Participation banking

Short description: Islamic banking in Turkey and MENA

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Participation banking is a name given to Islamic banks mainly in Turkey, as well as in the broader MENA region.[1][2] There are participation banks in Turkey, Pakistan, Bangladesh, Indonesia, Saudi Arabia, Malaysia, the UAE and other Gulf countries.

## Contents

* 1 Core principles
* 2 History
* 3 Monetary policy implications
* 3.1 Integration with conventional systems
* 3.2 Regulatory recognition
* 3.3 Monetary reform perspective
* 4 List of participation banks
* 4.1 Defunct
* 5 References

## Core principles

Participation banks operate on Islamic financial principles distinguished from conventional banking:

* Prohibition of interest (riba): Prohibiting interest is necessary for but may guarantee Shari'ah compliance[3]
* Risk sharing: Banks and customers share both profits and losses from investments[4]
* Asset-backed financing: All transactions must be backed by real economic activity[5]
* Prohibition of uncertainty (gharar): Ambiguous or uncertain transactions are not allowed[6]
* Ethical investment: Avoiding speculative transactions and trading in impermissible products such as alcohol[7]

## History

Participation banking share of assets in the Turkish banking sector was 2.13% in 2000,[8] 5.1% in 2012,[9][10] and reached 7.8% or 717.3 billion TL in 2021.[11]

In 2020, top total sukuk issuers included: Malaysia, Saudi Arabia, and Indonesia.[12]

According to Ernst & Young, the assets of global participation banking reached US $930 billion in 2015, with growth rates declining across all regions compared to previous years.[13]

## Monetary policy implications

### Integration with conventional systems

Integration of Islamic banking principles with modern monetary systems presents opportunities and challenges for financial reform. Islamic central banks have limited conventional monetary policy instruments.[14]

### Regulatory recognition

The sector has gained international recognition through regulatory frameworks. The International Monetary Fund Executive Board endorsed a proposal on the use of the Core Principles for Islamic Finance Regulation, which were developed by the Islamic Financial Services Board.[15]

### Monetary reform perspective

From a monetary reform standpoint, participation banking presents both opportunities and challenges:

Opportunities:

* Alternative to interest-based financial systems[16]
* Emphasis on real economic activity over speculation[17]
* Built-in risk-sharing mechanisms[17]

Challenges:

* Integration with conventional monetary policy tools[18]
* Standardization across different regulatory environments[19]
* Limited scale compared to conventional banking[20]

## List of participation banks

* Ziraat Participation Bank
* Vakıf Participation Bank [tr; tr; Vakıf Katılım Bankası]
* Turkey Finance Participation Bank [tr; tr; Türkiye Finans Katılım Bankası]
* Albaraka Türk Participation Bank
* Kuwait Turk Participation Bank [tr; tr; Kuveyt Türk]
* World Participation Bank

### Defunct

* Asia Participation Bank (founded 1996, closed 2016)

