Services Provided by Participation Banks for Commercial Enterprises

PARTICIPATION FINANCE SYSTEM 28.10.2021, 15:19
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Services Provided by Participation Banks for Commercial Enterprises

What is a Commercial Enterprise?

Commercial enterprises are organizations that aim to meet the needs of a market, in other words, to meet the economic demands and to profit from this supply. Commercial enterprises are established for economic purposes. Organizations established for charity or aid purposes are not considered commercial enterprises. Even though it has the purpose of generating income, the inability of the enterprise to generate income or that it makes a loss does not eliminate its nature of the commercial enterprise.

Products and Services Offered by Participation Banks to Commercial Enterprises

Deposit Accounts

Deposit is the money held in banks. It refers to the depositing of the money held by real or legal persons and other savings and the instruments offering purchasing power such as foreign currency and gold into accounts opened in banks in order to keep them for a certain or indefinite period. There are three types of accounts. Participation account refers to the time deposits opened on the basis of becoming a shareholder in profit and loss. Being products of participation banks that offer service in line with interest rate sensitivity, participation accounts can be opened in TRY, dollar, euro, gold, and silver, and the profit to be obtained is determined at the end of the maturity period. Current accounts are accounts that can be opened in participation banks and withdrawn partially or completely at any time and are created by demand funds without paying any return to the holder. Agent accounts are transfers of authority and responsibility that occur when one party appoints the other party as an agent. The appointing party is called the principal, and the appointed party is called the agent. There is a liquidity flow from the principal to the agent to invest.

Cash Credits

 In terms of their characteristics loans are divided into two:
Cash credits are loans provided by banks through lending an amount in cash. Non-cash credits, on the other hand, are loans in which banks give guarantees in favor of their customers for issues such as the delivery of a commodity, the execution of a service, the payment of an import price, or a debt. They conduct financial analyses for corporate loans. Financial analysis is based on static or dynamic, vertical or horizontal, ratio analyzes over financial reports such as balance sheets and income statements of enterprises.
Participation Banking Funding Methods

Corporate Finance Support: It is the process of debiting the enterprise, provided that the cost of all kinds of commodities, securities, real estate, rights, and services required by the enterprise is paid to the seller, with a contract to be made between the participation bank and the enterprise that will use the fund. I will explain a few corporate finance supports below:

•    Commercial Installment Loan: This financing product covers the financing of vehicles, workplaces, machinery, apparatus, and equipment to be acquired by the enterprise in line with its investment plans.

•    Workplace Financing: It is a type of financing provided to real and legal persons engaged in commercial activities to finance the purchase of real estates such as workplaces, factories, warehouses, land, etc. that they will maintain their business activities or use in company activities or that they will add to the company for investment purposes.

Leasing (financial leasing): It is a financing method that allows the ownership- of an investment property to remain with the leasing company, and the right of use is given to the lessee in return for the determined leases and the ownership is transferred to the lessee at the end of the contract period specified in the contract.

Non-Cash Credits 

These are the transactions that do not require the banks to lend money at the beginning, they only require the bank to provide guarantees in favor of the customer for the execution of a service or the payment of a debt. They are off-balance sheet transactions and are followed in off-balance sheets. These are the services from which banks gain income from commissions. Examples of practices of non-cash loans are: 

Letters of guarantee (assurance, surety), letter of reference, suretyship, aval and endorsements, acceptance credits, and letters of credit.

Letter of Guarantee: It is a commitment made to the relevant institution in favor of real and legal customers residing in the country or abroad, for the delivery of a commodity, the execution of a service, or the payment of a debt, and similar occasions. Able to be issued in Turkish Lira or foreign currency upon request, letters of guarantee increase your business volume and profitability by contributing to your credibility before the official institutions and organizations you do business with, and other real and legal persons.

Letter of Credit: It is a document issued by a financial institution for the payment of the specified amount to the relevant beneficiary in return for submitting specified documents pursuant to the relevant preliminary agreement. It is also a conditional bank credit.

Acceptance-Aval Credits: It is a type of financing that allows importing companies to accept the policy drawn up by the exporter and own the commodities without payment. Payment to the exporter is made on the policy maturity. For companies, the fact that the payments are guaranteed by the bank provides flexibility and confidence in foreign trade transactions. In addition, the importing companies guarantee to purchase the commodities they will perform import in a complete and appropriate manner.

Reference Letter: It ensures that the credibility of the enterprise before the bank is evaluated by the relevant institution.  Reference letters can be issued in TRY or foreign currency. In terms of its continent, it shows the limit-risk status of the company within the bank.

CHECKS GIVEN TO COMMERCIAL ENTERPRISES

A check is a payment instrument in the form of commercial papers that can be drawn on accounts in banks for the unconditional payment of a certain amount of money, adhering to the legal format conditions, by the account holders. Commercial enterprises usually make their payments by check. The parties in the check transactions are as follows:

The drawer is the account holder and orders the drawee bank to pay the amount written on the check to another person (beneficiary). The drawee is the bank branch that has the deposit account on which the check is drawn and will clear the check when the necessary conditions are met. The beneficiary/payee is the person holding the check, to whom a check is drawn to be cleared.

MONEY TRANSFER SERVICES 

Remittance is a money transfer service between different branches of the same bank in the country. Virement is a money transfer transaction between accounts in the same bank/branch and belonging to the same person. Electronic funds transfer is a money transfer transaction in Turkish Lira between banks within the country. Foreign exchange transfers are foreign currency and generally international money transfers through organizations such as Swift, Western Union, Target. Today, commercial enterprises perform their money transfer transactions via internet banking or mobile banking, especially during the pandemic period.

PAYMENT SERVICES 

Automatic bill payments are limited to service institutions with which banks have made collection agreements for their periodic bills. Regular payments include the monthly payments made by retail and corporate customers, excluding automatic bill payments, in line with their own schedules, and provide convenience to enterprises.

INTERMEDIATION IN INSURANCE SYSTEM AND INSURANCE TRANSACTIONS IN BANKS

You can also perform many insurance transactions such as TCIP, motor insurance, traffic insurance proposal, and policy transactions via banks.

INVESTMENT SERVICES TO COMMERCIAL ENTERPRISES

 Investment services such as stock trading, mutual funds, lease certificates, public offerings, forward exchange transactions, foreign exchange spot transactions are also provided.

POS SERVICE TO ENTERPRISES

Enterprises offer POS services to their customers who want to pay via card. POS services ensure that your company's sales transactions are carried out quickly and accurately, reducing the loss of time in payments. Today, this service can also be provided as virtual POS service.

COMMERCIAL CREDIT CARD

Banks can also provide commercial credit card services that offer special financial solutions to companies where enterprise owners can finance their needs and create payment plans according to their own cash flows.

Zeynep Aslı Kekeç
 

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