Investors who had eyed Turkey as the next big thing for Islamic finance — particularly sukuk — have looked at the continuing political protests in the country with alarm. Many fear that the fledgling market will hit a wall of public antagonism just as it looked to be finally taking off.
After all, the Turkish government delayed bringing a sovereign sukuk for years over concerns about how it would be viewed by the public.
However, to worry about this outcome is to underestimate both the diversity of protests and the extent of progress that Turkey has already made in the Islamic finance arena.
Of course, if the Turkish government was trying to pass laws allowing the introduction of Islamic finance and sukuk now, it would be a very challenging prospect. But all this has already been done.
Participation banks — as Islamic banks are known in Turkey — have long been up and running, the sovereign $1.5bn sukuk happened last year and another is in the works, there are a wealth of Turkish corporates that are candidates to diversify their funding through sukuk.
The country’s embrace of the industry has gathered momentum fast in recent months, with two state banks — Ziraat and Halkbank — planning to introduce Islamic units and all four of the existing participation banks having brought sukuk deals. Participation banks have also seen better growth in recent years than their commercial bank peers.
Sukuk has also been earmarked as a major part of the $350bn infrastructure financing plans for Istanbul’s redevelopment. Construction company Agaoglu has said it may issue up to $2bn of sukuk soon to build the new Istanbul Finance Centre. Borsa Istanbul head Ibrahim Turhan has said that the stock exchange wants to become one of the leading centres for non-interest finance and participation banking. He said Istanbul was seeking a comparable prominence for this in Europe and MENA as Malaysia enjoys in East Asia.
While it is not too late for Turkey's government to find a workable solution to the political protests — none of which has raised a single complaint about the country’s booming economy — it is far too late to turn back the clock on Islamic finance.
It will continue to grow as a useful part of a dynamic, well regulated Turkish capital market — unless, of course, the wave of protests gathers such momentum and power that they force the government to .
One threat does remain, however, if the wave of protests gathers sufficient momentum, and it is not restricted to Islamic finance. If Erdogan is forced to scrap projects, all markets will suffer — conventional and Islamic alike.