INTRODUCTION
Sukuk (lease certificates), as the primary debt capital market instrument in Islamic finance, is recognized as a capital markets instrument under Turkish law and is regulated within the framework of the Capital Markets Law No. 6362 (“Law”) and the Communiqué on Lease Certificates No. III-61.1 (“Communiqué”).
Pursuant to the Communiqué, Sukuk issuance is available through a multipartite structure consisting of issuers, originators, fund beneficiaries and investors. Issuers can only be asset leasing companies (“ALCs”), which are established with the approval of the Capital Markets Board (“Board”) and by specific entities meeting certain qualifications specified under the Communiqué. Originators, are the holders of the underlying assets or rights in general; whereby fund beneficiaries are the entities utilizing the funds raised through the sales of Sukuk to investors.
Available Sukuk structures are determined under the Communiqué, and the issued lease certificates can be offered to investors either through a public offering or by being sold to qualified investors in domestic or international markets. In any case, for the issued Sukuk to be legally valid, the Sukuk issuance must be based on an underlying asset or right, which must be Shariah-compliant.
A. ALC’s AND SUKUK ISSUANCE
As mentioned above, only ALCs are qualified to issue Sukuk under Turkish law. Therefore, it is important to examine which entities are qualified to establish ALCs; and what steps unqualified entities should take to participate in a Sukuk issuance.
1. Sukuk Issuance Through Establishment of an ALC
1.1 Qualifications Required to Establish an ALC
According to first paragraph of Article 12 of the Communiqué, an ALC may be established solely by the following institutions:
- Banks;
- Intermediary institutions which engage in portfolio brokerage or general custody services or underwriting activities;
- Mortgage finance institutions;
- Real estate investment companies listed on stock exchange;
- Publicly held corporations included in the first and second groups as described under the corporate governance regulations of the Board;
- Companies which are granted a long-term investment grade rating in the currency which the issue is denominated from authorized rating companies (“Rated Company”); and
- Companies of which 51% or more of capital shares are held directly by the Turkish Undersecretariat of Treasury.
Pursuant to the Communiqué, in cases where an ALC is established by the entities listed in (a) to (c) above; such ALC can issue Sukuk whereby third-party entities favour from the issuance as a fund user. On the other hand, in cases where an ALC is established by the entities listed in (d) to (g) above; such ALC can only issue Sukuk whereby its founders favour from the issuance as a fund user and cannot engage in other issuances.
1.2 Procedure for Establishment of an ALC and Certain Restrictions Applicable to ALCs
To establish an ALC, an application must be submitted to the Board along with the required documents, as detailed under the Communiqué, and the approval of the Board must be obtained. An ALC may only operate for the purpose of issuing Sukuk and may not engage in any commercial activity except as specified in its articles of association, which must be approved by the Board. Furthermore, assets and rights of ALCs cannot be allocated for the benefit of third parties, in a manner that is detrimental to the rights of the Sukuk investors, provided that such allocation is explicitly allowed under its articles of association, which must also be approved by the Board. ALCs are also prohibited from borrowing loans, becoming indebted, and utilizing their assets and rights contrary to their articles of association.
In addition to the above, an ALC must be liquidated or change its field of activity, if no Sukuk is issued within one year following the approval of its articles of incorporation by the Board.
2. Issuance Through Contractual Relationship with an ALC
In cases where it is not feasible or available to establish an ALC, private entities can be involved in a Sukuk issuance as originator and/or fund beneficiary by using an already established ALC as an intermediary. In this model, usually the originator of the underlying assets is also the fund beneficiary. Accordingly, the originator provides the underlying assets of the Sukuk issuance as well as benefits from the funds raised by entering into certain agreements with the ALC.
According to the Communiqué, the definition of originator and fund beneficiary as well as the qualifications of agreements to be executed with ALCs varies depending on the Sukuk structure. On the other hand, the underlying assets to be provided by the originator may include all types of assets as well as rights such as monetary claims in any Sukuk structure under Turkish law, provided that they are Shariah-compliant. However, certain types of assets, are not eligible to be underlying assets, due to the applicable laws, other than capital markets legislation, in certain Sukuk structures. For example, electricity itself cannot be the underlying asset in Sukuk structures where the underlying asset ownership rights are transferred to the ALC or investors, since sales of electricity is a licensed activity under the electricity market laws and the right to sell electricity cannot be transferred to ALCs or investors. However, in such cases, receivables arising from electricity sales can be the underlying asset.
In practice, real sector actors generally use this model to issue Sukuk instead of establishing ALCs.
B. AVAILABLE SUKUK STRUCTURES
Under Turkish law, ALCs must issue the Sukuk based on one or more of the following structures:
- Ownership-based Sukuk (Ijara Sukuk)
- Management contract based Sukuk (Wakala Sukuk)
- Sale and purchase based Sukuk (Murabaha Sukuk)
- Partnership based Sukuk (Mudaraba/Musharaka Sukuk)
- Construction contract based Sukuk (Istisna Sukuk)
Pursuant to Article 4/2 of the Communiqué, the Board has the right to approve any other Sukuk structure, provided that it deems that the relevant structure can qualify as a Sukuk structure.
1. Ownership Based Sukuk (Ijara Sukuk)
Ownership based Sukuk is issued to finance the underlying assets and rights acquired by ALCs from the originator to be leased back to the originator or third parties or managed directly by the ALC. In this structure the originator and the fund beneficiary are the same entity.
To issue ownership based Sukuk a contract must be executed by and between the originator and the ALC regarding the transfer of ownership of the asset or the right to the ALC and the underlying asset or right is leased backed to the originator or managed by the ALC and periodical payments to the Sukuk holders are made through the lease payments or management revenues respectively. The ALC resells the underlying assets to the originator at the maturity date of Sukuk and makes a lump sum payment to the investors. In this structure, the ALC has the power to dispose the underlying assets or rights in case of default of the originator in making required Sukuk payments to the investors.
