Economy
Türkiye-UK Islamic finance co-op gathers pace with new MoU signed
In a world grappling with economic volatility and uncertainty, lingering inflation and the rising cost of capital, an alternative financial system grounded in ethics and risk-sharing is attracting renewed attention.
Islamic finance – a system that prohibits interest, discourages speculation and demands real asset backing – is seeing a global resurgence. Two countries, Türkiye and the U.K., believe they’re ideally placed to lead the charge, according to a report released on Wednesday.
Treasury and Finance Minister Mehmet Şimşek recently described Islamic finance as “structurally better equipped to address uncertainty and ambiguity,” noting that its core principles make it more stable in times of global financial stress.
“Islamic finance tends to be, relative to its conventional peers, more resilient,” Şimşek said. “It provides you with more stability and liquidity as a part of risk sharing. This is the essence in terms of your profit and loss arrangements.”
Şimşek was part of a high-level Turkish delegation visiting London last week to attend the U.K.-Türkiye Islamic Finance Forum. The forum was hosted by the U.K. Department for Business and Trade in cooperation with the Participation Banks Association of Türkiye (TKBB).
On this occasion, TKBB and the U.K. Export Finance (UKEF) signed a Memorandum of Understanding (MoU) aimed at strengthening cooperation in Islamic finance.
‘Deeper collaboration’
Speaking to Anadolu Agency (AA), Mehmet Ali Akben, chairperson of TKBB and general manager of Vakif Katılım Bank, highlighted the potential benefits of the deal for both countries.
“The share of participation finance in Türkiye’s banking sector is currently around 8%. Our initial goal is to increase this to 15%,” he said to AA last week.
Akben noted that London remains a major global financial hub and pointed out that Türkiye has developed its own financial center in Istanbul.
“We attach great importance to mutual cooperation in this context. We believe that this MoU will enable deeper collaboration between the two countries in trade and export finance, education and alignment with international standards. We also believe that Islamic finance will become more accessible to a broader audience in Türkiye as a result,” he added.
While the sector still represents a modest share of global finance – around 1% of total assets – Şimşek pointed out that Islamic finance has expanded elevenfold since the year 2000.
In Türkiye, its footprint is larger than the global average, making up 8% of banking assets and over 12% of the capital markets, he also noted.
London sees long-term role
Across the Channel, U.K. trade officials say the ethical basis of Islamic finance is appealing not just to Muslims, but to a broader group of investors seeking to align their money with their values.
“There are lots of people from around the world who are taking great interest in the values that are underlying their investments,” said Ben Aldred, deputy commissioner of Trade for Eastern Europe and Central Asia at the U.K.’s Department for Business and Trade.
“This is not just a new thing for the U.K.. This is something that we’ve been doing for at least a decade,” he told AA, according to remarks published on Wednesday.
London, one of the world’s most significant financial centers, has hosted several Turkish government Sukuk (Islamic bond) issuances.
Aldred said he hopes to see even more Turkish institutions using London as a base to tap global capital in a Shariah-compliant way.
“We’re hoping that there will be more issuances from Turkish financial institutions out of London,” he added. “It makes economic sense to do so and we’re really seeing that momentum now,” he noted.
For Islamic finance to go mainstream, however, markets need liquidity, said Hugh de Lusignan, head of financial services at the U.K. Department for Business and Trade.
“We think it’s important to create what’s called the yield curve,” he said, referring to the need for regular bond issuance that makes pricing more transparent and predictable. “That makes it easier for people to invest.”
He pointed to a recent Sukuk issuance by the Türkiye Wealth Fund (TWF) as a sign of strong international appetite.
“The fact that it was so oversubscribed proves that there’s a big international market for these types of issues, even though the circumstances might look difficult.”
TWF, the asset-backed development fund of Türkiye, marked its landmark $750 million Sukuk issuance in October 2024 during a Market Open Ceremony at the London Stock Exchange (LSE).
