APPROACHES OF PARTICIPATORY BANKS CLIENTS TO

PARTICIPATORY BANKING VALUES: THE CASE OF ISTANBUL

Thesis submitted to the

Institute of Social Sciences

in partial fulfillment of the requirements

for the degree of

Master of Arts

In

Economics

by

Deniz MUTLU

Supervisor

Prof. Dr. smail ZSOY

i
 Deniz MUTLU

All Rights Reserved, 2013

ii
APPROVAL PAGE

Student : Deniz MUTLU

Institute : Institute of Social Sciences
Department : Economics
Thesis Subject : APPROACHES OF PARTICIPATORY BANKS CLIENTS TO
PARTICIPATORY BANKING VALUES: THE CASE OF ISTANBUL

Thesis Date : January 2014

I certify that this thesis satisfies all the requirements as a thesis for the degree of Master of
Arts.

(Title, Name and Signature)

Head of Department

This is to certify that I have read this thesis and that in my opinion it is fully adequate, in
scope and quality, as a thesis for the degree of Master of Arts.

(Title, Name and Signature)

Supervisor
Examining Committee Members
(Title, Name and Signature) .

(Title, Name and Signature) .

(Title, Name and Signature) .

It is approved that this thesis has been written in compliance with the formatting rules laid
down by the Graduate Institute of Social Sciences.

iii
 ABSTRACT

Deniz MUTLU January 2014

The banking sector mediates the financial system. Participatory banks also mediate interest-free finance
system in this financial sector. Participatory banks are organizations that operate in the financial sector,
fund the real economy and provide banking services. Participatory banks use funds that they collect from
savings holders in trade or industry within the principles of interest-free financing and share the resulting
loss or profit with them. Operating on the basis of profit and loss sharing and proposing risk-sharing, the
system is known more in the world as an interest-free banking whereas it goes under the name of
Participatory banking in our country. Participatory banking is also called Islamic banking across the
globe. Based on interest-free banking, the Participatory Banks operates upon the transference of financial
resources from economic units having a surplus of funds to economic units in need of funds. Religiously-
sensitive people in the Muslim communities have stayed away from financial institutions due to the fact
that they operate on the principle of interest. They have not transferred their savings to the economy, but
rather have invested in gold, foreign exchange or real estate. In this case, they remained inactive since they
turned towards areas that they do not contribute to the production. This banking model provided a new
alternative financial model in a way to eliminate the results of failure to comply with the interest
prohibition brought by the religious beliefs. These institutions emerged from the need of Islamic section for
banking services convenient for religious beliefs and have developed rapidly. There are four different types
of Participatory banks in Turkey. These banks are recently increasing the number of their branches all over
Turkey. We designed a questionnaire in order to determine why increasing number of these clients prefer to
work with these banks. We prepared this study in accordance with the results of this survey.

Keywords: Participatory bank, questionnaire, survey, client

iv
 ZET
Deniz MUTLU January 2014
Bankaclk sektr finansal sisteme finansal araclk etmektedir. Katlm bankalar da
bu finansal sektrde faizsiz finans sistemine araclk etmektedir. Kar ve zarara katlma esasna
gre alan ve risk paylamn ngren sistem, dnyada daha ok faizsiz bankaclk olarak
bilinirken, lkemizde katlm bankacl olarak bilinmektedir. Katlm bankacl, dnya
genelinde "slm bankacl" olarak adlandrlmaktadr. Ayrca "faizsiz bankaclk " (interest-
free banking) terimi de ayn anlam yani katlm Bankacl teriminin farkl bir ifadesidir.
Faizsiz bankaclk, slm bankacl ve katlm bankacl terimlerinin de ayn sistemi
ifade etmek zere kullanlmaktadr. simdeki katlm szc yaplan bankaclk trnn
kar ve zarara katlma prensibine dayal bir bankaclk olduunu ifade etmek iin
kullanlmaktadr. Faizsiz bankaclk modelini temel alan Katlm Bankalar, fon fazlas olan
ekonomik birimlerden fon gereksinimi olan ekonomik birimlere finansal kaynaklarn faizsiz
yntemlerle aktarlmas esasna dayanmaktadr.
Mslman toplumlarda dini hassasiyet tayan halk, faiz esasna gre alsmalar
nedeniyle finansal kurumlardan uzak durmulardr. Tasarruflarn ekonomiye aktarmayp altn
veya dvize yahut gayrimenkule yatrmlardr. Bu durumda retime katk salamayan
alanlara yneldii iin atl kalmlardr. Bu bankaclk modeli inanlarna ramen dinin
getirdigi faiz yasana uymamas sonularn ortadan kaldracak ekilde yeni bir alternatif
finansal model olmustur. Bu kurumlar, slmi kesimin dini kurallara uygun bankaclk
hizmetine olan ihtiyalarndan domu ve hzla gelimilerdir.

v
 LST OF CONTENTS
APPROVAL PAGE .................................................................................................................. III
CHAPTER ONE ........................................................................................................................ 1
INTRODUCTION ...................................................................................................................... 1
Literature Review ....................................................................................................................... 4
1.1 Aim and Significance of the Study .................................................................................. 6
1.2 Method of the Study ............................................................................................................. 7
1.3 Scope and Limitations of the Study ..................................................................................... 8
CHAPTER TWO ....................................................................................................................... 9
2.1 INTEREST .......................................................................................................................... 9
2.2PROHBTED INTEREST BY ISLAM .......................................................................... 10
CHAPTER THREE .................................................................................................................. 12
3.1 ISLAMIC BANKING (Participatory Banking ) IN THEORY ..................................... 12
3.1.1. Participatory Bank and Its Definition ......................................................................... 12
3.2 REASONS FOR THE FOUNDATION OF PARTICIPATORY BANKS .......................... 14
3.2.1 Reasons for the Emergence of Participatory Banks, Religious and Economic Reasons
.............................................................................................................................................. 14
3.3 FUND COLLECTION AND LOANING METHODS OF PARTICIPATORY BANKS... 16
3.3.1 Fund Collection Methods............................................................................................. 16
3.3.1.1 Private Checking Accounts; .................................................................................. 16
3.3.1.2 Participation Accounts; ......................................................................................... 16
3.3.2 Fund Loaning Methods ................................................................................................ 17
3.3.2.1 Corporate Finance Support (Usury) ...................................................................... 17
3.3.2.2 Individual Finance Support ................................................................................... 17
3.3.2.3 Financial Leasing (Islamic Leasing) ..................................................................... 18
3.4 ACTIVITIES OF PARTICIPATORY BANKS ................................................................... 20
CHAPTER FOUR .................................................................................................................... 21
4.1 REASONS FOR PARTICPATORY BANK CLIENTS TO PREFER PARTICIPATORY
BANKS: QUESTIONNAIRE APPLICATION ....................................................................... 21
4.1.2 Implementation of the Questionnaire .......................................................................... 21
4.2 Reasons for the Clients of Participatory Banks to Prefer Participatory Banks: The case of
Istanbul ..................................................................................................................................... 24
4.2.1 Population and Sampling ........................................................................................ 24

vi
 4.2.2. Data Collection and Analyses ..................................................................................... 25
4.3.1 REASONS FOR PARTICIPATORY BANK CLIENTS TO PREFER PARTICIPATORY
BANKS .................................................................................................................................. 30
4.3.1.1 Findings and Assessment ...................................................................................... 30
4.3.1.2 Sequencing Reasons of Preferring Participatory Banking .................................... 31
4.3.1.2.1 Religious Sensibilities (Sensitivity against interest) .......................................... 34
4.3.1.2.2. Obtaining a high income ................................................................................... 47
4.3.1.2.3 Banking Service Quality .................................................................................... 53
4.3.2. The Factors that Affect Preference of Participatory Banks in Turkey within the Light
of the Scale Data: A Study of Explanatory Factor Analysis ................................................. 66
5. Overall Evaluation and Results ............................................................................................ 71
6. SUGGEST ............................................................................................................................ 74
ACKNOWLEDGEMENTS ..................................................................................................... 75
BIBLIOGRAPHY .................................................................................................................... 76
APPENDIX; ............................................................................................................................. 77
SURVEY OF EXAMPLE ........................................................................................................ 77

vii
 LST OF TABLES

Table 1.Educational Information .............................................................................................. 26

Table 2.Information on Age...................................................................................................... 27
Table 3. Gender Information .................................................................................................... 27
Table 4. Information on Monthly Income ................................................................................ 28
Table 5. Bank Information........................................................................................................ 29
Table 6. The participatory banking of client answer of question ............................................. 29
Table 7. Rotated Factor Analyses-The Factors that Affect Preference of Participatory Banks in
Turkey....................................................................................................................................... 62
Table 8. Results of Rotated Factor Analyses - The Factors that Affect Preference of
Participatory Banks in Turkey .................................................................................................. 63

viii
 LST OF FGURE
Figure 1. Banks used by Clients ............................................................................................... 30
Figure 2 The clients who prefer participatory banks for they function in interest- free system
.................................................................................................................................................. 34
Figure 3 The client who perefer participatory banks because they think that the personnel
of participatory banks have religious sensitivies ...................................................................... 36
Figure 4 participatory banks are aware of social values and sensitivies of their clients and
reflect them in their sevices manner and applicantions ............................................................ 37
Figure 5 Investment capacities of entrepreneurs sensitive to interest increase with the
facilities of participatory banks ............................................................................................... 38
Figure 6 The clients who would continu to work with the participatory banks even if their
profit share falls below the interest of traditional banks55 of the clients (approximately
32.4 %) replied as strongly agree, and 78 of them (approximately 45.9 %) responded as agree.
.................................................................................................................................................. 39
Figure 7 For saving, participatory banks are appropriate for religious sensitivies ................. 40
Figure 8 Attractive finance of the participatory banks are in line with religous values ......... 41
Figure 9 Complete appropriataness of participatory Banks to Islamic rules ......................... 42
Figure 10 Wolud you still work with participatory banks if there was no branch of
participatory banks in your neighborhood ............................................................................... 43
Figure 11 The clients who wolud still work with the Participatory Banks even if they
conduct trade with the products prohibited by islam .............................................................. 44
Figure 12 The clients who wolud continue to work with the participatory banks even if their
profit share falls below the interest of traditional banks ......................................................... 45
Figure 13 Participants who prefer participatory banks due to confidence in them ................. 46
Figure 14 Financal sensitivies .................................................................................................. 47
Figure 15 The participants who think that participatory banks distribute higher profit shares
tahn the interests of traditional banks ...................................................................................... 48
Figure 16 increase of market share of the participatory banks in total banking in Turkey ..... 49
Figure 17 Assurance of participatory banks for savings ......................................................... 51
Figure 18 Participatory banks' promising potential for economic management and economic
growth....................................................................................................................................... 52
Figure 19 Banking Image and Popularity of Participatory Banks.......................................... 53
Figure 20 Participatory banks' promising potential for economic management and economic

ix
growth....................................................................................................................................... 54
Figure 21 Proximity of participatory banks to houses and work place ................................... 55
Figure 22 Social contributions provided by participatory banks .......................................... 56
Figure 23 Advertisements of Participatory Banks in mass media as reason for preference .. 58
Figure 24 Preference of participatory banks through reliable friends or surroundings.......... 59
Figure 25 Is the confidence in participatory banks increasing in Turkey ................................ 60
Figure 26 Easy access to participatory banks ....................................................................... 61
Figure 27 Attractive tariffs for products, operations and services offered by participatory
banks......................................................................................................................................... 62
Figure 28 Knowlegeable and skilled personnel amployed by participatory banks ................ 63
Figure 29 Product and services variety provided by participatory bank ................................. 64
Figure 30 client service quality of participatory banks .......................................................... 65

