CONTRIBUTIONS OF ISLAMIC FINANCE IN THE ECONOMIC DEVELOPMENT OF TURKEY: A REVIEW

World Bank data (2009-2019) provides that Turkey has been facing economic development challenges in terms of GDP growth rate, GDP per capita, inflation rate, unemployment rate, and youth unemployment rate during the last decade. Though 2020 data is not yet available, 2019 data depicted a very challenging year for Turkey. This paper aims to review the challenges in the economic development of Turkey and provide the solutions by applying the notions of participatory finance (Islamic finance) for the development of the economic growth, per capita income, inflation rate, unemployment rate, and the youth unemployment rate of Turkey. This study applied a critical literature review analysis to explore the challenges. The European Bank for Reconstruction and Development reported that Turkey observed a worsening asset quality of the banking sector, deleveraging by lenders, unstable market, reduced investor confidence, and shallow public and private investment in 2019. Similarly, the conventional finance literature illustrated prudent strategic financial decisions support in improving these issues. However, the Islamic finance literature demonstrated that interest-free financial mechanisms are comparatively more resilient and supported a sustainable economic development. Though the contributions of the participation (Islamic) finance are poor due to its size, this mechanism of finance has enormous prospect of contributions to the Turkey’s economy as demonstrated in other countries. The current Turkish government supports participation (Islamic) banking and expects to reach 15% assets by 2025.   Keywords: Economic development, Islamic finance, interest-free, economic development.   Cite as: Alam, M. K., & Ullah, M. H. (2022). Contributions of Islamic finance in the economic development of Turkey: A review. Journal of Nusantara Studies, 7(2), 336-357. http://dx.doi.org/10.24200/jonus.vol7iss2pp336-357