Rise of Turkish Islamic banks chimes with Erdogan's ideals

Rise of Turkish Islamic banks chimes with Erdogan's ideals
Opponents of Turkey's Prime Minister Tayyip Erdogan accuse him of increasing megalomania, and the authorities of setting up a cult of personality around the man who has ruled Turkey either as president or prime minister since 2003.

ISTANBUL - Selling fruit from a cart in a working-class neighbourhood of Istanbul hasn't made Mehmet rich, but he's adamant his modest savings won't ever see the inside of a bank.

"Getting paid interest is a sin," he said, piling bunches of grapes onto a rusty set of scales in the conservative Fatih district.

"I keep my money partly in gold and under the pillow," the 67-year-old said, declining to give his surname.

Like Mehmet, at least 8 percent of Turkish adults do not have a bank account for religious reasons, according to a 2014 World Bank report, because of the prohibition in Islam against paying interest.

Under President Tayyip Erdogan, an authoritarian leader with roots in Islamist politics and an aversion to usury, Turkey is hoping it can turn disdain for traditional banks among the pious into a boom in Islamic finance, where, instead of interest, banks charge service fees and depositors share in bank profits.

Two state-run banks - Halkbank and Ziraat Bank - are pushing ahead with plans to launch Islamic units this year, joining four existing private Islamic lenders.

Ziraat, Turkey's largest unlisted lender, is due to launch its Islamic business in May, while Halkbank has said it expects to have its business ready by the end of this year.

Turkey's banking regulator also this month approved the establishment of an Islamic lender indirectly related to state-run bank Vakifbank, the third new entrant.


The government, which issued a debut $1.5 billion Islamic bond three years ago and last year presented a legislative framework for publicly owned Islamic banks, wants the industry's assets to double to $100 billion by 2023.

"Erdogan is very keen to promote Islamic banking in Turkey," said Fadi Hakura, a Turkey expert at Chatham House, a London-based think-tank. "It's part of efforts to turn Istanbul into a financial hub, and also Erdogan's aversion to interest rates, which he views as usually prohibited by Islam."

Erdogan's insistence that high interest rates cause inflation - an argument that goes against mainstream economics - and that those who defend them are guilty of treason have unnerved financial markets in recent weeks.

His demands that the central bank cut rates more sharply, and tirades against its monetary policy, have helped send the lira down 12 percent this year to a series of record lows.

But they have gone down well among his core conservative supporters, including a class of industrialists who have thrived over the past decade on cheap loans and relative political stability.

"I feel relieved to have access to an Islamic bank, because it is within the laws of our religion," said 25-year old Oznur, clad in high-heeled boots and a gold coloured headscarf, as she walked away from an ATM at an Islamic bank in Fatih.

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