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 CHAPTER ONE

INTRODUCTION
Forbidden by Islamic religion, interest caused investors with interest sensitivity to stay
away from this phenomenon. Absence of alternative institutions to traditional banks also kept
investors away from these banks. This case has led the savings of these sections to shift to
non-banking ways such as gold, foreign exchange and real estate. In other words, this caused
them to remain inactive in a sense by staying out of financial markets when they turned to
areas that do not contribute to the production. Accordingly, operating on interest-free basis
and providing additional funds to the capital needed for the development of the country in this
way by attracting savings of the people into the economy, financial institutions have been
established both in Turkey and other Islamic countries.
Interest-free banking started in Turkey with the decree dated on 16.12.1983 and
numbered 83/7506 and were founded under the name of Private Financial Institutions. In
2006, Private Finance Institutions took the name of Participatory Banks with Banking Law
No.5411.1
In principal, interest-free banking model is based on the transfer of financial funds
from economic units with excessive funds to economic units with demand for funds. System,
which operates on the principle of participating to profit as well as loss and proposes risk
sharing, is known as Participatory banking in our country while it is mostly known as interest-
free banking or Islamic banking.2 Having a small but an increasing share in global finance
system, interest-free banking system has recently become widespread as an alternative model
in various countries of the world that have developed financial markets as well as in Islamic
countries.
Participatory banks make use of the funds they collect in various processes that are
located in Islamic law and have been in use for centuries such as partnership, joint capital
investment, usury, and leasing. Partnership is an indispensable element for Participatory banks
among these processes. Because partnership system is an element located at the heart of
Islamic finance through profit/loss partnership system. Murabaha, in other words, the process
of buying in cash and selling on credit constitutes the vast majority of Participatory bank
transactions. This system, known as interest-free banking system or interest-free financing

1http://www.bddk.org.tr/WebSitesi/turkce/Mevzuat/Bankacilik_Kanunu/1540bankacilik_kanunu_13.9.2013.pdf
2 Bulut, Dr. Halil brahim, Er,Bnyamin, 2012, p.24
system, enjoys an increasing attention globally particularly in Islamic geography. Carrying
universal banking in its body, this system is called Participatory banking in Turkey.
The reason for and the Golden Rule of Participatory Banks is Interest-free
Principle. The essences of Interest-free Principle are:
1) Not promising a fixed return when collecting funds,
2) Not providing cash loans while making funds available and buying in cash and selling on
credit of goods.
Interest-free principle accepts funds on the principle of participating in profit and loss
and does not promise a fixed return while collecting funds. Because, Participatory banking is
a banking system in where profit or loss is shared with the holders after utilizing funds
collected from savings holders in commerce and industry. Here, Participatory bank fulfills the
functions of financial mediator or financial actor. Participatory banks do not collect deposit
money like conventional banks, but they accept Participatory funds. They operate on the
principle of collecting funds and using them. They make demanding sections to use funds that
they collected by fund-raising method through fund-using method. Their fund raising methods
are private checking accounts and Participatory accounts. Their fund-using methods are
corporate finance support, individual finance support, profit / loss sharing investment,
financial leasing and commodity against document financing.
It is of importance to primarily mention about the generally-accepted interest-free
banking and Islamic banking concepts while defining the concept of Participatory Banking.
According to this, a dominant opinion, which considers money not as a means of
accumulating value, but as a medium of exchange and measure of value, prevails within the
frame of the principles put forward by Islam. In this context, banking management that tries to
make profit through trade and production-oriented methods based on profit-loss sharing
principle instead of interest phenomenon and holds economic development in parallel with
social development can be defined as Interest-free Banking or Islamic Banking. Participatory
Banks, with its name found in the legislation, are institutions that operate in financial sector,
finance the real economy and offer banking services. Participatory Banks share the resulting
profit or loss from funds that they collect with savings holders after utilizing these in trade,
manufacturing and industry within the principles of interest-free banking.3
The operating principles of the Participatory banks consist of matters such as
adherence to Islamic rules, acceptance of money as a value measure and medium of exchange,

3 ESKC, Mustafa Mrsel, 2007

2
Interest-free principle and engagement in production activities.4
Operating in financial sector and financing the real economy, Participatory banks
provide raw materials, real estate, machinery and equipment needed in commerce and
industry in accordance with the principles of interest-free banking. In addition to this, they
also offer other banking services that may be needed to their clients. The general purpose of
Participatory banking is to develop the economy according to principles adopted by Islam.
In this study, reasons behind Participatory bank clients preference of Participatory
banks will be analyzed. A survey was prepared with the aim of obtaining clients reasons to
prefer these banks. The reasons behind clients preference of these banks can be susceptibility
towards religious sensitivities (interest sensitivity), earning higher income, quality of banking
services, environmental factors, family, relatives, social-political, availability or unavailability
in their region. We will evaluate our survey questions in this study regarding the reasons
behind Participatory bank clients preference of these banks in the context of religious
sensitivities (sensitivity towards interest), higher income and quality of banking service.
A survey is intended to be administered to the clients of Participatory banks in this
study. Our aim in this study is to evaluate approaches of Participatory bank clients towards the
values of the bank. While attempting to reach at reasons behind clients preference of
Participatory banks, we hoped to find out whether clients like to utilize their savings in an
interest-free system which is Participatory banks reason of existence, in other words, they
prefer to stay away from interest that is prohibited by religion, or they choose them for profit
that Participatory banks distribute as a result of profit-loss sharing, in other words, whether
they prefer them for getting higher profit or for the quality of the banking services that
Participatory banks provide. In order to evaluate the results that would be reached by the
answers to these questions, we conducted a survey at least to 170 clients particularly at the
center of Istanbul. We tried to reach their approaches by asking various questions to clients in
the survey.
Our study, which we conducted with the aim of determining reasons behind
Participatory bank clients preference of Participatory banks and which we hoped somewhat
to shed light on the preference of interest-free banking sector in banking sector, consists of the
following chapters:

In chapter two, verses on the prohibition of interest in Islam as well as the alternative

4 ozsoy, ismail, Participatory Banking,1997, p.24

3
solution methods and their development have been mentioned; Services offered by Islamic
banks, basic principles that they adhere to in their activities, methods they use and services
they offer have been included; interest issue, which is the main factor in the emergence of
these institutions, have been discussed in the context of religion and economy.
In chapter three, the development of religious and economic reasons which paved the
way for the birth of interest-free banks in Turkey and their activities, legal basis, services that
they offer on their own unique ways, other banking services they perform and other issues
have been cited. Data on the total number of clients and the number of branches of
Participatory banks have been given in this chapter.
In chapter four, we tried to determine reasons behind Participatory bank clients
preference of Participatory banks and their approaches through a survey. We grouped the
reasons of clients in working with Participatory banks as such: religious sensitivity
(sensitivity towards interest), obtaining higher income, and the quality of banking services.
We attempted to identify whether clients prefer Participatory banks because they operate on
interest-free basis or obtain higher income and their approach while they prefer these
institutions.

Literature Review

Associated with participation bank in Turkey the literature there are a limited number
of survey. In different countries of the world interest free islamic factors affecting banks
preference studies were conducted to determined. Some of these studies ara as folllow:

Bilir, Aybegm(2010),
A survey conducted in the province of Hatay in Turkey in the banking slm studied
the factors affecting the preference. According to the results of the study, participants in order
of importance Customer confidence, building the modern formation, Sensitivity size, staff
size of interest with the client, service delivery, depending on factors such as the banks prefer
to slm.

zsoy,smail, others,(2012),
In Bolu province in Turkey, consisting of 217 people by applying the survey data were

4
collected on the sample mass. According to our findings, participants' preferences most
important factors affecting participation banks "product / service quality" is. After these
factors, respectively, "Image and Confidence", "Staff Quality" and "religious / environmental
motivations"factorcomesfrom.

Tarn, Ahmet Cneyt, (2007), Ankara province, 384 people don't prefer customers with survey
work participation by these institutions and beliefs reasons banks they prefer, and therefore
more satisfying this way their participation banks by offering explanations of religious
principles having to pay to get the sensitivity required.

Karakaya ve Karamustafa (2004),

Participation banks in Turkey participation of the customer to identify the factors that
determine the choice of bank, financial instruments in order to measure the degree of
utilization and customer satisfaction have made a survey. The factors that determine
customers' preferences banks are listed as follows; slm why the institution's image, the
effect is designated as family and friends

.
Gerrard ve Cunningham (1997),
Singapore, according to a survey conducted with 190 people surveyed Singaporean
Muslims 62.1% return does not provide sufficient or competitive level, even if they keep their
funds in banks will continue to slm reported. This slm the banks of the respondents said
they prefer religious reasons was interpreted. Fast and efficient banking services and privacy
preferences banks other factors are identified as the most effective.

Chong and Liu (january 2008), A unique of islamic banking, in theory, is its profit
and loss sharing paradim. In islamic economics, the lender should bear the risk of the
venture with the borrower because it is deemed that neither the borrower nor lender is in
control of the success or failure of a venture.

Chapra (2000), Is it necessary to have slamic economics, Islamic economics had

been developing gradually as an interdisiplinary subject in keeping with the islamic
worldwide in the writing of Quran commentators, jurist, historian, and social, political, and

5
moral philosophers.
Myers, David, (1993), The literature on the determinants of human well- being has
been growing rapidly. For survey of this literature...

