Turkey has been building capital market bridges to GCC and South East Asia, and chairman of the Istanbul Stock Exchange, Hussain Erkan, has been a leading architect in establishing dialogue, hosting events, and facilitating cooperation and coordination with his counterparts for both Islamic and conventional finance. In this interview, Erkan shares his thoughts on the challenges and progress of Islamic finance in Turkey, among various other issues. He is hopeful that the improvements made should be able to attract investors from the GCC.
Gulf News: Would you kindly explain the role of Istanbul Stock Exchange in providing opportunities for those interested in Islamic finance?
Hussain Erkan: Islamic countries have a huge potential to create wealth in the economy with their rich resources and are capable of achieving more by improving their capital market structure. Since 2005, under the activities of Standing Committee for Economic and Commercial Cooperation of the Organisation of the Islamic Cooperation (COMCEC), Istanbul Stock Exchange (ISE) has been working on creating this awareness and developing the exchange industry in Islamic countries by acting as the coordinator of the Organisation of Islamic Cooperation (OIC) member states’ Stock Exchanges Forum. We also cooperate with other international institutions such as IIFM (International Islamic Financial Market)? on developing an appropriate structure to create solutions for increasing the liquidity of Islamic capital market instruments. (source)
Hussain Erkan: Islamic countries have a huge potential to create wealth in the economy with their rich resources and are capable of achieving more by improving their capital market structure. Since 2005, under the activities of Standing Committee for Economic and Commercial Cooperation of the Organisation of the Islamic Cooperation (COMCEC), Istanbul Stock Exchange (ISE) has been working on creating this awareness and developing the exchange industry in Islamic countries by acting as the coordinator of the Organisation of Islamic Cooperation (OIC) member states’ Stock Exchanges Forum. We also cooperate with other international institutions such as IIFM (International Islamic Financial Market)? on developing an appropriate structure to create solutions for increasing the liquidity of Islamic capital market instruments. (source)
Gulf News: Islamic finance, called participation finance banking in Turkey, has encountered many challenges in the last 15 years. Is it smooth sailing now in Turkey for investors in the GCC?
Erkan: Since they started operating in 1983, participation banks have made great progress and now have a share of 4.5 per cent in the Turkish banking industry. Participation banks have been putting much effort to get more involved in the capital markets by issuing sukuk and creating a participation index composed of sharia-compliant stocks traded on ISE. The recent regulations of the Capital Market Board of Turkey (CMB) has facilitated the issuance of sukuk type products. The Central Bank of Turkey (CboT) now also contributes to participation banks by being a shareholder of a newly-established international body called International Islamic Liquidity Management (IILM) Corporation. IILM is established by mainly central banks from different countries and aims to stimulate the issuance of sukuk or sukuk-like instruments in the financial markets by offering new ways for creating liquidity and higher rating opportunities through a well-functioning market making mechanism. The participation banks may use this opportunity to better manage their liquidity risks by using the sukuk issued through this platform as primary dealer participants. I believe all these improvements will contribute to attracting corporate investors from the GCC.
Erkan: Since they started operating in 1983, participation banks have made great progress and now have a share of 4.5 per cent in the Turkish banking industry. Participation banks have been putting much effort to get more involved in the capital markets by issuing sukuk and creating a participation index composed of sharia-compliant stocks traded on ISE. The recent regulations of the Capital Market Board of Turkey (CMB) has facilitated the issuance of sukuk type products. The Central Bank of Turkey (CboT) now also contributes to participation banks by being a shareholder of a newly-established international body called International Islamic Liquidity Management (IILM) Corporation. IILM is established by mainly central banks from different countries and aims to stimulate the issuance of sukuk or sukuk-like instruments in the financial markets by offering new ways for creating liquidity and higher rating opportunities through a well-functioning market making mechanism. The participation banks may use this opportunity to better manage their liquidity risks by using the sukuk issued through this platform as primary dealer participants. I believe all these improvements will contribute to attracting corporate investors from the GCC.
Gulf New: ISE has been hosting the OIC stock Exchange meetings for the last five years. Please share with us the major developments and where more work is needed?
