Participative Banking in Turkey: A Performance Analysis

Introduction

The concept of interest-free banking extends to the beginning of human history. The literature shows that even the first men conducted interest-free borrowing and lending transactions among themselves. It has been shown that people borrowed what they needed gave them back when they were due, interest-free. This system has continued in the same way after the introduction of money, as it was before money.

The concept of Islamic banking became known to the world in the 20^th century. As a result of the widespread use of classical banking in western countries and the avoidance of this kind of banking by the Muslim world due to religious requirements, the idea of Islamic banking was introduced by Muslim scholars in the 20^th century to make good use of the savings of the Muslim community that was left outside the economic system.

Islamic banking or the non-interest banking system could be defined as a system that collects funds and conducts its operations based on the principle of profit/loss sharing (Rafay & Farid, 2019; Tenekeci, 2017). The main difference between Islamic banking and the classical banking system is interest. Therefore, Islamic banking is a banking system that performs its funds collection and use on the basis of profit/loss participation as opposed to on interest. With regard to banking services, it generally offers its customers similar services to those offered by classical banking.

As in other countries, Turkey also has a number of institutions that offer Islamic banking. The Turkish government, which was one of the founding members of the Islamic development bank in 1975, became one of major partners of the bank by increasing its share of capital in 1984, thereby earning itself a permanent position in the bank’s board of directors. The first interest-free banking service in Turkey was first offered by the Investment Bank for Public Industrial Workers (DESİYAB) which was established in 1975 to provide services to citizens and SMEs who wanted to evaluate their savings in accordance with the interest-free system. DESİYAB, which operated until 1978 earned Turkey significant experience in the field of interest-free banking. At the establishment of bank, the board of directors was given the mandate to choose between interest and interest-free banking, and thus the bank chose to go interest-free in 1978. In 1988, DESİYAB changed its name development bank of Turkey. Another important development with regard to the interest-free banking in Turkey was the decree on “Profit / Loss Partnership (KZOB)” which was included in the decree that formed DESİYAB. The details of the system were prepared on February 24, 1984 by the Ministry of the Treasury and Foreign Trade and in March of the same year they were published by the notification of the Central Bank of Turkey (Canbaz, 2012). After this decree, the activities of the Islamic banks in Turkey have continued under special finance institutions.

Six Islamic banks were established in Turkey between 1984 and 1996 and these include, Al Baraka Türk and Faisal Finans private finance institutions which were established in 1984 and started operations a year later in 1985. Kuveyt Türk special finance institution was established in 1989 followed by Anadolu Finans, İhlas Finans and Asya Bankası private finance institution in 1991, 1995 and 1996 respectively. While the first three of these banks are mostly foreign capital based, the remaining three banks are mostly domestic capital based (Canbaz, 2014).

The interest in the products and services offered by the Turkish Islamic banking is increasing by the day. In 2014 Ziraat participation bank entered the Turkish participation banking sector, followed by Vakıf participation bank in 2015. However, with the closure of one of the banks in 2016, the number of participation banks in Turkey became five. The future of Islamic banking in Turkey is promising and this number is only expected to rise.