Minister Şimşek: We have a long way to go in Islamic finance

Minister of Treasury and Finance Mehmet Şimşek attended today's session of the 3rd Global Islamic Economy Summit, which began yesterday.

During today's session of the summit held at the Istanbul Financial Center (IFC), the topics of 'global vision of capital,' 'inclusive prosperity,' and 'sustainable development' models were discussed. The session began with a recitation of the Quran.

"We see countries adopting approaches to source from regions close to them"

In his speech at the summit, Minister of Treasury and Finance Mehmet Şimşek said, "When we look at emerging economies and emerging markets, we see that their share of foreign direct investment is decreasing. We see that this rate has fallen from 67 percent to 54 percent in the last 3 years; this is the share of foreign direct investment received by emerging markets. This is not appearing as a temporary trend, but rather as a structural one. A large portion of capital is, of course, positioned in the West, and we are seeing various effects of geoeconomic fragmentation. We see countries adopting approaches to source from regions close to them, what we call 'friend-shoring' and 'near-shoring.' These also affect capital flows. In this context, we also see an increase in protectionism. We see that protectionist approaches beyond traditional trade are increasing, and in the same way, we see that 'near-shoring' approaches, or sourcing from nearby, are increasing in the supply chain. Looking at it from this perspective, we can say that these capital flows will not flow sufficiently to emerging countries, where Muslim countries are also predominantly located, in such an environment to ensure the development of these countries."

"Islamic finance is directly related to the real sector, to the real economy"

"Our vision here should be to use the opportunities we have in the best way possible and to reconnect our capital within the scope of our development priorities," said Şimşek, adding, "When we look at portfolio capital flows, we see that they are very cyclical and chase short-term gains. These portfolio capital flows are not development-oriented. And likewise, finance is increasingly appearing to be detached and separated from the real sector. The growth we currently see in terms of investment is concentrated particularly within a few sectors and a few countries. When talking about sectors, these are primarily data centers and the artificial intelligence sector. And when we look at the countries, when we look at the countries where these flows, these investment flows occur, we see that these are generally developed countries and the flows between them. This poses a problem for emerging countries like us and for Muslim countries in general. As you know, Islamic finance is directly related to the real sector, to the real economy. In Islamic finance, every material financial transaction appears to be secured by a real asset. This is one of the things we need. Likewise, in the Islamic finance approach, risk and reward are shared by the relevant parties," he stated.

"There is still a significant way to go in Islamic finance, a path we must traverse"

Stating that when looking at oil-producing countries, there is a significant export surplus due to oil and that products are generally exported to emerging countries, Şimşek noted the following:

"In this sense, the regional use of the capital obtained is also important. We see important, positive signs in this regard. For example, countries like Saudi Arabia are investing a significant portion of the income they earn from their export surplus locally. In addition to this, we need to scale better in terms of Islamic finance assets. Here on the left, you see Islamic finance assets; in nominal terms, they have increased 48.5 times since 2000 in US dollars.

This is not a bad performance. On the contrary, it is a very impressive and encouraging performance for all of us. However, when we look at global financial assets managed by global financial institutions, we see that this has increased 6 times since 2000. There is still a significant way to go in Islamic finance, a path we must traverse. This presents important opportunities for many countries, and Turkey is one of them. When we look at Islamic finance assets, we see that Iran is leading in this regard, while Turkey ranks 9th. We would very much like to be in the top 5 in this ranking.

To achieve this, we need to do our homework well and study our lessons well. In this sense, what do we need to do for this sector to grow faster? What can we do to make our economy, our economies, more resilient? Let us not forget, we live in a world that is always full of shocks. There is an environment of conflict everywhere. In this sense, we need to be resilient, our economy needs to be resilient and have various buffers. This shows us that we need to lean more towards Islamic finance.

When we look at products, we need to ensure product diversity to attract more investors and to be able to compete. When we look at it in terms of conventional finance, we must be able to offer more products and ensure product diversity. This requires sectors to be more innovative. Likewise, it is important to increase liquidity. In Turkey, the Central Bank is working in this field, including these instruments. Regarding leadership, sustainability is also very important. As you know, Turkey will also host COP31. Focusing on sustainability and focusing on the green transition is not a matter of ideological prejudice for countries like Turkey; on the contrary, it is a necessity."