1.1 Aim and Significance of the Study

Prohibition of interest in Islamic religion caused Muslims to stay away from interest-
bearing financial systems for many years. On the other hand, the absence of alternative
institutions to conventional banks caused savings of people to shift to distant places other than
financial system. Accordingly, inclination of people towards areas that do not contribute to the
production such as gold, foreign exchange and real estate, in a sense, rendered their savings to
remain inactive. There was a need for financial institutions that operate on interest-free basis
and would attract savings in the hands of people into the economy. In parallel to this, financial
intuitions, which provide additional resources needed to the capital for the development of the
country, began to be established in Turkey as well as in other Islamic countries.5
There are large quantities of funds in our country that remain inactive or cannot be
transferred into production discovered in the researchers conducted on finance and banking
system. One of the main reasons for the inability to bring these funds into the economy of the
country is highlighted to be the fund holders desire to stay away from tools that are based on
interest. Participatory Banks assume a role that is supportive of especially real sector,
preventive of unrecorded economy and augmenter of employment and competitiveness with
methods distinctive to themselves in filling this gap by interest-free financial instruments and
in incorporating these inactive funds in the finance and banking system.6
This survey was prepared with the aim of exploring Participatory Banks which
emerged as an alternative to interest-based system and whose numbers are increasing in
Turkey day by day in parallel with determining the preference of their growing number of
clients in working with these banks and it was intended to contribute to the literature as an
academic study.
In accordance with this purpose, a target population was taken from the clients of
Participatory bank located at three different regions of Istanbul province. Data were collected
by applying survey technique to the target population. Factor analysis was administered to the
date collected. The results of this analysis were presented after the literature review.

5 zsoy,smail,2007,s.29
6 ESKC, Mustafa Mrsel, 2007

6
1.2 Method of the Study
The purpose of this study is to determine the approaches of clients that prefer
Participatory banks to the values of these banks. What are clients first reasons of preference
in working with these banks? Do clients really prefer these banks because of their purpose of
establishment, namely, working with an interest-free system or do they prefer them for other
banking services? Survey was administered to the clients of Participatory banks in order to
determine this. Target population was selected among the clients of Participatory banks
located at three different districts of Istanbul province in Turkey. Convenience sampling
method, which is not one of the random sampling methods, was used as a sampling method.
The application of survey was carried out by us in order to execute our survey study in a
faster and more reliable way. The survey consists of two stages. In the first stage,
demographic characteristics of the clients were determined. In the second stage, statements
presented on five-point Likert scale (from 1. Strongly disagree to 5. Strongly agree) can be
found. As a result, the statistical analysis of the data obtained through surveys were evaluated
and analyzed in SPSS statistical package program.

7
1.3 Scope and Limitations of the Study

The target population of the study consists of clients of the Participatory banks that
use products of these banks and work with them in three different regions, such as
Bykekmece, Bahelievler and Baakehir, in Istanbul province during the month of May
in 2013 in Turkey. Since it is difficult to reach all clients that use all Participatory banks in
Turkey and especially live in Istanbul, a sampling group from three districts that have the
ability to represent the target population was selected.
Albaraka Turk, Banka Asya, Kuveyt Trk and Trkiye Finance Participatory Banks,
operating in these regions of Istanbul province, were included in the study. Survey was
administrated to the clients within the branch after meeting with the Branch officials and
receiving their consent. Survey was conducted to the students of Fatih University because it
works with Bank Asya. The implementation period of the survey lasted for a month.

8
 CHAPTER TWO
2.1 INTEREST

In classical economic theory, Interest where the general sense is charged with the use of
borrowed money. The interest of the concept of Islamic literature, equivalent to riba. Riba is
an Arabic word. Riba in the dictionary meaning of excess and increase income.(usually
translated as interest or usury but having a literal meaning of excess or increase..)
According to the religion slm are two types of interest:

There are two kinds of interest: (1) Interest on debt or loan, (2) Interest on exchange
transactions. Interest on debt or loan appears in loans as a percentage or as a fixed payment
added to the principal. It is the most widespread kind of interest. Interest of debt unavoidably
causes an injustice either to the borrower or to the lender since it is based on an uncertain
outcome. When a borrower does not earn enough to pay the fixed rate, interest on debt causes
7
harm to the borrower; then, it can be described as an "unearned income."

8
When a borrower earns unexpectedly high income thanks to a loan, interest on debt
causes harm this time to the lender; then, and turns that earning into "unequally distributed
income." Hence, there is no difference between a 1 percent interest rate or 100 percent rate of
interest. This is because any high interest rate may be an injustice to a borrower in
unfavorable economic conditions and any low rate, which is mostly favored may be an
injustice for lenders. As for the interest on exchange, as mentioned above, it occurs on the
exchange of goods and the exchange of currencies. The interest on exchange is well defined
in summary by Prophet Muhammad's saying. This concise saying is so comprehensive that it
even includes the "interest on debt" that occurs on loans in addition to the interest on
exchange transactions.

7 Ozsoy, smail, Why did the Vatican suggest Islamic finance?,2013

8 Ozsoy, smail, Why did the Vatican suggest Islamic finance?,2013
2.2PROHBTED INTEREST BY ISLAM

In Islamic religion, Interest both hadiths and verses of the Quran definitively prohibited and
forbidden are counted.
Interest a few hadith stating that the ban is as follow;
The Prophet (pbuh) said,
"Sell gold for gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and
salt by salt, like for like and equal for equal, payment being made hand to hand. If the
commodities differ, then you may sell as you wish provided that the exchange is hand to
hand. "9
With this concise saying, the Prophet Muhammad expresses exactly 80 kinds of exchanges,
which are the exchange of a commodity for another commodity or a currency for another
currency on credit or on the spot and for matching or different quantities. According to that
Prophetic saying, out of these 80 kinds of exchanges, 46 sales bear a religiously forbidden
interest. Interest is a value that is transferred from one party to another without a matching
value given back. Interest is sometimes unearned income in a zero sum game and
sometimes unequally distributed income in a positive sum game. Thus, interest is, in any
case, a wrong done to one of the two parties in loans or exchanges. That is why it is
condemned by all religions and criticized by most philosophers.10

Interest is unearned an income. People with their consent even if interest money it
does not eliminate its haram. Because, people have been willing to due to necessity.
Interest is fixed by the forbitten t of the verse of the Quran. Interest is forbidden, indicating
that the verse of the Quran in words as follows:

The following is stated in the Quran:

O ye who believe! Devour not usury, doubled and multiplied; but fear Allah. that ye
may (really) prosper. And fear the Fire, which is repaired for those who reject Faith: And obey

9Mslim, musakat:82
10 Ozsoy, smail, Why did the Vatican suggest Islamic finance?,2013

10
Allah and the Messenger; that ye may obtain mercy. 11

Almighty God, apparently the property omissions, whether, after explaining the virtue of
charity in truth increases, rising property appearing as though in truth the ugliness of interest
to specify which detract says:

Allah will deprive usury of all blessing, but will give increase for deeds of charity:
For He loveth not any ungrateful and wicked. 12

Quran says;
Those who devour usury will not stand except as stand one whom the Satan by his
touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath
permitted trade and forbidden usury. Those who after receiving direction from their Lord,
desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat
(the offense) are companions of the Fire: They will abide therein (for ever).13
Those who believe, and do deeds of righteousness, and establish regular prayers and
regular charity, will have their reward with their Lord: On them shall be no fear, nor shall they
grieve.14

O ye who believe! Fear Allah, and give up what remains of your demand for usury, if
ye are indeed believers. 15

If ye do it not, take notice of war from Allah and His Messenger. But if ye repent, ye
shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly. 16

the debtor is in a difficulty, grant him time till it is easy for him to repay. But if ye
remit it by way of charity, that is best for you if ye only knew. 17

11 Ali-imran suresi(130-132)
12 Bakara, 276
13 Bakra, 275
14 Bakra, 277
15 Bakra, 278
16 Bakra, 279
17 Bakra, 280

11
 CHAPTER THREE

3.1 ISLAMIC BANKING (Participatory Banking ) IN THEORY

3.1.1. Participatory Bank and Its Definition

Participatory bank is a banking model which operates on interest-free principles, collects
funds on the basis of profit-loss sharing and utilizes funds through partnership and financial
leasing methods.
Interest-free banking is known as Islamic banking across the globe. In addition, interest-
free banking term is a different expression of Participatory banking carrying a same meaning.
The three terms, interest-free banking, Islamic banking and Participatory banking, are used to
express the same system.
Participatory word in its name is used to refer to banking type as well as to a bank that
operates on profit and loss Participatory principle. Banks, which are included in the system,
utilize the funds they collect from savings holders in commerce and industry within the
principles of interest-free financing principles and share the resulting profit or loss with the
savings holders.
All Participatory banks operating in Turkey must become a member of Participatory Banks
Association of Turkey (TKKB). 18 Participatory banks in Turkey are Bank Asya, Turkiye
Finance, Kuveyt Turk and Albaraka Turk banks.
A segment of the population in Turkey as well as in the world stays away from interest-based
return. Therefore, funds that are not deposited in conventional banks remain inactive. This is a
loss both in terms of the overall economy and savings holders. Participatory Banks have been
established, as an innovation in the financial sector, with the aim of bringing funds that do not
go to the conventional banks into the economy and assisting savings holders to safely store
and utilize their funds. Today, some of the leading banks and financial institutions of the U.S.
and Europe formed special units compatible with interest-free finance system in order to
operate in this area after realizing that financial system that Participatory banks apply
provides an answer to a real need.
Participatory banks are institutions that complement and develop the Turkish financial
system. They finance the real sector. Participatory banks assign all of their available resources

18 http://tr.wikipedia.org/wiki/Kat%C4%B1l%C4%B1m_bankac%C4%B1l%C4%B1%C4%9F%C4%B1
to the financing of the real sector through production support (buying in cash selling on
credit), financial leasing and profit-loss partnership on project basis. International standards
and practices as well as objective criteria are used in selection of institutions that are allowed
to use the funds. Participatory banks directly finance production and investment by allowing
the funds that they collect to be used in the procurement of industrialists and traders needs
such as raw material, semi-finished or finished goods and investment goods. They do not
engage in any speculative activities that disrupt economic and financial stability. They also
provide financial support to small and medium-sized enterprises (KOBI). Participatory banks,
at the same time, also provide an invaluable contribution to the increase in production and
employment by procuring investment goods under suitable terms through financial leasing
method to many small and medium-sized enterprises that fail to get enough funding from the
financial system
Participatory banks are also antidotes for the unrecorded economy. They perform a
remarkable function in recording the unrecorded economy that has been a major problem in
Turkey through financial techniques they employ. Not performing cash financing,
Participatory banks contribute to the expansion of recorded economy by purchasing and
selling commodities that industrialists and traders require on the basis of invoice. Thus, on the
one hand, unrecorded economy is restricted and states tax revenue is increased on the other.
It is also possible to define Participatory banks as institutions that are established with
the aim of involving the savings of savings holders who do not deposit their savings because
they do not want to receive interest in exchange of letting their savings used, but rather
utilizing them in the form of foreign exchange, building and land in the production process
and operate on the concept of profit-loss sharing.
Participatory banks significantly contribute to both increasing the amount of savings
and utilizing these funds in the economy in a more efficient way (together with all kinds of
banking services they offer) by bringing the amounts of savings that banks failed to involve
directly in money and capital markets.19
The overall objective of interest-free banking is to develop economy according to the
accepted economic principles in Islam.20 While ensuring the effective Participatory of the
masses that do not particularly adopt interest in the formation of capital, there is a need to

