The Characteristick Of Participation Banks As An Alternative To The Financial Sector

The basic approaches and different types of activities in the sector are described below, with regard to the alternative nature of the participation banks in the financial sector. 

The most important characteristic of participation banks is that they are an alternative in the sector in terms of the phenomenon of interest.

We can discuss the approaches on which participation banks rely for the phenomenon of interest under three main aspects:

Religious Aspect: All religions, especially Islam, are against interest. There are various explanations on the philosophy behind the prohibition of interest in Islam. Participation banks are also trying to maintain their activities based on these explanations.

Economic Aspect: Many thinkers, especially Keynes, emphasize that the imbalances caused by interest in the flow of the economic activities and state that interest rates should be reduced or even zeroed. In recent years, the problems that originated from the high interest in our country, especially in terms of declining investments and increasing production costs, have begun to be examined in detail at the scientific level, and business circles have expressed the problems caused by interest from time to time.

Social Aspect: Since interest causes the risk to be borne only on one side, and it is one of the leading causes of excessive unbalance in income distribution, acceleration of monopoly, and widespread income inequality, its social drawbacks are put forward by a wide group of thinkers. 

Here, I would like to briefly quote a determination made by Prince Faisal about the institutions. The conclusion reached from a speech by Prince Faisal in the years when these institutions were just beginning to appear is given below in a paragraph.

**(Loan, one of the most important functions of classical banking, is not a main function in these institutions. Because in this system, the ability to provide interest-free loans by following certain    criteria is the perfection stage of this system. The main function of this system is in the form of project-based investments and trade financing.)

The concept of interest-free finance, which is the most natural characteristic of participation banks, is only one of the differences that distinguish the participation bank from other banks and makes them an alternative in the financial sector. In addition to this concept, it is also necessary to analyze other characteristics of Participation Banks. 

Another characteristic of the participation banks that can make them an alternative to the sector is demonstrating the benefits of participation banking to the economy and thus, to individuals through raising society's awareness and educating them in terms of the economy. 

Participation Banks are institutions that generally endeavours in order to implement the general economic system of Islam and try to organize their activities in this direction. In this respect, the participation banks somewhat  act as a social complementarity between themselves and the society in which they exist and are active.

Banks that operate in our country are seen as businesses tasked with collecting savings on the one hand and strengthening the necessary capital potential on the other. Participation banks regard themselves as enterprises that take care of all material and moral values related to people (customers), as well as institutions that undertake economic duties.

We can briefly define these banks as economic centres beneficial to the society, schools that educate and discipline people. 

In summary, the following can be said about this concept: While these banks accept savings as deposits, they do not collect them in order to increase their power by lending them to others under the principle of interest-free finance. Through the profit-sharing method, they enable individuals to earn their profit in line with our religion and raise the awareness of the society with the spread of this activity. In this way, they educate individuals in an economic and moral way, make them accustomed to acting in a planned and orderly manner, have them make direct investments that will be beneficial to the society they belong to, and gain the consciousness and capability of behaving in line with Islam.

Participation banks use the idle funds of capital owners who want to carry out economic activities in accordance with Islamic rules in business areas that will be beneficial to both themselves and the society, as well as earning them profit and gain, while carrying out their transactions within the scope of activity given to them by the baking law. Participation Banks are adhered to Islamic behavior and rules. To this end, it is essential that the financing and service works of these banks are within the scope of the halal circle.

In this respect, the aim of these institutions is not to earn by being greedy for excessive profit and by considering everything legitimate in this regard, according to the rule of Islam ordering to avoid greed for profit and gain, (Surah an-Nisâ 29) but to earn by working within the religious criteria and by the way our religion orders, and thus to provide income for the bank.

**Faisal Finance Corporation/Encyclopedia of Islamic Banks

Ahmet AVCI
Retired Participation Bank Manager/Independent Accountant and Financial Advisor