Financial development of i̇jarah and leasing methods in Turkey:a comparative analysis for the period 2013-2017

Participation banks are financial institutions that mediate Islamic financial activities. Within this framework, individuals with interest-free sensitivity prefer participation banking products. Ijarah, which is one of the participation banking products, has been revealed as an alternative to the leasing service used in traditional banking. Enterprises prefer renting fixed assets instead of buying them completely due to the financial situation and it has led to the emergence of the leasing sector. However, since leasing sector is not preferred by traditional banking customers who are sensitive to interest-free financial products, participation banks have developed an alternative method to meet the needs of this sector by adding a new product, "ijarah" to their alternative product scale. Although both leasing and ijarah methods have made significant progress in line with the needs of individuals' from past to present, it has been observed that there have serious pauses and sometimes declines in the periods when the economic and financial fluctuations have increased. There are many factors affecting the development of leasing sector. The main factors that have significant effect on the development of leasing and ijarah methods are the economic and financial fluctuations in the country, and the large-scale changes in the inflation rate and loan interest rates. In addition, the rise and fall in VAT rates within the framework of economic policies and fiscal policies also affect the leasing sector in Turkey. The aim of this study is to examine the financial development of leasing and ijarah methods by years and to determine the effect of the macroeconomic variables affecting the process. Tests such as co-integration, Granger causality and VAR method were applied. As a result of this application, it is determined that the method of ijarah is more preferred as the market interest rates' rise and therefore a significant (direct proportion) relationship exists between them. In the periods when interest rates were increased between the years 2013 and 2017, when the financial data of the participation banks were included in the analysis period, the use of the ijarah method were also increased and the use of leasing method increased as the interest rates decreased. In addition, it was observed that the use of leasing and ijarah methods increased in periods when the level of GDP increased. When these two methods are compared, there are similar macroeconomic variables affecting both methods, although both of the methods are seen as alternatives to each other. As a result, leasing and ijarah methods have shown a continuous growth trend between 2013-2017 period and they were directly affected by changes in various macroeconomic indicators. Key words: Ijarah, Leasing, Financial Development, Participation Banking.