Philosophy
The philosophy of participation banks derives from the Islamic mentality. These banks have an atmosphere that considers the balance of material and moral with their employees, shareholders, and customers. Working environments are democratic and human relations are sincere. Employee and customer loyalty is high. They are institutions that really apply the win-win principle, grow with their customers, consider their customers' problems, and share their troubles.
This article aims to reveal the strengths and weaknesses of the participation banking sector and to determine the opportunities and threats arising from the external environment through a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of the participation banking sector.
Strengths
Nature of the funds collected
The fact that participation accounts have a nature of a kind of equity for these banks and that they share the profit or loss resulting from their activities with their customers is a mechanism that protects these banks in terms of their financial structure. There is no return (commitment fee to the bank) that must be paid to account holders, and there is no risk that operating losses will fall entirely on the bank's shoulders.
Resilience against crises
One of the most significant features of participation banks is that they are protected against some risks when compared to traditional banks. Indeed, the fact that participation banks are free from the exchange rate and interest risk is one of the main features of the system. This protects these institutions from possible major losses during periods of excessive activity in interest rates and exchange rates. Transferring funds to real economic activities in participation banks and making collections, usually in monthly instalments, ensures the fluidity and security of receivables, and also facilitates company and loan tracking. This way, the quality of the funds allocated and therefore the assets, increases. Almost all of the resources are made available to the real sector. Therefore, the remaining part of the funds collected after the required amount for legal provisions and liquidity is allocated, flows to industry, trade, import, and export activities. The latest research conducted by Isakder states that at the end of 2019, the conversion rate of the funds collected into loans is 93%. This ratio maintains approximately the same level over the years. The fact that real activity is financed also offers ease of payment for loan customers. Since there is a commodity, service, or investment with economic value in return for the funds used.
Absence of early loan recalls and no price changes protect the system
As stated previously in the relevant sections, participation banks do not change the price agreed with their customers at the beginning of the transaction for the funds allocated, due to any fluctuations in the economy and similar reasons. Apart from exceptional cases, they do not recall the funds they have allocated before their maturity. This practice is as important for the bank's own future as it is for fund-using customers Otherwise, a bank whose customers have been in trouble with unexpected applications will also experience the same trouble.
SME experience
One of the strongest aspects of participation banks is their close acquaintance with small and medium-sized enterprises, which are called SMEs. Participation banks and SMEs have acted and sought ways to survive together, both in the heyday of our country's economy and in times of crisis.
High growth performance
When we look at the data of the Banking Regulation and Supervision Agency (BRSA) covering the end of 2005 - end of 2020, we can see that the growth performance of the participation banking sector on the basis of total assets, number of branches, number of personnel, number of ATMs and net profit for the period is better than the Turkish banking sector in general.
Support by the state
Ziraat Katılım Bankası, Vakıf Katılım Bankası, and Türkiye Emlak Katılım Bankası entered the sector between 2015-2019. These initiatives on the public part indicate that the participation banking model is valued and actively supported by our state.
Having a business model that prevents the informal economy
The participation banking sector has a business model that is not based on cash financing and does not allow for non-invoiced transactions. This is seen to be playing an important role in preventing informal economic activities.
Weaknesses
Relatively low level of recognition
It is an important detail that in the National Household Financial Perception and Attitude Survey for Türkiye conducted by the Barem Market Research and Consultancy R&D Centre in 2020 for the Finance Office of the Presidency of Türkiye that 40 per cent of the participants "do not know or know very little about participation banks and services they offer and the operation of participation banking".
Presence of relatively negative public perception
When we analyze the results of the survey mentioned above, we see that 25 per cent of the respondents agree with the statement that "interest and profit share are the same thing". It is noteworthy that there is 21 per cent of the population stated that they agree with the statement "the main reason why people do not work with participation banks is that they think that they do not really work according to Islamic rules" by 80 per cent or more and that 15 per cent of those who do not prefer participation banks say "they do business with interest like other banks". Relatively insufficient physical branch network
We can tell that the physical branch networks of participation banks are not sufficient compared to deposit banks. According to the BRSA's September 2020 data, it seems that there are no branches in the provinces of Ardahan, Artvin, Bayburt, Hakkâri, Sinop and Tunceli and there is only one branch in the provinces of Bartın, Bilecik, Bitlis, Gümüşhane, Iğdır, Kırklareli, Kilis, and Şıırnak.
Opportunities
High growth potential
According to the Sectoral Overview of Banking 2019 report of KPMG Türkiye, which provides audit, tax, and consultancy services, participation banking offers an important growth opportunity in terms of including actors who are excluded from the system due to interest rate sensitivities. The studies conducted by Deloitte, which also offers similar services, include evaluations that Türkiye's Participation Banking has taken important steps towards growth and that the development potential of the participation banking sector is high.
Performing activities to eliminate the lack of recognition
It is seen that applications such as gratuitous education scholarship support, award-winning article competition, social responsibility projects, commercial films, etc., have started to be implemented in order to introduce the participation banking model to wider audiences, both by the TKBB and also by participation banks.
Threats
The academic programs that will lay the groundwork for the education of the qualified human resources needed by the sector at the university level not becoming widespread enough. Most of the personnel working in participation banks were previously employed in conventional banks. For this reason, the inadequacy of the personnel's knowledge of the principles of participation banking, its mechanism of operation and products, and the fact that they use conventional banking terms instead of interest-free finance, with the effect of their conventional banking experience and that this negatively affects customer perception appear in various reports like the ones mentioned above. It is observed that there is a lack of human resources that have a good grasp of the principles, products, philosophy, operating mechanism, and terminology of participation banking, and that there are not enough associate and undergraduate programs in our country's universities to fill this gap.
Problems arising from legislation infrastructure
Some obstacles preventing deposit banks and participation banks from being subject to the same legislation and making differentiation within the legislation are a threat to the development of the sector. As a result of the Participation Banking and Interest-Free Finance Workshop, it is seen that the issue of "inability to fully establish the institutional structure and legal infrastructure of the system" was emphasized as a significant problem area. Efforts on this matter still continue.
We analyzed participation banks under the headings of strengths, weaknesses, opportunities, and threats. The fact that participation banks were put into service and developed, and that the funds of the society, which was against the interest principle, were taken out of the pillow and put into the real market, supported the economy. Participation banks are working on improving their weaknesses and growing. These banks maintain their efforts to spread the operation of participation banks to more people and to raise awareness that profit share is different from interest.
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