SHARE CERTIFICATE APPLICATIONS IN PARTICIPATION BANKING

After the title of the institutions that provide Islamic finance services changed from "private finance institutions" to "participation banks", a great emphasis has been placed on investment services and products

ANALYSIS 18.03.2021, 14:46 19.03.2021, 20:08
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SHARE CERTIFICATE APPLICATIONS IN PARTICIPATION BANKING

Participation banking in our country started to operate in 1985. Since then, six participation banks, three of which are public participation banks and three private participation banks, have been operating in our country. With Banking Law No. 5411, the titles of the participation banks in the sector have changed from "private finance institutions" to "participation banks". Since then, a great emphasis has been placed on investment services and products. And participation banks have expanded their service range with capital market products in response to the demands arising in-between.

Capital market products include lease certificate (sukuk), investment fund, and share certificate transactions. Customers who want to invest in capital market products need to complete a CMB Compliance Test to open invest- ment accounts. The CMB Compliance Test is applied by investment institutions or intermediary institutions to determine the risk perception and profile of investors. The main purpose of this test is to determine the needs of investors and to provide the right products with solutions according to their knowledge levels and to determine the investor's "risk and return preference" and "knowledge and experience" understanding in general.

HIGH RISK AND RETURN RATIO IN SHARE CERTIFICATE TRANSACTIONS

Share certificates are valuable documents that capital companies give to their shareholders in order to document their capital shares. In this investment tool, which is also known as share transactions in Istanbul Stock Exchange, investors can buy their shares in Istanbul Stock Exchange and become a partner to any company they wish. The shares that represent the capital of the company in proportion to the purchased share give investors the right to participate in the management of the company, to vote, to receive dividends, and to participate in capital increases.

SHARE CERTIFICATE APPLICATIONS IN PARTICIPATION BANKING

All participation banks provide their customers with transactions such as stock trading, order tracking, target orders, and stock movement tracking through the agency. The share certificates that comply with the basic princi ples of participation banking are also offered in banking channels. These certificates are determined by taking the Participation Index rules as the basis. Participation Index is a stock market index consisting of stocks traded on Istanbul Stock Exchange, com- plying with the principles of participation banking. Share certificates are selected by taking the Index Rules in these principles as the basis. There are companies in the index that comply with these rules, and companies to be included in the index must also provide some financial ratios.

Companies in the Index cannot operate in fields such as interest-based finance, trade, service, and mediation (deposit bank, insurance, financial leasing, factoring, and other interest-based activity areas), alcoholic bev- erages, gambling, chance games, pork and similar foods, media, publication, advertising, tourism and entertainment, tobacco products and weaponry, deferred gold, silver, and foreign exchange trade.

Financial ratios required from companies in participation index are; The ratio of the total interest-based loans of companies to the market value should be less than 33%; the ratio of interest-bearing cash and securities to market value should be less than 33%; the ratio of the income obtained by the companies from the fields of activity that are not deemed appropriate to their total income should be less than 5%.

Companies in the index are controlled to see whether they comply with the Participation Index criteria every 3 months. After the examinations, only the sale of the company stocks that do not comply with the Participation Index criteria will be allowed, and these stocks will not be purchased until they comply with the Participation Index criteria.

Therefore, in the participation banks, the purchase/sale transactions of the share certificates in the Participation Index are carried out in accordance with the basic principles of participation banking. Share purchase/sale services are offered to customers who make such requests from Participation Banks.

Portfolio Manager at Albaraka Turk - Ahmet Alper

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