Towards a Plural Financial System
Edited by Valentino Cattelan
Chapter 15: The development of Islamic banking in Turkey: regulation, performance and political economy
Islamic banking in Turkey began in 1985 as part of the liberalization programme pursued by Turgut Özal’s premiership (1983–89). However, due to the laicist political culture of the time, Islamic banks were called ‘Special Finance Houses’ (SFHs), without any express reference to their Islamic nature. This political disfavour towards the label ‘Islamic’ persisted in 2005, when SFHs were converted into ‘Participation Banks’ (PBs), and continues to exist today despite the ‘Islamically friendly’ government being in power in the last ten years. Not only has the development of the market been hampered by an adverse political environment, but also the secularization of Turkish society has to be taken into consideration for a comprehensive analysis. In this light, the chapter aims to depict the evolution of Islamic banking regulation in Turkey including the legal facilitating changes, followed by an assessment of the performance of the market. The following section interprets its current underdevelopment through a political economy and behavioural analyses, while the final section provides some hints for the growth of the sector in the coming years.
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