19 zulucan and Deran, 2009,p.89

20 Omar and Haq, 1996:26

13
prepare the required environment in order to achieve this formation.21
It is an important service for economic development to collect small savings and
channel them to the economy. However, the function of banks in this service is to ensure only
the circulation of money. But it does not make any sense for the economy if money moves
alone.
Money is like a locomotive. Locomotives prove only useful to the extent that they pull
wagons that they carry behind; the movement of the locomotive alone does not have any
meaning.22
Participatory banks essentially differ from other banks in Private Checking account
and Participatory account under the main activity of collecting funds, in Corporate Finance
Support, Personal Finance Support, Non-Cash Loans, Financial Leasing, Joint-investments
and profit-loss sharing services under the main activity of utilizing funds together with
operations of utilizing the collected funds and profit sharing. In addition, they also provide all
other interest-free banking services to their clients. To name a few; granting letter of
guarantee, issuing a check-book, cashing checks and bonds, exchange, notification and
confirmation of export letters of credit, all foreign exchange services, issuing travelers checks,
foreign currency trading operations, domestic-international money order and transfer
operations, issuing, drawing and accepting credit cards, checks, bonds, dividend certificate,
bill of landing, etc.23
Interest-free banking services of Participatory banks can be examined into two main
categories such as fund collection and fund utilization methods.

3.2 REASONS FOR THE FOUNDATION OF PARTICIPATORY BANKS

3.2.1 Reasons for the Emergence of Participatory Banks, Religious and Economic
Reasons
Since it is forbidden in Islam, Muslim people have kept their distance from interest.
Thus, savings in the hands of people, as seen in the case of Turkey, moved to either gold and
foreign exchange or real estate and remained in the areas outside of economy. The country has
been deprived of the required capital for the economic development. Ultimately, Islamic

21 Hayreddin, 2000,p.128

22 zsoy 2009,p.15

23 www.tkbb.org.tr

14
countries have fallen behind and have been forced to meet their needs for capital through
foreign debt.
Participatory banks are a legislative regulation designed to conduct banking in
accordance with Islamic principles. They emerged from an economic and social need; they
aim to mobilize inactive savings that remained outside of financial sector and estimated to be
over $ 50 billion to the Turkish economy. Participatory banks finance the real sector; they
assign all of their usable resources for financing of the real sector through their methods such
as Production Support (Buying in Cash Selling on Credit), Financial Leasing and
Profit/Loss Sharing on Project basis. International standards and practices as well as objective
criteria are used in selection of institutions that are allowed to use the funds. Participatory
banks directly finance production and investment by allowing the funds that they collect to be
used in the procurement of industrialists and traders needs such as raw material, semi-
finished or finished goods and investment goods. Participatory banks significantly contribute
to both increasing the amount of savings and utilizing these funds in the economy in a more
efficient way (together with all kinds of banking services they offer) by bringing the amounts
of savings that banks failed to involve directly in money and capital markets.24
The general purpose of Participatory banking is to develop the economy according to
principles adopted by Islam.25 While ensuring the effective Participatory of the masses that
do not particularly adopt interest in the formation of capital, there is a need to prepare the
required environment in order to achieve this formation.26
It is an important service for economic development to collect small savings and
channel them to the economy. However, the function of banks in this service is to ensure only
the circulation of money. But it does not make any sense for the economy if money moves
alone. Money is like a locomotive. Locomotives prove only useful to the extent that they pull
wagons that they carry behind; the movement of the locomotive alone does not have any
meaning.27
Forbidden by Islamic religion, interest caused investors with interest sensitivity to stay
away from this phenomenon. Absence of alternative institutions to traditional banks also kept
investors away from these banks. This case has led the savings of these sections to shift to
non-banking ways such as gold, foreign exchange and real estate. In other words, this caused

24 zulucan and Deran, 2009,p.89

25 Omar and Haq, 1996,p.26
26 Hayreddin, 2000,p.128
27 zsoy 2009,p.15

15
them to remain inactive in a sense by staying out of financial markets when they turned to
areas that do not contribute to the production. Accordingly, operating on interest-free basis
and providing additional funds to the capital needed for the development of the country in this
way by attracting savings of the people into the economy, financial institutions have been
established both in Turkey and other Islamic countries.28
The main objectives of economic activities can be found when referred to Islamic
sources if we talk about theory of Participatory banking. These are ensuring individuals
thinking, believing and practicing his/her belief by meeting his/her natural needs, providing
societys needs for justice, trust and welfare within measures, preventing attacks of other
communities living in the world both on one another and against Muslims, avoiding injustice
and obtaining the chance to announce to humanity with the power it obtained. In this context,
it will be possible to mention about a unique Islamic economy with their definitions,
principles and objectives.29

3.3 FUND COLLECTION AND LOANING METHODS OF

PARTICIPATORY BANKS

3.3.1 Fund Collection Methods

3.3.1.1 Private Checking Accounts;

Private Checking Accounts are accounts that can be opened in the forms of Turkish
Lira and foreign currency, in exchange of a written Private checking account book
addressed to holder, partially or fully withdrawn when desired and that bring no income to the
account holder in exchange and promise only the payment of capital.

3.3.1.2 Participation Accounts;

Participatory Accounts are accounts that can be opened in the forms of Turkish Lira
and foreign currency in exchange of a written Profit and Loss Participatory account book
addressed to holder and collected in certain terms; distribute the resulting profit or loss shares

28 zsoy, 1997,p.50
29 karaman, hayrettin, 1996

16
emerging from the operation of funds within the fund utilization activities, do not guarantee
any return under previously determined interest, profit and other designation in exchange, and
are formed by funds which do not guarantee the exact return of the capital. Participatory Fund,
provided by Participatory Banks in exchange of money deposited by the account holder, are
used by investors in order to be used in projects by these institutions with the rate of profit
occurring within the market conditions and in a certain period of time. The return obtained at
the end of term, namely profit, is distributed, for example, at rate of 80% to the savings holder
and 20% to the institution.

3.3.2 Fund Loaning Methods

3.3.2.1 Corporate Finance Support (Usury)

Corporate Finance Support is a process of paying all kinds of commodities, real estate,
and service charges that businesses need to the vendor by Participatory bank on behalf of the
business and debiting the business in exchange for this within the contractual agreement to be
concluded between Participatory banks and business that will use the funds. It is necessary to
take something as security in exchange of the funds to be used and to save a copy of the
document related to transaction by the Participatory bank.30 Business determines the required
commodity by itself, negotiates the price with the vendor of the goods and contacts to the
Participatory bank. Participatory bank agrees on the terms of selling the aforesaid good on
credit as well as on the payment terms with the business and purchases the goods by paying
the price to the vendor. Participatory bank does not take interest on the nature of the goods.
The purchased goods by the Participatory bank are transferred to the buyer over the agreed
price and the payment terms. There is not any instance of Participatory banks actually taking
the delivery of the goods.31

3.3.2.2 Individual Finance Support

Personal Finance Support is a process of paying for the goods or service charges that
the real purchasers directly purchase from the vendors for their Individual needs (Car, Real
Estate, Durable Consumer Goods etc.) to the vendor by the Participatory bank on behalf of the

30 Banking Regulation and Supervision Agency, 2001:19

31 Karapnar, 2003:39

17
purchaser and debiting the purchaser to the Participatory bank in exchange. This process may
show resemblance to personal loans in commercial banks. But, the main difference here is the
payment of the financing price to the vendor of the goods financed in order to ensure the
reality of the financed transaction. It cannot be paid to the purchaser owing to the fact that
Participatory Banks cannot extend cash loans.

3.3.2.3 Financial Leasing (Islamic Leasing)

It is the application of the method which is frequently used by the Participatory banks
and is one of the interest-free financial techniques known as leasing (icara) in our country.
This method ensures the transfer of the right of usage to the tenant in exchange of the
rents determined letting the ownership of an investment goods remain in the leasing company
and passing of this right to the tenant over the amount specified in the agreement. It plays an
important role in increasing the productivity and profitability by letting businesses and
institutions use investment goods by leasing instead of purchasing and allowing them to
utilize their working capital in meeting with their other needs.
.
3.3.2.4 Profit-Loss Sharing
It is a process of letting real and legal persons to utilize funds through profit and loss
Participatory that will arise from all or certain activities or from trading of a particular
commodity. Participatory bank and real and legal persons that will be using funds are required
to sign Profit-Loss Sharing Investment Agreement for letting funds to be used through
profit-loss sharing investment method. It is prepared in accordance with the agreement that
regulates the legal and financial relationship, also available in regulations, between the real
and legal persons that Participatory banks allocated funds to within the periods of time
specified in the agreement and limited in numbers in order to share profit and loss together
with the Participatory bank. Participatory bank share the profit and loss of the real and legal
persons that it allows funds to be used at the rates specified in the contract. Share and
guaranties that Participatory bank will be getting from profit and loss are clearly stated in the
profit-loss sharing investment agreement. No provisions appear in this agreement regarding a
predetermined amount of profit to be guaranteed to the Participatory bank independent of the
profitability of the project.32 Persons or businesses that shoulder the task are completely free
in profit and loss sharing partnership as well as in fund utilization method. Therefore, if
persons or business that use funds do not have the necessary experience on the business that

32 Banking Regulation and Supervision Agency, 2001,p.20

18
they will carry out, then the risk of losing is extremely high. In addition, it is quite difficult to
follow the course of the business.
This method does not carry a great weight in fund utilization for this reason. Because,
the recompensation of the loss to be generated entirely by the Participatory bank renders this
method to be less appealing in funds utilization. However, it can be widely implemented in
the areas that are small scale and require a specific expertise. Obtaining a fixed profit cannot
be proposed in the partnership agreement. Profit-sharing rates are predetermined.
Participatory bank may ask for a report on the progress of the business. It may take over the
management when setbacks come to appear.33
Non-cash Finance: Participatory banks also provide non-cash loans service to their
clients along with cash loans. These services are34: Letters of Guarantee, Aval Acceptance
Credits and External Guaranties. Participatory banks also perform services such as providing
external guarantee in favor of their clients, mediating foreign trade transactions of their clients
and supply accredit in this context.35
Other Interest-free Banking Services: Participatory Banks can perform all kinds of interest-
free banking services. These activities are:
Issuing a check book in order to be checked on private checking accounts,
Issuing credit cards,
Issue travelers checks,
Conduct foreign exchange trading on the spot,
Carry out domestic and international money order and transfer services,
Perform check and bond collection operations,
Make bill payments,
Provide foreign exchange services,
Deliver safe-deposit box services,
Provide insurance-brokerage services, and so on.

