A new study from Effat University looks at ten years of data from six Turkish participation banks – banks that provide
Islamic Finance – and reveals that participation banking is growing.
The headline finding is that Kuveyt Türk was the most efficient participation bank in the country, but this study also draws from studies that were previously only available in Turkish, which gives a wider audience insight into this important part of the Turkish economy.
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The headline finding is that Kuveyt Türk was the most efficient participation bank in the country, but this study also draws from studies that were previously only available in Turkish, which gives a wider audience insight into this important part of the Turkish economy.
For example, we see that participation banking is growing. As of 2021, participation banks accounted for 7.8% of the banking sector. The unconsolidated assets of the sector grew in that year by 64.1%, to 717.3 billion Turkish Liras.
Turkey has 6 participation banks, 35 deposit banks and 16 development and investment banks. Participation banks differ from traditional banks because they do not charge interest on loans, or pay interest on deposits. They use an alternative system where profits and losses are shared between the banks and the customers.
Additionally, they do not invest in industries such as gambling, alcohol. These differences are so participation banks are aligned with the values of Islam. The Turkish government offers extensive support to the sector because it benefits Turkey’s relations with Islamic countries and helps to attract funds from oil-rich Islamic countries to the country.
In recent years, Turkey has experienced significant currency depreciation and volatility. An effective and efficient finance sector is important to the stability and growth of their economy. As well as attracting foreign investment, participation banking helps diversify the Turkish financial sector, providing increased stability and the potential for more uptake in financial products across the country.
The goal is that participation banks target 15% market share in the Turkish banking sector by 2025. While the growth of the sector indicates they can achieve this, the study advises that policymakers should pay attention to the underperforming banks, which are Ziraat Katılım and Vakıf Katılım.
Studies like this will help banks improve their operations, reduce costs, increase profits, and better serve their customers. Read the full study here:
The efficiency of Participation Banking Sector in Turkey: A DEA Approach.
