Rise of Turkish Islamic banks chimes with Erdogan's ideals

Sun Mar 15, 2015 8:57am EDT
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By Ece Toksabay and David Dolan

ISTANBUL (Reuters) - Selling fruit from a cart in a working-class neighborhood of Istanbul hasn't made Mehmet rich, but he's adamant his modest savings won't ever see the inside of a bank.

"Getting paid interest is a sin," he said, piling bunches of grapes onto a rusty set of scales in the conservative Fatih district.

"I keep my money partly in gold and under the pillow," the 67-year-old said, declining to give his surname.

Like Mehmet, at least 8 percent of Turkish adults do not have a bank account for religious reasons, according to a 2014 World Bank report, because of the prohibition in Islam against paying interest.

Under President Tayyip Erdogan, an authoritarian leader with roots in Islamist politics and an aversion to usury, Turkey is hoping it can turn disdain for traditional banks among the pious into a boom in Islamic finance, where, instead of interest, banks charge service fees and depositors share in bank profits.

Two state-run banks - Halkbank (HALKB.IS: Quote) and Ziraat Bank [TCZIR.UL] - are pushing ahead with plans to launch Islamic units this year, joining four existing private Islamic lenders.

Ziraat, Turkey's largest unlisted lender, is due to launch its Islamic business in May, while Halkbank (HALKB.IS: Quote) has said it expects to have its business ready by the end of this year.

Turkey's banking regulator also this month approved the establishment of an Islamic lender indirectly related to state-run bank Vakifbank (VAKBN.IS: Quote), the third new entrant.   Continued...

The headquarters of Turkey's Halkbank is seen in Ankara in this December 17, 2013 file photo. REUTERS/Umit Bektas/Files