Author:Gorvett, Jon

Jon Gorvett reports from Istanbul on a proposed new law that has led to controversy in Turkey's financial sector.

To be criticised for investing in your own country is most unfortunate, remarks Candan Karlitekin, the general co-ordinator of one of Turkey's largest Islamic industrial conglomerates, Kombassan Holdings. He is speaking on one of the latest developments in the Turkish Republic's long standing internal conflict -- that between its Islamic roots and its Western aspirations.

It is a conflict that has recently led to controversy over a proposed new law on Islamic finance -- the repercussions of which could be dramatic for the country's Islamic banking sector.

Founded via a governmental decree in 1984, the non-interest bearing banking sector in Turkey now comprises of six main establishments -- or Special Finance Houses (OFKs) --with 155 branches and around $1.25 billion of deposits between them. In addition to this, banking sector observers suggest a further $10 billion plus currently remains outside of the sector due to religious concerns.

However, since the election of the pro-Islamic Welfare Party (RP) to the leading role in a coalition government in December 1995, the secularist establishment in Turkey has been increasingly concerned over the rise of what they characterise as fundamentalist ideas and influence in the country.

This concern led to the soft coup of July last year, when the RP was ejected from power by a coalition of opposition parties, the media and the all-important military.

Since then, the country has been run by another coalition, but recently the Turkish armed forces have expressed their disapproval of Prime Minister Mesut Yilmaz's approach to tackling the perceived threat of fundamentalism. Through the military dominated National Security Council (MGK) they have pushed the government into taking stronger measures on a variety of issues -- from the wearing of headscarves by female students through purging public institutions of suspected Islamist sympathisers to investigating the growing Islamic business and financial sector.

In this context, a new financial reform bill has made its way onto parliament's order of business. The law's main change in current practice will be to bring the OFKs under the same body of legislation as interest-bearing commercial banks.

"There are three basic disadvantages that we see with this," says Fawaz Al Issa of the Kuveyt Turk Bankasi. "First of all, this law will require an...

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