Participation Banking System
While the Participation (Islamic) Banking has conceptually existed during the lifetime of human history, official records mentioning this system goes back to Hammurabi who reigned in Babylon between 2123-2081 BC. While chapters 100-107 of the famous Code of Hammurabi showing how to grant loans, it particularly appears to be the first example of an interest-free investment in history. Along with the emergence and spread of Islam, main concepts of modern Islamic finance such as interest-free borrowing, partnerships and leasing have been developed and applied in a wider geographical area.
However, the requirement of interest-free banking in a modern sense emerged in the 20th century in conjunction with industrialization observed in Muslim countries and oil spike in 1970s.
This is when capital have significantly grown in Muslim countries and the traditional interest-cautious method of finance which had been carried out by simple movements of capital in smaller quantities until then, had to be developed as an organized system operated in accordance with certain principles.
Most important players of the emerging interest-free finance system have been some conventional banks such as HSBC, Citibank, Commerzbank, Barclays Bank while the total size of global interest-free assets reached USD 2 billion.
In Turkey, Decree No. 83/7506 of 16.12.1983 enabled our citizens to invest their savings on the basis of interest-free principles and Private Financial Institutions had started to operate in 1985.
The main objective of the Private Financial Institutions practice was promoting private savings which have been at lower levels in Turkey, and thus contributing these savings into the real economy. Traditionally interest-cautious money either stay under the matress or tend to be invested in real estate, foreign currency, gold, etc.
Private Financial Institutions gained “Participation Bank” status by year of 2006 and became 100% subject to Banking Regulation and Supervision requirements as well as Deposit Insurance Fund coverage.