Islamic Law and Its Influence on the Growth of Islamic Banking in Turkiye

Bahaddin Karakus

Ozat Shamshiyev

 

Abstract: This note examines the development of Islamic banking in Turkiye over the past two decades and assesses the challenges it encounters in achieving a significant market share. While Islamic banking initiatives trace back to the 1940s, formalisation took place in the 1950s, introducing alternative methods within the framework of Islamic economic thought. Despite rapid developments, conventional banking systems prevailed. This prompted Islamic thinkers to propose interest-free finance as an alternative, leading to the institutionalisation of Islamic banking. However, concerns persist regarding the religious legitimacy of Islamic banking practices, contributing to scepticism among the public, particularly those with high religious sensitivity. The note explores negative criticisms from academics, emphasising fundamental flaws in the Islamic finance sector and the deviation of interest-free banks from their original purpose. Jurisprudential issues, such as literal interpretations in Islamic legal opinions (fatw?s) and reliance mostly on concepts like necessity (al-darurah), permission (al-rukhsah), public interest (al-maslahah), and the objectives of Islamic law (maqasid al-shari'a) further increase the scepticism. Additionally, the public perceives similarities between participation banks and conventional banks, raising questions about profit-sharing and interest rates. Addressing these challenges, the note proposes solutions to correct public perception, emphasising clear explanations of differences between the two banking systems, acknowledgment of legal measures, examination of historical Islamic practices, and interactive training programs for religiously conservative individuals. In conclusion, despite the legal regulations and state policies promoting participation banking in Turkiye, tangible results remain elusive. The note underscores the need to address jurisprudential and economic concerns to foster public interest and expand the market share of Islamic banks.