Kuveyt Türk introduces new Islamic security

As an alternative financial instrument, sukuk will make important contributions to the development of the country, Finance Minister Şimşek said.

August 20, 2010, Friday/ 16:20:00
The sukuk, an Islamic financial certificate similar to a bond, has made its debut on the Turkish market with participation bank Kuveyt Türk raising funds through a $100 million three-year issue, which is expected to boost funds inflow to the country.

The bank has become the first financial institution in Turkey and Europe to issue sukuk securities, led by Citigroup and the Liquidity Management House (LMH). The financing received one-and-a-half times more demand than anticipated.

“This is a turning point,” Turkish Finance Minister Mehmet Şimşek said at an iftar dinner hosted by Kuveyt Türk in İstanbul on Wednesday. “As an alternative financial tool, sukuk will make important contributions to the development of the country.”

“Turkey is in need of serious financing and capital, and it is searching for ways to close the gap with the advanced economies rapidly. … The step Kuveyt Türk took will be needed to a greater extent. The Gulf and other regional countries do not only export oil or natural gas to the world.

There is also a serious amount of capital and over-saving in these countries. If Turkey is growing that fast and there is a lack of capital, there is a need for mediation [between capital-rich countries and Turkey],” he noted.

Sukuk is a financial certificate similar to bonds that complies with Shariah, Islamic religious law. Because the interest-paying bond structure is not permissible, the issuer of a sukuk security sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee.

As a private participation bank, Kuveyt Türk was the first institution to issue sukuk securities in Turkey. Şimşek expressed approval for the bank’s initiative, which came after seven to eight years of waiting for the public finance sector to take action. “They did the right thing. The private sector is much more dynamic and flexible compared to the public sector.

Maybe the public sector will also follow them,” he said, noting, however, that there is currently no legislation allowing the public sector to issue the sukuk. “But why not? Turkey should introduce new instruments, either sukuk or something else, to finance its own growth,” Şimşek emphasized.

Global sukuk issuance reached $120 billion in the past 10 years, Kuveyt Türk Mohammed Alomar noted. But Turkey has failed to take a share of this market so far. “I believe the tool will draw the anticipated interest from investors and have an important place among other financial tools,” he added.

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