Participation banking
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Participation banking is a name given to Islamic banks mainly in Turkey, as well as in the broader MENA region.[1][2] There are participation banks in Turkey, Pakistan, Bangladesh, Indonesia, Saudi Arabia, Malaysia, the UAE and other Gulf countries.
Participation banks operate on Islamic financial principles distinguished from conventional banking:
- Prohibition of interest (riba): Prohibiting interest is necessary for but may guarantee Shari'ah compliance[3]
- Risk sharing: Banks and customers share both profits and losses from investments[4]
- Asset-backed financing: All transactions must be backed by real economic activity[5]
- Prohibition of uncertainty (gharar): Ambiguous or uncertain transactions are not allowed[6]
- Ethical investment: Avoiding speculative transactions and trading in impermissible products such as alcohol[7]
History
Participation banking share of assets in the Turkish banking sector was 2.13% in 2000,[8] 5.1% in 2012,[9][10] and reached 7.8% or 717.3 billion TL in 2021.[11]
In 2020, top total sukuk issuers included: Malaysia, Saudi Arabia, and Indonesia.[12]
According to Ernst & Young, the assets of global participation banking reached US $930 billion in 2015, with growth rates declining across all regions compared to previous years.[13]