Erkan: In the OIC forum meetings, controversial issues raised by the OIC member states stock exchanges are discussed and practical solutions are searched with the participants’ contributions, including stock exchanges, post-trade institutions and international bodies such as IFSB, AAOIFI and IIFM. The forum also cooperates with international bodies and takes part in their working committees to share its solutions.
Through the OIC forum activities, we also created task forces to develop solutions for introducing new Islamic financial instruments and benchmarks for the OIC member states stock exchanges. We initiated the creation of a series of OIC indices with S&P. We are still working on the project and expect to launch a tradable index by the end of this year. We hope it will encourage institutional investors to create new instruments like ETFs. The forum also plans to launch a benchmark index in the near future. On the other hand, the other two task forces, namely, Capital Market Linkages and Post-Trade Institutions were converted into a single project group which will work on building bilateral and/or multilateral linkages among member exchanges, including trading, post-trade services, technological infrastructure and so forth. The project group will also cooperate with the recently established Comcec Capital Market Regulators Forum with regard to the legal framework. As a part of this effort, we organised a seminar on capital market linkages and technology during the fifth forum meeting held in Istanbul last September, bringing together the representatives of a number of exchanges and other institutions experienced on this issue. Needless to say, all these efforts aim to promote and increase awareness on Islamic finance in the OIC member states.
Erkan: In the OIC forum meetings, controversial issues raised by the OIC member states stock exchanges are discussed and practical solutions are searched with the participants’ contributions, including stock exchanges, post-trade institutions and international bodies such as IFSB, AAOIFI and IIFM. The forum also cooperates with international bodies and takes part in their working committees to share its solutions.
Through the OIC forum activities, we also created task forces to develop solutions for introducing new Islamic financial instruments and benchmarks for the OIC member states stock exchanges. We initiated the creation of a series of OIC indices with S&P. We are still working on the project and expect to launch a tradable index by the end of this year. We hope it will encourage institutional investors to create new instruments like ETFs. The forum also plans to launch a benchmark index in the near future. On the other hand, the other two task forces, namely, Capital Market Linkages and Post-Trade Institutions were converted into a single project group which will work on building bilateral and/or multilateral linkages among member exchanges, including trading, post-trade services, technological infrastructure and so forth. The project group will also cooperate with the recently established Comcec Capital Market Regulators Forum with regard to the legal framework. As a part of this effort, we organised a seminar on capital market linkages and technology during the fifth forum meeting held in Istanbul last September, bringing together the representatives of a number of exchanges and other institutions experienced on this issue. Needless to say, all these efforts aim to promote and increase awareness on Islamic finance in the OIC member states.
Gulf News: We have heard talks over the years about an Islamic stock exchange. Is this wishful thinking or is this need of the hour to help build out the Islamic equity capital markets?
Erkan: We believe that creating a linkage among the OIC member states stock exchanges is important in that it would create synergy and cost efficiency, making sharia-compliant exchange-traded instruments available to a more diversified group of investors in both Islamic and non-Islamic countries. In consequence, we encourage the OIC member states stock exchanges and post-trade institutions to establish bilateral or multilateral ties to create such linkages.
Erkan: We believe that creating a linkage among the OIC member states stock exchanges is important in that it would create synergy and cost efficiency, making sharia-compliant exchange-traded instruments available to a more diversified group of investors in both Islamic and non-Islamic countries. In consequence, we encourage the OIC member states stock exchanges and post-trade institutions to establish bilateral or multilateral ties to create such linkages.
Gulf News: Can you share with us what kind of bridge ISE is building with the UAE and GCC counterpart exchanges?
Erkan: I try to pay visits to the destinations where ISE could establish close ties in developing bilateral or multilateral cooperation with its counterparts. In this respect, I also visit stock exchanges and participate in conferences in the GCC countries to look for such opportunities. I am happy to say that we have made some progress with the UAE and the Egyptian Exchange to calculate joint indices, similar to GT-30 index that we have with Athens Exchange. I expect to see the first fruits of our efforts in near future.
Erkan: I try to pay visits to the destinations where ISE could establish close ties in developing bilateral or multilateral cooperation with its counterparts. In this respect, I also visit stock exchanges and participate in conferences in the GCC countries to look for such opportunities. I am happy to say that we have made some progress with the UAE and the Egyptian Exchange to calculate joint indices, similar to GT-30 index that we have with Athens Exchange. I expect to see the first fruits of our efforts in near future.