Participatory banks carry out these services over the real value not making much of a burden
and without exploiting their clients. The priority and the most important thing for the bank are
to facilitate works of their existing clients and to bring in new clients to the bank.36

33 Grdoan,1995, p. 170

34 Kkkocaolu, 2005, p.20

35 Kkkocaolu, 2005, p.21
36 Islamic Banks,1982, p.57

19
3.4 ACTIVITIES OF PARTICIPATORY BANKS

Participatory banks are institutions that complement and develop Turkish financial
system. They finance the real sector. Participatory banks assign all of their available resources
to the financing of the real sector through production support (buying in cash selling on
credit), financial leasing and profit-loss partnership on project basis. International standards
and practices as well as objective criteria are used in selection of institutions that are allowed
to use the funds. Participatory banks directly finance production and investment by allowing
the funds that they collect to be used in the procurement of industrialists and traders needs
such as raw material, semi-finished or finished goods and investment goods. They do not
engage in any speculative activities that disrupt economic and financial stability. They also
provide financial support to small and medium-sized enterprises (KOBI). Participatory banks,
at the same time, also provide an invaluable contribution to the increase in production and
employment by procuring investment goods under suitable terms through financial leasing
method to many small and medium-sized enterprises that fail to get enough funding from the
financial system.
Participatory banks are also antidotes for the unrecorded economy. They perform a
remarkable function in recording the unrecorded economy that has been a major problem in
Turkey through financial techniques they employ. Not performing cash financing,
Participatory banks contribute to the expansion of recorded economy by purchasing and
selling commodities that industrialists and traders require on the basis of invoice. Thus, on the
one hand, unrecorded economy is restricted and states tax revenue is increased on the other.

20
 CHAPTER FOUR

4.1 REASONS FOR PARTICPATORY BANK CLIENTS TO PREFER

PARTICIPATORY BANKS: QUESTIONNAIRE APPLICATION
4.1.1 Preparation of Questionnaire
In preparing the Questionnaire, the questions which were thought to bore the
participants were avoid due to the fact that they are likely to prevent us from
obtaining the data we aim to achieve. However, similar questions were aimed at crass
checking the clients whether they provide us with consistent responses. Moreover,
high attention is paid for not including personal information (such as information on
telephone number, and identity) or any questions that might be perceived as private.
Hence, appropriate conditions were prepared in order for participants to express their
real thoughts freely. In preparing the form, questions were organized in a way to
have participants respond them without feeling any difficulty or boredom.
Furthermore, participants were avoided to be asked guiding questions and all
possible situations were provided with the choices. Questionnaires were not applied
to those who are not clients or have no connections with participatory banks. There
would not be any significance of asking questions to clients who do not work with
participatory banks.
The first questions are those that are aimed at determining historiographic
features related to age, gender, education and which bank they work with. The
succeeding questions targeted designating general information on why and at what
scale participatory banks are preferred by the participants.

4.1.2 Implementation of the Questionnaire

Questionnaire applications can be conducted through various methods. It can
be carried out through e-mail or post as well as it has been observed that current
communication device internet has become increasingly widespread in survey
applications. Finally, pollsters can also apply questionnaires. These methods have
various superiorities and disadvantages from one another.
The survey form for the research was applied to the participants one-to-one
by the survey conductor. Participatory banks namely Albaraka Trk, Banka Asya,
Kuveyt Trk and Trkiye Finans conducting activities in Istanbul were taken within
the scope of the research. Branch authorities of these banks were met; accordingly
questionnaires were applied to the clients in the banks. Fatih University students also
took part in the questionnaires on account of the fact that the university works with
Bank Asya. The period of the questionnaire applications continued for a month

Main Population: It is the entirety of the group of units specified according

to the aims designated in the research project. Clients of Albaraka, Kuveyt Trk,
Trkiye Finans and Banka Asya branches in three different neighborhoods of
Istanbul namely Mecidiyeky, Bykekmece and Bahelievler constitute the main
population of the research.

Sample: In researches it is not usually possible to study the entire population

completely. Factors like time and cost prevent researches that aim at studying the
entire population. In order to get rid of these limitations, the study is conducted with
a group selected from the main population, which is called sample.

Sampling: Owing to the fact that within a single research it is neither always
possible nor is necessary to cover all the samples that are to be used for the data; it is
quite practical to select a representative group and thus obtain data from this group.
The groups which are selected and formed with people who represent the main
population is called sample and this work of grouping is called sampling. It is
sampling for a flour mill to analyze only a handful of wheat from a wheat truck that
the mill is going to buy; or it is a sampling for a person to drink just a sip of tea in
order to taste the sugar of a cup of tea. A good sample selected in this way is assumed
to reflect all the characteristics of the main population. The main population is
known through the sampling and majority of potential setbacks likely to be created
with the analyses of the main population would be prevented to a great extend. In our
study on participatory banks, instead of having a research on the entire population,

22
we will compile data from this sample which will enlighten our research.

23
4.2 Reasons for the Clients of Participatory Banks to Prefer
Participatory Banks: The case of Istanbul

4.2.1 Population and Sampling

The population of this study is consisted of clients who work with and use
products of participatory banks in three neighborhoods of Istanbul city of Turkey
namely Bykekmece, Bahelievler and Baakehir. On account of the fact that it is
highly difficult to access all the clients of all participatory banks in Turkey especially
those in Istanbul, a sample class was formed from three sample neighborhoods with
the attribution of representing the population.
Sample population has been selected among the clients of participatory banks
in three different neighborhoods of Istanbul. Convenience sampling method, one of
the non random sampling methods, has been employed as sampling method. In order
to carry out our survey study faster and more reliable way, the survey application was
applied by us.
Followings are the demographic features of participants that consist the
sampling:

Client type: 63 % of the survey participants are Bank Asya clients, 25 % are
clients of Trkiye Finans, 49 % are clients of Kuveyt Trk and 32 % are clients of
Albaraka Trk.
Age: 141 of the participants (approximately 82.9 %) are between the ages 21-
35; and 28 participants (almost 16.5 %) are at the age of 35 and above.
Gender: Among participants 114 are men (approximately 67.1 %); whereas
56 are women (about 32.9 %).
Educational Level: Among participants, 22 (aproximately 12.9 %) are
primary school graduates; 30 (aproximately 17.6 %) are high school graduates; 81
(aproximately 47.6 %) are undergraduates; 27 (aproximately 15.9 %) are masters
course graduates; and 9 (aproximately 5.3 %) are doctoral degree graduates.
Income Status: 32 of the participants (approximately 18.8 %) have incomes

24
between TL 1000-1500; 68 (approximately 40 %) have TL 1500-2000; 50
(approximately 29.4 %) have TL 2000-2500; 12 (approximately 7.1 %) have TL
2500-3000; and 7 (approximately 4.1 %) have TL 3000 and above.

4.2.2. Data Collection and Analyses

Questionnaire technique was employed in the research as a method of data
collection. There are 30 questions in the questionnaire for the clients. These 30
questions have attributions of a scale that question the reasons why participatory
banks are preferred in Turkey. The participants were requested to show their level of
participation on an ordinal scale (1=strongly disagree; 2=disagree; 3=I have no idea;
4=agree; 5=strongly agree). The 30 questions of the questionnaire which were
designed to determine why the clients prefer participatory banks were classified into
three groups. Hence, the responses of the participants were evaluated in one of these
groups, and aims of the clients as to why they work with these banks were detected.
The questionnaire application was effectuated by us in the way of
interviewing face to face after permissions were taken from the authorities of
participatory banks in three different neighborhoods of Istanbul city of Turkey. In
total, 170 people filled up questionnaires. The application was conducted in April-
May months of the year 2013. In addition, the applications were carried out at
various times of every work day. The questionnaire conductor gave information
about the aim and scope of the participants and explained the questions which were
difficult to conceive by the participants. Thus, the questionnaire was conducted
sturdily. SPSS for Windows 17,0 program was emplyed for the analyses of the
data.

25
4.3 DATA ANALYSIS

Gender, Age and Education Level Information of the Questionnaire

Participants:

Table 1.Educational Information

Educational Information
Frequency Percent Valid Cumula
Percent tive
Percent
Primary
22 12.9 13.0 13.0
school
High school 30 17.6 17.8 30.8
university 81 47.6 47.9 78.7
Valid Masters
27 15.9 16.0 94.7
Course
Doctoral
9 5.3 5.3 100.0
Degree
Total 169 99.4 100.0
Missing System 1 .6
Total 170 100.0

22 participants (approximately 12.9 %) are primary school graduates; 30 of

them (approximately 17.6 %) are high school graduates; 81 participants
(approximately 47.6 %) are undergraduates; 27 participants (approximately 15.9 %)
are masters course graduates; and 9 participants (approximately 5.3 %) are doctoral
degree graduates. Under the light of this data, it is possible to make a generalization
stating that participatory bank clients are above certain level of education and are
usually conscious clients. This is a favorable development for the participatory banks

26
due to the fact that when the clients have preference, they seek necessary information
on the participatory banks.

Table 2.Information on Age

Information on Age
Frequency Percent Valid Percent Cumulative
Percent
21-35 141 82.9 83.4 83.4
Valid 36 and above 28 16.5 16.6 100.0
Total 169 99.4 100.0
Missing System 1 .6
Total 170 100.0

Among the participants of the questionnaire, 141 (approximately 82.9 %) fall

between the age range of 21-35; and 28 (approximately 16.5 %) are 35 and above.
Keeping these results in consideration, it can be generalized that majority of the
participatory bank clients are between the age range of 21-35. Accordingly, it can be
concluded that a significant majority of the young clients of the participatory banks
was consisted by the young population.

Table 3. Gender Information

Gender Information
Frequency Percent Valid Percent Cumulative
Percent
women 56 32.9 32.9 32.9
Valid men 114 67.1 67.1 100.0
Total 170 100.0 100.0

114 questionnaire participants (approximately 67.1 %) are men while 56

(approximately 32.9 %) are women. If generalization is to be made under the light of
the data we obtained, men are in slight majority in comparison to women. Here, we
can come to a conclusion that men and women clients of the participatory banks are
almost in the same ratio.

