Key Highlights
- Turkiye’s Islamic funds industry grew significantly from 2017
- A total of US$23.29 billion in Islamic fund AuM is managed in Turkiye
- Fitch’s recent credit rating upgrade provided boost to sector
Overview
Turkiye’s shift into the Islamic investment landscape began at the turn of the millennium, when the government led by current President Recep Tayyip Erdoğan was voted into power in 2003 as prime minister (and president since 2014) after decades of military coups and largely secular administrations.
Even so, forays into the Islamic assets space were sporadic until a 2017 concerted effort by regulators to establish the nation as a key Islamic finance hub with parliament-approved regulations for what was termed as “participation banking”.
This led to a number of domestic investment managers to expand on Shariah compliant fund offerings, to better serve the around 95% of Turkiye’s estimated 85 million population who follow the Islamic faith.
The first domestic corporate Sukuk (known as lease certificates) issuance was in 2010,followed by the first sovereign lease certificate issue by Turkiye’s Treasury in 2012. The republic is one of the most prolific Sukuk issuers globally – it is the fourth-largest in May 2024, according to Fitch Ratings.
Due to Turkiye’s inflation rate rising to double digits from 2018 onward, fund offerings have diversified to help investors better manage this economic stress – especially by offering gold-backed instruments and money market funds, which also provide a hedge against currency volatility.
Regulatory framework
The Capital Markets Board of Turkiye (CMB) regulates and supervises the securities market in Turkiye under the Capital Markets Law, which was enacted in 1981.
Borsa İstanbul (BIST) provides a wide range of Shariah compliant investment options, covering various asset classes such as equities, the money market and the commodities market. BIST is overseen by the CMB.
BIST also offers two key indices to guide Shariah compliant investments. The BIST Participation All Index lists companies that adhere to Shariah law, ensuring transparency for investors seeking to align their portfolios with Islamic values.
The S&P/OIC COMCEC 50 Shariah Index, developed in collaboration with S&P Dow Jones Indices, focuses on Shariah compliant companies from OIC member countries which providing a precise and compliant market index for Islamic investors.
Each asset management company also appoints a Shariah advisory board to ensure compliance with Islamic principles for participation funds.
Asset management
The Turkish Institutional Investment Managers’ Association has 28 institutional members – in the form of asset management firms, insurance companies and brokerages – plus 39 individual members, representing almost 90% of the Turkish mutual fund assets including investment trusts.
The IFN Investor Funds Database is currently tracking a total of 253 Shariah compliant funds in Turkiye with a combined assets under management (AuM) of US$23.29 billion as at the 30th September 2024.
Due to overlapping of investment assets and strategies, a significant 41% of the total Islamic asset management market in Turkiye would be classified as “Others”. This category comprises 74 funds which covers three main asset classes of fixed income instruments, mixed assets and equities.
The top Islamic funds in Turkiye, with a combined AuM of US$13.02 billion as at the 30th September 2024, highlight the dominance of gold and fixed income instruments funds, reflecting a preference for stability through tangible assets and development-focused investments aligned with Shariah principles.
| Top 10 funds in Turkiye (by AuM) | AuM (US$ billion) |
| Turkiye Life and Retirement Gold Participation Retirement Investment Fund | 2.94 |
| Kuveyt Turk Portfolio Short-Term Participation Free (TL) Fund | 1.42 |
| Garanti Retirement and Life Gold Participation Retirement Investment Fund | 1.33 |
| Ziraat Portfolio Gold Participation Exchange Investment Fund | 1.30 |
| Anadolu Life Retirement Gold Participation Retirement Investment Fund | 1.27 |
| Kuveyt Turk Portfolio Money Market Participation (TL) Fund | 1.13 |
| Albaraka Portfolio Short-Term Participation Free (TL) Fund | 1.10 |
| Kuveyt Turk Portfolio Seventh Participation Free (Foreign Exchange) Fund | 0.92 |
| Kuveyt Turk Portfolio Fifth Participation Free (Foreign Exchange) Fund | 0.87 |
| Kuveyt Turk Portfolio Gold Participation Fund | 0.74 |
Outlook
As the 17th largest economy in the world, according to the IMF, Turkiye is facing a challenging economic landscape – marked by continued high inflation rates plus recovery efforts from a major February 2023 earthquake. Amid this cautious but steady investment environment, Fitch’s recent credit rating upgrade to ‘BB-’ and deepening ties with GCC countries has made Turkiye become increasingly attractive to foreign investors. The robust growth of participation banks, coupled with strategic government-backed initiatives, provides a reliable foundation for investors seeking long-term stability.
