(Bloomberg) -- Turkey is preparing to drop the regulatory hammer on providers of alternative finance specializing in a type of crowdfunding that has recently grown to rival bank lending for homes and cars.
The Treasury and Finance Ministry is working with the banking regulator, known as BDDK, on a system to regulate the so-called “savings-based financing sector,” according to two people with direct knowledge of the matter, who asked for anonymity to discuss information not yet public.
Thriving for years outside the traditional banking system, the industry is drawing the attention of authorities for the first time as Turkey looks to revive the flow of credit in the economy after recession. Unlike mainstream lenders that require a license to operate, a handful of firms relied on heavy advertising and built a much larger client base by catering to borrowers priced out of the market by punishing interest rates in the wake of Turkey’s currency crisis last year.
Pooling monthly savings of their customers, the companies raise a fund large enough to allow one member of a group to buy a home or a car every month. Pitched as “interest-free,” it’s a model popular among pious Muslims whose religious beliefs forbid usury.
In return for establishing and managing client pools, the firms charge participants a “service fee,” typically less than 10% of the price of the purchased item, and offer few legal protections for customers.
Different Tack
But the plan now is to unveil a legal framework to integrate such companies into the broader system and eliminate aspects of some of their operations that resemble a financial pyramid, one of the people said. The goal is to ensure that current participants aren’t left aggrieved by any changes.
The plans would require a law change, with a solution unlikely to be announced imminently since different government bodies are involved in the process, according to the other person.
The Treasury and Finance Ministry and the banking regulator both declined to comment.
The industry’s clientele has continued to grow even as credit has become more accessible for Turks following three bigger-than-forecast rate cuts by the central bank. Each month, it adds about 20,000 new contracts and delivers about 5,000 homes and cars, according to Birevim, one of the sector’s biggest companies.
By contrast, vehicle loans have declined 2.2% as of October from the same period last year, official data show. State-run banks, which account for more than half of all mortgages, have helped home loans more than double in the period.
Birevim is calling for “the views of the industry” to be taken into account as authorities prepare new rules, according to its chairman, Murat Ciftci. He predicted that regulators may introduce a capital threshold for the companies and said the government shouldn’t attempt to turn them into banks.
“Birevim operates in finance, but what it does is to organize clients, not their money,” he said by phone on Monday. “As client money isn’t being used in any commercial activity, no new funds are created.”
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