The most significant factor in the emergence of participation banking activities around the world is the rules set by the religion of Islam. The establishment of participation banks around the world has a general aim of bringing the idle funds accumulated especially in Muslim societies to the economy since interest is prohibited in the religion of Islam.
MALAYSIA
Malaysia is a country worth noting due to the systematic and planned development of Islamic finance with government support. Established in 1963 by Muslim Malays to store and invest the money they saved for Hajj in an interest-free institution, the Hajj Pilgrims Fund is the first Islamic financial institution in Malaysia. In Malaysia, where various ethnic groups live together, in order to keep the Muslim Malays united, increase the savings rate of the interest-sensitive Muslim population, and ensure their economic development, the Prime Minister of the time, Mohammed Mahathir, initiated the Islamization policies in the field of finance as well as in all other fields. The development of Islamic Banking in Malaysia took place under the supervision and control of the Central Bank. The success of the Hajj Pilgrims Fund spurred the enactment of the first Islamic banking law in 1983 and the establishment of the first Islamic bank, BIMB. Afterward, the second Islamic bank BMMB was opened in 1999. In the third step, following the establishment of the legal infrastructures, MMB granted licenses to three foreign banks by 2005 and ten by 2010 in order to increase product diversity, establish a comprehensive Islamic financial infrastructure and maintain its claim to be the center of Islamic finance. The share of Islamic Banking in the sector, which was 20.7 percent in 2014, reached 23.1 percent in 2015. As of 2015, the size of Islamic finance in Malaysia reached $414.3 billion. The market value of Islamic funds is $18.8 billion, while the value of the takaful sector is $7.3 billion. There are 25 banks in the Islamic banking system in Malaysia. Among these banks, 12 are local banks, 4 are financial institutions, 9 are Islamic banks with foreign capital, and 2 are international institutions. Malaysia is the leading country in Islamic finance markets.
BAHRAIN
Bahrain is a notable country as it plays a very critical role in the development and globalization of the Islamic Banking sector, especially through its institutions. Bahrain, which declared its independence as a result of the withdrawal of the British from the region in 1971, is rapidly advancing on this path, under the leadership of the Bahrain Central Bank (BMB) and particularly through the license and tax incentives provided by the government to become an Islamic finance center. The share of Islamic Banking in the sector, which was 27.7 percent in 2014, reached 29.3 percent in 2015. By 2015, the size of Islamic finance in Bahrain reached $81 billion. The value of the takaful sector in Bahrain, which includes a $4.8 billion sukuk market, is $0.37 billion. Islamic banking experienced a slow development in Bahrain in the first years (Only 6 Islamic banks in 1994), yet, by 2015, it became one of the largest Islamic finance centers with a total of 45 Islamic financial institutions, 26 of which are Islamic banks and 19 are companies. The turning point in the development of Islamic Banking in Bahrain (Bahrain Monetary Institution) is the establishment of BMA. This is because BMA has granted a total of 8 banking licenses to various groups and offered services to institutions for Islamic banking. BMA was the first central bank to offer services for Islamic banks. Bahrain is the country with the largest Islamic financial system with 26 banks and 16 takaful institutions.
PAKISTAN
Having become an independent state in 1947, Pakistan has been a country where strong Islamic thought movements have developed, which also affected the Islamic world. It is a significant country due to its legal and practical efforts to remove interest from the entire economic system, even though this attempt failed. It can be said that the founder of Pakistan, Quaid-E-Azam (1947), was the first person to greatly influence Pakistan in terms of the interest-free banking system. Quaid-E-Azam opened the State Bank of Pakistan and started to work on eliminating interest from financial transactions. The Islamic banking system started to operate and gradually grow in February 1979, and these efforts yielded results with the establishment of the IIC (Islamic Ideology Council). In the 1980s, the State Bank of Pakistan introduced the Islamic banking system through changes in banking system. In the 2000s, with the entry of foreign banks into the market, the number of Islamic banks increased rapidly and the market grew. As of 2015, the size of Islamic finance in Malaysia reached $22.1 billion. While Islamic banking had a slow development in Pakistan in the first years, rapid development is observed in the 2000s. As of 2018, there are 23 Islamic banks and 13 takaful companies operating in the country. The Pakistani government has licensed 6 Islamic banks, and 13 conventional banks have also switched to Islamic banking. The State Bank of Pakistan is guiding the financial markets in the development of the Islamic banking system and looks after the compliance of banking products with Islamic principles.