The Sukuk issuance, with a return rate of 6.95%, was oversubscribed by 14 times, setting a record in the history of Sukuk issuances.
Following the success, TWF executed a re-tap Sukuk issuance in January 2025, increasing the total size to $1 billion.
Türkiye’s gateway role
For the U.K., Türkiye is more than just a partner – it’s a bridge. Positioned between Europe, the Middle East and Central Asia, Ankara is seen as a strategic hub for the spread of Islamic finance.
“Türkiye is in exactly the right position,” de Lusignan said. “There’s a lot of growth in that area from countries that are interested in expanding Islamic finance opportunities … and the banks are thinking internationally.”
The global Sukuk market is on course to exceed $1 trillion in outstanding volumes in 2025, according to Fitch Ratings.
Sukuk are expected to remain a key component of the debt capital markets (DCM) across numerous Organization of Islamic Cooperation (OIC) countries and will continue to play a significant role in emerging markets (EM).
In 2024, Sukuk accounted for 12% of all EM U.S. dollar debt issuance, excluding China, underlining their increasing global relevance.
Sukuk were 25% of total dollar DCM issuance in the core markets of the Gulf Cooperation Council (GCC) countries, Malaysia, Indonesia, Türkiye and Pakistan.
Türkiye’s military spending increased by 7.2% in 2025, according to a report by a conflict think-tank on Monday that also showed global expenditure hit a new all-time high, driven by wars and geopolitical tensions.
Türkiye’s expenditure reached $30 billion to make it the 18th biggest spender in the world, the Stockholm International Peace Research Institute (SIPRI) said.
The figure accounted for 1.9% of Türkiye’s gross domestic product (GDP), and the 2025 growth rate lifted the increase over the past decade to 94%.
The report showed global military spending rose by 2.9% compared with 2024 to nearly $2.9 trillion, marking an 11th consecutive year of growth.
That came despite a 7.5% reduction by the U.S., the world’s biggest spender, as President Donald Trump halted new financial military aid to Ukraine.
The 2025 total brought the growth over the past decade to 41% and took spending as a share of GDP to 2.5% – its highest level since 2009.
The top three military spenders, the U.S., China and Russia, accounted for a combined $1.48 trillion, or 51% of global spending.
The main contributor to higher global spending was a 14% rise in Europe to $864 billion.
In total, 22 European NATO members met the 2% of GDP benchmark. Their combined spending reached $559 billion to rise faster than at any time since 1953, according to SIPRI.
The expenditure of all the 32 NATO members amounted to almost $1.6 trillion in 2025, or 55% of spending globally.
In Türkiye, the overall increase was mainly driven by the country’s continuous investments in its domestic arms industry, SIPRI said.
Allocations to the special fund to support the Turkish arms industry rose by 25% year-over-year and accounted for 22% of Türkiye’s total expenditure in 2025, according to the report.
Türkiye has injected billions of dollars over the past two decades to transform it from a nation heavily reliant on equipment from abroad to one that is a major exporter and where homegrown systems now meet almost all of its defense industry needs.
For much of the past two decades, Ankara has expressed frustration over its Western allies’ failure to provide adequate defense systems against missile threats despite Türkiye being a NATO member.
Türkiye’s defense exports sealed a record 2025, rising about 48% year-over-year to more than $10 billion. The goal for 2028 is to lift the full-year figure to $11 billion, placing Türkiye among the world’s top 10 biggest defense exporters, according to officials.
Despite persistent tensions in the Middle East, military expenditure in the region rose only marginally, by 0.1%, to $218 billion, SIPRI said.
In Asia and Oceania, spending reached $681 billion, an 8.5% increase from 2024, the region’s largest annual increase since 2009.
Total military spending in Africa increased by 8.5% in 2025 to reach $58.2 billion, SIPRI said.
