Turkey investment fund crisis deepens

A financial scandal in Turkey has deepened, with a former government minister resigning her party posts, dozens of people arrested and hundreds of thousands of investors waiting to find out what they will get back.

On Sunday, former Family Minister Fatma Betul Sayan Kaya resigned from her positions in the governing Justice and Development Party, known as the AKP, amid scrutiny over alleged links to the scandal.

131 funds to be wound up

Turkey's financial regulator, the Capital Markets Board, has ordered the liquidation of 131 investment funds run by seven firms. It said 455,758 separate investors held stakes in them. The Finance Minister, Mehmet Simsek, has put the value of the funds at 18.3 billion dollars.

The number of arrests linked to the scandal has risen to 51, including a former deputy governor of Turkey's central bank. The chairman of Tera, one of the firms at the centre of the crisis, has also been arrested.

How the crisis began

The trouble began in early September, after the Capital Markets Board changed its rules for investment funds. Funds could no longer put all their money into a single share and were required to diversify. The regulator was concerned that many funds were heavily invested in a small number of obscure or hard-to-sell shares.

Some funds, including those run by Tera Portfoy and Pusula Portfoy, then struggled to pay investors who wanted to withdraw their savings, with Tera reporting payment failures on 16 September.

A long wait for investors

Two of Turkey's biggest banks, Isbank and the state-owned Ziraat Bank, will oversee the liquidations. On 21 September, the regulator extended the period for selling the funds' holdings from three months to six, meaning investors face a wait of up to half a year.

Why it matters

The crisis has shaken confidence in Turkey's financial markets at a time when the country has been trying to rebuild credibility with investors after years of high inflation. The authorities have sought to reassure savers, but the political fallout is growing.