The World Bank has approved a US$250mn loan in favour of the Innovative Access to Finance Project for Turkey, aimed at improving long-term access to Islamic finance and factoring for the country’s SMEs and exporters.
The borrowing bank that will implement the project is Türkiye Sinai Kalkinma Bankasi (TSKB), with a guarantee provided by the Turkish government. TSKB will act as intermediary, providing access to the loan through participating banks and factoring companies whose customers are SMEs and exporters.
The project is split into an Islamic financing component and a factoring component. Around US$160mn will reportedly be made available for Islamic finance while US$90mn will be for factoring services.
The lending instrument for the Innovative Access to Finance Project is a variable spread loan, extended by the International Bank for Reconstruction and Development (IBRD), the arm of the World Bank that provides debt financing on the basis of sovereign guarantees. It will have a total maturity of 28 years, including a grace period of seven years. Repayment of the loan will be linked with commitment, with a repayment schedule to be determined by the World Bank.
World Bank country director for Turkey, Martin Raiser, says: “Islamic finance is based on principles of risk-sharing and asset-backing, a component of trade, rather than risk-transfer, as seen in conventional banking. Together with factoring, they provide attractive alternatives to traditional bank loans, alleviating capital constraints for SMEs.”
“We are switching to innovative financing instruments as domestic financial markets are becoming more sophisticated,” he adds. “Turkey’s SMEs are the motor of the country’s economy but they face greater constraints in accessing finance than larger companies.”