Türkiye outlined details on Monday of a broad package of incentives that top officials say is aimed at boosting competitiveness and attracting investment, and also positioning its biggest city as a leading financial gateway across the region.
Describing the planned reforms as “not an ordinary incentive package,” Treasury and Finance Minister Mehmet Şimşek said the measures amount to a comprehensive “tax architecture.”
“This is a full-spectrum structure covering goods, services, capital, talent and activities. Our priority is to move Türkiye into the top league in terms of global investment attractiveness,” he told a press conference in Ankara.
Şimşek said Türkiye was extending a tax exemption on services exports to 100% to target high-value sectors like software, gaming and medical tourism.
At the same time, it is reducing manufacturing exporters’ corporate tax rate to 9% to boost competitiveness and attract foreign direct investment (FDI), he said.
The tax reductions are long-term and “here to stay,” he told reporters, days after President Recep Tayyip Erdoğan first floated the comprehensive legislative package including the tax plans.
The package aims to increase the country’s competitiveness and overall economic appeal, Erdoğan said.
Ankara introduces it at a time when the U.S.-Israeli war with Iran rattles Gulf states, prompting some companies and banks there to consider other options.
Asked about this, Şimşek said the package was not meant to take advantage of war fallout and was in the works long before.
Some of the incentives, including zero corporate income tax on transit trade, are focused on the companies located in the Istanbul Financial Center (IFC), a state-backed clutch of glassy towers on the city’s Asian side.
The rate is 95% for those located outside the IFC, Şimşek said, noting it was set at 50% in years past.
Speaking at the same event, Vice President Cevdet Yılmaz said the package is designed to provide a “clear and reliable framework” for investors seeking stability in an uncertain global environment.
Yılmaz added that companies establishing regional headquarters in Türkiye would benefit from substantial tax exemptions and also said a centralized mechanism would be introduced to accelerate large-scale foreign investments and streamline administrative processes.
The package aims to “export more goods and services, attract more talent, entrepreneurs, capital, a new home that’s more encouraging local citizens to use Türkiye as a center of their activities and… placing IFC as one of the key regional hubs,” Şimşek said.
This month, the IFC’s CEO Ahmet Ihsan Erdem told Reuters that the Iran war prompted dozens of companies with operations in the Gulf to consider moving business there.
The exporter incentives include what Şimşek called a “radical step” toward reducing the corporate tax rate.
As the Iran war disrupts global energy supplies and sends prices soaring, Drin River, which descends through the mountains of northern Albania, is providing a buffer against the shock.
Swelled by winter rains and snowmelt, and dotted with hydroelectric dams built during communist times, the river’s power provides more than 90% of the Balkan country’s electricity output, helping to keep wholesale prices in check.
Albania is an example of how countries with a higher renewables output have been protected from steep rises in electricity prices since the United States and Israel attacked Iran on Feb. 28, price comparisons from across Europe show. That could help households, businesses and growth in those countries as the price impact trickles down to ordinary consumers in the coming months, analysts said.
It could also bolster Europe’s green energy transition, which has been criticised for lacking urgency and has come under attack from the likes of U.S. President Donald Trump.
Countries heavily reliant on oil and gas face steeper price rises, adding to inflationary pressure and increasing the chance of a global recession – a familiar worry for Europeans who weathered the energy crisis triggered by Russia’s invasion of Ukraine in 2022.
The crisis is raising the regional price floor for everyone, but the countries with the least flexibility and the greatest marginal dependence on imported fuels are seeing the strongest impact in volatility and peak pricing, said Satyam Singh, analyst at energy research firm Rystad.
Power price differences emerge across Europe
Across the Adriatic Sea from Albania, Italy, which generates more than 40% of its electricity from gas, has seen a more than 20% rise in its benchmark wholesale contract since the war began. In gas-hungry Germany, the benchmark has risen over 15%.
