Non-Performing Loans Challenge Participation Banking

Collection management is one of the pillars that ensure the survival and sustainability of commercial systems because even though it is possible to sell commodities of different standards and different price levels under all circumstances, it is of great importance to collect the receivables accrued from the relevant sales. So much so that companies that cannot manage their collections may be driven into bankruptcy due to their deteriorating cash flows.

The magic of credit shopping

The share of online shopping in the overall trade volume is growing day by day, and credit and credit card payment options, as well as cash on delivery and money transfer options, constitute a large part of this shopping system.

In addition, it is a fact that the option of providing loans through dealers who are the seller of the product in all areas from white goods to electronics, from small household appliances to automobiles has caused great changes in the flow of commercial life and played a role in the increase in trade volume.
As a result of online shopping, the ease of access to production and consumer goods, as well as the similar ease of access to credit products, increases the share of the banking system in the economy and increases the debt burden of individuals and institutions day by day.

Sweeping up after the sales department

Without a doubt, all banks have branch credit committees, regional credit allocation directorates, and general directorate credit allocation units, and evaluations are made at certain levels of authority for each credit allocated.

However, credits and credit products are allocated according to the data obtained from the credit registry office or, in a simpler way, the income declared by the customer, in the credits allocated for the financing of retail products with small costs. 

Basically, the banking system makes money from the product it sells and the credit it allocates, and in banking, each branch and personnel have sales targets. On the way to achieving these targets, there are some gray areas that are beyond the sight of the allocation committees mentioned above.
Just at this point, the collection units of the banks come into play, and they take various initiatives, almost as if sweeping up after the sales team, in order to collect the allocations that turned into non-performing loans as a result of the failure of correct analysis for various reasons or the problems arising from the changing financial situation of the customer.

Walking on a thin line 

One of the points where the interest-free claim of participation banking is most strictly tested is non-performing loans. The banks are challenged by both alternative investment cost-based late fee calculations as a result of the requirements of classical economics and conventional banking system and the sale of receivables that have become impossible to collect by the bank to third parties for the purpose of deducting them from the balance sheet and participation banking, which tries to walk a thin line between Islamic financial principles in the light of hadiths advising that those who cannot pay their debts should be given respite. 

Just as the participation banking and Islamic economic mentality, which emerged as an alternative to the conventional banking system and classical economic understanding, have overcome the problems that have come their way so far, through the right strategies it has developed over time, today it will surely find a suitable solution to the problem of collection of non-performing loans. 
Even though it seems that there is no objection to this flow and search for alternatives, for now, it is enough to take a closer look at the efforts of the practitioners and theorists of the system, who set their heart on participation banking and believe that Islamic finance can be properly applied. We firmly believe that as a result of these efforts, a collection system worthy of participation banking will be established.

Cemil Balkanlı