A new participatory index on the Turkish Stock Exchange expands the Islamic finance sector.
By Justin Vela for Southeast European Times in Istanbul -- 20/01/11
The stock exchange in Istanbul expands its banking potential. [Reuters]
The Istanbul Stock Exchange (ISE) launched a participation index earlier this month to highlight and track 30 Sharia-compliant companies in an effort to further develop the Islamic finance sector. The Islamic index comes at a time when the world is realising the growth of the global Muslim population.
Since 2004, Turkey has scene a steady rise in Islamic banking. Last August, Istanbul-based Kuveyt Turk Katilim Bankasi sold the country's first sukuk or Islamic bonds, raising $100 million. Some view the Islamic index with apprehension, others as an opportunity.
"The global Muslim population is very young, relative to the global population, with a high growth rate," said Rafi-uddin Shikoh, managing director of the business strategy publication DinarStandard. "This is what's driving the overall growth, in addition to the assertiveness."
The value of the so-called "International Muslim Market" is estimated at $2 trillion. Muslim-focused products are in demand from a population that will increase by one percentage point each decade, according to a study published in June by the International Journal of Environmental Science and Development.
The new participatory index is meant to bolster trade with the Gulf and Middle East North Africa regions. Retailer Birlesik Magazalar, real estate trust Emlak Konut, and telecommunications giant Turk Telekom are among the companies listed on the index.
"We aim to be a domestic participation index, but at the same time we want foreign investors to benefit from this index," says Avsar Sungurlu, deputy director of Bizim Securities for Hurriyet Daily News.
Sharia Islamic Index is the first such index offered in Turkey, a country that made secularism one of its founding principles although 99% of population is Muslim.
Secular Turks believe that the Islamic style index, along with a recent government crack-down on alcohol, is proof of Turkey's Islamisation that has them concerned the country may become more similar to Iran than its traditional Western allies.
Islamic banking prohibits the payment or acceptance of interest and investing in businesses, which are haram [forbidden], that is contrary to the principles of Islam.
The Sharia Index will not incorporate companies that produce alcohol, pork meat or tobacco products, also forbidden according to the principles of Islam.
The index is traded on the ISE under the KATLM ticker.
Turkey's increased trade with the Middle East is dwarfed by its trade with the EU, which remains the country's primary trade partner despite the crisis in the euro zone.
Turkey is gradually expanding trade with other Muslim countries and in the Far East, especially Middle East countries. The expansion will proceed slowly due to the entrenched bureaucracy and red tape in these countries, experts say.
Last November in Beirut, Turkish Prime Minister Recep Tayyip Erdogan moved forward with plans for a free trade zone between Turkey and Middle East countries.
"Be sure that we will shape the future altogether. We are members of a civilisation that gives high importance to neighbourhood," he said in a speech after receiving the Leader of the Year Award from the Union of Arab Banks.
Turkey currently has four Islamic banks and is attempting to attract further interest in its burgeoning Islamic finance sector. Along with Kuveyt Turk Katilim Bankasi, the other Islamic banks are: Asya Katilim Bankasi AS, Turkiye Finans Katilim Bankasi AS and Albaraka Turk.