The government of Turkey has announced that it plans to issue Islamic bonds for the first time, after a conflicted history with Islamic finance due to the government’s secular stance. It is believed that one of its main reasons for doing so is to tap into the resources of investors made rich through the oil industry. With appropriate legislation already in place, Deputy Prime Minister Ali Babacan announced last month the government’s plans to issue Islamic bonds.

Despite Turkey having been governed in a secular manner since its foundation in 1923, as one of the most successful economies in the Islamic world this move would seem to signal Turkey’s intent to play a bigger role within Islamic finance. The global Sukuk market is estimated to be worth around $100 million.

The ruling party of Turkey, the centre-right AKP (The Justice and Development Party), led by Prime Minister Tayyip Erdogan since 2003, has so far avoided issuing Islamic bonds, due to critics’ accusation that the party sought to increase the relationship between religion and state in an underhand manner. One deputy chief executive at a leading Turkish bank, who opted to remain unnamed, reportedly stated ‘For a few billion dollars of funding there could be negative results in domestic politics’. Turkey has always approached the issue of religion cautiously, but is now looking to take advantage of the opportunities offered.

The Supreme Court of Turkey came close to shutting down the AK Party in 2002 after allegedly finding that it was the centre of Islamist activity, but since then the party has gone from strength to strength, with a tripling of the per capita rating, and was re-elected for another five-year term last June. With more and more investors, both Muslim and non-Muslim, utilizing Islamic bonds (Sukuk), it is being predicted to serve as a growing source of revenue, with German and French investors reportedly utilizing the available facilities.

Islamic banks in Turkey have always been referred to as ‘participation banks’, since their first employment in the country in the late nineteen-eighties, with there now being four main participation banks in existence; Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans.

Osman Akyuz, secretary general of Participation Bank’s Association of Turkey, reportedly stated that ‘Turkey could very easily issue a couple of billion dollars’ worth of Sukuk. It will probably issue $500 million or $1 billion at first and see how it goes’. Likewise, Royal Bank of Scotland economist Timothy Ash is reported to have stated that ‘The market is potentially big’ and that ‘the sovereign could easily raise several billion’.