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Turkey's first Islamic fund to open after new index

ISTANBUL - Bloomberg | 1/25/2011 12:00:00 AM | SELÇUK GÖKOLUK

Turkey’s first investment fund to comply with Islamic rules will start this year following the creation of a Sharia-compliant share index on the bourse.

Turkey’s first investment fund to comply with Islamic rules will start this year following the creation of a Sharia-compliant share index on the country’s main stock exchange.

Bizim Securities, an Istanbul-based brokerage whose parent company Boydak Holding owns shares in companies including an Islamic bank, will seek to raise an initial 100 million Turkish Liras ($64 million) to start investing in the second half of this year, said Deputy Chief Executive Avşar Sungurlu. The fund will track the Participation Index, which opened on Jan. 6 at the Istanbul Stock Exchange, Sungurlu said in an interview.

The global market for financial products complying with Shariah law, estimated at about $1 trillion by the Kuala Lumpur-based Islamic Financial Services Board, has struggled to take off in Turkey. The government has frequently clashed with the judiciary over religion’s role in society.

“We expect interest from conventional banks and from overseas in our fund,” Sungurlu said. “Two pension companies based in Turkey and also a foreign institution have already shown interest.”

[HH] Islamic rules of trade

The Participation Index, which started with a market value of 20 billion liras, is comprised of companies that have pledged to refrain from selling alcohol, tobacco, pork and weapons, or to engage in gambling activities. They include Türk Telekom, Turkey’s biggest fixed-line operator, Enka, an Istanbul-based builder, Ford Otomotiv and Bank Asya, an Islamic lender.

Bizim, which manages 600 million liras of investments, is the exchange’s sole adviser on the index. Its parent company, Boydak, has had holdings including shares in Türkiye Finans, an Islamic bank.

Turkish institutions are seeking to draw capital from Gulf countries by offering products and businesses that adhere to Islamic rules barring earnings from interest, Hüseyin Erkan, chairman of the Istanbul Stock Exchange, told reporters Jan. 6.

Banks and pension providers will be able to set up similar funds linked to the index as there are no legal restrictions on products tracking it, said Sungurlu.

The performance of the new fund will probably be closer to that of the industrial shares index than bank shares because most of the companies listed are non-financial companies, Sungurlu said.

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