In contrast, the benchmark in France, which relies on nuclear energy for 70% of its electricity production, has risen by less than half of Italy’s over the same period. In Spain, which has rapidly increased renewable output to nearly 60% of total generation, prices have fallen. Albania also recorded lower average prices in March compared to last year, thanks to ample hydro capacity.
Gas-dependent countries like Italy, Germany and Greece all have some level of solar power production, but over-reliance on solar causes what’s called the “duck curve,” where prices are low in the middle of the day but spike in the early morning and late afternoon.
“The goal for most of these countries like Italy and Germany is to build a huge stack (of renewables and long-term storage) that offsets gas. It’s going to be a big challenge,” said Alessandro Armenia, a power analyst at commodities data and analytics firm Kpler in Paris.
Meanwhile, coal-producing countries like Poland and Serbia have also fared well, analysts said. In Greece, which has strong solar generation, the power grid operator wants a lignite-fired plant earmarked for closure to stay open for at least another year amid the Iran conflict.
Businesses, households feel the strain
Power price shocks for households are expected to be more muted than the jumps in wholesale costs seen for oil and gas, analysts say, as it can take months for these increases to work through the system.
The European Commission has developed plans to cut electricity taxes as it seeks to cushion the fallout from the war, although officials and analysts warn that state costs could balloon as a result.
Consumers already struggling with a rise in oil-based fuel prices are worried about dearer electricity.
In Cyprus, where households pay some of the highest electricity prices in the EU, the country’s dominant power provider sees prices rising as much as 20% by August, in part because of its own duck curve.
When the Iran war erupted, fuel costs for Marios Georgiou, a machine operator at a printing works in Limassol, soared as much as 20%, forcing him to quit one of his jobs and find alternative work closer to home. Electricity bills already cost him 200 euros (about $234.8) a month.
“I’ve got two jobs and I can barely break even. Everything is just going up,” the father of two said.
He’s not alone.
Nico Vanni, 47, runs the La Nave bakery in Castiglion Fiorentino, Italy. The company uses about 2,000 liters of diesel a month on deliveries, and its ovens run on natural gas. Suppliers have already announced increases in the cost of yeast, paper and plastic – and that’s before any power price increases.
“We can hold out for a few months, but not for long: the real risk is that we will have to intervene on staffing,” he said.
Old dams help Albania, but for how long?
In Albania, residents near the towering Vau i Dejes hydroelectric dam joke that hydropower is the only positive legacy of the country’s decades of communist rule.
“Albania’s heavy reliance on renewable energy, particularly hydropower, has played a crucial role in cushioning the country from the worst effects of the crisis,” Albania’s Energy Ministry said in a statement, although it acknowledged that it wasn’t immune.
The country still imports power when demand peaks, and consumers are protected by government price subsidies.
“The Iran conflict has increased pressure behind the scenes, particularly on public finances,” the energy ministry said. “The system is holding steady on the surface, while the real strain is accumulating underneath.”
Oil prices rose slightly on Monday while stocks were mixed, with the U.S. and Iran no closer to ending their two-month war after President Donald Trump cancelled his envoys’ trip for peace talks over the weekend.
Hopes that the two sides could make progress during negotiations in Pakistan were dashed Saturday by the U.S. president, who said there was no point “sitting around talking about nothing.”
He said on Fox News that he told his team, “We have all the cards. They can call us anytime they want, but you’re not going to be making any more 18-hour flights to sit around talking about nothing.”
However, he told reporters a revised proposal from Iran had followed within minutes of his decision.
“They gave us a paper that should have been better and – interestingly – immediately, when I cancelled it, within 10 minutes, we got a new paper that was much better,” he said, without elaborating.
Asked separately whether the cancellation meant a return to hostilities, Trump said: “No, it doesn’t mean that. We haven’t thought about it yet.”
But even before Trump’s move, prospects for talks were uncertain, with Iranian state television saying Foreign Minister Abbas Araghchi had no plans to meet U.S. officials and that Islamabad would act as a conduit for proposals.
