FAQ

In Türkiye and around the world, a segment of the population avoids interest- based income. As a result, funds that do not enter conventional banks remain idle. This situation represents a loss both for the overall economy and for savers themselves. Participation banks were established, as an innovation in the financial sector, to bring into the economy those funds that avoid conventional banks due to concerns about interest, and to help savers safely protect and invest their funds.

During the establishment phase, methods for utilizing the funds collected by these banks were determined in line with the opinions of committees composed of experts in their respective fields and by taking examples from international practices. A consensus was reached that the returns generated through these methods are fundamentally different from interest.

Participation banking has been a topic of discussion on the global financial agenda since the 1970s. In Türkiye, the first applications were launched in 1985 by Albaraka Türk and Faisal Finance Institution. Today, participation banks operate in more than 60 countries through their subsidiaries and branch networks.

In addition, there are Western financial institutions that have established units operating in accordance with participation principles within their organizations. Examples include institutions such as Citibank, HSBC Bank, Union Bank of Switzerland, Kleinwort Benson, ANZ Grindlays, and Goldman Sachs. The first independent participation bank established by a Western bank was the Islamic Investment Bank, founded in Bahrain in 1996 by Citibank with a capital of USD 20 million.

Participation banks are financial institutions operating within the financial sector that finance the real economy and provide banking services. They utilize the funds collected from savers in trade and industry in accordance with participation financing principles, and share the resulting profit or loss with their customers. The term “participation” in the names of these banks reflects a banking model based on the principle of participation in profit and loss. Funds collected in Turkish Lira (TL), US Dollar (USD), and Euro (EUR) denominated term accounts are utilized through methods such as Corporate Financing Support, Retail Financing Support, Financial Leasing, joint investments, and profit-and-loss sharing investments. The financing of raw materials, commodities, real estate, machinery, and equipment required by trade and industry is carried out in line with participation banking principles, namely through the financing of the purchase and sale of goods. In addition, participation banks also offer other banking services that may be required by the public.

Participation banking is a form of banking that does not use interest in fund collection and financing activities. Instead, it applies a profit- and-loss sharing model when collecting funds, and utilizes financing methods such as the supply of goods and services, leasing, and profit- and-loss sharing investments when providing funds, rather than extending cash directly to customers.

For a return to be considered interest, the income must be predetermined and generated solely in exchange for money. Conventional banks, for example, collect funds from depositors by promising a fixed interest rate and provide cash loans to borrowers at declared interest rates. In contrast, participation banks do not make any commitment regarding a predetermined return when collecting funds from the public, nor do they guarantee the principal amount.

Another key difference lies in the financing process. Participation banks do not provide direct cash payments to customers when extending financing. Instead, payment is made—against an invoice—to the seller of the goods or services required for the customer’s business. After making the payment, the bank adds its profit share and records the amount as a liability for the customer, which is then collected in installments. In this way, financing is conducted through the purchase of goods on a cash basis and their sale on a deferred basis with a profit margin. As a result, the transaction is carried out as a trade activity rather than a cash loan.

This method also serves as an ideal financing model by preventing funds from being diverted to non-productive, inefficient, or speculative purposes, while promoting transparency and formal economic activity. Moreover, participation banks do not provide financing to businesses involved in the production or sale of alcoholic beverages or tobacco. They do not invest in interest-bearing instruments and do not engage in interest-based transactions.

The profit to be distributed to term-based savings accounts depends on the level of net profit generated from financing activities. Funds collected from customers are pooled separately based on currency—Turkish Lira (TL), US Dollar (USD), and Euro (EUR).

When a customer requests financing, funds are allocated from the relevant pool according to the requested currency and maturity group. The profit (or loss) arising from this transaction is, in principle, distributed to the corresponding pool. The distributable profit is calculated on a daily or

It is not possible to announce the profit to be distributed in advance under any circumstances. The profit share figures published in newspapers or displayed at bank branches do not represent a schedule of future profit distributions. When reviewed carefully, these figures reflect the profit shares that were generated and distributed as of the end of the previous week, based on different maturities.

Such announcements are made solely for the purpose of informing customers and do not constitute any commitment regarding future profit distributions.

This question or concern, which is occasionally raised in various circles, is primarily based on incomplete or inaccurate information. First of all, even among conventional banks themselves, interest rates can vary significantly. Therefore, drawing general conclusions by focusing on incidental similarities observed between profit shares and interest rates during certain periods does not lead to accurate assessments.

Moreover, conventional banks determine the interest rate they will offer at the time funds are deposited. Participation banks, on the other hand, evaluate funds based on prevailing profit margins in the real economy and distribute the actual profits earned. Since it is not possible to determine profit shares in advance, participation banks do not and cannot “track” or follow conventional bank interest rates.

Participation banks operate across various sectors of the real economy and within profit margins dictated by economic realities. As a result, it is neither economically feasible nor realistic for profit shares to deviate significantly from normal market returns. Even if the profit shares distributed are at times close to conventional bank interest rates, this similarity does not mean that the nature of the transactions is the same.

Suppose a customer deposits TL 10,000 into a one-month term account at a participation bank branch. Using the bank’s system, the customer’s share is calculated at the time of deposit as a percentage of the total savings held in one-month term accounts. This percentage represents a type of ownership or participation ratio.

Based on this ratio, profit is allocated to the account in proportion to the profits generated over the relevant weeks.

