World Bank will provide finance for small- and medium-sized companies in Turkey through its Innovative Access to Finance Project
WASHINGTON/BRUSSELS (AA) – The World Bank is to provide a loan of $250 million specifically for Turkish businesses that choose to be funded through loans compatible with Islamic values.
The Innovative Access to Finance Project will also apply to Muslim businesses in Egypt, according to a statement from the bank on Tuesday.
Under Islamic custom all forms of interest are forbidden. In the new system, Turkish banks and the business customer will share the risk of any investment rather than the bank imposing interest on a loan.
The World Bank aims to improve access to long-term Islamic finance for small- and medium-sized enterprises, known as SMEs, through the Industrial Development Bank of Turkey.
Businesses of this size are the driving force of the Turkish economy. Martin Raiser, the World Bank’s director for Turkey, said they encounter significant obstacles to securing investment, which limits their potential contribution to the economy.
“Islamic finance is based on the principles of risk-sharing and asset-backing, a component of trade, rather than risk-transfer as seen in conventional banking,” he said.
“They provide attractive alternatives to traditional bank loans by alleviating constraints for SMEs related to the lack of collateral and credit history.”
Meanwhile, the European Commission and the European Investment Fund have signed a 1.3 billion euros ($1.75 billion) guarantee for banks to boost financial aid to SMEs, the commission and fund announced on Tuesday.
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