i Legislative and regulatory regime

There is no separate legislation or regulation that applies to Islamic finance in Turkey. Islamic finance and its products are regulated under the legislation and regulations that apply to conventional transactions other than for the issuance of sukuk certificates, which is regulated by Lease Certificates Communique No. III-6.1 (Official Gazette dated 7 June 2013), which covers issuance of sukuk certificates, also called lease certificates in Turkey.

The Islamic banking industry, which is known in Turkey as ‘participation banking’ (katılım bankacılığı) and its various Islamic banking products such as murabahah, mudarabah and musharakah are regulated under (1) the Banking Law No. 5411; (2) the Financial Lease, Factoring and Financing Companies Law No. 6361; (3) the Regulation on Banks’ Transactions Subject to Permission and Indirect Shareholding; and (4) other secondary legislation published by the Banking Regulation and Supervision Authority of Turkey, more specifically the Regulation on the Principles and Procedures Related to the Determination of Qualifications of the Loans and other Receivables by Banks and the Provisions to be Set Aside In Relation Thereto (Official Gazette dated 1 November 2006), the Regulation on Equities of Banks (Official Gazette dated 5 September 2013) and the Regulation on Procedures and Principles of Preparation and Publication of Annual Activity Reports by the Banks (Official Gazette dated 1 November 2006), among others.

Legislation and regulations that apply to issuance of lease certificates (sukuk), as an Islamic capital markets product, are (1) Article 61 of the Capital Market Law No. 6362 and Lease Certificates Communique No. III-6.1, which cover issuance of lease certificates (sukuk) by corporates and public authorities; and (2) Article 7/A of the Public Finance Law No. 4749, which covers issuance of lease certificates (sukuk) by public authorities only, including the Turkish Treasury.

In terms of insurance, there is no other legislation specifically applicable to Islamic finance.

In terms of funds, the Communiqué on Principles of Investment Funds (published by the Capital Markets Board of Turkey No. III-52.1 in the Official Gazette dated 9 July 2013) allows Islamic funds to be composed of Islamic finance products, including Islamic pension funds, and allows conventional funds to invest in lease certificates (sukuk).

ii Regulatory and supervisory authorities

There is no particular authority that specifically implements Islamic finance legislation and regulation and has supervisory authority over Islamic finance.

In terms of banking legislation, the Banking Regulation and Supervision Authority of Turkey has the authority to supervise and enact secondary legislation applicable to Turkish banks, including participation banks.

The Capital Markets Board of Turkey has the authority to supervise and enact secondary legislation applicable to lease certificates (sukuk) to be issued in accordance with Article 61 of the Capital Market Law No. 6362 and Lease Certificates Communique No. III-6.1.

Pursuant to Article 80 of the Banking Law No. 5411, Turkish participation banks are obliged to become a member of the Participation Banks Association of Turkey, the responsibilities of which include, among others, (1) improving the participation banking sector; (2) determining professional ethics for participation banks; (3) taking any measure to prevent unfair competition among participation banks; and (4) filing lawsuits where necessary in the interests of participation banks.


The common Islamic structures that are used in the Turkish market are murabahah, ijarah, musharakah and mudarabah. The Banking Law No. 5411 refers to salam, istisnah, mudarabah, murabahah, ijarah and musharakah.

Islamic banks in Turkey collect their deposits based on the mudarabah structure. Murabahah is the one of the most commonly used structures and is used by Islamic banks in Turkey for corporate, consumer and credit card loans. Furthermore, Islamic banks in Turkey obtain their own funding from international markets in the form of murabahah syndications. The same applies to Turkish corporates for their syndicated financings to the extent that they make use of Islamic products. Ijarah is used for the financing of machinery, equipment and other investment tools by companies. Islamic banks in Turkey can sell leasing products directly whereas conventional banks can only perform financial leasing through their financial leasing arm. Musharakah in Turkey is used to finance construction contracts. Istisnah, on the other hand, is used to finance housing projects and qard hasan for cash withdrawals under credit card contracts.

The initial introduction of sukuk in the Turkish market was in 2010 through lease certificates, which are asset-based instruments. The lease certificates followed the sukuk al-ijarah structure whereby the special-purpose vehicle (SPV) purchases the underlying assets and then leases those assets to the obligor. The sale of the lease certificates is possible via private placement where no prospectus is required, as well as via public sale. The market has since been enhanced by new regulations that permit not only sukuk al-ijarah but other sukuk structures such as commodity murabahah, wakalah, etc. as well as certain tax incentives that are analysed in detail in Section III. All privately owned Islamic banks in Turkey have issued sukuk in international and domestic markets.

Sovereign sukuk were first introduced to the Turkish market through a change in legislation in June 2012 following which the Turkish Treasury issued domestic and international sukuk.

