What lies ahead for Istanbul as an international financial centre?

Levent, one of Istanbul's financial districts. By VikiPicture  [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

I have recently published a short commentary on the phenomenon of international financial centres- public and private initiatives to promote  major global cities as hubs of financial trading and services. Having explained the background to the concept and how cities are ranked by international business consultants, I have then discussed Istanbul's very own initiative led by the AKP government since 2007.

The initiative's list of objectives is long and consists of  areas ranging from education through infrastructure to regulation. These objectives are comprehensive and commendable as they will expand and deepen Istanbul's sophisticated financial services to Turkey and its hinterland.  Yet, as I have  noted in my commentary,  one of the two most prolific activities  for the Istanbul finance centre initiative has so far been construction work in Atasehir - a densely built and congested area in Istanbul's Asian side. This several billion dollar building work aims  to relocate various state financial institutions from Ankara to Istanbul, and complement these office buildings  with a shopping mall, residential buildings and recreational areas. The ongoing building work  does not make much sense given the advances in telecommunication technologies and the fact that these state institutions do not seem to suffer from poor infrastructure or building stock. It can however be understood as part of the AKP policy of promoting economic growth via construction and infrastructure  activity, especially at a time when the Turkish economy has been stagnant compared to its growth potential as an emerging market.

Atasehir district, where the building work for Istanbul finance initiative takes place. By © Nevit Dilmen, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=19848353 

Second most prolific activity seems to be promoting Islamic finance. Islamic financial services have made significant advances in recent decades and several cities such as Kuala Lumpur, London and Doha compete for a larger share in this fast growing sector. Islamic finance is not just for pious Muslims. It can be attractive to ethical investors and any other investor when it offers competitive financing options.

Istanbul's competitiveness in Islamic finance has a lot to improve as currently there are only few Islamic banks in Turkey and there is no regulatory authority that can check the Sharia compliance of any existing or future financial product or service. Reliance on an external authority such as one  in London or Egypt might be complicated and reduce Istanbul's competitiveness.  All in all, the focus on Islamic finance has the potential encourage many pious Turkish savers to shift to their savings - which they generally keep in instruments such as gold, foreign currency, and real estate-   to the Turkish financial system. It can also be attractive to regional and international investors. Nevertheless, the initiatives for Islamic finance in Turkey should not be designed as a substitute for the existing financial services and markets, which are premised on secular commercial and judicial principles. After all it is these services that have put Istanbul on the global map of financial centres. Narrowing their reach by promoting Islamic finance at their expense will not help Istanbul nor the Turkish economy.

Here is the link to the article in The Conversation - a great platform for academics to disseminate their research and opinions with journalistic flair . Articles are free to republish with attribution under CC licenses. Many thanks to  Annabel Bligh for her excellent editorial support