27
 Table 4. Information on Monthly Income
Information on Monthly Income
Frequency Percent Valid Percent Cumulative
Percent
1000-1500 32 18.8 18.9 18.9
1500-2000 68 40.0 40.2 59.2
2000-2500 50 29.4 29.6 88.8
Valid
2500-3000 12 7.1 7.1 95.9
3000 ve st 7 4.1 4.1 100.0
Total 169 99.4 100.0
Missing System 1 .6
Total 170 100.0

32 of the participants (approximately 18.8 %) have incomes between TL 1000-1500;

68 (approximately 40 %) have TL 1500-2000; 50 (approximately 29.4 %) have TL
2000-2500; 12 (approximately 7.1 %) have TL 2500-3000; and 7 (approximately
4.1 %) have TL 3000 and above. Accordingly, it can be stated that an overwhelming
majority of the participatory bank clients are consisted of people who fall in middle
income class.

28
Table 5. Bank Information
Bank Information
Frequenc Percent Valid Cumulati
y Percent ve
Percent
Banka Asya 63 37.1 37.3 37.3
Turkiye
25 14.7 14.8 52.1
Finans
Valid Kuveyt
49 28.8 29.0 81.1
Trk
Albaraka 32 18.8 18.9 100.0
Total 169 99.4 100.0
Missi
System 1 .6
ng
Total 170 100.0

Among, participatory bank clients 63 % of the questionnaire participants are

Bank Asya clients, 25 % are clients of Trkiye Finans, 49 % are clients of Kuveyt
Trk and 32 % are clients of Albaraka Trk. Questionnaire participation of Bank
Asya and Trkiye Finans clients are close to each other; similarly clients of the other
two banks also show closeness. This conclusion facilitates us draw a response that
there are participators from all participatory banks and that the aim of the use of
these banks are the same.

29
 Figure 1. Banks used by Clients

Among the participants of the questionnaire, 63 participants are clients that

work with Bank Asya, 25 of them work with Trkiye Finans, 49 with Kuveyt Trk
and 32 are those that work with Albaraka Trk.

4.3.1 REASONS FOR PARTICIPATORY BANK CLIENTS TO

PREFER PARTICIPATORY BANKS

4.3.1.1 Findings and Assessment

The aim of the questionnaire is to determine the purposes of the participatory
bank clients in working with participatory banks. In the first section clients prefer to
work with these banks keeping the religious values in mind; the second part is that
the clients prefer participator banks within the frame of the quality of banking service.
The first section contains findings obtained from the questions aimed at putting the
reasons of preferences of participatory banks in order; in the first part, findings
which were attined from the scale we used were reported historigraphically. Finally,
percentages of the factors that lead participants to the use of participatory banks were
calculated in spss program by analyzing the frequencies values of the data.

30
 4.3.1.2 Sequencing Reasons of Preferring Participatory Banking
Participatory bank clients were asked 30 questions in order to determine their
purposes of working with these banks. The sequence of the expectations of the
responses of these questions is religious sensitivity of the clients (bening conscious
against interest), having a high income and quality of banking service. Questions
were grouped into these three classes. The aims of the clients to work with these
banks are determined by the responses of these 30 questions. These questions were
grouped into three classes and the responses that support each other will exactly
designate the reasons why the clients prefer these banks.
In Table 1, participants values for each reason have been analyzed in number
and percentage. Furthermore, benefitting from the general average, the reasons were
sequenced from the most significant to the least.

Table 6: The participatory banking of client answer of question

Strongly
Frequency values Strongly yes Yes None No No
Do you prefer participatory banks because they % 51.2 % 40 %1.8 %3.5 %2.9
work in interest-free system
Would you continue to work with the % 32.4 45.9 %12.4 %12.4 % %3.5
participatory banks if their profit share falls 5.3
below the interest rates of traditional banks?

The clients who would work with a % 20.6 % % 4.7 %4.7

participatory bank even if there is no branch of 58.8 %10.6
participatory banks at the place of residence

The clients who think that the participatory % 13.5 % %17.6 %15.9 %1.
banks function in accordance with Islamic rules 50.6 8

The clients who are of the opinion that % 25.9 % %15.9 %1.8
attractive finances provided by participatory 51.2) % 4.7
banks are appropriate for religious values

The clients who prefer participatory banks % 30.6 % %3.5 % 5.3

because they think that personnels of 47.1 %12.9
participatory banks have religious sensitivities.

Do you rely on participatory banks? % 12.9 % %11.2 %3.5

68.2 %3.5

Participatory banks are aware of social values % 12.4 % %9.4 %8. %5.3
and sensitivities of the clients and reflect it on 63.5 8
their service manners and applications.

31
The clients who think that they would still % 27.1 % % %10.6 % %2.4
continue working with the participatory banks 57.1 2.4
even if their Profit Share rate is below the
interest rate of Traditional Banks.

The clients who would prefer Participatory % 3.5 % %12.4 %32.9

Banks even if they do trade using your finance 13.5 %37.1
with the products forbidden by Islam

The clients who think that participatory banks % 8.8 % %18.8 %7.1
offer an approach of service that satisfies the 59.4 %28.2
Expectations of the Clients

The clients who think that participatory banks % 10 % %13.5 %4.1

offer varieties of products and services 58.8 %12.9

The clients who are of the opinion that % 7.6 % %18.8 %6.5
participatory banks employ knowledgeable and 49.4 % 17.1
skillful (qualified) personnel

The clients who think that confidence on % 25.3 % %17.6 %0.6 %2.4
participatory banks increase in Turkey 53.5

The clients are of the opinion that participatory % 21.6 % %13.5 %1.2
banks are potentials with promising future in 57.1 %6.5
respect to the management of economy and
financial growth.

The clients who prefer participatory banks due % 12.4 % %12.9 %23.5 %
to the assurances they provide for savings. 42.4 8.2

The clients who think that participatory banks % 8.8 % %7.1 %11.8
provide client service quality (fast, effective 59.4 %12.4
and mistake-free services)

The clients who prefer participatory banks upon % 8.2 % %8.8 %38.2 %1
recommendations of reliable friends and 30.6 3.5
surroundings

The clients who prefer participatory banks for % 5.9 % %14.1 %40.0 %1
their Image and Popularity of Banking 24.1 5.3.

% 3.5 % %8.2 %47.1 %7

The clients who prefer participatory banks due 23.5 .1
to their proximity to their houses or work
places

The clients who prefer participatory banks % 4.1 % %18.2 %40.6 %1

because of the social contributions they provide 26.5 0.0

32
(Donation, Scholarship and support for social
projects etc.)

The clients who think that participatory banks % 8.8 % %7.1 %12.4 %11
provide client service quality (fast, effective 59.4 .8
and mistake-free services)

The clients who are of the opinion that %5.9 % %17.1 %3.5
participatory banks are suitable and easy to 55.9 % 17.1
access

Do you prefer them due to material %16.5 % %10.6 %17.6 %7.

sensitivities? (credit card letter of guarantee) 47.6 1

Do you prefer participatory banks on account %1.2 % %18.2 %30.6 %38

of the fact that they distribute profit share 11.2 .2
higher than interest rates of traditional banks?

Note: The statements have been evaluated from 1 to 5 on the scale. (1=strongly disagree and
5=strongly agree)
The fact that we started questionnaire with the question whether clients
prefer participatory banks due to their interest-free services will also shed light to the
answers to be given for other questions. In analyzing the responses, participants
information on age, level of education and which participatory bank they use, which
were provided in the previous sections, would be significant.

33
4.3.1.2.1 Religious Sensibilities (Sensitivity against interest)

The clients who prefer participatory banks for they function in interest-free
system;

Figure 2 The clients who prefer participatory banks for they function in interest- free system

Among clients, 87 (approximately 51.2 %) responded as strongly agree

weheras 68 (approximately 40 %) responded as agree.
The ratios in the Table reflect the results obtained from the clients volunteered
to participate in the questionnaire and stated the reason why they prefer the system.
However, questionnaire was not applied to those who stated that they do not work
with the participatory banks. Keeping the number of questionnaire participants in
mind, the ratio of those who prefer the system because it is interest free is 87 %. The

34
clients who refused to take part in the questionnaire were not included in the
forestated ratio since no information was obtained from them. On account of the fact
that majority the Muslims hold their capitals in their hands and kept them distant
from the banks with interests for years, the capital was somehow prevented to be
joined into the economy. In this Table, the fact that the clients prefer participatory
banks for interest-free system means their capitals are included in the economy.
When we consider samples that provided the answer disagree, we see that 3.5 %
state that working with participatory banks is like working with traditional banks.
Although their number is quite a few, there are also clients who use these banks only
to get banking services.

The clients who prefer participatory banks because they think that the
personnel of participatory banks have religious sensitivities ;

35
Figure 3 The client who perefer participatory banks because they think that the personnel of
participatory banks have religious sensitivies

Among the clients, 52 (approximately 30.6 %) responded as strongly agree,

while 80 (approximately 47.1 %) agree. The clients consider religious sensitivity of
the participatory bank personnel as an aeffective factor in their preference of these
banks. These results indicate that the clients pay attention to the bank personnel;
however, it does not imply that all the customers are aware of this circumstance.

Participatory banks are aware of social values and sensitivities of their clients
and reflect them in their service manners and applications.

36
Figure 4 participatory banks are aware of social values and sensitivies of their clients and
reflect them in their sevices manner and applicantions

21 of the clients (approximately 12.4 %) responded as strongly agree while

108 of them (approximately 63.5 %) agreed.
Participatory banks are aware of the sensitivities of their customers and
reflect this awareness to their service manner. However, it is not possible to state a
hundred percent service manner. Here, we can infer that participatory bank clients
give priority to such manner of services when they prefer the participatory banks.

37
 Investment capacities of entrepreneurs sensitive to interest increase with the
facilities of participatory banks;

Figure 5 Investment capacities of entrepreneurs sensitive to interest increase with the

facilities of participatory banks

Among clients, 18 (approximately 10.6 %) responded as strongly agree

whereas 98 (approximately 57.4 %) agreed. The entrepreneurs which have capitals
increase their investment opportunities through these banks. The clients are of the
opinion that entrepreneurs enlarge their investment opportunities through these banks.

38
 The clients who would continue to work with the participatory banks even if
their profit share falls below the interests of traditional banks;

Figure 6 The clients who would continu to work with the participatory banks even if their profit
share falls below the interest of traditional banks55 of the clients (approximately 32.4 %)
replied as strongly agree, and 78 of them (approximately 45.9 %) responded as agree.

