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ABSTRACT This paper examines the basic principles of Islamic economy and finance. Multi-faceted ownership, economic freedom within a certain limit, and social justice are fundamentals of Islamic economics. These principles can only be implemented through the institutional reforms such as zakat and prohibition of interest. Interest-free banking based on the principle of profit and loss sharing of participatory financing is at the center of Islamic finance. Although it is proposed as a superior alternative to conventional banking system, Islamic banking could not live up to expectations in practice. It is because rather than being essentially an economic one, the argument in favor of Islamic economy and finance was to protect Muslim identity in various parts of the world. Turkey's experience with Islamic finance began in the mid 1980s as a part of financial liberalization policy. Yet the Islamic banking and finance could not achieve the desired level of development till now. Key words: Islamic economy, Islamic finance, Islamic banking, participatory financing, profit and loss sharing, Islamic financial instruments.

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