Other important aspects of this structure are that (i) there must be no encumbrance on the underlying assets or rights; and (ii) a valuation report must be prepared by authorized entities, and the amount of Sukuk issuance cannot exceed the 90% of the value of the underlying assets/rights as determined under the valuation report.
2. Management Contract Based Sukuk (Wakala Sukuk)
Management contract based Sukuk is issued by ALCs, whereby the underlying assets or rights’ ownership is retained by the originator, however they are managed by the originator in favor of the ALC. The revenue derived from managing such assets or rights is transferred to ALCs to make the periodic payments and lump sum payment at the maturity date to the Sukuk holders. In this structure the originator and the fund beneficiary are the same entity.
To issue management contract based Sukuk, a contract must be executed by and between the originator and the ALC regarding the management of the asset or the right by the originator in favor of the ALC. Such management contract must contain the revenue ALC is entitled to and its calculation method.
Pursuant to Article 3 of the Communiqué, in management based Sukuk fund beneficiaries and originators must be companies who are qualified for establishing ALCs. Accordingly, entities not qualified to establish and ALC can only be a fund beneficiary/originator in a management contract based Sukuk issuance, in cases where they are qualified as a Rated Company.
Local issuances are generally realized through this Sukuk structure, since it is considered as the most straightforward and flexible structure, with limited number of underlying transaction documents and no valuation report requirement. Another reason for its popularity is that this structure is also available when the underlying asset/right is a monetary claim, such as receivables from a contract.
3. Sale and Purchase Based Sukuk (Murabaha Sukuk)
Sale and purchase based Sukuk is issued to finance the acquisition of an assets or right by ALCs from the spot market, which is then sold on a deferred basis to companies with are qualified to establish ALCs under Article 12/1 of the Communiqué, as the fund beneficiaries. The assets and rights to be bought by the ALC from the spot market and sold on a deferred basis to the fund beneficiary must be bought and sold from Borsa İstanbul A.Ş. or other liquid markets.
Pursuant to Article 7/2 of the Communiqué, the funds raised through the issuance of such Sukuk must be used to purchase assets or rights by no later than the day following their transfer to ALC’s account, and they must be sold on a deferred basis at a price exceeding their cost.
4. Partnership Based Sukuk (Mudaraba/Musharaka Sukuk)
Partnership based Sukuk is issued by ALCs to participate in a joint venture, whereby the joint venture is established to realize or develop a project or engages in other economic activity and Sukuk is issued for its funding. In this structure, the originator is the joint venture and the fund beneficiaries are the partners of the joint venture other than the ALC. Another important aspect of this structure is that fund beneficiaries or the joint venture must provide assets and/or rights as security in favour of the Sukuk investors.
Pursuant to Article 8 of the Communiqué:
- a joint venture agreement must be executed, which must specify profit sharing mechanism;
- in cases where an agency agreement is signed with certain partners of the joint venture; the agency agreement must contain the fee to which the relevant partner is entitled; and
- in cases where the joint venture is structured as a capital company, the profit-sharing ratio and agency fee must be explicitly stated in the company’s articles of association.
Another important aspect of this structure is that a valuation report must be prepared by authorized entities, and the amount of Sukuk issuance cannot exceed 90% of the value of the project of the joint venture as determined under the valuation report.
5. Construction Contract Based Sukuk (Istisna Sukuk)
Construction based Sukuk is issued by ALCs to facilitate the production of a work, typically a construction project, in which the ALC acts as the employer and the costs of construction is funded by the Sukuk holders. Under this structure, the ALC becomes party to the construction contract in its own name and on behalf of the Sukuk holders, acting as the employer, whereby the Sukuk holders have ownership rights of the work until the final maturity date and the fund user is the contractor or the entity that will buy the work once completed.
According to the Communiqué, in cases where the price is paid in advance to the contractor, as the fund user, by the ALC, the contractor is required to provide securities to cover any losses resulting from the failure to complete the work on time.
Similar to ownership based and partnership based Sukuk structures, a valuation report must be prepared by authorized entities, and the amount of Sukuk issuance cannot exceed the 90% of the value of the constructed work as determined under the valuation report.
C. CONCLUSION
Local and international Sukuk issuances are on an upward trend in Türkiye, driven by the participation of both real sector and financial sector actors, as well as the government. In the first 45 days of 2025, approximately TRY 25 billion worth of Sukuk was issued in local markets, matching the total issuance amount for the entire year of 2018. Similarly, international Sukuk issuances are also experiencing growing demand from both issuers and investors. Notably, the bookbuilding process for the Turkish Wealth Fund’s recent international Sukuk issuance in October 2024 saw demand exceed the issue amount by 14 times.
The significant growth of Türkiye’s Sukuk market is fuelled by an evolving regulatory framework and increasing global demand for Islamic finance products. The local legal structure ensures transparency and investor confidence, with only ALCs authorized to issue Sukuk. The assets and rights of ALCs are also safeguarded through various legal mechanisms, including restrictions on asset allocation, prohibitions on borrowing and indebtedness, and limitations on commercial activities to further protect the investors.
Various Sukuk structures, including those not explicitly outlined in the Communiqué but available with Board approval, offer flexibility for originators, fund users, and investors.
Considering Türkiye’s proactive and flexible regulatory approach, as well as the investor interest in issuances carried out by Turkish entities in local and international markets, it can be said that Türkiye’s share in the Islamic finance sector is steadily increasing, making it an important player in the field. In this regard, Sukuk is becoming a critical instrument for the development of financial markets, attracting foreign investment, and fostering economic growth.
