How Can State Universities Support The Development Of The Participation Finance Sector?

Universities are one of the stakeholders of institutions that entered the Turkish finance sector under the name of Private Finance Institution in 1985 and received the title of Participation Bank in 2005, as well as institutions operating in participation insurance. Looking at the data, it is seen that there are a total of 207 higher education institutions in our country, including 129 state universities, 74 foundation universities, and 4 foundation vocational schools. Considering the fact that public participation banks were established, which are among the most concrete examples of our government's steps to support the development of the financial system, it is pretty natural to expect that especially state universities will open departments at the undergraduate level that will lay the groundwork for the training of the qualified human resource profile needed by the participation finance sector and allocate resources to this field. Currently, however, it is seen that no state university, except Sakarya University, has departments at the undergraduate level that are able to train human resources that are competent in the principles, products, philosophy, and terminology of the participation finance model, and that there is a gap which needs to be filled in the education-teaching part. From this point of view, it is thought that it is important to focus on several basic factors that point to the necessity of opening "Interest-Free Finance and Participation Banking" departments that will provide education and training services at the undergraduate level within the state universities. 

1-) The participation finance sector in our country has shown a strong growth performance and there is an increasing interest in the sector: As a result of the analysis of the Banking Regulation and Supervision Agency's data for the period between the end of 2005 and the end of 2020, the following conclusions are reached indicating that the growth performance of the participation banking sector is better than the general growth performance of the Turkish banking sector;

 - Participation banking sector achieved a compound annual growth rate of 28.69% in terms of total assets, achieving a growth above the overall growth performance of the Turkish banking sector by 19.79%.

- While the share of the participation banking sector in the Turkish banking sector in terms of total assets was 2.44% by the end of 2005, this rate reached 7.16% by the end of 2020.

- Participation banking sector has made significant progress in terms of branching investments by achieving a compound annual growth rate of 10.20% in terms of the total number of branches, surpassing the overall growth performance of the Turkish banking sector by 3.61%.

- Participation banking sector achieved a compound annual growth rate of 7.43% in terms of the total number of personnel, surpassing the overall growth performance of the Turkish banking sector by 2.57% on an employment basis.

- Participation banking sector achieved a compound annual growth rate of 14.35% in terms of the total number of ATMs, surpassing the overall growth performance of the Turkish banking sector by 8.33%.

- Participation banking sector achieved a compound annual growth rate of 19.72% in terms of net profit for the period, surpassing the overall growth performance of the Turkish banking sector by 16.44%.

The "participation insurance" model, another pillar of the participation system, has been applied in our country since 2010. Looking at the data of the Association of the Insurance, Reinsurance and Pension Companies of Turkey, it is seen that the participation insurance system increased its market share to 5.2% in terms of total premium production, by growing at rates varying between 24.2% and 96.1% in the 2015-2020 period. Considering that 18.2% of the total fund size of the Individual Pension System (BES) and Automatic Enrollment System (OKS) is composed of interest-free funds, according to the statistics of December 2020, it is noteworthy that the participation-based private pension sector has reached a significant size.

These results indicate the presence of an increasing interest in the participation finance system and also reveal a strong growth performance that cannot be ignored.

2-) Participation finance sector is a field supported by our government: In May 2015, Ziraat Katılım Bankası, in February 2016, Vakıf Katılım Bankası, and in February 2019, Türkiye Emlak Katılım Bankası became public capital participation banks that entered the sector. The fact that there are entries into the sector by the public sector indicates that the participation banking model is a field that is highly valued by our Government and is actively supported. In terms of participation insurance, the fact that Türkiye Sigorta A.Ş, which started its activities as a result of the merging of public insurance companies under a single roof, announced to the public its decision to establish a separate company to operate in the field of participation insurance also indicated that the firm support is given by the public sector to the participation finance model continues. Again, that the statement that the arrangements will be made for the implementation of a new business model/window system in order to popularize the participation banking system and the planning of the implementation of legislation and institutional structure studies that will encourage the participation insurance system are specified in the Eleventh Development Plan is an indicator of the participation finance sector to the fact that it is a field supported by our Government. 

3-) There are almost no undergraduate-level academic programs in state universities that will lay the groundwork for the training of qualified human resources needed by the participation finance sector: It draws attention as an important detail emphasized in various reports (e.g. in the "Turkey Participation Banking Strategy Document 2015-2025" report, "2014 Participation Banking and Interest-Free Finance Workshop" reports) that a significant portion of the personnel employed by participation banks have been previously employed in conventional banks, that their level of knowledge on the principles of participation banking, its operating mechanism, products, and services is insufficient, the said personnel use traditional banking concepts instead of interest-free finance concepts due to their conventional banking experience, and thus, customer perception is negatively affected. As a matter of fact, if we evaluate the findings obtained as a result of the "Research on Financial Perception and Attitude of Households in Turkey", which was conducted by the Barem Market Research and Consultancy R&D center for the Presidency Finance Office in 2019, by interviewing 15041 people in 49 provinces and covering 89% of the total household population, the key findings that need to be considered are as follows: 40% of those who participated in the research agreed that "they know little to nothing about participation banks and the services they offer", 25% of the participants agreed with the statement that "interest and profit share are the same thing" by more than 80%, and again, within the scope of the research, that 15% of those who do not prefer participation banks put forward the reason that participation banks "do business with interest like other banks". It is thought that the shortage of qualified human resources in participation banks has a significant role in the emergence of these findings. The fact that a project called "Participation Young Development Talent and Certification Program" was implemented by the Presidency Finance Office in August 2021 stands out as an important development that justifies/supports our opinion pointing to the lack of qualified human resources in the participation finance sector.

In conclusion, one of the indispensable components/elements of a system that will contribute to the increase in the level of awareness/recognition of the participation banking model, effectively serve the purpose of bringing the funds that are excluded from the financial system due to interest sensitivity to the economy, pave the way for customers to break their negative perceptions towards participation banks will be the opening of "Interest-Free Finance and Participation Banking" departments within state universities at the undergraduate level, which will provide a bridge between universities and the participation finance sector, and allocate resources to this field.

Instructor Ramazan Baş