A Turkish Steel Mill Audits Itself Against Islamic Finance Rules

A major Turkish steel company recently filed a document on the country's public disclosure platform assessing how well its business aligns with "participation finance principles." The company in question is İskenderun Demir ve Çelik — ticker ISDMR — one of Turkey's largest flat-steel producers, listed on the Borsa Istanbul. The document is called a Participation Finance Compliance Assessment.

The funniest line in the filing is that the company reports full operational compliance. Its core activities, corporate governance, articles of association, and share structure all pass the test. No alcohol, no pork, no gambling, no tobacco. A steel mill, of course, is naturally well-positioned to clear that bar.

The finance department, though, tells a different story.

Here's what the numbers say about the money side of the business:

• Non-compliant income: 1.8% of total revenue. That comes almost entirely from finance income — basically interest earned on cash sitting in conventional bank accounts — and foreign exchange gains.
• Non-compliant assets: 16.65% of total assets. The driver here is cash and cash equivalents sitting in interest-bearing accounts, plus financial investments accounted for using conventional methods.
• Non-compliant liabilities: 14.69% of total assets. This is the big one. Conventional borrowings — short-term loans, the current portion of long-term debt, and non-current borrowings — total roughly 39 billion Turkish lira.

So the steel mill itself is fine. The problem is that the company borrows money from conventional banks at interest, which is the thing participation finance — the Turkish government's preferred term for what the rest of the world calls Islamic finance — prohibits. Under participation finance rules, companies can't earn or pay interest (riba), and their capital should be deployed through profit-and-loss sharing arrangements rather than fixed-rate debt.

This is basically a compliance audit asking the question: can you run a heavy-industry business in the modern financial system without using conventional bank debt? The honest answer from ISDMR's filing is: not really, and we are not pretending we can.

Who asked, and why?

This isn't a voluntary exercise. Turkey's Banking Regulation and Supervision Agency (BRSA) published a new "Regulation on Compliance with Participation Principles" in December 2025, replacing a 2019 framework. The new rules broaden the scope of the participation finance system, tighten advisory committee requirements, and rename the old "interest-free banking" language to the more expansive "participation principles." The government is also clearly pushing this as a national project: President Erdoğan told the Global Islamic Economy Summit in May 2026 that participation finance is a "more just and safer model" for the entire world.

The disclosure platform where ISDMR filed — KAP, Turkey's equivalent of the SEC's EDGAR — hosts participation finance assessments for listed companies. Whether this particular assessment is mandatory for every issuer or triggered by something specific to ISDMR (a financing plan, a sukuk consideration, political pressure, or a new KAP filing category) isn't entirely clear from the filing itself. But in a government that treats participation finance as strategic infrastructure, the line between encouragement and requirement tends to be thin.

The older financial machine underneath

The simplest way to think about this is to strip away the "participation finance" label and look at what's actually happening. Turkey has a growing non-interest banking sector — banks like Kuveyt Türk and Albaraka that operate under participation principles. The government wants more capital flowing through that system. It wants more companies, including state-owned industrial giants, to use participation-based financing rather than conventional debt.

ISDMR's assessment is essentially a gap analysis. The company is saying: our operations are already aligned. Our balance sheet is not. To close that gap, the company would need to replace roughly 39 billion lira of conventional borrowings with participation-finance instruments — things like murabaha (cost-plus sale contracts), ijara (leasing arrangements), or sukuk (Islamic bonds that represent ownership in an asset rather than a debt obligation).

The question that assessment doesn't answer is whether participation-finance instruments are actually available to a steel mill at competitive enough pricing to make this transition economically viable, or whether the company would be swapping one form of borrowing for a structurally similar but more expensive one. That is the sort of detail a public compliance filing won't tell you, because the filing is a snapshot of where the company is, not a roadmap of where it wants to go.

What this is and what it isn't

This is not a statement that ISDMR is becoming an Islamic company. It is not a conversion. It is a regulatory compliance exercise that happens to use religiously derived financial categories as its measuring stick. The company makes steel. The assessment measures whether the way it finances that steel production fits within a framework that prohibits interest.

The structural implication is the more interesting one. Turkey is building out a parallel financial system and asking its largest industrial companies to report on how compatible they are with it. That's a classification boundary in motion: the government is trying to draw a line between "conventional" and "participation" capital, and the companies that straddle that line — like ISDMR, whose operations are clean but whose debt book is not — are the ones that reveal where the system is still incomplete.

If the participation finance market deepens, and instruments become cheaper and more liquid, a company like ISDMR could transition meaningfully. If it doesn't, these assessments will remain a compliance exercise: a way for the government to track how far it still has to go, without actually forcing companies to restructure their balance sheets. Either way, the machine is running. It just hasn't reached full speed.