ISLAMIC BANKING AND SUKUK

بسم الله الرحمن الرحيم Starting in the Name of Allah, The Most Beneficent, The Most Merciful

ISLAMIC BANKING AND SUKUK By TUGCE YUCEL In partial fulfillment of a Master Thesis in Capital market and finance. Email: Tugce.yucel@gmail.com

Honorable Guests, Participants, Ladies & Gentlemen. Thank you for giving me the honor of presenting an overview of Islamic Banking and Sukuk

Overview of Islamic Banking and Sukuk • What is Islamic Banking and Sukuk all about? • Historical review of Islamic banking and Sukuk in Turkey. • Importance of Islamic Banking and Sukuk • Objective of this study • Why Islamic banking? • Major difference between the Islamic and conventional banking system. • Islamic Banking Product: Sukuk

WHAT IS ISLAMIC BANKING AND SUKUK? “Worldwide "Islamic banking", in Turkey also known as "participation banking" or interest-free banking, can be defined as working on the basis of profit and loss sharing in fund raising and in the use of funds, operating on sharing profit and loss by partners and institutions running according to Islamic principles.” In Arabic the word ‘Senet’ refers to bonds and bills but Islamic bonds are called "Sukuk". In this context, the defined phrase as "financial certificate"s Islamic version is "Islamic bonds" and is used as sukuk. Its interest-free structure is considered as an instrument in harmony with Islamic principles. For this exact reason, Sukuk’s limits over interests is a security to Islamic laws Sukuk being a product of the participating banks(AlBaraka Bank, Kuveyt Turk Bank, Financial Turkish Bank, Asya Bank and Ziraat Bank) , it assures to be one of the most important beyond the exportation field worldwide

HISTORICAL REVIEW ON ISLAMIC BANKING AND SUKUK • 1Emergence Period (1972-1975): The first phase of the interest-free banking in this period excels sudden increase in oil income and huge liquidity. • 2. Development Period (1976-1983): A large number of international banks was established in this period, whereas the interest-free banks started spreading; from the East in Malaysia to United Kingdom in the West and the Arabian Gulf region. • 3. Maturity Period (1983-present): Is the period that experienced economic decline for reasons such as the decrease occurred in oil revenues, the dollar's strength, increased interest rates, the OPEC (Organization of Petroleum Exporting Countries Organization) and the removal of capital from each country

Importance of Islamic Banking and Sukuk • Islam has given an immense importance to Islamic • Entrance of Sukuk(Rental Certificates) in 2010. Increased Turkish export market • Causes of Emergence of Islamic Banking(Religious,Social,Economic)

WHY ISLAMIC BANKING Before explaining the concept “what is Islamic Banking” the elaboration of concept “why Islamic Banking” is very important. Islam is a complete code of life that provides guidance regarding each aspect of life.

WHY ISLAMIC BANKING The primary objectives of Islamic Economic System are as under. • Equal Distribution of wealth • Social justice These objectives can never be achieved in Interest/Riba based economic systems.

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 1) Functions and operations are based on Sharia’h principles Conventional Banking 1)Functions and operations are based on fully man made principles

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 2) Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs) Conventional Banking 2) Investor is assured of pre-determined rate of interest

DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 3) Aim at maximising profit but subject to Sharia'h restrictions Conventional Banking 3) Aim at maximising profit without any restrictions

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 4) Partners, investor and traders, buyer or seller relationship Conventional Banking 4) Creditor-Debtor relationship

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 5) Encourage asset-based financing and based on commodity trading Conventional Banking 5) Based on money trading. Money is a medium of exchange and not a commodity, its sale and purchase is prohibited in Islam.

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 6) No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss. Conventional Banking 6) It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.

ISLAMIC BANKING PRODUCTS AND SERVICES Currently available Islamic Banking Products and services are • Partnership based modes of Sukuk Musharaka Sukuk, Mudaraba Sukuk, • Trade based modes of Sukuk Murabaha Sukuk, Salam Sukuk • Rental based modes of Sukuk Ijarah Sukuk, Diminishing Musharaka Sukuk

ISLAMIC BANKING PRODUCTS: SUKUK • HISTORICAL DEVELOPMENT OF SUKUK • FEATURES OF SUKUK • SUKUK IN TURKEY (LEASING CERTIFICATES) • TYPESOFLEASINGCERTIFICATES (Ownership,Managementcertificate,Trading,Partnership,Work contract • SUKUK’S ADVANTAGES AND DİSADVANTAGES • PROBLEMS AND SOLUTIONS OF SUKUK

RECOMMENDATION : SUKUK Increasing the number of the participating banks for more productivity on the no interest matter Producing more Sukuk types and implementing them in the country for more productivity and benefits as the name Sukuk started as it is and is now named “Icara Sukuk” and could have more of secondary names for more implementation Having a common thought regarding the religious matter of interests and implementing it in all banks for the satisfaction of all parties

RECOMMENDATION : SUKUK Increasing the number of conferences, workshops and educations about the no interest banking More methods like the certificate rentals and no interest based investments with more marketing and advertisement in regards with it, like television ads, newspapers, magazines and mostly social media and so on to raise awareness Increasing the research on no interst banking and the products inthe making Increasing the quantity of the products with no interest banking

FOR YOUR TIME AND YOUR ADVICE….

ISLAMIC BANKING AND SUKUK