Examination of Sukuk Structures in the Turkish Participation Financial System

Following the trends in the world, especially in the Muslim world, where Islamic banking started to emerge, there was a need for Islamic banking in Turkey as well. Sukuk is one of the services that has recently become more popular in Turkey due to the legal regulations that enable Islamic banks in the country to issue it and be competitive in the market. This paper tries to examine the applied contracts for the issuance of sukuk and recommend some structures by first explaining the path of Islamic finance in Turkey and its services and then sukuk regulations and contracts. We find that murabaha, wakalah, and ijarah are the most popular contractual forms among the five approved financial contracts (ijarah, wakalah, murabahah, mudarabah-musharakah, and istisna’a) by the Capital Market Board of Turkey for the issuance of sukuk. As we can see from the sukuk structures, the debt-based modes of finance used predominantly in sukuk issuance and priced with the same interest-based benchmarks, it seems that the practices of sukuk are far from the ideals of Islamic economic principles. Therefore, the sukuk issuers should, away from over-usage of debt-based sukuk, should move towards more equity-based sukuk.