Turkey on Monday completed a legal infrastructure on participation banks to help them provide services for their customers in accordance with interest-free finance principles, sources familiar with the issue said.
Through the new infrastructure, the compliance processes with the interest-free principle, which the sector has carried out since its establishment, are now put into legal legislation in a governance framework.
The works are carried out in cooperation with the Banking Regulation and Supervision Agency (BDDK) and the Participation Banks Association of Turkey.
New tasks include the establishment of the central advisory board, determination of binding standards, the formation of an advisory committee at each bank and establishment of control and audit mechanisms to ensure compliance with the decisions taken.
The main task of the central advisory board is to eliminate the different implementations of the participation banks.
In the event of a dispute between participation banks and their customers, the board has the authority to change the decisions taken.
Also, each participation bank must have its own advisory committee.
The board and advisory committees aim to ensure that the banks continuously abide by the principles and standards and to provide assurance to the relevant parties, especially to customers.
Banks have to report their control and audit activities quarterly to the top management of the institution.
Staff taking part in compliance and audit processes must have a postgraduate degree in interest-free finance or alternatively receive certified training.
The interest-free banking sector has developed rapidly in the world in the last 20 years.
Turkey has positioned itself to be a hub for participation banking and Islamic finance.
Earlier this year, Moody's credit rating agency announced that Turkey's Islamic banking assets are set to double within a decade as government initiatives drive growth in the sector.
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