There is a common misconception in the public that participation banks never incur losses. In commercial life, losses are just as natural and inevitable as profits, and it is not possible for every transaction to generate a profit. Participation banks are no exception. However, unlike an ordinary commercial enterprise, participation banks in Türkiye work with thousands of companies across a wide range of sectors nationwide. They have the discretion to select the firms they work with and conduct extensive due diligence, including gathering comprehensive information and obtaining the necessary collateral. They do not engage with firms they do not trust.

Despite these precautions, losses may still arise from certain transactions due to the inherent risks of commercial activity. For example, losses may occur if a customer’s financial condition deteriorates and they are unable to meet their obligations, or if a profit-and-loss sharing project results in a loss. Nevertheless, losses incurred in some transactions are offset against profits generated from hundreds of other transactions, and the remaining net profit is distributed.

As a result, losses generally lead to a reduction in the profit share distributed rather than a negative return. For instance, instead of distributing a profit of TL 15 on a monthly savings amount of TL 1,000, the bank may distribute TL 13. In other words, since funds are diversified across hundreds or thousands of transactions rather than concentrated in a single or a few investments, losses in a limited number of transactions do not significantly affect the overall outcome.

When providing financing or engaging in financial leasing, participation banks take into account the same pricing criteria that apply in normal commercial life. In general, participation banks determine the profit margin on the funds they extend by considering the following factors:

• The prevailing market profit margins for the transaction or the goods sold, as well as cash and deferred purchase and sale prices
• The amount of funds available to the participation bank (its capacity for purchasing goods or making investments)
• The bargaining power of the customer, including the customer’s scale, financial strength, transaction volume, continuity of the relationship, and other benefits provided to the bank
• The rate of inflation
• The cost of alternative financing sources available to the customer and the general condition of the sectors involved
• The expectations of savers

Based on an overall assessment of these factors, profit margins are determined and may be adjusted periodically in line with changing conditions. Since the national economy functions as an integrated whole, it is neither feasible nor realistic to set profit margins significantly below or above prevailing market levels. Ultimately, participation banks operate within the real sector, where profit margins are determined by market dynamics.

When providing financing, establishing profit-and-loss sharing partnerships, or engaging in financial leasing, participation banks conduct a thorough assessment of the counterpart firms. This assessment includes evaluating the firm’s financial position, business ethics, experience, and track record of success.

Based on this analysis, participation banks allocate a financing limit in line with the firm’s scale and the available data, and maintain an ongoing relationship within this approved limit. To secure the obligations of the counterparty, participation banks may rely solely on the signatures of the firm and its partners. However, when deemed necessary or depending on market conditions, they may also require additional collateral such as personal guarantees, mortgages, or letters of guarantee.

Each participation bank has one or more correspondent banks within Türkiye. Through these correspondent banks, customers can open accounts by transferring funds to any participation bank branch free of charge, withdraw money from their accounts, cash cheques, and make or receive transfers.

In addition, the EFT system enables funds to be transferred nationwide. With today’s technological capabilities, these services can be provided easily and efficiently. For international transactions, participation banks maintain extensive correspondent banking networks, allowing all cross-border transactions to be carried out smoothly.

Under the Banking Law, savings collected at participation banks in special current accounts and profit-and-loss participation accounts held in the name of real persons are insured by the Savings Deposit Insurance Fund (SDIF) up to TL 150,000 per person, including both the principal amount and the profit share. This insurance coverage is applied separately for each participation bank.
For the purpose of insuring these accounts, participation banks pay insurance premiums to the SDIF every three months based on the insured portion of existing accounts. These premiums are reflected proportionally in the profit shares distributed to account holders.

All participation funds, entrusted assets, and receivables held at participation banks—including securities held in custody, amounts in accounts opened for customers even if cheque books have not been delivered, transfer amounts, and profit shares related to participation accounts—become subject to the statute of limitations if they remain unclaimed for 10 years.

This period starts from the date of the account holder’s last request, transaction, or any written instruction.

Participation banks are required to notify the rightful owners of any participation funds, entrusted assets, and receivables that become time-barred within a calendar year and amount to TL 50 or more. Such notification must be made by registered mail with return receipt by the end of January of the following calendar year, informing account holders that their accounts will be transferred to the Savings Deposit Insurance Fund (SDIF) if no application is made.

There is no obligation to provide such notification for accounts, receivables, or entrusted assets with balances below TL 50.

All participation funds, entrusted assets, and receivables that have become time-barred—whether above or below TL 50—are published on each participation bank’s website for a period of three months, starting from the beginning of February until the end of April. In addition, each bank is required to announce that these lists have been published on its website by placing notices for two consecutive days in two nationwide newspapers with the highest circulation no later than 15 February.

Any time-barred participation funds, entrusted assets, and receivables published on the banks’ websites that are not claimed by the rightful owners or their heirs by 15 May are transferred to the Savings Deposit Insurance Fund (SDIF) by the end of May, together with the accrued profit shares. As of the transfer date, these amounts are recorded as income by the SDIF.

Accordingly, time-barred participation funds, entrusted assets, and receivables may be claimed by the rightful owners or their heirs from the relevant participation bank no later than 15 May, which is the deadline for mandatory transfer to the SDIF. After this date, it is no longer possible to claim these accounts from either the participation bank or the Savings Deposit Insurance Fund.