Axios on Sunday cited unnamed sources, including a U.S. official, as saying Tehran had provided a new offer to reopen the Strait of Hormuz – through which a fifth of global oil and gas passes – with nuclear talks pushed back to a later date.
Talks between the rivals have reached an impasse, with Iran hitting out at a U.S. blockade of its ports and the White House demanding that Tehran allow ships to transit the crucial waterway.
Iranian state media said Monday that Araghchi had arrived in Saint Petersburg for talks with Russian President Vladimir Putin. The trip comes after visits to Islamabad and Oman in a flurry of regional diplomacy.
Soon after landing, Araghchi blamed the United States for the failure of the peace talks, citing its “excessive demands,” adding that “safe passage through the Strait of Hormuz is an important global issue.”
Oil prices rose around 2% earlt Monday, though lingering hopes that a deal can eventually be reached have tempered the gains.
However, Fawad Razaqzada of Forex.com, warned they could surge again at any time.
“If tensions were to escalate further, particularly into open conflict, there’s a clear risk of a sharper spike,” he wrote.
“For now, though, as long as shipping through the Strait remains constrained, that premium is unlikely to fade. Until there’s a credible breakthrough, the path of least resistance still looks higher, with a move beyond $110 appearing increasingly plausible.”
Stocks fluctuated, with Tokyo, Seoul, and Taipei sharply up on the back of AI-fuelled tech gains following US giant Intel’s healthy revenue forecasts.
There were also gains in Shanghai, Mumbai, Bangkok and Jakarta, while Hong Kong, Sydney, Singapore and Manila fell.
London fell at the open while Paris and Frankfurt rose.
That came after the S&P 500 and Nasdaq ended Friday at fresh record highs.
Investors were also looking ahead to earnings this week from U.S. tech titans Alphabet, Meta, Microsoft, Amazon and Apple, while the Federal Reserve will hold a closely watched policy meeting at which it is expected to stand pat on interest rates.
Key figures at 07:15 GMT
West Texas Intermediate (WTI): up 1.9% at $96.18 a barrel
Brent North Sea Crude: up 2.1% at $107.51 a barrel
Tokyo – Nikkei 225: up 1.4% at 60,537.36 (close)
Hong Kong – Hang Seng Index: down 0.3% at 25,911.28
Shanghai – Composite: up 0.2% at 4,086.34 (close)
London – FTSE 100: down 0.2% at 10,362.72
Euro/dollar: up at $1.1727 from $1.1717 on Friday
Pound/dollar: up at $1.3537 from $1.3530
Dollar/yen: down at 159.30 yen from 159.42 yen
Euro/pound: up at 86.63 pence from 86.60 pence
New York – Dow Jones: down 0.2% at 49,230.71 (close)
Türkiye’s economic management has created a successful framework and risk management, but the program involves a dynamic process and needs a “fine-tuning” and review, the head of a leading business association said, according to remarks published on Sunday.
“We will not set aside the fight against inflation, but with fine-tuning, we need to review the exchange rate policy, export regime, and import regime within the program. I believe we must design and implement this integrated process very quickly,” said Şekib Avdagiç, the chairperson of the Istanbul Chamber of Commerce (ITO).
Speaking to journalists, Avdagiç said that thanks to the successful work of the economic management over more than three years, Türkiye has moved from a problematic foreign exchange reserve situation to a much more reasonable level, and that an important goal has been achieved in terms of external funding access.
However, he noted that with the developments triggered by the war, it would be appropriate to evaluate the situation from a broader perspective.
“As the business world, we have tried to contribute as much as we can to achieving the targets of the economic program. For this, the business community has also paid a significant cost,” Anadolu Agency (AA) quoted him as saying.
Avdagiç’s remarks on the economic program, which was put in place in the middle of 2023, marking a shift to more conventional macroeconomic policies to curb soaring inflation, come amid some calls to pause the fight against inflation amid the ongoing war in the Middle East.
