Eurasian bridgehead: Turkiye’s ascendance in Shariah investments

• Turkiye leverages Shariah diligence with vantage East-West position
• Lack of coordinated laws, central Shariah board inhibit further industry growth
• Market boasts 255 Shariah compliant funds, managing US$29.37 billion in AuM

Turkiye, a transcontinental nation straddling the cultural and geographic crossroads of Europe and Asia, is rapidly establishing itself as a dominant force in the Shariah investments landscape by eclipsing established European peers in both fund count and AuM.

While only a small portion of its landmass lies in Europe, Turkiye’s financial influence in the Islamic investment space is decidedly outsized in comparison. As of Q3 2025, the IFN Investor Funds Database shows that Turkiye accounted for more than 68% of Europe’s Islamic fund count of 370 and over 65% of the US$44.5 billion AuM.

In comparison, the Republic of Ireland, Europe’s second-largest Shariah market, commands just 15% of the fund count and 20% of the total AuM.

Historically, the engine of growth for Turkiye’s Shariah industry has been its participation banking sector — the local term for Islamic banking — which has invariably seen strong domestic demand.

Such financial participation is backed by strong government support, with administrative officials in Ankara making Islamic banking a cornerstone of the broader Istanbul Financial Center project.

This political will, alongside the introduction of public participation banks like Ziraat, Vakif and Emlak, is key to expanding market share — which had reached 8.4% of total banking assets as of April 2025, according to data from the Participation Banks Association of Turkiye.

Yet, Turkiye faces critical hurdles in scaling its Shariah industry to even greater heights. This includes the lack of a proper, specialized legal framework or a specific Islamic Banking Act; absence of a single, powerful central Shariah board to set compliance standards and approve product variations; and a financial market that remains highly sensitive to inflation and currency volatility.

Investment opportunity

The transcontinental position of Turkiye creates a compelling and distinct investment opportunity, acting as the gateway for capital from the Gulf and Asia seeking exposure to the high-growth Turkish real economy.

The opportunity largely arises in real sector linkages, where Turkish participation banks have historically channeled a high proportion of financing into corporate and SME lending. Investors seeking direct, ethical exposure to Turkish infrastructure, manufacturing and exports will find Murabahah and Ijarah financing products attractive.

Sovereign Sukuk is another area where the Turkish state has actively used Islamic debt to diversify its funding, providing a high-yield, Shariah compliant instrument for large institutional investors.

Digitalization is a growing Shariah sector as the aggressive adoption of fintech, digital participation banks and open banking applications accelerate financial inclusion and efficiency, with total assets reaching TRY3.15 trillion (US$78.65 billion) as of April 2025.

Regional asset base

According to the IFN Investor Funds Database, the Turkish market boasts a remarkable 255 Shariah compliant funds, managing US$29.37 billion in AuM versus second-ranked Ireland’s 56 funds worth US$9.1 billion.

Luxembourg, another major European financial center, ranks third in both metrics, with US$4.1 billion in AuM across 41 funds. The UK, despite its global financial standing, is a distant fourth with US$1.44 billion in AuM, spread across only seven funds.

Collectively, the remaining peers to the four in the European Shariah space — dubbed “others”, collectively manage just US$84.37 million across 11 funds.

Chart 1: Turkiye’s Shariah market vs European peers based on fund count, AuM

Domestic asset spread

Turkiye’s Shariah market structure is distinguished by a pronounced focus on tangible assets, reflecting a core principle of Islamic finance — tying investment to real economic activity.

Commodities stand out as the unequivocal powerhouse: this single asset class commands a remarkable US$13.51 billion across 21 funds, accounting for nearly 46 percent of the entire market’s AuM.

Following the commodity stronghold, the substantial category of “Others” — encompassing complex multi-asset strategies, including that of insurance and retirement pools — forms the second-largest portion, comprising US$6.99 billion in 56 funds.

Beyond these two dominant classes, the remaining assets are strategically distributed across vehicles that offer liquidity and ethical returns. Fixed income funds hold US$2.17 billion (19 funds) and money market instruments follow closely at US$2.08 billion (eight funds).

The portfolio also shows a preference for diversification, with the highest fund count dedicated to mixed assets, where 63 funds manage US$1.46 billion.

Traditional Islamic finance instruments are also well-represented: Sukuk accounts for US$1.57 billion across 43 funds. Equities represent US$1.12 billion (37 funds) and real estate holdings total US$491.39 million (eight funds) — collectively painting a picture of a sophisticated market anchored by tangible assets and multi-strategy products.

Chart 2: Turkiye’s Shariah market by asset class, fund count and AuM

Fund performance

Commodity funds represent six of the 10 top Shariah players. They account for US$11.76 billion in AuM — or over 72% of the total assets held.

The top four largest funds are all "Gold Participation Retirement Investment Funds" run by major life and retirement companies. The largest single fund, the Turkiye Life And Retirement Gold Participation Retirement Investment Fund, holds US$3.79 billion, making it the primary driver of this commodity focus.

The remaining four funds in the top 10 are allocated across fixed income instruments (a fund at US$1.37 billion), money market (a fund at US$1.13 billion), and others (two funds totaling US$2.06 billion).

The dominance of Turkiye Hayat Ve Emeklilik (manager of the largest fund) and Ziraat Portfoy and Kuveyt Turk Portfoy (each managing three funds) in the top 10 list shows that both insurance-linked investment funds and traditional portfolio managers are key players in this highly concentrated market.

Table 1: Largest Islamic funds in Turkiye by AuM as of Q3 2025

Table 2: Top performing Turkiye Shariah funds by six-month returns through September 2025

The top performers delivered exceptional returns over the period, averaging over 40%. The highest return of 42.2% was achieved by the Albaraka Portfolio Bereket Foundation Support Gold Participation Fund.

The second-highest return, 42.18%, belonged to the Turkiye Life And Retirement Precious Metals Participation Retirement Investment Fund, highlighting the strong link between asset class and high returns during this period.

This performance data suggests that Turkiye's Shariah investors have successfully positioned themselves to benefit from a sustained rally in precious metals, with the best returns being found in strategies that align with the strong domestic preference for commodity and tangible asset-backed finance.

Outlook

The outlook for Turkiye’s Shariah market through 2026 is cautiously optimistic, contingent on policy continuity. The sector is on track to achieve its strategic goal of expanding its share in the broader financial system.

Fitch's expectation of falling, albeit still high, inflation toward 23% by end-2025 suggests that the intense focus on gold may gradually ease, allowing capital to flow into more diversified Sukuk and equity funds.

The biggest upward catalyst would be the enactment of a specific Islamic finance law and the establishment of harmonized Shariah governance.

If Turkiye successfully addresses these legal and governance gaps while maintaining its policy commitment, its vast AuM and unique Eurasian position will solidify its status as a major regional — and increasingly global — powerhouse in Islamic finance, capable of competing with established hubs like Malaysia and the GCC.