Participation Banking In The Trade Ecosystem
Participation banking has proven to be one of the most vital building blocks of the trade ecosystem
With the systematic formation of commercial activities, trade financing has also become an important issue. From the Sumerians to the Romans, from the Byzantines to the Ottomans, and the present day, the development and expansion of trade and its transformation from a local to a global character have always been possible through financing. At this point, the determining factor in the development of production and trade is whether the merchants will pay interest on the money they borrowed. If they are going to pay interest, it is the amount of interest.
Therefore, the fact that trade and production can meet the needs of the increasing population and grow economies is related to creating an ecosystem and foreseeing financing, which is the driving force. Therefore, one of the biggest threats to production and trade is high-interest rates. The finance method, which is compatible with people's beliefs and stands by the producer and investor by its nature, has solved this problem with its corporate structure.
Participation banking, which focuses on interest-free principles, has become a rapidly growing part of the financial sector since its emergence in the 1960s. More importantly, it has not only been limited to Islamic countries but has also spread around the world. It managed to become a serious financial alternative for the business world against the system that turned into a nightmare to obtain the highest interest income. Now we see that institutions based on Islamic finance applications have become increasingly widespread and serious actors in global markets. In other words, participation banks have turned into financial oases for the business world by offering interest-free instruments that are compatible with modern trade and production conditions and can meet all financial needs of a person or business. This has two dimensions; the first is fundraising. Thus, the savings of the masses who were against interest were included in the financial system. Secondly, diversification was achieved in the sector with interest-free financial instruments that are very reasonable and instructive.
As for Turkey, we are the country where the roots of participation banking are laid. Especially with the cash waqfs operating in the Ottoman period, a solution was produced for the tradesmen and those in need. With the application of participation banking in the last quarter of the 20th century, we became the place where practices that set an example for interest-free finance in the world started. The latest data show that as of June 2021, deposit banks have a share of 86%, development and investment banks 7%, and participation banks 7%. We think that the share of participation banks should already pass beyond double digits. The Turkish business world needs it because participation banks have an understanding that can establish a more
With participation banking, we initiated the practices that will set an example for interest-free finance in the world
real contact with the real sector and reveal this through funding methods. For example, in only the first 6 months of 2021, participation banks funded their customers in Istanbul with 129.6 billion TRY. This corresponds to 8% of the cash loans extended in the same period in the entire banking sector. This shows that participation banks are significant for the business world during the economic fluctuation caused by the pandemic. As a result, participation banking has proven to be one of the most vital building blocks of the trade ecosystem with its speed and flexibility in meeting the needs of the business world, working with the principle of interest-free, and its approach to protecting the real sector in critical times, including the epidemic. Therefore, we believe that the share of participation banking in total banking assets in Turkey will gradually increase and should increase.
Head of Istanbul Chamber of Commerce Şekib Avdagiç