Frequently Asked Questions

The Participation Banks Association of Turkey (TKBB) is the main representative of the participation banking sector in Turkey and works with the government, regulators and other stakeholders to increase public awareness and understanding of the contribution the sector makes to the Turkish economy. The TKBB acts as a bridge between public authorities and participation banking industry to exchange views and support the overall development of the sector. The TKBB has a range of working committees to support member banks’ priority issues and also offers a wide range of training programmes.
The Participation Banks Association of Turkey (TKBB) is a professional public institution established by the Banking Law dated 04.10.2001 and No. 2001/3138 regarding the enforcement of the Statute of the Association, which was at that time named as the Association of Special Finance Houses.

Following the Banking Law No. 5411 dated 01.11.2005 and the Statute of the Association No. 2006/10018 dated 28.02.2006, the Association received its current title of the Participation Banks Association of Turkey.

The main objectives of the Participation Banks Association of Turkey (TKBB) include the following: 

-  To defend the rights and interests of participation banks within the framework of a free market economy and the principle of full competition in accordance with banking regulations, principles and rules.
-  To work for the healthy growth of the banking system, development of the banking profession and improvement of competitive power.
-  To ensure that necessary decisions are taken, implemented and demand to be implemented for the creation of a competitive environment.

All participation banks in Turkey are required to be a member of the Participation Banks Association of Turkey (TKBB) within one month of obtaining a banking license.

As of today, six participation banks are the members of the TKBB:

- Albaraka Türk Participation Bank
- Kuveyt Türk Participation Bank
- Türkiye Emlak Participation Bank
- Türkiye Finans Participation Bank
- Vakıf Participation Bank
- Ziraat Participation Bank 

A segment of the population in Turkey and the world avoid interest income; therefore, funds that are not placed in conventional banks remain idle. This is a loss both for the saver and the overall economy.
Participation banks, as a novelty in the financial sector, were established to activate the idle funds that do not go to conventional banks due to interest concerns, and to help savers safely store and make use of their funds.

During the establishment phase, certain methods have been determined to utilize the funds collected by these banks in line with the practices in the world and opinions of the committees made up of experts from relevant disciplines. There is consensus that the earnings from these methods significantly differ from interest.
Participation banking, also known as Islamic banking, has been discussed in the world financial agenda since the 1970s. The first emergence of participation banking in Turkey was the establishment of Albaraka Türk and Faisal Finans in 1985.

Today, participation banks operate in more than 60 countries with their subsidiaries and branches. There are also some commercial banks, such as Citibank, HSBC Bank and Goldman Sachs, that have windows or sections that provide participation banking services to customers. Currently, Islamic/participation windows are not permitted in Turkey.

Participation banks are banks that operate in the financial sector, finance the real economy and offer banking services. Participation banks use the funds collected from savers in trade and industry investments within the principles of interest-free financing and share the profits or losses obtained by the investment with the savers.

The word “participation” in the names of these banks indicates that the type of banking we do is based on the principle of participation in profit and loss. Funds collected in participation accounts in TRY, USD or EURO currencies are utilized through commercial financing support, personal financing support, financial leasing, joint investments and profit-loss partnership investment methods.

Supply of raw materials, commodities, real estate, machinery and equipment that is essential for trade and industry is provided in accordance with the principles of participation banking, that is, through the financing of the purchase and sale of goods. In addition, other banking services that individuals may need are also provided.
Participation banks work under the guidelines that prohibit interest-based transactions and avoid all impermissible operations. The funds, which are collected based on the profit-loss sharing model, are used to provide financing to permissible commercial activities. Instead of providing cash directly to the customer, the bank applies the models of supplying/leasing goods and services, and profit-loss partnership models.

In order for a return to be interest, earnings must be determined in advance and the use of money must be paid for. For example, conventional banks collect money from depositors based on a fixed interest rate, the bank then lends the funds to borrowers as cash loans at declared interest rates. On the other hand, in profit-loss sharing model, while the funds are collected there is neither a promise made for income nor a guarantee given for the principal capital.

As for the difference in loans; when providing financing, participation banks do not pay cash directly to the customer. Instead, the bank purchases the commodity at the request of the client and resells it to the client at a mutually agreed profit, either through instalments or a delayed payment. Thus, financing to the client was made in the form of trade, not a loan (cash payment). This is also an ideal financing method as it ensures that the financing is given for a specific purpose and is tied to the real economy, preventing inefficient and speculative allocation of resources. In addition, participation banks do not finance businesses that engage in unlawful activities, such as those who deal with the production and sale of alcoholic beverages or tobacco.
Being essentially distinguished from the other banks in utilizing the funds it raises and sharing the income returned, participation banks also render all other interest free banking services. Participation banks offer banking services such as hiring safe deposit boxes, remittance, negotiable instrument and bill collection and act as an intermediary for other transactions such as trading in FX, securities etc. in line with their own principles. 
A participation account is the type of account that allows for the distribution of yield within the scope of the profit-loss partnership between the account holder and the bank. The funds collected in participation accounts are used in financing trade, industry and service sectors in line with the principles of interest-free banking.