Gulf News: Malaysia has been expanding its reach on Islamic finance via MIFC road shows. What is your message for Malaysia concerning Turkey on Islamic finance?
Erkan: While London and Luxemburg have made a significant progress with their flexible treatment of the Islamic finance business, Malaysia keeps leading this business with its well-established organisational structure, diverse asset types and high sukuk issuance size. They have also held a MIFC road show in Istanbul (on September 28-29)and we had closed-door industry dialogue with their regulatory and wealth management companies representatives to determine the major areas of cooperation between the two exchanges.
Gulf News: If we look ahead to 2020, what is your vision for Islamic finance and what role will Turkey have in it?
Erkan: The Islamic finance industry is still in its infant stage and has a high growth potential. In this process, the role of the stock exchanges is vital and they should get more involved in attracting Islamic capital market instruments to their marketplaces by creating new trading opportunities. These efforts may not only increase the overall asset size of the industry, but also bring new individual and institutional investors that are keen to trade faith-based instruments in every continent of the world. Hopefully, Turkey will increase its market share in the industry, not only via participation banks, but also by capital market institutions which will issue new regulations and introduce new products that will be traded in organised secondary markets.
Erkan: The Islamic finance industry is still in its infant stage and has a high growth potential. In this process, the role of the stock exchanges is vital and they should get more involved in attracting Islamic capital market instruments to their marketplaces by creating new trading opportunities. These efforts may not only increase the overall asset size of the industry, but also bring new individual and institutional investors that are keen to trade faith-based instruments in every continent of the world. Hopefully, Turkey will increase its market share in the industry, not only via participation banks, but also by capital market institutions which will issue new regulations and introduce new products that will be traded in organised secondary markets.
Gulf News: Finally, you have accomplished much as the chairman and CEO of ISE. What is your proudest moment and what would you have done differently?
Erkan: I am proud of playing a contributing role in the development of the Turkish capital market through IPO and investor awareness campaigns locally and I am also happy to get the first results in terms of new IPOs in the market. Internationally, I am proud of further increasing bilateral and multilateral cooperations with other exchanges through my visits and by actively participating in the WFE Board of Directors as a representative of an emerging market. I aim to enhance these relations in the future and establish linkages among the stock exchanges in the region as well as introduce more exchange traded Islamic capital market instruments.
Erkan: I am proud of playing a contributing role in the development of the Turkish capital market through IPO and investor awareness campaigns locally and I am also happy to get the first results in terms of new IPOs in the market. Internationally, I am proud of further increasing bilateral and multilateral cooperations with other exchanges through my visits and by actively participating in the WFE Board of Directors as a representative of an emerging market. I aim to enhance these relations in the future and establish linkages among the stock exchanges in the region as well as introduce more exchange traded Islamic capital market instruments.
Hussain Erkan: Profile
Hussain Erkan is a graduate of New York University Stern Business School with a B.S degree in Economics (1981) and an MBA in the fields of International Business and Finance (1984) with a thesis project on currency risk management at the United Nations Development Programme (UNDP). Erkan was appointed as chairman & CEO of the Istanbul Stock Exchange in 2007. He is also the chairman of the ISE Settlement and Custody Bank (Takasbank), President of the Federation of Euro-Asian Stock Exchanges (FEAS), and member of the moard of directors of World Federation of Exchanges (WFE). During his career, Erkan has worked in the transportation, petroleum and manufacturing sectors in addition to capital markets.
Hussain Erkan is a graduate of New York University Stern Business School with a B.S degree in Economics (1981) and an MBA in the fields of International Business and Finance (1984) with a thesis project on currency risk management at the United Nations Development Programme (UNDP). Erkan was appointed as chairman & CEO of the Istanbul Stock Exchange in 2007. He is also the chairman of the ISE Settlement and Custody Bank (Takasbank), President of the Federation of Euro-Asian Stock Exchanges (FEAS), and member of the moard of directors of World Federation of Exchanges (WFE). During his career, Erkan has worked in the transportation, petroleum and manufacturing sectors in addition to capital markets.
