The government is seeking to increase the use of Islamic finance for state agencies, state-owned companies and in the private sector, a senior Treasury official said. Hakan Tokaç, director-general of foreign economic relations at the Undersecretariat of the Treasury, spoke at a G20 meeting on Islamic finance in Istanbul yesterday. "The lack of long-term financing is choking developing countries," he said. "The government will continue to issue sukuk in both Turkish lira and foreign denominations. Turkish lira issuance will be aimed at the domestic market while foreign-currency denominated sukuk will be issued in the international market." Sukuk is an Islamic finance instrument that resembles a bond but is based on asset growth rather than interest payments, which are forbidden under Islamic religious law. "With this policy, which few governments currently undertake, Turkey hopes to set a benchmark for the acceptance of sukuk and broaden the investor base for this instrument. With Turkey, a regular borrower in sukuk, the instrument will gain access to new markets," Tokaç added.

For Vahdettin Ertaş, chairman of the Capital Markets Board of Turkey, the country offers important investment opportunities that are especially significant for the current challenges in the global market. "Islamic finance will become a major source for long-term investments," Ertaş said, adding: "Because Islamic instruments are asset-based and not debt-based, they manage risk well."

Asset-based instruments are based on earnings from productive activity as well as risk sharing and profit among investors. "Islamic finance will play a vital role in the development of Turkish infrastructure," Ertaş said. "The risk-sharing component is key; it will enable investors to control the complex challenges of large infrastructure projects more efficiently."

Tokaç added that Turkey now offers several financial structures for Islamic finance that are exempt from corporate tax. There are no important restrictions on foreign participation either, he stressed. Zamir Iqbal, head of the World Bank Global Islamic Finance Development Center, said the Turkish presidency of the G20 has helped to bring the development of Islamic finance to the forefront. "The Turkish G20 presidency has promoted a road map for development finance that includes Islamic finance," Iqbal said. "This has helped countries take steps towards creating an environment that is conducive with the regulatory requirements of Islamic finance - legal and fiscal - which need to be addressed if Islamic finance is to grow."