Applicable model proposals on Islamic microfinance in Turkey

Microfinance is one of the most important methods of reducing poverty by offering financial and non-financial services to low-income people; however, the fact that these microfinance institutions are not complying with Islamic principles in their activities, prevent them from covering all low-income people. Islamic banking, which started in similar periods with microfinance, continues its activities in accordance with Islamic principles and enables many people to reach financial services. The participation banks represent this mission in Turkey. However, the low-income group cannot get financing from participation banks due to reasons such as lack of collaterals, lack of credit histories, and high operational costs per unit. Islamic microfinance enables both financial and non-financial services to be provided by Islamic banks and conventional microfinance organizations to individuals who are excluded from the financial system, in a Shari'a compliant way. The use of Islamic microfinance methods to reduce poverty is possible not only through participation banks but also through non-bank financial institutions. The purpose of this thesis is to present viable Islamic microfinance models for participation banks and non-governmental organisations in Turkey. Thus, it is aimed to provide a contribution to Turkish literature both in theoretical and practical terms. The qualitative research method was chosen as the method and the opinions of the relevant stakeholders were taken by using a semi-structured interview. A total of 35 people from academia and regulatory/public institutions participated in the interview, as well as managers of Islamic and conventional microfinance institutions. Within the framework of the interviews, two models that can be applied both by participations banks and non-governmental organisations are detailed. It has been concluded that participation banks can create an important initiative in terms of introducing Islamic microfinance to more people in a sustainable way because of the widespread branch networks, technological infrastructures, and expert staff. On the other hand, although participation banks are expected to offer Islamic microfinance services, non-profit organizations other than participation banks are also needed. Considering the experiences of the Islamic microfinance managers who participated in the interview, it has been seen that although the structures other than participation banks have weaknesses such as sustainability, they can offer different opportunities in reducing poverty. As a result, it is expected that these two Islamic microfinance models developed in accordance with the views of the stakeholders, would contribute to access of the low-income people in Turkey to financial services.