Participation Finance Developing With The Coordination Of BRSA And TKBB

Mehmet Ali Akben, Director of the Banking Regulation and Supervision Agency (BRSA), evaluated the development of the participation finance sector in Turkey and the TKBB-BRSA cooperation for the Katılım Finans.

MAGAZINE 29.11.2021, 11:55
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Participation Finance Developing With The Coordination Of BRSA And TKBB

WHAT WOULD YOU SAY ABOUT THE DEVELOPMENT OF THE PARTICIPATION FINANCE SECTOR IN TURKEY?

Participation finance institutions in our country started their activities as special finance houses in the 1980s, were included in the scope of the banking legislation in 1999 and gained the status of participation bank in 2005 with the Banking Law No. 5411. With this, the legislative infrastructure had been clarified, the activities had become standardized, and the participation finance sector had begun a growth trend. Participation finance institutions, whose asset size was 10 billion TL in 2005, increased to 531 billion TL as of September 2021 with stable growth, and their share in the financial sector increased from 2.4% to 7.5%. In the same period, the financing provided by the sector has increased from 6.5 billion TL to 257 billion TL; the participation funds collected have been from 8.4 billion TL to 396 billion TL;

I think it is exceptionally critical for the sector's future that our participation finance institutions act proactively and as pioneers in digital transformation and sustainable finance issues

equity has risen from 1 billion TL to 33 billion TL. On the other hand, participation finance institutions, which employed 5 thousand 747 personnel in 292 branches at the end of 2005, have 17 thousand 236 personnel in 1,290 branches as of September 2021. Compared to the conventional finance sector, the distance covered by the participation finance sector becomes more translucent. Compared to the end of 2005, the total assets of participation finance institutions are increased 51 times, while the conventional banks increased 15 times.

In the last year, the total assets of conventional banks grew by 16.8%; participation finance institutions grew by 24.6%. The launch of state-owned participation financial institutions also accelerated sectoral growth.

WHAT IS THE VISION OF THE BRSA REGARDING PARTICIPATION BANKING? CAN YOU TELL US ABOUT YOUR CURRENT WORK IN THE SECTOR?

In 2013, the "Participation Banking and Interest-Free Finance Workshop" we organized in cooperation with the Banks Association of Turkey (TKBB) accelerated our efforts to develop the participation finance sector. Solutions and suggestions developed at the Workshop were included in the Tenth Development Plan (2014-2018) and "Development of the Participation Finance System" became an independent component of the Priority Transformation Program of the Istanbul International Finance Center (IFC). In order to implement these actions by an organized team and to carry out R&D studies on interest-free finance, an independent Department was established within our institution in 2015 for our participation finance institutions.

In this way, the legislative infrastructure began to be developed. Many regulations required by the industry, from fund allocation and fund collection methods to uniform charts of accounts, were implemented within the framework of compliance with international standards. In this process, joint programs were carried out by establishing close relations with international

As of September 2021, the share of participation finance institutions in the assets of the banking sector is at the level of 7.5%

stitutions such as AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), IFSB (Islamic Financial Services Board) and CIBAFI (General Council For Islamic Banks And Financial Institutions). Another important step taken for the development of the participation finance sector is the establishment of the Central Advisory Board within the body of the TKBB, in line with the decision we took as the BRSA in 2018. In 2019, the "Communiqué on Compliance with Principles and Standards of Interest-Free Banking " was published to legalize advisory committees and other corporate structures and processes at participation finance institutions.

Our regulatory efforts for participation finance institutions in line with international standards continue under many headings, and we have actions specific to participation finance in the 11th Development Plan (2019-2023). In this framework, the regulations regarding the disclosure of the principles and standards of participation finance and the work on the participation finance corporate governance guide have come to the final stage. We want a participation finance sector  that takes a leading and active role in making Istanbul an international financial centre, is compatible with international standards as much as possible, and whose share in the financial sector has reached its country target.

The sector's achievement of these targets will be through capital inflows to this field, and therefore with a strong capital structure

IN THE ECONOMY REFORM PACKAGE, WHICH WAS ANNOUNCED TO THE PUBLIC LAST MARCH, SPECIFIC TOPICS WERE OPENED FOR THE PARTICIPATION FINANCE SECTOR. HOW DO YOU EVALUATE THE FUTURE OF THE PARTICIPATION FINANCE SECTOR IN TURKEY IN THE PACKAGE CONTEXT?

As it is known, there are three actions in the Economy Reform Package under the title of "Strengthening the Interest-Free Finance System": preparing an independent participation finance law for the participation finance system, establishing a participation finance rating system and establishing a participation finance arbitration mechanism. Our efforts for these actions, in which our institution is also the responsible/affiliated institution, are conducted in cooperation with the Finance Office of the Presidency of Turkey and other relevant institutions. With the implementation of these actions, essential steps will be taken towards making our Istanbul Finance Center an International Participation Finance Center at the same time.

WHAT IS YOUR OPINION ON THE COOPERATION BETWEEN THE BRSA AND THE TKBB? WHAT KIND OF POTENTIAL DOES THE COLLABORATION BETWEEN THE TWO INSTITUTIONS HOLD?

As an institution, we attach great importance to the duties of the TKBB, with which we cooperate closely to develop the participation finance sector. Coordinated studies are carried out within the body of the BRSA and TKBB to increase the diversity of participation finance products and services. In addition, the views of the TKBB are taken into account in the regulations regarding our participation finance institutions in our legislation. In addition to these, we also have joint studies on the training of personnel in the sector. Within the scope of the Communiqué on Compliance with the Principles and Standards of Interest-Free Banking published by our Agency, the second of the certification program, the first of which was held in September 2020, in cooperation with the BRSA-TKBB-Marmara University for the personnel who will take part in the compliance and audit processes of participation finance institutions, was carried out recently and certificates were awarded to the successful participants. I can say that our cooperation with TKBB will continue to increase in the upcoming period.

IN THE TURKISH PARTICIPATION BANKING STRATEGY DOCUMENT PREPARED BY THE TKBB, THERE IS A 15% MARKET SHARE TARGET. CAN YOU SHARE YOUR COMMENTS ABOUT THIS TARGET?

As of September 2021, the share of participation finance institutions in the assets of the banking sector is 7.5%. The target included in the Turkish Participation Banking Strategy Document and which we support as the Agency is to increase this share to 15% in 2025. In the event that our participation finance sector achieves this goal, in addition to its strategic importance in Turkey, it will also become a sector of systemic importance according to internationally accepted rules. Achieving the aforementioned target will undoubtedly be through capital inflows into this field, thus a strong capital structure. This target requires all stakeholders of the sector to act in cooperation. We, as the BRSA, are ready to do everything that falls on us.

WOULD YOU LIKE TO ADD ANYTHING ELSE?

Today, we are in the process of change in the global economy and finance ecosystem, driven by topics such as digital transformation or sustainable finance. I think that it is highly critical to the sector's future that our participation finance institutions act proactively and as a pioneer in this process. In addition, sustainable finance is an area where we expect our participation finance institutions to be more active within the framework of participation finance principles and principles. Therefore, I consider that we are in a period where participation finance institutions have to work harder and tire more than ever before. While I welcome the recent steps taken by participation finance institutions, I would like to state that our expectations from the sector are very high.

Chairman of BRSA Mehmet Ali Akben

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