When the data in the Table above is considered, lower profit share distributed
by the participatory banks than interests of traditional banks does not pose an
obstacle for the clients in keeping on working with participatory banks. According to
the table above, sensitivity against interest is the first reason why the clients prefer
participatory banks.

39
 For savings, participatory banks are approptriate for religious sensitivities;

Figure 7 For saving, participatory banks are appropriate for religious sensitivies

To the question whether the participator banks provide any assurance for
savings, 52 (approximately 30 %) responded as strongly agree while 89
(approximately 52,4 %) of the clients responded as agree. Although most of the
clients think that the participatory banks provide assurances for their investments,
there are also clients who think that they do not provide any assurances. That fact
that these banks offer assurances for the savings of the clients is seen as a reason for
the preference of the participatory banks.

40
 Attractive finances of the participatory banks are in line with religious values;

Figure 8 Attractive finance of the participatory banks are in line with religous values

44 of the clients (approximately 25.9 %) stated that they strongly agree while
87 (approximately 51.2 %) responded as agree. Majority of the clients are of the
opinion that participatory banks are in line with religious values and that when
clients prefer the finances of these banks, they find appropriateness to religious
values is a reason for preference.

41
 Complete appropriateness of Participatory Banks to Islamic rules;

Figure 9 Complete appropriataness of participatory Banks to Islamic rules

Among the clients, 23 (approximately 13.5 %) responded as strongly agree,

and 86 (approximately 50.6 %) replied as agree. Most of the participants who work
with the participatory banks think that these banks carry out their activities in
conformity with Islamic rules. The fact that there is a huge difference between the
ratios of the clients who responded as strongly agree and agree shows that the clients
do not state certainty in respect to conformity of these banks to Islamic rules. There
are also clients who disagree, which implies that there are participatory bank clients
who do not think that these banks are in complete conformity with Islamic rules.

42
 Would you still work with participatory banks if there was no branch of
participatory banks in your neighborhood?

Figure 10 Wolud you still work with participatory banks if there was no branch of
participatory banks in your neighborhood

35 of the clients (approximately 20.6 %) responded the question above as

strongly agree while 100 of them (approximately 58.8 %) responded as agree. The
fact that most of the clients are of the opinion that they would continue working with
these banks even if they had no branches in their neighborhoods shows that the
clients gives most priority to the sensitivity of interest. The graphic illustrates a
response in line with these answers.

43
 The clients who would still prefer the participatory banks if the interest
rates of the traditional banks were the same as the profit share rate of the
participatory banks;

Figure 11 The clients who wolud still work with the Participatory Banks even if they conduct
trade with the products prohibited by islam

Among the clients that participated the questionnaire, 46 (approximately

27.1 %) strongly agreed whereas 97 (approximately 57.1 %) agreed.
Average common responses show that the clients were consistent and
conscious while answering the questionnaire. Moreover, it supports the response to
the first question. The profit share rates fall below or rise above interest rates of
traditional banks, or any reduction from the profits they obtain from their
participatory bank accounts would not change the clients opinion on working with
these banks. Sensitivity and awareness of participatory bank clients against interest
have been the most significant reason for the clients to prefer participatory banks.

44
 The clients who would still work with the Participatory Banks even if they
conduct trades with the products prohibited by Islam;

Figure 12 The clients who wolud continue to work with the participatory banks even if their
profit share falls below the interest of traditional banks

6 of the clients (approximately 3.5 %) responded the above question as

strongly agree whereas 23 (approximately 13.5 %) responded as agree.

According to the table above, by using the funds of the clients conducting
trade with the products prohibited by Islam would pave the way for the clients to
cease working with the participatory banks.13.5 % of the customers responded as
agree, which implies that if the participatory banks carry out conduct trades with
such products, the clients would still continue working with these banks.

45
 Participants who prefer participatory banks due to confidence in them;

Figure 13 Participants who prefer participatory banks due to confidence in them

Among the clients of the participatory banks that took part in the
questionnaire, 22 (approximately 12.9 %) responded as strongly agree while 116
(approximately 68.2 %) replied as agree. Majority of the clients state that they trust
the participatory banks. Their trust in the banks plays a significant role in their
preferences of participatory banks. The fact that the response of agree is more than
those with strongly agree shows that the clients are not in certainty in this regard. As
a matter of fact, 12.9 % of the clients replied as dtrongly agree.

46
4.3.1.2.2. Obtaining a high income

Financial sensitivities (credit card- letter of guarantee );

Figure 14 Financal sensitivies

Among the clients, 2 of them (approximately 1.2 %) responded as strongly

agree while 19 (approximately 11.2 %) responded as agree. Owing to the fact that
most of the clients responded as agree, the clients put empahasis on interest-free
work principle of the participatory bankswhich is given priority by the clients with
financial sensitivities and is a reason for preference. There are also clients which
responded as disagree, which implies that interest-free work principle is not the only
reason why clients prefer these banks.

47
 The participants who think that participatory banks distribute higher profit
shares than the interests of traditional banks;

Figure 15 The participants who think that participatory banks distribute higher profit shares
tahn the interests of traditional banks

2 of the clients (approximately 1.2 %) responded as strongly agree while 19

(approximately 11.2 %) responded as agree.
When we look at the ratios in the Table, obtaining higher income through
profit shares distributed by the participatory banks is not the first reason that the
clients prefer to work with these banks. Certainly the clients would be willing to have
high income; however it is obvious from the data of the questionnaire that higher
profit share of participatory banks in comparison to the interest rates of the
traditional banks does not change their opinion regarding working with the

48
participatory banks.

Increase of market share of the participatory banks in total banking in Turkey;

Figure 16 increase of market share of the participatory banks in total banking in Turkey

Among the clients who took part in the questionnaire 18 (approximately

10.6 %) responded as strongly agree while 61 (approximately 25.9 %) replied as
agree.When we analyze the responses of the participants who work with
participatory banks, we see that the response agree is in majority whereas the
esponse disagree is less in comparison to agree. This shows that participatory bank
clients are of the opinion that this is due to the success of participatory banks. The
fact that there is higher rate of the response disagree indicates that some clients do

49
not see the success of these banks as a reason for preference.

50
 Assurance of participatory banks for savings;

Figure 17 Assurance of participatory banks for savings

Among the clients, 21 (approximately 12.4 %) responded as strongly agree

and 72 (approximately 42.4 %) responded as agree. A significant majority of the
participants who are clients of participatory banks do not feel any anxiety about their
savings. Moreover, some of the clients are of the opinion that participatory banks do
not offer assurances for their savings, which shows that the clients do not have a
complete confidence in these banks.

51
 Participatory banks promising potential for economic management and
economic growth;

Figure 18 Participatory banks' promising potential for economic management and economic
growth

Among the clients of participatory banks who took part in the questionnaire,
36 (approximately 21.6 %) responded as strongly agree whereas 97 (approximately
57.1 %) replied as agree. An overwhelming majority of the quest6ionnaire
participants responded this question as agree. This indicates that the clients have
confidence in the success of the participatory banks.

52
4.3.1.2.3 Banking Service Quality

Banking Image and Popularity of Participatory Banks;

Figure 19 Banking Image and Popularity of Participatory Banks

10 of the clients (approximately 5.9 %) responded as strongly agree while 41

(approximately 24.1 %) responded as agree. The fact that most of the clients
responded as disagree shows that they are not concerned with the popularity of these
banks. There are also clients who responded as agree, which shows that there are
participants with various reasons including the popularity of the banks to work with
the participatory banks. It can be concluded that it is a reason for preference.

53
 Participatory banks services that satisfies the expectations of the clients;

Figure 20 Participatory banks' promising potential for economic management and economic
growth

Among the participant clients, 15 (approximately 8.8 %) responded as

strongly agree whereas 101 (approximately 59.4 %) responded as agree. Most of the
clients working with the participatory banks believe that works of the participatory
banks are in line with religious values. The fact that there are clients who responded
as disagree implies that these clients think that works of participatory banks are not
in conformity with religious values. On the other hand, majority of agree responses
over the responses of strongly agree do not indicate that when clients think of their
savings absolute conformity to religious values is not sought by the clients.

54
 Proximity of participatory banks to houses and work places;

Figure 21 Proximity of participatory banks to houses and work place

6 of the clients (approximately 3.5 %) replied as strongly agree while 40

(approximately 3.5 %) replied as agree.
According to the ratios of the majority of disagree responses as shown in the
Table, proximity of participatory banks to the residential or work area is not a
significant factor. On the other hand, there are also participants who responded as
agree, which indicates that proximity of banks to their houses or offices is a reason
for preference. Here it can be concluded that the clients who are sensitive against
interests also give importance to proximity when they prefer the bank they work with.
This paves the way for the participatory banks to open branches to different places
where there are potential clients.

55
 Social contributions provided by participatory banks (Donations, Scholarship
and support for social projects etc.);

Figure 22 Social contributions provided by participatory banks

Among clients, 7 of them (approximately 4.1 %) responded as strongly agree

while 45 (approximately 26.5 %) replied as agree.
The participatory banking system, which has been established to meet the
banking needs of Muslim people, prevents them from using interests as well as
carries out all types of banking services. The Muslims in general prefer participatory
banks first because of their sensitivity toward interest; however, they also prefer
other options as a choice. There are also clients who think of the participatory banks
as other traditional banks but ratio of their number is less in comparison to those who
prefer the participatory banks due to their sensitivity against interests. This result

56
indicates that clients of the participatory banks are satisfied with their banks and also
participatory banks offer other banking services.

57
 Advertisements of Participatory Banks in mass media as reason for preference;

Figure 23 Advertisements of Participatory Banks in mass media as reason for preference

Among the clients, 4 (approximately 2.4 %) stated that they strongly agree
while 26 (approximately 15.3 %) responded as agree. The fact that majority of the
survey participants responded as disagree shows that most clients of participatory
banks do not see mass media advertisements as a reason for preference. However, the
histogram illustrates that there are also clients who prefer these banks due to mass
media.

58
 Preference of Participatory banks through reliable friends or surroundings;

Figure 24 Preference of participatory banks through reliable friends or surroundings

14 of the participants (approximately 8.2 %) responded as strongly agree,

whereas 52 (approximately 30.6 %) replied as agree. The ratio of those who do not
prefer participatory banks through friends or surroundings is bigger. Nevertheless,
owing to the fact that there is a considerable number of agree responses, there are
also clients who prefer these banks through reliable friends and surroundings.

