sets forth the ethical, professional principles for participation banks. All participation banks had to be a member of TKBB. The following years saw a rapid increase in participation banking and the 2008 global crisis highlighted the need for more stable financing. In line with the government's support of Islamic Finance and interest free finance instruments, the World Bank Global Islamic Finance Development Center was launched on the premises of the Istanbul Stock Exchange in late 2013.
