Prof. Dr. Servet Bayindir stated that, in the Economic Reform Package announced by President Recep Tayyip Erdogan, the steps to be taken regarding interest-free finance will fill a big gap in the sector, and that foreign capital will be attracted to Turkey.
The economic package, which includes macroeconomic stabilization policies and structural policies, which has been studied for a long time under the leadership of Treasury and Finance Minister Lutfi Elvan, was announced by President Recep Tayyip Erdogan last week.
In the macroeconomic field, reforms covering the titles of “public finance”, “price stability”, “financial sector”, “current account deficit”, “employment” and “structural policies” were introduced. In the structural field, “corporate governance” was created on the basis of “encouraging investments”, “facilitating domestic trade”, “competition” and “market surveillance and control”.
Under the title of “strengthening the interest-free finance system” of the reforms, it was stated that the Interest-Free Finance Law will be enacted, the Central Advisory Board will be established, the participation finance rating system will be implemented and the participation finance arbitration mechanism will be established.
“The capitals of interest-sensitive masses will contribute to our country”
Speaking to Anadolu Agency (AA), Prof. Dr. Bayindir, a member of the Presidential Board of Economic Policies and an academic member of Istanbul University Islamic Economics and Finance, stated that these reforms contain important action items that concern all segments of the society, and that some of the prominent items in the program directly concern the interest-free finance system.
Bayindir stated that, regardless of the current Banking Law No.5411, the enactment of an independent Law of Interest-Free Finance that gathers the entire participation finance sector under a single roof will fill a huge gap, and added saying, “The biggest shortcoming of our country’s participation banking is that despite its 40-year history, there is no private law yet. Participation finance institutions currently operate within the scope of the Banking Law No. 5411. Since the spirit and technical structure of this law is designed on an interest-based basis, participation inevitably forces financial institutions to make transactions with interest.”
Stating that Malaysia has become a guide to other countries in this field by completing all kinds of laws and regulations in the interest-free finance system, Bayindir said:
“The UK has established such a system with its regulations and institutions that it has made many interest-free banks in the world doomed to itself, and has ensured the flow of Islamic capital to England with the Islamic money and capital market products and legislation it has developed. Our country is in an advantageous position than the UK and Malaysia in terms of applying Islamic finance and attracting foreign capital in this field. The positive image that our country has created in the Islamic world in the political and military fields in recent years has paved the way for the excess cash in Islamic countries to divert to our country. But for this, we need to make up for our shortcomings. The deficiencies in the legal infrastructure in banking, insurance, fund management and most importantly, money and capital market products in accordance with Islamic principles must be eliminated as soon as possible.”
Bayindir said that the enactment of an independent Law of Interest-Free Finance in full compliance with the spirit and principles of Islamic finance will increase the confidence in the sector by eliminating doubts about the system, and it will create a basis for the flow of capital of interest-sensitive masses both at home and abroad to the markets in a way that will contribute to the country’s economy.
“The Arbitration Commission will improve the credibility and dynamism of the Islamic financial sector”
Prof. Dr. Servet Bayindir said that it is expected that the Central Advisory Board, as stated in the reform program, to produce and publish the principles and standards regarding Islamic finance, act as an arbitrator in eliminating the application differences between institutions, judge and supervise the sector in terms of compliance with Islamic financial principles, thus ensuring the reliability of the system at home and abroad.
Stating that with the developments in globalization, digitalization and communication technology, the national belonging of the capital has disappeared and has become a global entity.
“This situation has led to a transformation in the point of which country’s legal authority will be entrusted with the rights and responsibilities of the parties. Capital owners have now started to determine the terms of the contract and the competent legal authorities themselves. They have become familiar with the resolution of disputes either by the courts of the country they wish or the decisions to be made by the delegations that have the conditions they have set themselves. The issue of arbitration comes to the fore at this stage. Therefore, the International Arbitration Commission in the reform program will assume the role of arbitration in the resolution of international disputes regarding Islamic finance, instill confidence in the investor, ensure that disputes are resolved in a short time without being dragged in court corridors for years, and thus will assume the role of a structure that will improve the reliability and dynamism of the Islamic financial sector in our country.”
“Islamic Rating Agency will fill an important gap”
Bayindir, a member of the Presidency’s Board of Economic Policies, emphasized that the basis of Islamic finance is a real, qualified and commercial character of the system, free from fraud and deception.
Bayindir continued as follows:
“The indispensable condition of the system is that it is free from interest, gambling, excessive speculation, zero-sum fictitious derivative transactions, all haram-based sectors and practices. Regardless of whether these are used directly or indirectly, they are prohibited. This is where the rating application comes to the fore. The rating agencies determine and announce which transactions are compatible with the principles and standards and which are incompatible in the context of the criteria established based on the principles stated above. In this context, there are international institutions such as the International Islamic Rating Agency, as well as local and even sectoral Islamic index organizations such as Karachi, Kuala Lumpur, Nasdaq and Dow Jones.
In this context, we can evaluate the current participation index practice in our country. Just as investors make their investment decisions by looking at the ratings of international risk valuation companies, capitalists with Islamic sensitivity rely on the data of Islamic rating agencies in their investments. Participation in these criteria includes financial institutions, insurance companies and portfolio management organizations. However, in our country, we do not have an internationally recognized and independent Islamic Rating Agency to guide domestic and foreign investors in the field of Islamic finance. In fact, there is no institution of this scale in almost any of the Islamic countries. Therefore, the independent Islamic Rating Agency to be established will fill an important gap for both our country and the whole Islamic world.”
“There are many more steps to take”
Stating that important steps have been taken in the field of interest-free finance in recent years, Prof. Dr. Servet Bayindir stated that the establishment of the Participation Finance Department within the Presidential Finance Office and the Participation Banking Department within the Central Bank are among the important steps in this scope.
Emphasizing that there are still more steps to be taken, Bayindir said:
“It is essential that existing participation finance products and practices are fully reviewed and harmonized with the spirit of Islamic finance. We need to reorganize our financial institutions and products on a natural and inherent basis and put them at the service of humanity, so that we can be an example to all humanity. It is a fact that patches to the existing system cannot cure humanity. For this purpose, in accordance with the essence and spirit of interest-free finance, education should be provided from primary school to university, and efforts should be made to reposition the entire economic system from interest-based to a real interest-free basis. Otherwise, the steps to be taken will not go beyond saving the day.”
Stating that one of the most important problems of Turkey’s participation finance institutions is the scarcity of personnel who have been trained according to Islamic finance principles, Bayindir said that the current personnel in the sector have only received training on the basis of traditional interest banking understanding.
Bayindir stated that the employees had difficulties in understanding the spirit of participation finance, adding that the number of public and private institutions providing Islamic finance education should be increased and the quality of the existing ones should be supported in order to close this gap.
Source: AA / Translated by Irem Yildiz