ENGLAND
London being one of the world's largest financial centers, a large Muslim population from different Islamic geographies inhabiting England, and England's knowledge of the region and Islamic culture due to colonial activities in the Islamic geography in the past history of England renders Islamic finance noteworthy in this country. The first Islamic financial institution in Europe is the Islamic Finance House in Luxembourg. Even though it is considered that the existence of Shariah-compliant financial transactions in England started with commodity murabahah transactions based on the London Metal Exchange in the 1980s, the development of Islamic banking dates back to the 2000s. As a result of the support and incentives provided by the British government in 2003, the Islamic Bank of England, which was the first Islamic bank and established by the Qatar Islamic Bank, started its services in 2004 and the first sukuk of $261 million was issued in 2005. By the end of 2014, England's share of the $1.3-trillion global Islamic banking market was $19 billion. The Cityuk 2015 report indicates that there are a total of 21 banks in England, 5 of which are Islamic Banks, and 16 of them offer services under Islamic terms.
INDONESIA
Indonesia started to operate in this field at a later date. Islamic banking activities in the country started with the establishment of Bank Muamalat Indonesia (BMI) in 1992. There are many Islamic financial institutions and Islamic financial markets operating in Islamic finance in Indonesia. Between 2010 and 2014, Islamic banking, Islamic financial institutions, and Islamic institutions other than the banking sector made significant progress in the country. In the aforementioned 5-year period, transactions such as Islamic insurance, Islamic finance, and Islamic loan achieved significant success with a growth rate of 63%.
IRAN
In Iran, the banking system was nationalized following the 1979 revolution. Shortly after, the Free Banking Law was adopted in 1983 and on March 21, 1984, Islamic banks started to implement Islamic banking. The conversion to Islamic banking in the banking system in Iran took place in 2 basic stages. First of all, the banking system was nationalized and organized. Afterward, interest-free banking emerged in 1983 and came into effect on March 20, 1984. In 1960, the Central Bank of Iran (IBH) was established by the Iranian government and all central banking responsibilities were given to the Central Bank of Iran. Following the revolution, the institution was renamed the Islamic Central Bank. Immediately after the Islamic revolution in 1979, the responsibilities of the Central Bank of the Islamic Republic of Iran (CBI) came under the government's initiative in Iran's Monetary and Banking Law.
EGYPT
Even though it does not have the strongest market for the Islamic banking system, Egypt is the place with the first known official Islamic bank established in 1963. Following the termination of the activities of the bank, which was established for political reasons, Faisal Islamic Bank was officially established in 1979. The current Islamic banks in Egypt are as follows: Islamic Bank Of EGYPT, Abu Dhabi Islamic Bank Central Bank of Bahrain, and Bank Negara Malaysia. Not being heavily involved in international regulatory discussions, the Central Bank of Egypt has taken a flexible approach to regulate Islamic Banking. It promoted the Islamic Finance system. The Central Bank of Egypt is a member of the Islamic Financial Services Board (IFSB).
SUDAN
The first step toward the implementation of the idea of Islamic banking in Sudan emerged in 1966 as a result of a study called "Economics in Sudan" at the Islamic University Omdurman. However, political problems in the country delayed the implementation of the Islamic banking system. Besides, over time, the political system in Sudan changed and Prince Mohammed Al Faisal Al Saud met with Sudanese President Gaafar Nimeiri in February 1976 and asked him to establish an Islamic bank in Sudan. As a result, a decision was officially taken on the establishment of the Faisal Islamic Bank as an Islamic bank in May 1977. On August 18, 1977, Faisal Islamic Sudan Bank (FIBS) was registered as a publicly traded subsidiary as per corporate law, and the success of the Islamic banking system has encouraged the Sudanese government in this regard. Eventually, a decision was taken on the transformation of the entire financial system into an interest-free financial structure. In this context, all (foreign and commercial) banks were obligated to regulate their activities according to the Islamic financial structure, and the number of Islamic banks increased from 6 in the 1980s to 29 in 1997.
While there are only Islamic banks in the financial system in Iran, Pakistan, and Sudan, countries such as Egypt, Malaysia, Türkiye, and Indonesia can have both Islamic and conventional banks. As a result, the interest-free banking system spread rapidly around the world and made significant contributions to the economy. Participation banking has emerged as a result of the necessity of social needs in economic and socio-cultural terms. Having served as a bridge between savers and entrepreneurs, participation banks have made better use of the existing potential resources through various financial instruments in the countries they operate.
Source: https://tkbb.org.tr/Documents/Yonetmelikler/Yasayan-ve-Gelisen-Katilim-Bankaciligi.pdf https://dergipark.org.tr/tr/download/article-file/287159
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