Shariah Governance in Turkey: A Case Study on In-Bank Advisory Committees

Abstract

Islamic finance has developed the Shariah governance mechanism to ensure compliance and control of IFIs with the principles of Islamic law. However, the levels of Shariah governance are different from each other due to the different legal affiliations of each country, the level of development of Islamic finance, and regime differences. International Islamic financial institutions such as Islamic Financial Services Board (IFSB) and The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) have published standards to define the general lines of Shariah governance and have brought Shariah governance practices to a certain point, at least in principle. After the Shariah governance standards of IFSB (2009) and AAOIFI (1997), studies on Shariah governance have increased rapidly. By 2010, while there were only 18 publications on Shariah governance in the two most well-known indexes (Scopus and Web of Science), this number increased to 42 in 2015 and 159 in 2020. This academic interest shows that Shariah governance issues are followed closely. In this context, there have been some remarkable developments at the regulatory and supervisory level in terms of Shariah governance in Turkey, and the TKBB (Participation Banks Association of Turkey) Advisory Board was established in 2018, bringing one step closer to international Shariah governance practices. Although the developments in the context of Shariah governance in Turkey have accelerated in the last ten years, the legal consultancy services that Islamic financial institutions have received since their establishment are seen as the first applications in this sense. Accordingly, some individual efforts in the past and consultancy services that continue with the institutional structure as in-bank advisory committees today, and the place and importance of this service within the framework of Shariah governance is a field waiting to be explored in the context of Shariah governance in Turkey. In Turkey, there are three separate actors in Shariah governance that are authorized to issue Shariah rulings/fatwas. The first of these is the TKBB Advisory Board, which is the central committee; the second is the High Council of Religious Affairs (DIYK) within the body of the Presidency of Religious Affairs (DIB), and the third is the special advisory committees. It is possible to consider special advisory committees in two separate categories, namely in-bank advisory committees (BIDK) and independent special advisory committees. The main purpose of this study is to explore the place and importance of BIDK in the context of Shariah governance in Turkey. The fact that the studies conducted in Turkey in the context of Shariah governance are quite limited and supported by qualitative research methods indicates that this study will have an original and important place in the literature. In this regard, a case study, which is one of the qualitative research designs, was preferred, and semi-structured interviews were conducted with seven advisory committee members. As a result of the interviews, a total of 625 minutes of interview recording was obtained and analyzed, and the analysis text was obtained. The obtained texts were analyzed through the ATLAS-ti program, a qualitative data analysis program, and three main themes and 26 sub-themes related to them were reached. Related themes provide rich content to explore the place and importance of BIDK in Shariah governance in Turkey. The study is also important in terms of its contribution to the field by evaluating the Shariah governance literature and identifying the literature gaps. Since the research question of our study is designed as What is the place of Internal Bank Advisory Committees in Shariah governance in Turkey?, the place (duties, responsibilities, activities) of in-bank advisory committees in Shariah governance in Turkey is investigated in a descriptive manner. The study consists of five main parts, namely the literature review, method, findings, discussion and conclusion and recommendations on Shariah governance in the world and in Turkey. In the light of the findings obtained from the interviews, the institutional structure of BIDKs is discussed in the context of their historical background, compliance department, activities, access channels and their contributions to the field of Islamic economics and finance (IEF). Since it is the most basic activity of the advisory committees, the opinions of the members were requested on key points such as the process, subjects and procedure of the committee's fatwas. In this context, nine different sub-themes were identified under the theme of the fatwa, and the interviews were analyzed. In-bank advisory committees are discussed in the context of their institutional structures and fatwa, as well as in the context of the members assigned to the committees themselves. Besides the main issues related to BIDK, two more main themes were determined: the evaluation of the current Shariah governance in Turkey and the issues discussed around the TKBB advisory board.