Two Islamic banks join forces to found private pension firm in Turkey
ISTANBUL – Hürriyet
Islamic banks – also called participation banks – follow the requirements of Shariah and do not charge interest. Hürriyet photo
The new, highly state-aided private pension system has made the mouths of Islamic banks water, as two of Turkey’s non-interest, Islam-compliant banks look to establish a joint company.
The new regulations opening the way for Islamic banks to found non-interest pension funds and most recently enabling them to invest private pension funds in non-interest financial instruments encouraged Albaraka Türk and Kuveyt Türk to enter this business field.
Another Islamic bank, Asya Participation bank already has its own private pension arm, while other Islamic banks were working with agency.
“The latest regulations made these [participation] banks’ entrance into the system attractive,” said Osman Akyüz, the general secretary of the Turkey Participation Banks Union. He said the critical point was where to pool collected money and the new regulations laid the base for the system.
According to the private pension scheme, the government will pay 25 percent of the pension to participants every month as a state contribution, as it has set aside 1.25 billion liras for support in the private pension system in the 2013 budget.
Private pensions have emerged as a lucrative field for Islamic banks – also called participation banks – which follow the requirements of Shariah and do not charge interest, by enabling participants in the personal pension system to be able to choose to invest a total of 25 percent of the state’s contribution in sukuks, or Islam-compliant bonds.
Some 75 percent of the pension fund provided by the state can be invested in debt instruments issued by the Treasury, revenue-sharing certificates or sukuks. The remaining 25 percent can be managed in investment instruments such as government bonds and treasury bonds, as well as sukuks, according to the new pension system that has been in effect since Jan. 1.