The profit to be distributed to the depositor from the participation account depends on the level of net profit resulting from fund utilization operations. The funds raised are collected by currency in USD, EUR and TRY pools. According to the currency type and maturity preferred by the customer who requests financing, funds are granted from the relevant pool and the profit (or loss) arising from this transaction is distributed to the relevant pool. The profit distribution is calculated on a daily or weekly basis and announced at the beginning of each week.
It is not possible to declare ahead the profits to be distributed. Profit shares announced by the bank do not show the future profits to be distributed; it displays the profit shares that have been accrued and distributed by maturities as of the previous weekend. The announced profit shares aim to inform the clients, and does not indicate a future commitment. 
The Central Bank determines the interest rate according to market conditions and conventional banks refer to this rate to define their interest rates, which is informed to the client before deposit. On the other hand, the profit to be distributed to participation bank customers are not known at the time of deposit. Participation banks utilize the deposited money over a period of time and identify the profit share according to their performance which is affected by conditions in the market. As conventional and participation banks operate in the same market and are exposed to same macroeconomic factors, interest rates and profit rates are indispensably similar to each other. 
There is a common misbelief that participation banks never make losses. In commercial life, loss is just as natural and inevitable as profit; banks cannot always earn a return from the transactions they make. However, unlike ordinary commercial establishments, participation banks across Turkey work with thousands of companies from many different sectors. As with having the chance to choose the companies they want to work with, the banks receive the necessary guarantees after a detailed due diligence. They will not work with any company that they do not trust. Despite this, some transactions may suffer from the inevitable risks of commercial life. For example, losses can occur for the bank if a customer is unable to pay his/her debt due to financial difficulties or if a profit-loss partnership project results in loss. However, losses from some transactions are offset against profits from hundreds of other transactions and the remaining net profit, which may have decreased, is distributed. In other words, since all eggs are not placed in one or several baskets and are distributed to hundreds and thousands of baskets, the damage to the eggs in a few baskets does not significantly affect the result.
Standard commercial principles are taken into account when determining pricing strategies. Participation banks generally determine the profit margin they will receive from the funds they allocated, taking into account the following conditions:

- The profit rate, advance or term sale price of the goods or services sold,
- The amount of money (purchasing or investment power) participation banks hold,
- The bargaining power of the client (scale, strength, turnover, customer loyalty and other benefits to the bank),
- The inflation rate,
- The general situation of the sector and the cost of alternative sources of financing that the client can turn to,
- The depositor’s expectations.

The profit margins are determined with a general assessment and can be changed from time to time. Since the country's economy is a whole, it is not possible to set a profit margin that is too high or too low than the market trends. Yet it is the real sector where the operations are carried out, and it is the market that sets the profit margins. 

A participation bank investigates the firms before it provides financing or before it establishes profit-loss partnerships with businesses. It conducts its due diligence and analysis in terms of financial aspects, ethics, experience and success at work. The bank allocates a limit to the companies it sees to be robust and operates continuously within this limit. As a guarantee against the debt of the firm, the bank may only require the signature of the company and partners. According to market conditions, it may claim financial guarantees, such as a guarantor, collateral, letter of guarantee, etc. when it deems necessary.
Each participation bank has one or several correspondent banks in the country. Through these correspondent banks, you can send money without fees to a participation bank branch to open an account, withdraw money from your accounts, cash a cheque and make transfers. In addition, money can be delivered to all parts of the country through the EFT system. Also, there is a widespread correspondent bank network abroad and all kinds of foreign transactions can be carried out easily.
According to the Banking Law, the principal and profit share of the savings collected in private current and participation accounts in participation banks are insured up to TRY 150,000 (hundred and fifty thousand Turkish Liras) under the guarantee of the Savings Deposit Insurance Fund (TMSF).

Participation banks pay a certain amount of premium over the secured parts of the existing accounts every three months in order to insure the funds and these premiums are reflected to the account holders in proportion to the rate of participation.
Securities held in the custody of participation banks, the amount in the accounts opened in the name of clients that have received a cheque-book (even if the cheque-book was not delivered), any participation fund, safe custody or receivable, including transfer fees and profit shares related to participation accounts are considered time-barred if no action is taken within 10 years following the latest request, transaction or written instruction of the beneficiary in any form.
If any kind of account, participation fund, deposit or receivable that is in the amount of TRY 50 or above and will become time-barred within a calendar year, the bank is obliged to warn the beneficiary via a registered and reply paid letter by the end of January of the following year, indicating that unless the beneficiary applies their accounts will be transferred to the Savings Deposit Insurance Fund (TMSF).

There is no such warning requirement for accounts, deposits and receivables below TRY 50. 
All kinds of time-barred accounts, participation funds, rights and receivables both above and below TRY 50 are announced on each bank’s website for 3 months (until the end of April), starting from February. In addition, each bank is obliged to announce that the relevant lists on their websites have been declared, in two of the first five newspapers with the highest circulation published across the country until the fifteenth day of February, for a period of two days.

All kinds of time-barred accounts, participation funds, deposits and receivables announced by the banks on their websites, which are not sought by their beneficiaries or successors until the fifteenth day of May are transferred to the Savings Deposit Insurance Fund (TMSF) with their profit shares until the end of May. The transferred time-barred accounts, participation funds, deposits and receivables are registered as revenue for the TMSF as of the date of transfer.

Therefore, time-barred accounts, participation funds, deposits and receivables can be requested by the beneficiary or successor at the latest from the relevant bank until the 15th day of May, when the obligation to transfer these accounts to the Fund begins. After this date, it is not possible to request these accounts from the relevant bank or the TMSF.