Furthermore, there are Islamic indexes in Turkey – Participation 50 Index, Participation 30 Index and Model Portfolio Index – which are constituted of shares of shariah-compliant companies with different conditions based on the index. There are also participation funds in Turkey sold by Islamic and conventional banks, and investment institutions consisting of equity and debt products as well as gold. Equity products are mostly the Participation Indexes referred to above, whereas the debt products are mostly sukuk issued by the Republic of Turkey and other Islamic banks in Turkey.

Takaful (Islamic insurance) is also available in Turkey through both Islamic banks and the only takaful company in the country, which was established in 2014.


There is no specific regime to encourage or promote utilisation of Islamic financial products and structures in Turkey. Rather, the local tax administration intends to ‘equalise tax treatment for equivalent financial activities of commercial and Islamic finance institutions’, as noted in its statements given in relation to recent legislative amendments. Pursuant to these amendments to the tax regulations, which have brought welcome clarifications (through exemptions and allowances) to a number of long-standing uncertainties in the tax laws, , there has been solid improvement in the practicability of a specific type of product (namely sukuk al-ijarah).

Pursuant to exemptions and allowances introduced in 2016, corporate taxpayers could enjoy corporate income tax and value added tax exemptions in sale and leaseback structures (i.e., sukuk al-ijarah) not only for immoveables but also for moveable assets. Further, it has been made clear that the transfer of underlying immoveable assets under the lease certificates will not reset the holding period (e.g., in the event that the sale and leaseback are followed by a potentially taxable disposal in the future), and the documents executed for the transfer of any underlying asset under the lease certificates will be exempt from stamp tax, which is a unique kind of document tax in Turkey.


There is no separate insolvency regime for Islamic finance participants.

The only special treatment is applicable to the assets of an asset leasing company (ALC), which acts as the issuing entity of lease certificates. Turkish law ring-fences the assets of an ALC to protect the rights of the holders of the lease certificates. Pursuant to Article 61 of the Capital Market Law No. 6362 and Article 3 of the Lease Certificates Communique No. III-6.1, sukuk assets pertaining to an issuance cannot be disposed of, pledged, posted as collateral, attached (including for the purpose of collecting public claims) or included in a bankruptcy estate, and cannot be subject to a precautionary injunction until the payment of all the obligations to the certificate holders relating to the issuance is made in full. If an issuer cannot fulfil its obligations under lease certificates in a timely manner, its management or audit may be transferred to public institutions, its activity licence may be cancelled or, if it becomes bankrupt, (1) the income generated from the sukuk assets shall first be used in the payments to be made to lease certificate holders, and (2) the Capital Market Board will be authorised to take any measures to protect the rights of certificate holders, among other things, to initiate a bankruptcy or liquidation proceeding of the ALC and to ultimately have recourse to shareholders of the ALC holding at least 10 per cent of the share capital and to the board members of the ALC (subject to a number of conditions) if any shareholder or board member can be held responsible for the non-payment.


i Courts

There are no courts specialised in disputes involving shariah-compliant products and structures. Commercial courts would have jurisdiction over such matters.

ii Cases

A lawsuit was filed in April 2013 before the Constitutional Court of Turkey, the high court overseeing constitutional jurisdiction, on the partial cancellation of Article 7/A of the Public Finance Law No. 4749, which is a specific article for issuance of lease certificates (sukuk) by public authorities only, including the Turkish Treasury.

Article 7/A authorises the relevant minister to sell, lease, transfer, etc. the assets of non-listed entities covered by this legislation. The second part of the Article, which was requested to be cancelled, sets forth that the minister may also carry out similar transactions, which, in each case, would be exempt from certain formal requirements.

The cancellation request was made on the basis that the Article had been drafted in a broad manner by shifting the legislative authority to the executive branch of the government. The Constitutional Court rejected the lawsuit on November 2013 on the grounds that the legislature submits the technical and administrative aspects of the transactions to the executive branch and the legislation aims at developing local capital market and financial instruments.

It should also be noted that the Turkish Treasury has undertaken a number of international and local sukuk issuance based on this legislation.


Recent milestones in Turkey that are key on the Islamic finance front are the opening of two state-owned Islamic banks – Ziraat Katilim Bank and Vakif Katilim Bank – on 12 May 2015 and 11 February 2016 respectively, and the establishment of the public wealth fund of Turkey, the missions of that include the development of Islamic finance in Turkey by undertaking new sukuk issuances in international markets. In addition to those, it is understood, based on recent news, that it is on the Turkish government’s agenda to establish a state shariah board which will be the responsible authority for approval of shariah compliance of Islamic finance products in Turkey, and to introduce certain amendments to Article 7/A of the Public Finance Law No. 4749, as a result of which public institutions, including the Turkish Treasury, will be entitled to issue sukuk, not only in ijarah but also in other structure types. These developments indicate the government’s intention to aid growth of the Islamic finance market and its efforts to create a stimulus to achieve this growth.

1 Sera Somay is a partner and Özlem Barut is a senior associate at Paksoy.