Borsa Istanbul introduces repo-like mechanism for Sukuk to aid Islamic banks in managing liquidity

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TURKEY: Turkish participation banks are now able to manage their liquidity more efficiently using a newly-launched repo-like mechanism by the national stock exchange, an initiative to support the country’s Islamic banks and stimulate growth in its nascent interest-free capital market. 

Borsa Istanbul has confirmed the launch of the Committed Transactions Market of Sukuk (CTM) and has begun the trading of Sukuk, or lease certificates as they are colloquially known. Based on the principles of Shariah, the CTM is open to all banks in the country and has received the greenlight from the Participation Banks Association of Turkey. 

“[The] CTM functions similarly to the operational rules of [the] Repurchase (repo) and Reverse Repo Markets within [the] Borsa Istanbul Debt Securities Market and lease certificates are subject to trading,” explained the bourse. “Committed transactions are realized by selling with a commitment to repurchase from a third party at a future date and buying with a commitment to resell to the third party at the same date. The third party has the right of withdrawal from the committed transactions.” 

With such a mechanism, participation banks would be able to better manage their liquidity in a more cost-effective manner and also potentially have access to a larger funding base, significant advantages in a highly competitive market of over 50 banks where conventional finance dominates. 

The CTM is one of a number of initiatives by Turkish authorities to expand its Islamic finance sector, currently serviced by five participation banks, three fully-fledged Islamic asset management firms and a handful of other service providers. The government also maintains a regular Sukuk issuance calendar. 

These supportive government measures and steady push by market players for interest-free products have yielded promising results. Over a two-year period from 2015 to 2017, the number of debt securities and lease certificates offerings about doubled from 621 to 1,217, raising TRY130 billion (US$25.02 billion) for companies at the end of 2017, according to official data. In the first seven months of 2018, TRY99 billion (US$19.06 billion) was raised through 849 issuances, translating into an average of 5.8 listed debts daily this year. Islamic papers account for twice the market share as of July 2018 at 10% from 5% in 2017. 

Borsa Istanbul expects the share of lease certificates in the total number of offerings to increase in the upcoming period.

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