Frequently Asked Questions

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 1907'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 doctrines 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, Personal Financing Support, Financial Leasing and Profit / Loss Sharing 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. 
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 of money.   For example, the conventional banks collects 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. That such institutions deal with very assiduous and safe works is the only guarantee for the money. The saver first assumes that risk. It is seen in the practices across our country that the participation banks utilize the people’s money very carefully and safely.  And, as the safety principle is kept in the forefront, the saver depositing their money into such banks usually put up with a relatively lower income. As is known, the main principle of economy is “the less the risk the less the income, the more the risk the more the income”.
Being essentially distinguished from the other banks in utilizing the funds it raises 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.
Assume that a client has deposited at a branch office of any participation bank 10 thousand TRY with a fixed term of 10 months.  Through the existing software in the computer system, percentage of the deposited money in the present total savings within the accounts of a fixed time of 1 month at time of the money being deposited. This is a kind of share proportion. And, profit is distributed to the account, out of the profit accrued as of the weeks passed.
In the public opinion, a misbelief that such banks never make loss has formed. In the course of business life, loss is as just normal and unavoidable as profit.  Besides, it is not possible that they make profit from all transaction they undertake. But, unlike an ordinary business enterprise, the participation banks operate with thousand of companies from a large range of sectors across Turkey. They have not only the chance of choosing the companies they wish to work together, but they also get the necessary guarantees after making any queries relating thereof. They will never work with a company they do not rely on. Despite this fact, some transactions may result in a loss due to the unavoidable risks of the business life.  For instance, a loss comes into question in such events that a client fails to pay its debts due to its worsening financial condition, or a profit/loss project results in a loss. However, the losses in some transactions are deducted from the profit obtained from other hundreds of works, and the remaining net profit is distributed.   And, this may at the very most bring down the margin of profit distributed. A participation bank may distribute to its clients thirteen TRY monthly instead of fifteen TRY in return for one thousand TRY. That is, so to say, because all of the eggs are not put into one or several baskets, but distributed among hundreds, thousand of baskets, that the eggs in a few baskets are damaged do not much affect the result.  
Here, the criterions that play a role in the ordinary course of business are taken into consideration in exactly the same way. A participation bank generally determines the margin of profit it will receive from the funds it makes available, by taking into account the following conditions:  
The margin of profit in the market of the work done or commodity sold, prices of purchase and sale both for cash and future settlements, Amount of money in the hands of the participation banks (i.e. the quantity of the purchasing or investment power),Power of bargaining of the client with whom the work is done (its scale, order of reliability, volume of the work done, client’s continuity and other benefits it provides to the bank),Rate of inflation,  Cost of the alternative financing sources that the client can manage, the general condition of the working sectors, Expectations of the savers; the profit margins are determined with a  general assessment, and the margins of profit are modified from period to period.  Insofar as the country’s economy is a whole, here it is not possible to determine a margin of profit which is much above or much below the margin of profit pattern defined by the market. Yet it is the real sector where the operations are carried out, and the margins of profit are determined by the market.


A participation bank examines its concerned company when it provides a financial support or establish a profit/loss sharing or performs a financial leasing.  It gathers information analyze the concerned company regarding its cost and financial aspects, and its experience and track record for the work in question. and, a continuous operation is carried put within this limit.  It can be contented with only the signature of the companies and shareholders as a guarantee for the debt of the counterparty company, or it can require tangible guarantees such as bail, mortgage, letter of guarantee etc, when it deems necessary, or as dictated by the current market conditions. 
Each participation bank has one or several domestic corresponding bank(s).  With these corresponding banks, one can open an account, by transferring money to any participation bank for free, and then draw money, collect the cheque for these, make remittance or demand remittance.    In addition, via EFT system money can be sent to any part of the country. With the technologic facilities of our day this problem can be easily solved. And, there is a widespread corresponding bank network abroad, and every kind of international transaction can be carried out without any hitch.

They are secured under the guarantee of Saving Deposits Insurance Fund. The said insurance is taken into consideration on a separate basis for each participation bank. A participation bank quarterly deposits into that fund a premium at a certain proportion to the portions of those accounts subject to the insurance in order to have them insured, and such premiums are reflected on the account holders in proportion to their contribution to the profit.  (You can find further information on this subject in “Insuring the Participation Funds” at our website)
The securities under the custody of a participation bank, even no cheque-book is surrendered, the amounts held in the account opened in the name of the clients who have received a cheque-book, any participation fund, safe custody or receivable, including remittance fees and profit shares related to the participation accounts becomes time bared when it is not called within 10 years starting from the date of the beneficiary’s (account holder’s) last demand, transaction or any written request.  
The banks must give a warning notice in the form a registered and reply paid letter, informing the addressee that his/her accounts are to be transferred to the Saving Deposits Insurance Fund unless he/she makes an application, to any beneficiary of participation fund, safe custody or receivables which become time barred in a calendar year, and which have an amount of 50 New Turkish Liras or above latest by the end of January of the subsequent calendar year.    
Giving such notice is not a must for any account, receivables of safe custody which is below 50 New Turkish Liras. 


Any time barred participation funds, safe custodies or receivables, whether above or below 50 TRY, are declared in the respective web site of each bank from the early February (to the end of April).  Also, each bank must declare in two newspapers with the highest general circulation throughout Turkey for two days latest by the 15th day of February that the aforementioned lists have been declared in its respective web site. 
Of any time barred participation fund, safe custodies and receivables which are declared by the bank in its own website, those which are not called by the beneficiary or his/her legal heir up to 15th day of May are transferred together with their respective profit shares to the Saving Deposits Insurance Fund by the late May.    The said participation funds, safe custodies and receivables are recorded as revenue as of the date of transfer by the above mentioned Fund, along with their respective profit shares.
Therefore, any time barred participation fund, safe custody or receivables can be claimed from the relevant bank by the beneficiary or his/her legal heirs latest by the 15th day of May as of which date the obligation of such accounts being transferred to the Fund starts.     After that date, none of such accounts can be claimed from the relevant bank or Saving Deposits Insurance Fund. 


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