However, as only four participation banks currently operate in Turkey, there is a major supply-side constraint, as well as limited legal infrastructure in the Islamic finance sector. In a press statement released on Feb. 28, EY Turkey Audit Partner Seda Hacıoğlu stressed that Turkey does not have a clause on Islamic insurance in its insurance law yet, adding that the lack of a developed Islamic capital market by world standards is the primary obstacle to the spread of Islamic insurance in Turkey.
Another factor negatively affecting Islamic insurance in Turkey is the problematic pricing of this insurance, which leads prices to remain relatively low in the sector. Hacıoğlu said that Islamic insurance is based on making profit at the end of a certain period, stressing that this factor constitutes a threat and weakness in the sector.
According to the EY report, global Islamic Insurance assets had reached $11 billion in 2012, a 16 percent increase compared with previous year. Islamic insurance is widespread in Arab countries, Malaysia, Indonesia and also Europe and the US. “It is estimated that currently over 200 Islamic insurance firms operate in 33 countries, while 51 percent of the participation was from Saudi Arabia, followed by the Asian region with 25 percent, in 2012,” Hacıoğlu stated.
Hacıoğlu predicts that as the variety of Islamic bonds starts to diversify, asset management in the Islamic insurance sector will also begin in Turkey, along with an increased trade volume and interaction with Arab countries.