A new opportunity for Gulf capital

AKP government is reshaping participation banking in line with the goal of expanding Türkiye's share in the global Islamic finance market.

While preparations are underway for the merger of three public participation banks, it has been learned that the draft Islamic Finance Law, which will bring a new legal framework to the sector, is also in the final evaluation stage.

The Istanbul Financial Centre, which began with the dream of turning Istanbul into a financial centre but remained merely a construction project, is being positioned with the effort of becoming the centre of Islamic Banking.

Speaking at the 3rd World Islamic Economics Summit hosted by the Istanbul Financial Centre, AKP President Tayyip Erdoğan said, "Where there is interest, there is no abundance; in an environment where justice is excluded, abundance cannot find a place for itself," and announced that Emlak Participation would be offered to the public, and Ziraat, Vakıf, and Halk Participation banks would be merged.

Minister of Treasury and Finance Mehmet Şimşek, in his speech at the same summit, said that there are still untapped opportunities in many countries, including Türkiye, in terms of Islamic finance assets. Stating that Türkiye ranks 9th in terms of market size in Islamic finance but there is a lot of homework to be done for the goal of entering the top 5 countries, Şimşek stated in his speech, "We live in a world open to shocks. For this reason, we need to invest in resilience and create strong buffers. This makes it necessary to give more weight to Islamic finance products."

Sources from the Ministry of Treasury and Finance reported that there is not yet a determined timetable that has reached the Ministry regarding the merger of the three public participation banks. Ministry sources stated that feasibility and preliminary preparation works are expected to be carried out by consultancy companies experienced in this field prior to the merger process, and the merger timetable will become clear following the completion of the said works.

40-YEAR DREAM

At the foundation of the Islamic finance push lies the effort to attract US-led Gulf capital to the country. Participation banking activities in Türkiye began one year after the establishment of "Special Finance Institutions" was permitted by a Council of Ministers decree in 1983. Turgut Özal, who took the Prime Minister's seat after 12 September, signed a decree that would lay the foundations of Islamic finance in Türkiye as soon as he took office. With the decree, the entry and investment of Saudi and Gulf capital into Türkiye were liberalised. Thus, the Islamic bank chain Faisal Finance, which spread around the world, commenced operations in Türkiye in 1984.

Participation banking, which gained momentum in the 1990s, was included in the scope of the Banks Law in 1999. With the publication of the Banking Law No. 5411 in 2005, the Special Finance Institutions, which had been operating in the sector for more than 20 years under the name of special finance institutions, changed their names and transformed into participation banks. From the mid-2010s onwards, public initiatives were also added.

The first participation bank established in Türkiye was Albaraka Türk Participation Bank in 1984, followed by Kuveyt Türk in 1989 and Türkiye Finance in 2005. Foreigners constitute the main shareholders of all three participation banks. In 2015, the public sector established Ziraat Participation, the first public participation bank, with the aim of increasing the share participation banking takes from the sector. Within the same year, Vakıf Participation was established, and the bank was granted an operating licence in 2016. In 2019, Türkiye Emlak Participation Bank was established, particularly to operate in the housing sector. In 2023, two digital participation banks, namely Hayat Finance Participation Bank and TOM Participation Bank, joined the sector. Lastly, Adabank AŞ was transformed into Dünya Participation Bank by changing its nature and title.

ACCOUNTING STANDARDS

Following the establishment of public-capital participation banks, the board decision of the Public Oversight, Accounting and Auditing Standards Authority regarding the interest-free finance sector was published in the Official Gazette on 14 December 2019. The decision was related to ethical rules for auditors conducting the independent audit of interest-free financial institutions. However, the board decision, called ethical rules, consisted of sharia provisions. Türkiye, which had accepted the Turkish Accounting Standards and the International Financial Reporting Standards until this date, took a step for the first time in applying the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards.

LAW PREPARATION IN THE FINAL STAGE

The end is also approaching in the legal regulations to be able to attract Gulf capital to the country. Pointing to the importance they attach to the development of Islamic banking and participation-based markets in a speech he made in 2025, Şimşek had said, "One of the issues we are currently working on is to create the Islamic Financing Law and pass it through Parliament. There were some matters that needed to be corrected in the draft text, and we are working meticulously on these issues. We do not want to include articles in the law that the sector will not adopt or that could create problems in practice."

Ministry Sources stated that the draft law, expected to be named the Participation Finance Law, has been presented to the Vice Presidency. According to the information obtained, it is planned to hold a meeting with the relevant institutions soon to work on the draft text and give it its final form.

The total share of participation banking in the banking sector stands at 9.27 per cent as of April. However, this ideological foundation, which has been strived for over 40 years, is being positioned at the top of the banking sector today as a 'promising alternative'. A suitable showcase for Gulf funds is being prepared with the rhetoric of interest-free finance.

Note: This article is translated from the original article titled Körfez sermayesine yeni kapı, published in BirGün newspaper on July 1, 2026.