Issues and challenges of participation banking in Turkey: The perception of employee

The main purpose of this study is to provide empirical analyzes of the issues and challenges faced by the participation banking in Turkey. The study focuses on factors that prevent further growth of the participation banking in the financial sector. These factors are collected under six headings which are legal and regulatory framework, management issues, Shariah governance, industrial issues, the perception of society, and risks. Primary data are collected by the survey conducted in the study and analyzed with a statistical program. Secondary data of the participation banking in Turkey is obtained from the authority institutions. The participants of the survey consist of participation bank employees in Turkey. It is aimed to present the issues and challenges faced by participation banking in Turkey through the perspective of the employees of participation banks directly with this survey. According to the survey results, the participation banking system in Turkey has not yet reached the potential level. The study concludes that there is a need for further regulations that would pave the way for participation banking for the legal and regulatory framework. Among the management issues, the competition in the financial system, and the similarity with conventional banking in terms of products and services are observed to be important challenges that slow the further development of participation banking. Due to the structure of participation banking, the lack of Shariah standards and central Shariah auditing are seen main issues within Shariah governance. Featured industrial issues are the lack of the wide range of products, skilled human resources, and complementary financial institutions. Along with the negative reputation, there is a lack of awareness about the participation banking system on the customer side within the perception of society. Finally, when the risks faced by participation banks are evaluated, the first three risks are: (1) the rate of return risk, (2) the credit default risk in debt-based financial products, and (3) the liquidity risk.