Participation banking practices i̇n Turkey and analysis of its effects to the reel sector

Interest has been a subject of constant debate in various stages of history. Due to the prohibition of interest in Islam and its economic and social damages, some of the people did not transfer their savings to the finance sector. Especially in countries where Muslim population is particularly intense, the surplus of idle savings, which cannot be included in the financial sector, has become a major problem. The "Interest-free Banking" system, which was developed to solve this problem, was first implemented in Egypt in 1964 and came to Turkey in 1984 with the name "Private Finance House". In 2005, it was amended by legal regulations and these institutions were named as "Participation Banks". This study focuses on the relationship between the participation banks and the real sector. The main reason for this is that growth in the real sector is vital for economic growth, especially in developing countries like Turkey. The fact that the savings to finance investments are insufficient is among the major problems of many emerging economies. In countries with a Muslim population density like Turkey, because people do not transfer their savings to the financial system due to their beliefs, existing sources cannot be economized. There are many reasons of insufficiency of savings or failure to include them in the financial system. Among these, the most important is the religious cause. Participation banks are crucial in removing this cause. When the period of 2005-2015 is examined in terms of Turkey, the funds drawn via the participation banks through the financial sector and transferred to the real sector clearly show this importance. Participating banks operating in this period have collected funds of 404.5 Billion TL. The sectoral distribution of the total risk of participation banks was examined and it was revealed that the total risk realized to the real sector by these banks is more than %80 in cash loans and more than %90 in non-cash loans. These results show that participation banks place more importance on the real sector than commercial banks and play an important role in the development of the real sector. Keywords: Participation Banking, Islamic Banking, Real Sector.