## References

1. ↑ Erol, Cengiz; f. Baklaci, Hasan; Aydoğan, Berna; Tunç, Gökçe (2014). "Performance comparison of Islamic (participation) banks and commercial banks in Turkish banking sector". Euromed Journal of Business (Emerald Insight) 9 (2): 114–128. doi:10.1108/EMJB-05-2013-0024.
2. ↑ "Megabank project to support Turkey's aim to increase share in participation banking". Daily Sabah. 2017-05-20. https://www.dailysabah.com/finance/2017/05/20/megabank-project-to-support-turkeys-aim-to-increase-share-in-participation-banking.
3. ↑ REDmoney (2014-04-07) (in en). The Islamic Finance Handbook: A Practitioner's Guide to the Global Markets. John Wiley & Sons. ISBN 978-1-118-81443-7. https://books.google.com/books?id=t5BSAwAAQBAJ&dq=Participation+banking+Riba&pg=PT429.
4. ↑ Ridhwan, Ab Aziz, Muhammad; Fuadah, Johari; Ahmad, Rafiki (2024-11-29) (in en). Digitalization of Islamic Finance. IGI Global. ISBN 979-8-3693-5655-5. https://books.google.com/books?id=OQg1EQAAQBAJ&dq="Participation+banking"+"risk+sharing"&pg=PA33.
5. ↑ Harrison, Tina; Ibrahim, Essam B. (2016-09-20) (in en). Islamic Finance: Principles, Performance and Prospects. Springer. ISBN 978-3-319-30918-7. https://books.google.com/books?id=kkobDQAAQBAJ&dq="Participation+banking"+asset-backed+financing&pg=PA2.
6. ↑ Suzuki, Yasushi; Miah, Mohammad Dulal (2018-03-09) (in en). Dilemmas and Challenges in Islamic Finance: Looking at Equity and Microfinance. Routledge. ISBN 978-1-351-60185-6. https://books.google.com/books?id=qnhQDwAAQBAJ&dq=participation+banking+uncertainty+prohibited&pg=PT21.
7. ↑ Janmohamed, Shelina (2016-08-30) (in en). Generation M: Young Muslims Changing the World. Bloomsbury Publishing. ISBN 978-0-85772-860-9. https://books.google.com/books?id=s6OmDwAAQBAJ&dq="participation+banking"+alcohol&pg=PA2012.
8. ↑ Mermod, Asli Yüksel; O.Idowu, Samuel (2013-08-29) (in en). Corporate Social Responsibility in the Global Business World. Springer Science & Business Media. ISBN 978-3-642-37620-7. https://books.google.com/books?id=KVqRAAAAQBAJ&dq="participation+banks"+"asset"+2000&pg=PA350.
9. ↑ Aysan, Ahmet Faruk; Dolgun, Muhammed Habib; Turhan, M. Ibrahim (2013). "Assessment of the Participation Banks and Their Role in Financial Inclusion in Turkey". Emerging Markets Finance & Trade 49: 105. doi:10.2753/REE1540-496X4905S506. ISSN 1540-496X. https://www.jstor.org/stable/24475319.
10. ↑ REDmoney (2014-04-07) (in en). The Islamic Finance Handbook: A Practitioner's Guide to the Global Markets. John Wiley & Sons. ISBN 978-1-118-81443-7. https://books.google.com/books?id=t5BSAwAAQBAJ&dq="participation+banks"+net+asset&pg=PT432.
11. ↑ Mansour, Nadia; Bujosa, Lorenzo (2024-04-09) (in en). Islamic Finance: New Trends in Law and Regulation. Springer Nature. ISBN 978-3-031-48770-5. https://books.google.com/books?id=MMQAEQAAQBAJ&dq="participation+banks"+"asset"&pg=PA63.
12. ↑ Gürak, Hasan; Hatti, Neelambar (2024-03-12) (in en). The Law of Riba in Islamic Banking: Conventional and Unconventional Approaches to Interest-Free Financing. Taylor & Francis. ISBN 978-1-003-86099-0. https://books.google.com/books?id=T1YIEQAAQBAJ&dq="participation+banks"+Iran&pg=PA75.
13. ↑ "Global participation banking assets reached US$930 billion in 2015". Ernst & Young. http://www.ey.com/em/en/newsroom/news-releases/news-global-participation-banking-assets-reached-us-924-billion-in-2015-ey.
14. ↑ Kuforiji, John Oluseyi (2019-02-01) (in en). The Essentials of Islamic Banking, Finance, and Capital Markets. Bloomsbury Publishing PLC. ISBN 978-1-4985-4385-9. https://books.google.com/books?id=fP2EDwAAQBAJ&dq=participation+banking+Sharia+compliance+conventional+"monetary+policy"&pg=PA93.
15. ↑ Popkova, Elena G.; Polukhin, Andrey A.; Ragulina, Julia V. (2022-04-08) (in en). Towards an Increased Security: Green Innovations, Intellectual Property Protection and Information Security. Springer Nature. ISBN 978-3-030-93155-1. https://books.google.com/books?id=0WlpEAAAQBAJ&dq=participation+banking+IMF+CPIFR&pg=PA489.
16. ↑ Nader, Naifar (2019-09-27) (in en). Impact of Financial Technology (FinTech) on Islamic Finance and Financial Stability. IGI Global. ISBN 978-1-7998-0041-5. https://books.google.com/books?id=hmqtDwAAQBAJ&dq="participation+banking"+monetary+reform+interest&pg=PA73.
17. ↑ 17.0 17.1 Hunt-Ahmed, Karen (2013-01-14) (in en). Contemporary Islamic Finance: Innovations, Applications, and Best Practices. John Wiley & Sons. ISBN 978-1-118-24033-5. https://books.google.com/books?id=jc6RXn8KzewC&dq="participation+banking"+speculation&pg=PA265.
18. ↑ Dolgun, Muhammed Habib; Mirakhor, Abbas (2021-01-18) (in en). An Alternative Approach to Liquidity Risk Management of Islamic Banks. Walter de Gruyter GmbH & Co KG. ISBN 978-3-11-058015-0. https://books.google.com/books?id=W-cIEAAAQBAJ&dq="participation+banking"+"monetary+policy"+tools&pg=PT46.
19. ↑ (in en) The Report: Morocco 2015. Oxford Business Group. 2015-10-09. ISBN 978-1-910068-38-0. https://books.google.com/books?id=oia-DQAAQBAJ&dq="participation+banking"+standardization+regulatory&pg=PA81.
20. ↑ Mansour, Nadia; Bujosa, Lorenzo (2024-04-09) (in en). Islamic Finance: New Trends in Law and Regulation. Springer Nature. ISBN 978-3-031-48770-5. https://books.google.com/books?id=MMQAEQAAQBAJ&dq="participation+banking"+limited+scale&pg=PA71.

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