Islamic Finance Alternatives for Emerging Economies: Empirical Evidence from Turkey

115 Pages·2014·0.897 MB·English

by  Murat Ustaoğlu, Ahmet İncekara (eds.)

palgrave~pivot
ISLAMIC FINANCE
ALTERNATIVES
FOR EMERGING
ECONOMIES
Emp~rical Evidence from Turkey
Ed1ted lly
Murat Ustaoglu and
Ahmet incekara
Islamic Finance Alternatives for Emerging Economies
DOI: 10.1057/9781137413307.0001
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DOI: 10.1057/9781137413307.0001
Islamic Finance
Alternatives for
Emerging Economies:
Empirical Evidence
from Turkey
Edited by
Murat Ustaoğlu
Assistant Professor of Economics, Istanbul University, Turkey
and
Ahmet İncekara
Professor of Economics, Istanbul University, Turkey
DOI: 10.1057/9781137413307.0001
empirical evidence from turkey
Copyright © Murat Ustaoğlu & Ahmet İncekara, 2014.
Softcover reprint of the hardcover 1st edition 2014 978-1-137-41328-4
All rights reserved.
First published in 2014 by
PALGRAVE MACMILLAN®
in the United States—a division of St. Martin’s Press LLC,
175 Fift h Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN: 978-1-137-41330-7 PDF
ISBN: 978-1-349-48990-9
Library of Congress Cataloging-in-Publication Data
Islamic fi nance alternatives for emerging economies / [edited by] Murat
Ustaoğlu, Ahmet İncekara.
pages cm
1. Finance—Turkey. 2. Financial institutions—Turkey. 3. Finance—Islamic
countries. 4. Finance—Religious aspects—Islam. 5. Financial institutions—
Islamic countries. 6. Finance (Islamic law) I. Ustaoğlu, Murat, 1976–
II. İncekara, Ahmet.
HG187.T9I75 2014
338.9561—dc23 2014030392
A catalogue record of the book is available from the British Library.
First edition: 2014
www.palgrave.com/pivot
DOI 10.1057/9781137413307
Dedicated to our mothers
DOI: 10.1057/9781137413307.0001
Contents
List of Illustrations vii
Preface viii
Acknowledgements x
Notes on Contributors xi
Glossary of Arabic Terms xiii
Introduction 1
Murat Ustaoğlu
1 The First Step towards Islamic Finance:
Separation of Secularism and the
Islamic Agenda 4
Murat Ustaoğlu and Ahmet İncekara
2 The Notions of Islamic Economics and
Finance in the Global Era 28
Rubaa Saleh and Murat Ustaoğlu
3 Basic Terminology in Islamic Finance
and Turkish Perspective 58
Bilgehan Yildiz
4 Modeling Islamic Finance and
Inclusive Growth for Emerging
Markets: Evidence and Roadmap of
Turkey and Malaysia 74
Ahmet İncekara, Ferda Yerdelen Tatoğlu
and Murat Ustaoğlu
Index 96
vi DOI: 10.1057/9781137413307.0001
List of Illustrations
Figures
2.1 Different types of partnerships between
parties “A” and “B” 40
2.2 Categories of the Sharia objectives and
subdivision of the highest priority 43
2.3 Hierarchy of the sources of Islamic law 44
2.4 Components of an Islamically valid sales
contract 47
Tables
2.1 Interest-free banking in the world 51
3.1 Financial indicators of participation banks 68
3.2 Market share of participation banks in
financial banking 69
4.1 OECD & Turkey, Purchasing Power
Parity indicators 77
4.2 Variables used in the models 86
4.3 ADF Unit Root Test results 90
4.4 Johansen-Juselius Cointegration test results 91
4.5 (Vector) Error correction model results 92
4.6 Cointegration equation estimation results 92
DOI: 10.1057/9781137413307.0002 vii
Preface
Islamic finance mainly refers to interest-free banking
activities. The past and history of interest-free banking
can be traced way back to Hammurabi’s time, well before
Islam. However, the practices of this banking form are
relatively new. Subsequent to the MitGamr experience in
Egypt, an Islamic Development Bank was established to
fund industrial projects through the funds in Gulf states in
consideration of the increased oil prices after the oil shock
in 1970s. Currently, Islamic banking practices are wide-
spread in different parts of the world including the United
States and Japan. While conventional banking is dealing
with serious crises, interest-free banking has expanded its
scope over the past two decades. Even though it is known
as interest-free, this banking form is a typical profit-loss
sharing scheme.
The greatest difference between capitalist economies
and planned economies is that capitalism is a system of
frequent crises. Most recently, the global economic crisis
in 2008 devastated the American economy, causing losses
of jobs and middle class savings and also affecting all
developed nations. Currently, conventional banking still
suffers from the repercussions of the crisis in some coun-
tries whereas the alternative financial systems become
more popular. England, Malaysia, Iran and Turkey are
competing to become centers of Islamic finance. A number
of industrialized countries take measures and prepare
legal infrastructure to attract the funds in the Gulf states.
Particularly England and Malaysia have made serious
progress on this matter. Islamic banking in Turkey is not
viii DOI: 10.1057/9781137413307.0003
Preface ix
in a position of competing with the conventional banking. The market
share of these banks, also called participation banks, is around 6 percent
in Turkey.
The Islamic financial practices are relatively new; they are not
grounded well; and they become widespread by the support of Gulf
capital. All these led to diversified practices in different parts of the world,
raising discussions and debates on this subject as well. This diversity
raised questions in the minds of skeptics. At the beginning, observation
of Islamic rituals and boundaries was the main concern for the people
who prefer the participation banks. However, over time, the alternative
Islamic banks have adapted themselves to the market conditions, acting
like conventional banks in many respects. These doubts were also fol-
lowed by these questions: Is it an alternative model built upon Islamic
references or a disguised model of conventional banking practices? Is
Islamic finance competitive? How “Islamic” is Islamic finance? It is pos-
sible to extend the scope of the list. However, it is not easy to respond to
these questions. The number of questions and scope of the doubts in the
minds of the Muslim people grows in parallel to the growth of Islamic
finance.
Turkey is one of the countries seeking to become one of the major
global financial centers. To this end, it focuses on greater investments;
however, it is not easy to become center of Islamic finance. The perform-
ance of Turkey in the past may provide some insights on the fulfillment
of this goal. For this reason, this study empirically analyzes the perform-
ance of Turkey in terms of Islamic financial practices in a comparative
case study with the Malaysian example.
Murat Ustaoğlu
İstanbul, 2014
DOI: 10.1057/9781137413307.0003