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Islamic Financial System in Turkey

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Economic growth in 2013 is forecast to accelerate to 4 percent according to the World Bank’s Turkey Regular Economic Brief issued January 2013, but prospects for sustained growth over the medium-term depend on accelerating structural reforms the international lender cautions. The brief analyzing of Turkey’s recent economic developments, prospects, and risks is highlighting significant improvement in external imbalances. On the flip side the current account deficit remains high.

In another word Turkey remains dependent on short-term financing. Turkey’s rapid growth and development over the last decade is one of the success stories of the global economy. Turkey’s GDP has tripled in US$ terms in that time. Today, Turkey is an upper-middle-income country with a population of 75 million and a gross domestic product of US$785 billion. It is the Government’s stated intention that Turkey becomes one of the world’s 10 largest economies by 2023, the 100th anniversary of the founding of the Turkish Republic. While the economic outlook for 2013 has moderately improved, Turkey’s mediumterm challenge is to increase productivity and competitiveness and reduce the reliance on foreign savings to make growth less volatile and more sustainable.

Islamic financial system in Economic Outlook

The recent Ernst & Young’s report on the Islamic finance sector says Turkish participation banks have expanded every year at an average of 19 percent and their commercial volume reached $1.3 billion in 2011.


Currently, all of the banks in Turkey that offer interest-free services to their customers hold 5 percent of the total banking market at a size of $31 billion, and the report expects Turkey will increase the size of its participation banks to over $100 billion by 2023. This will be triple time more than now and the country could possibly have more potential in developing Islamic finance sector by offering more variety of new Islamic financial instruments to foreign demand. The main question is when the current account deficit of Turkey remains high and the country is dependent on short-term financing what is the role of Islamic financial instruments in this period? We could mention although the general outlook of the Islamic finance sector looks promising in turkey but in some experts look the country fails to reach its actual potential in the this sector. Improving the Islamic finance system ideally based on Islamic Economic philosophy might be possibly one the best way to reduce the risk in particular systemic risk among the financial institutions.

Turkey needs to find out the weight of Paper economy and real economy in the whole system and their contributions in recent economic developments. We believe although the economic outlook for 2013 is still promising, risk management of the core financial system, managing the trigger points in case of systemic failure, still remain as main challenges which development of Islamic financial system could be remain as remedies to part of these risks.

(Courtesy: Global Islamic Finance Magazine)
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