Earlier this week, Treasury and Finance Minister Mehmet Şimşek sought to dismiss these calls, arguing that sustainable and high growth can only be achieved through low inflation.
“This is a very myopic approach,” he said. “The path to permanent and high growth is through the process of low inflation. If inflation falls, growth will multiply.”
Türkiye’s annual inflation dropped to 30.87% in March from 31.53% in February, compared to the peak of around 85% in October 2022 and around 65% in 2023.
Responding to a question about the central bank’s interest rate decision, Avdagiç went on to say that: “I do not think it would be very correct, realistic, or result-oriented to look at the issue merely as a simple interest rate increase or a decision to keep it unchanged.”
“I believe we are entering a period where economic processes must be reviewed holistically in terms of the sustainability of the business world,” he argued.
“The economic management has created a successful framework and risk management. It is not possible to ignore our gains,” he maintained.
“At this stage, however, we think that, together with the conditions brought by the war and taking into account the expectations of the business world, some updates are needed in the policy that has so far been financial- and reserve-heavy,” he added.
“Of course, the program involves a dynamic process. We will not set aside the fight against inflation, but with a fine-tuning, we need to review the exchange rate policy, export regime, and import regime within the program. I believe we must design and implement this integrated process very quickly.”
The war between the U.S., Israel and Iran, which began two months ago, has led to a notable ascent in global energy prices, while also threatening supply chains of raw materials, including fertilizers, which are used for crops.
The conflict has added pressure on countries relying on imports, but in the face of disruptions, Ankara has touted the success of its diversification strategy and relatively low dependence on Gulf countries for oil and gas supplies.
In response to uncertainties, the Turkish central bank has, in both of its last policy meetings, kept interest rates unchanged at 37%.
As Turkish capital Ankara gears up to host the NATO summit, which will take place on July 7-8, the accommodation sector has also begun intensive preparations for the event, according to a report on Sunday.
Ahead of the major event, high-end hotels in the city are accelerating their reservation and operational preparation processes.
During the summit, NATO-standard security protocols will be implemented in hotels for heads of state and senior delegations. The modernization of security systems, the creation of special protocol areas, and staff training form the main pillars of these preparations.
The summit is expected to generate significant added value for Ankara’s economy not only through accommodation but also through logistics, food and beverage, and service sectors. In order to meet the rising demand created by the event, hotels are planning additional recruitment, while placing particular emphasis on training staff in foreign languages and protocol management.
Gökhan Esengil, the chairperson of the regional executive board of the Tourism Hotel Managers Association, told Anadolu Agency (AA) that the process related to the summit is proceeding differently from typical tourism activity.
Explaining that most reservations are made through corporate block bookings rather than individual guests, Esengil said that as the summit dates approach, occupancy rates in our high-end hotels in Ankara has “reached around 90%.”
Also, emphasizing that security measures are being raised to the highest level due to the nature of the event, Esengil elaborated: “In such events, our hotels cease to be mere accommodation facilities and turn into controlled diplomatic areas. At entrances and exits, multi-layered security measures are implemented, and some of our hotels are fully or partially allocated to delegations. Coordination with state security units has reached the highest level.”
Furthermore, noting that Ankara hotels already have experience in hosting bureaucratic guests and therefore provide services with qualified staff, Esengil said that special training programs for the summit are also ongoing.
He added that staff are being trained especially in protocol rules, crisis management, foreign languages, and service standards, and that the use of external service providers is also being increased to support operations.
He also suggested that the economic impact of the summit will not be limited to the accommodation sector.
“Transportation, car rental, restaurants, event companies, and technical service providers will all directly benefit from this activity,” he said.
“The high spending capacity of incoming guests will provide a significant short-term boost to the city’s economy. This summit will strengthen Ankara’s brand value by proving its capacity to host international events.”
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