Launch Partners

Launch Partners

Shariah investments to drive KFK’s sustainability

Turkiye’s Islamic credit guarantee firm Katlim Finans Kefalet (KFK) is keeping a close watch on its Shariah compliant investments portfolio to ensure the financial sustainability of its operations, CFO Necip Saygın Sungur shared with IFN Investor. 

KFK’s assets for sustaining its operations are mainly placed in fixed income Shariah compliant investments, such as Mudarabah and Wakalah-based participation accounts. However, as the firm tracks market conditions, it recognizes the necessity to diversify its holdings into other potential Shariah-compliant securities with comparable risk measures.

“We need to achieve returns that surpass the average inflation rate to sustain operational costs. As the central bank lowers interest rates, fixed income returns are also impacted. Balancing our portfolio carefully will be key to achieving our targets,” Saygın explained.

Aside from investments, KFK’s primary income stream comes from commissions earned by providing credit guarantees to private firms operating within Turkiye. However, this income alone is not sufficient to cover both operational and capital expenses.

Established on the 29th March 2023, with the Ministry of Treasury and Finance holding a 4% stake, KFK has received its seed operational capital from eight out of 11 local participation (Islamic) banks in Turkiye, along with the Treasury’s contribution. Saygın noted that negotiations are ongoing with the remaining participation banks to become shareholders.

Using its mandated 10-times leveraging formula on available funds, KFK has issued approximately TRY3 billion (US$84.67 million) worth of credit guarantees to SMEs, primarily clients of its bank shareholders, playing a critical role in expanding domestic economic activity.

Since the commissions from these deals cannot generate enough resources for KFK to enlarge its credit guarantee portfolio without exceeding its 10-times leveraging mandate, optimizing investment returns is crucial for KFK’s expansion, Saygın noted.

While this strategy is progressively implemented in the coming years, Saygın emphasized that guarantees originating from KFK’s main equity, as well as those provided by its parent ministry, are critical for maintaining its operational capacity to support SME financing by banks.

Extending and diversifying its capital resources in collaboration with local and international institutions and development banks will be a key strategic goal in the coming years.

Turkiye’s Islamic credit guarantee firm Katlim Finans Kefalet (KFK) is keeping a close watch on its Shariah compliant investments portfolio to ensure the financial sustainability of its operations, CFO Necip Saygın Sungur shared with IFN Investor.  KFK’s assets for sustaining its operations are mainly placed in fixed income Shariah compliant investments, such as Mudarabah and Wakalah-based...

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