TKBB: Governance is primary barrier to Islamic finance competitiveness

Governance remains the primary obstacle to the competitiveness of Islamic finance in emerging markets, Furkan Yalcin, Legal Counsel of the Participation Banks Association of Türkiye (TKBB), said at the 2nd Azerbaijan Halal Business (AZHAB) Forum in Baku, Report informs.

According to him, without clear and reliable Shariah standards, markets remain fragmented and investors hesitate. "Türkiye addressed this issue in 2018 by establishing a legally binding Central Shariah Board. This step created clarity, confidence, and a level playing field across the sector. Another challenge is scale and product diversification. Many emerging markets are still limited to basic retail products. Türkiye expanded its product base, especially in the sukuk market (Islamic bonds), and now ranks third globally after Saudi Arabia and Malaysia. This diversification has attracted both domestic and international investors."

Yalcin also pointed out the issue of financial inclusion, particularly for small and medium-sized enterprises (SMEs): "Traditional banks often fail to serve them adequately. In Türkiye, 43% of financing by participation banks goes to SMEs, compared to just 27% in traditional banking. This focus creates competitiveness through inclusion. Today, competitiveness also means digitalization. Emerging markets often lag behind in technology. Participation banks in Türkiye currently serve nearly 7 million active digital customers, with transaction volumes exceeding 7.8 trillion Turkish lira. Digitalization reduces costs, expands reach, and makes Islamic finance more competitive compared to traditional players. Finally, the next challenge is sustainability. Global regulatory trends such as ESG and climate-related disclosures will shape future capital flows."