A part of people in Turkey and world abstains from interest income.  For this reason, the funds not being transferred to the conventional banks remain idle. This situation is a loss both for the overall economy and the saver. The participation banks, as an innovation in the financial sector are established for the purpose of making those funds which normally do not go to the conventional banks due to their bothering for interest, an asset for the economy, as well as helping the savers save and add value their funds in safe.  During the process of establishment, certain methodologies have been determined in order to put to use the funds raised by these banks, in accordance with the opinions of the committees which are made up of the specialists from relevant disciplines, and by following the examples of the corresponding practices in the world.  A consensus has formed that the income obtained by using the said methods significantly differs from the interest.

Participation banking has been a topic of discussion in the World’s financial agenda since 1970's.And, its first implementation in Turkey was initiated by Albaraka Türk and Faisal Financial Institution in 1985.The interest free banks are currently operating together with their affiliates and branch offices in over 60 countries. There are also western corporations establishing units which operate within their bodies on an interest free basis. Citibank, HSBC Bank, Union Bank of Switzerland, Kleinwort Benson, ANZ Grindlays, Goldman Sachs can be counted as examples of these institutions.The first independent interest free bank established by the western banks is the Islamic Investment Bank founded by Citibank, Bahrain in 1996 with a capital of USD $ 20 millions.

The participation banks are the ones that operate on the financial sector, finance the economy and provide banking services.The participation banks utilize the funds they collect from the savers, in trade and industry, and then share the resultant profit or loss with the savers.The word “participation” appearing in the names of such banks means that the kind of banking activity we carry out is the one that is based on the principle of participating in profit and loss. The funds raised in the deposit accounts in TL, USD or EURO are utilized by Corporate Financing Support, Retail Financing Support, Financial Leasing, Mutual Investments and Profit / Loss Sharing Investment methods.Provision of the essential needs of trade and industry, i.e. raw material, commodity, real estate, machinery and equipment is made by the participation banking principles, that is, via financing the purchase and sale. In addition, the other banking services which the public may need are also provided.

Participation banking is a model of banking which does not use interest in collecting and utilizing funds processes, instead use profit/loss sharing model in collecting funds and carry out supplying goods and service, leasing, profit/loss investment models instead of paying cash directly to the Customer.

In order for an earning yield to be interest, it is necessary that the income is known beforehand, and that money is earned in return for money. For example, the conventional banks collect money from the depositors in return for a certain interest, and yet again present it in terms of cash loan to those in need, subject to the declared interest rates. But, on the other hand, there is neither a promise made for income nor even a guarantee for the principal capital in collecting money from the people under profit sharing.

The difference in lending is like this: The PBs do not pay to the Customer in lending funds. They purchase in return for invoices and pay to Seller who sells the goods the Customer requires. After they purchase by adding profit share, they indebt the Customer and recover the loans in installments. So, financing has been made by purchasing the goods in cash, selling the goods in installments by adding the profit share and this process is made not as paying cash but trading. This method is an ideal financing method which prevents loans being used in unavailable, inefficient and speculative areas and getting the informal economy to formal economy. On the other hand, the PBs do not lend to the Customers producing and selling i.e. alcohols, tobacco. They do not invest in investments with interest, not give way to processes having interest.

Being essentially distinguished from the other banks in utilizing the funds they collect and sharing the income returned, the participation banks also render all other interest free banking services. These can be listed as follows: special current accounts, granting letter of guarantee, accrediting, giving, cheque-book, receiving cheques and bonds for collection, clearing, notification and confirmation of export letter of credits, all foreign exchange services, making out traveller’s cheques, exchange transactions, remittance and transfer transactions both home and abroad, credit cards, drawing, executing and receiving cheques, bills, dividend certificates, bills of lading etc.

The profit to be distributed to the saving accounts deposited on a maturity basis depends on the level of the net profit returned as a result of the fund utilization operations.The funds raised are collected in USD, EUR and TL pools according to their respective currencies. A customer wishing to use fund is allowed to use it from the relevant pool as to the currency and maturity group of the fund requested, and then the profit (or) loss resulting from such transaction is, as a principle, distributed to the relevant pool. The profit distributed is calculated either on a daily or weekly basis, and declared in the beginning of each week.

The profit shares declared in the gazettes or in the branch offices are not a table indicative of the profits to be distributed in future. When carefully checked out, the declared figures show the profit shares which are accrued by the maturity dates and distributed as of the end of the previous week. They are declared for the purpose of informing the clients, and not a future promise.  The profit shares declared in the gazettes or in the branch offices are not a table indicative of the profits to be distributed in future.When carefully checked out, the declared figures show the profit shares which are accrued by the maturity dates and distributed as of the end of the previous week.They are declared for the purpose of informing the clients, and not a future promise. 

To begin with, this question or query being put into words in many circles from time to time comes out of incorrect information.For one, generalizing the incidental proximity between the profit shares and interest rates, which appear in some periods, and thereby reaching to some conclusions will not give correct results while there are big differences in the interest rates among the banks. On the other hand, a bank determines the interest rate it is to provide at time of depositing money.But, a participation bank utilizes the money through the applicable profit margins, and shares the money it earns. As a pre-determination is not possible in anyway, no problem like following up the banks evidently comes into question. As one works, in the real economic market, in may different sectors and within the profit rates dictated by the economic perspective, deviating from the normal revenue course is, as a matter of fact, not possible in view of the economic facts. Morever, even in case that the distributed profit shares are so close to the interest rates of the banks, this does not mean that the work done is the same.