Gov’t poised to launch interest-free instruments to attract Gulf capital

Today's Zaman:The Turkish government is set to take another step to stave off the adverse effects of the ongoing global financial crisis on the economy after having introduced incentives to encourage Turkish expats living abroad to bring their money into the country and households to contribute their personal savings to the economy.

The projected plan aims to attract Gulf capital to Turkey by creating interest-free instruments such as rent certificates, real-estate partnership bonds and participation certificates -- known as sukuk in Islamic finance terminology. Anonymous sources from the government informed Today's Zaman that the Treasury has already started working on these instruments and has sent a draft of a bill to the prime minister's office. The same sources stated that the details will probably be publicized in a week's time.

The idea of creating Shariah-compliant financial tools to attract capital owners with religious sensitivities against interest-yielding instruments has been on the current administration's agenda since it first came to power in 2002. But to avoid fierce rejection by secular powerhouses, it had to shelve its intentions despite the fact that even centers of capitalism like the US and Britain have taken a great interest in interest-free finance. But global financial turbulence and the concurrent liquidity squeeze made the establishment of these interest-free tools urgently necessary.

After the prime minister's office completes its review of the draft, it will send it to the Cabinet for approval. Finally, the draft must be approved by Parliament to become law.

According to information provided by the sources, the Treasury will first issue YTL 1 billion in bonds. These Islamic bonds will also help money in the coffers of participation banks -- Islamic financial institutions in Turkey that provide interest-free banking services - remain within the Turkish financial system. These banks usually invest their excess capital in Shariah-compliant fund management instruments abroad since there have until now been no such instruments in Turkey. Therefore, the Treasury's ability to garner wealth from the domestic market will also increase.

The new instruments will be based on the revenue of wealth-generating assets such as highways, bridges and dams. Since these notes do not promise a set profit -- unlike interest-yielding Treasury bills -- the government hopes Gulf capital will flow into Turkey to purchase them.

Thanks to high oil prices -- which rose as high as $140 a barrel a few months ago -- the oil-rich nations of the Middle East have enjoyed a great accumulation of wealth, especially over the last year. Suffocated by the lack of liquidity needed to break free of the current bottleneck, the whole world is eyeing this capital nowadays and pondering new means to attract it.

Speaking to Today's Zaman about the government's intentions to create interest-free financial tools, Bank Asya General Manager Ünal Kabaca said this would do a great deal to open doors to the inflow of Gulf capital. Türkiye Finans General Manager Yunus Nacar was also jubilant upon hearing about the government's project. "Participation banks were not able to lend to the Treasury, but now it will be possible for them to invest their funds with more options," he said.