Balancing Tradition and Modernity in Turkey's Islamic Finance Landscape

Abstract

In recent years, Islamic finance has gained prominence globally as an alternative financial system that adheres to Sharia principles, which prohibit interest (riba) and promote ethical and socially responsible investment. Participation banks, also known as Islamic banks, play a crucial role in offering financial products and services that comply with Islamic law. These institutions operate on principles such as profit-and-loss sharing (Mudarabah), joint venture partnerships (Musharakah), and asset-backed financing (Ijarah), among others. Turkey, with its predominantly Muslim population, represents a unique case in the Islamic finance landscape. Despite the Islamic ethos deeply embedded within its society, Turkey has maintained a largely liberal economic framework, embracing principles of free market capitalism. This has resulted in a diverse financial sector where participation banks coexist alongside conventional banks, offering Islamic-compliant alternatives to customers. The experience of Turkey's participation banks provides valuable insights into the challenges and opportunities faced by Islamic finance within a predominantly liberal economic system. Despite the regulatory reforms aimed at fostering financial stability and growth, participation banks still encounter hurdles in expanding their market share and influence. These challenges stem from factors such as consumer preferences, regulatory environment, and competition from conventional financial institutions. Comparative analysis with other Islamic countries allows for a broader perspective on the performance and regulatory frameworks of participation banks. By examining how participation banks in Turkey compare to their counterparts in countries with different economic structures and regulatory environments, researchers can gain a deeper understanding of the factors influencing the growth and development of Islamic finance globally. Moreover, evaluating the alignment of participation banks' activities with Islamic law involves a nuanced assessment of Sharia compliance in various financial products and services. This analysis delves into issues such as transparency, risk-sharing, and ethical investment practices, shedding light on the extent to which participation banks uphold Islamic principles in their operations. The study contributes to the ongoing discourse on Islamic finance by providing empirical evidence and insights into the performance, challenges, and compliance of participation banks in Turkey. By addressing these key issues, researchers can inform policymakers, regulators, and industry stakeholders in their efforts to promote financial inclusion, stability, and ethical finance practices within Islamic finance.