Details of the proposed Islamic Finance Law, which Treasury and Finance Minister Mehmet Simsek has announced that the government is working on, have begun to emerge.
The related Bill is expected to be discussed in Parliament, and when enacted, will consolidate all laws concerning participation finance institutions in one omnibus statute, reported the daily newspaper New Dawn.
The draft law covers several areas, including participation insurance (takaful); the establishment of an association for participation financial institutions; the operations of participation finance institutions and a standards board.
Participation insurance
The legislative framework for participation insurance will also be developed. The inclusiveness of participation insurance and participation retirement plans will be increased. The new law will reduce transaction costs, which are a significant obstacle to the establishment of participation insurance cooperatives.
Association
The Turkish Participation Finance Institutions Association will be established. It will have a public legal personality and administrative and financial autonomy.
The headquarters of the association will be in the Istanbul Finance Centre. The association will supervise all institutions that provide participation finance services and institutions and organisations that provide consultancy, auditing and rating services to all these institutions within Turkiye.
Institutions
Participation finance institutions will be required to establish an advisory committee consisting of at least three members who will be responsible for making decisions and ensuring that their respective organisations comply with the participation finance principles and standards.
Financial institutions will be obliged to inform their customers and the public that the products and services they offer are in accordance with the participation finance principles and standards, terms of contracts and the rights and obligations of the various parties.
Standards board
A Participation Finance Standards Specialisation Board will also be established. The Board will present a model that is specific to Turkiye. The Board will be related to the Turkish Participation Finance Institutions Association. However, the Board, which will operate independently from the association, will assist the private sector with the decisions it makes. The members of Board, to be nominated by public institutions and professional associations, will be appointed by the President.
Financial stability
The proposed Islamic Finance Law, when passed, will give an institutional structure to the participation finance system that will support the real sector directly with its features such as risk-sharing. This will contribute to financial stability and the development of Islamic finance in a sustainable manner. M