Islamic financial houses in Turkey

Journal of the Academy of Business and Economics, Jan, 2003 by Ayse Yuce

Although Kuwait Turk was very successful in terms of increasing its profits till 2000, after this date the profits started to decrease because of the economic crisis Turkey has suffered. However unlike Al Baraka Turk the institution has obtained profits at 2001.

4.4 Anadolu Finance Company

A group of Turkish entrepreneurs combined their capitals and formed this company in 1991. All of the investors are Turkish citizens. The initial capital was 30 billion Turkish Liras.

The first all Turkish owned company was sold at 1999 to a new Turkish family called Boydak. The capital has been increased to 60 Billion Turkish Liras. The company has collected approximately 300 billion Turkish Lira deposits.

4.5 Ihlas Finance Company

The owners of this company were the Ihlas Holding and the Turkish Religion Fund. The company was established in 1995 with 1 trillion Turkish Lira capital. The company has followed an aggressive growth policy and increased its number of branches to 35 in 1997. The institution has issued an initial public offering for 15% of its shares and afterwards has been listed on the Istanbul Stock Exchange. Ihlas Finance at the beginning has increased its assets at an annual rate of 150% and obtained 40% market share. Ihlas Finance's financial problems started as early as 2000. They couldn't collect their receivables and couldn't pay profit shares to the investors. Finally at 2001 the Turkish Banking Association declared Ihlas Finance bankrupt and transfered the ownership to the association. The association will first pay the claims of the lenders and government, afterwards employees will be paid. The account owners will be paid next, however it is uncertain whether or not equity owners will get their claims.

4.6 Asya Finance Company

Asya Finance company was established at 24 October 1996 with 20 trillion Turkish Lira capital. Asya Finance is a public company with 254 small shareholders. Asya Finance's net profit has decreased from 5,316,244 million Turkish Liras in 2000 to 1,916,309 million Turkish Liras in 2001.

Table 1 shows the net profits and the total deposits of the six Islamic finance Houses at the end of 1997. Al Baraka Finance had the highest net profit. However Ihlas Finance had more branches and slightly higher deposits. Kuwait Finance was at the third position.

Today Ihlas Finance declared bankruptcy and ceased its operations. Faisal Finance was sold and became Family Finance. Anadolu Finance was also sold to new owners. During 1988-2002, the Islamic Houses could obtain at most 3% of the Turkish Lira deposits and between 3-4% of foreign currency deposits in Turkey.

TABLE 1
PROFITS AND DEPOSITS OF ISLAMIC FINANCE HOUSES AT 1997

            NUMBER OF   1997 PROFIT    TOTAL DEPOSITS
COMPANY     BRANCHES    (BILLION TL)   (BILLION TL)

AL BARAKA   21                  2300       100000
FAISAL      12                   613        33000
KUWAIT      14                   800        55000
ANADOLU     20                  1900        28000
IHLAS       35                  2100       105000
ASYA        13                    --        18000