59
 Is the confidence in participatory banks increasing in Turkey?;

Figure 25 Is the confidence in participatory banks increasing in Turkey

34 participant clients (approximately 23.5 %) responded as strongly agree,

and 91 (approximately 53.5 %) responded as agree.
In our study, we attempted to measure to what extend participatory banks
have their clients enjoy feelings of confidence towards the participatory banks. We
designated the ratios of confidence the clients have towards the participatory banks.
91 % of the questionnaire participants responded as agree while 43 % replied as
strongly agree. This data show that the confidence towards the participatory banks in
Turkey increases constantly. This confidence in social and individual terms for the
participatory banks can be interpreted as the perpetual sustenance of their existence
and developments.

60
 Easy access to participatory banks;

Figure 26 Easy access to participatory banks

Among the participant clients, 4 (approximately 2.1 %) responded as strongly

agree while 26 (approximately 13.5 %) replied as agree. The responses to this
question show that most clients are of the opinion that they can easily access to
participatory banks. The graphic also shows that there are clients who think that these
banks are not accessed easily.

61
 Attractive tariffs for products, operations and services offered by participatory
banks;

Figure 27 Attractive tariffs for products, operations and services offered by participatory
banks

4 of the clients (approximately 2.4 %) responded as strongly agree whereas

73 (approximately 42.9 %) responded as agree. The clients who took part in the
survey are of the opinion that the services offered by the participatory banks are a
reason for preference. However, some of the clients do not see these services as a
reason for preference.

62
 Knowledgeable and skilled personnel (qualified personnel ) employed by
participatory banks;

Figure 28 Knowlegeable and skilled personnel amployed by participatory banks

13 of the participant clients (approximately 7.6 %) responded as strongly

agree, while 84 (approximately 49.4 %) responded as agree to the question on
whether participatory banks employ qualified personnel. Majority of the clients are
of the opinion that the participatory banks employ qualified personnel. There are also
clients who believe that the personnel of participatory banks are not knowledgeable
and skilled.

63
 Product and service variety provided by participatory banks;

Figure 29 Product and services variety provided by participatory bank

17 of the clients (approximately 10 %) responded as strongly agree while 100

(approximately 58.8 %) responded as agree. It is illustrated that product and service
variety offered by the participatory banks are not the first reason for the majority of
clients to prefer participatory banks.

64
 Client service quality of participatory banks(fast, effective and mistake-free
services);

Figure 30 client service quality of participatory banks

5 of the clients 5 (approximately 2.9 %) answered the question as strongly

agree whereas 74 (approximately 43.5 %) answered as agree. Most of the
participants who work with participatory banks are of the opinion that these banks
offer services that satify the expectations of the clients.
According to the graphic there is a consistency in the responses of tgeh
clients. However, there is inconsistency in some of the responses. This state shows
that the clients either do not have enough information about this matter or do not
have good grasp over it. When we sort the ratios of the responses according to their
percentages, we see that the clients prefer participatory banks mostly due to the

65
interest-free work system of the banks. The aims are Earning high income and up to
date banking service quality.
In order to have a common action and cooperation, increase of work
performance and productivity, information share and sustenance of continuous
development, the social capital factor of the society must be operated well. Social
capital is highly significant not only macro level but also in micro level, in other
words, individual and business level. Therefore it is essential to form an environment
where social values are effective in organization and business culture. As a matter of
fact, work performance can be increased through the existence of social virtues such
as confidence factor, working in coordination, information sharing, and social
solidarity, which are factors of social capital. In organizations and businesses, social
capital has a motivator effect as a driving force. In this study, we attempted to
measure to what extend participatory banks have their clients experience this
emotion. These values pave the way for clients to have increasing confidence in
participatory banks in Turkey. The fact that participatory banks record confidences in
social and individual respects can be interpreted as their prospective development
and continuation of their existence.

4.3.2. The Factors that Affect Preference of Participatory Banks in

Turkey within the Light of the Scale Data: A Study of Explanatory
Factor Analysis
In order to designate the factors that are effective for the clients of
participatory banks in their preferences of the banks, explanatory factor analysis was
employed to 30 statements used in the scale. Before beginning to conduct factor
analysis, it is essential to examine data whether it is appropriate for factor analysis. It
is important to have a high correlation among the variables. The more the correlation
among the variable decreases, the more the reliability of the results of the factor
analysis decreases. In our study, because p(sign.)=0,000<0,05, the result of Barlett
test is significant. In other words, there is high correlation among the variables and
the data is obtained from multiple normal distributions. On the other hand, KMO co-
efficiency was calculated as 0,811>0,5, which shows that it is sufficient for the factor

66
analysis of the sampling. For the entire scale the reliability coefficient is calculated as
0,947. The fact that co-efficiency number is close to 1 also proves that reliability
condition for factor analysis is effectuated.
Factor analysis was carried out by doing factor rotations with varimax
rotation technique, an orthogonal rotation methods, and Principal Component
analysis. Number of factors has been designated according to the eigenvalues of the
factor. The factors with eigenvalues of one and above (1) were taking into
consideration. Statements with 0,40 and above factor loading were classified under
derived factors. The factor analysis with was conducted under related constraints
produced three factors that accounts for 76,392 % of the total variables. Every factor
is named after taking the contents of the statements into consideration.

Table 7: Rotated Factor Analyses-The Factors that Affect Preference of Participatory Banks in
Turkey
Factor
Factors Loadings
Factor 1: Religious Sensitivities (sensitivity against interest)
Interest-free work system of Participatory Banks .814
Religious sensitivities of the personnel .810
Awareness of participatory bank clients regarding social values and
.799
sensitivities
Increase of investment capacities of the interest-sensitive
.805
entrepreneurs with the facilities of participatory banks
Fall of profit share rates of participatory banks below the interests of
.811
traditional banks
Appropriateness of participatory banks for your savings .805
Appropriateness of attractive finances of participatory banks for your
.807
religious values
Are participatory banks completely in conformity with Islamic rules? .805
Still working with participatory banks even if there is no branch in
the neighborhood of stay .812

Continuing to work with the participatory banks even if their profit

.808
share rate is equal to the interests of traditional banks

67
 Still working with the participatory banks even if they trade with the
products prohibited by Islam .821

.804
Confidence in participatory banks
Factor 2: Earning High Income
Material sensitivities (credit card - letter of guarantee)
.827
Participatory banks distribution of profit share higher than interest rates of
.812
traditional banks
Participatory banks increase of market share among total banking in Turkey .816
Participatory banks assurance for your savings .
807
Promising potentiality of participatory banks regarding economic
.808
management and economic growth
Factor 3:Service Quality of Banking
Image and popularity as participatory bank and an interest-free establishment .817
An approach of service that satisfies expectations of clients .804
Knowledgeable and skillful personnel .802
Proximity of participatory banks to houses and work places .821
Social contributions (Donation, scholarship and support for social projects
.813
etc.)
Recommendations of reliable friends and surroundings .
812
Preferring participatory banks through mass media .815
Confidence in participatory banks increase in Turkey .806
Easy access to participatory banks .815
Attractive tariffs of participatory banks for product, procedures and services .804
Product and service varieties provided by participatory banks .805
Client service quality of participatory banks (fast, effective and mistake-free
.802
service)
Deductive Method: Principal Component Analysis Rotation Method:
Varimax with Kaiser Normalization.

Table 8: Results of Rotated Factor Analyses - The Factors that Affect

Preference of Participatory Banks in Turkey
Eigenv Explained Cumulativ
Factors alue Variation e

68
 Percentage Variation
% %
Factor 1: Religious
6,169 20,562 20,562
sensitivity/sensitivity against interest
Factor 2: Earning high income 1,041 3,469 63,293
Factor 3: Banking Service quality 0.489 1.629 88.018

Deductive Method: Principal Component Analysis Rotation Method:

Varimax with Kaiser Normalization.

According to the results of factor analyses the reasons which lead clients to
prefer participatory banks are classified under three factors: Religious sensitivities
(sensitivity against interest) accounts for 20.562 % of total variation and it is the
most effective factor for clients to prefer participatory banks. Earning high income
accounts for 3.469 % of total variations and the second most effective factor. The
third one is banking service quality, which accounts for 21,097 % of the total
variation and it is third most effective factor.

69
70
 5. Overall Evaluation and Results
Participatory banks emerged from an economic and social need. They aim to
mobilize inactive savings that remained outside of financial sector and thus bring
them in to Turkeys economy.
Participatory banks finance the real sector. Participatory banks assign all of
their available resources to the financing of the real sector through production
support (buying in cash selling on credit), financial leasing and profit-loss
partnership on project basis. International standards and practices as well as objective
criteria are used in selection of institutions that are allowed to use the funds.
Participatory banks directly finance production and investment by allowing the funds
that they collect to be used in the procurement of industrialists and traders needs
such as raw material, semi-finished or finished goods and investment goods. They do
not engage in any speculative activities that disrupt economic and financial
stability.37 What is the first purpose behind clients preference of Participatory banks
which emerge from a social necessity and whose number of branches rapidly
increases day by day. It is for this reason we conducted our study in order to find
answer to this question. Naturally, our study will not be enough to achieve real
results since it is limited to only three different regions of Istanbul. However, the
answers that this limited number clients provide to our questions will be able to
somewhat reflect the general reason of preference. In our survey, answers obtained
from 30 different questions directed at the clients. We tried to reach at the results by
classifying our questions in three categories. Categories are religious sensitivity
(sensitivity against interest), high increase in return and banking service quality.
According to the data obtained from the survey, the most important reason
that affects clients preference of Participatory banks is religious sensitivity
(sensitivity against interest). The most effective second reason is high increase in
return, whereas the most effective third reason is banking service quality.Our
study revealed that the most effective reason that pushes participants to be the client
of Participatory banks was religious sensitivity (sensitivity against interest).
Our survey was carried out through face to face meeting. Although the

37 Bulut, Dr. Halil brahim, Er,Bnyamin, 2012, p.21

71
question of whether or not clients use conventional banks may be a deficiency among
the questions directed at the clients, but our objective here was to determine their
reasons for working with these banks.
All of the following statements support that result that clients prefer
Participatory banks because they are religiously sensitive (sensitive against interest).
Clients preference of working with these banks because of religious sensitivities;
religiously-sensitive personnel, ensuring confidence for their savings, banks
awareness of clients social values and sensitivities and reflecting this in their
perception of service, entrepreneurs increase of their investment capacity with
Participatory banks, how clients will react when profit share rate of Participatory
banks falls under the interest rates of the conventional banks, Participatory banks
becoming an assurance for savings, appropriateness of appealing financing to the
religious values that Participatory banks provide, full compatibility of Participatory
banks with Islamic rules, clients preference to work with a Participatory bank even
though there is no branch of Participatory bank available at the location they live,
clients desire to work with the Participatory bank even if the interest rates of the
conventional banks equate to the profit share rate of the Participatory banks, clients
unwillingness to work with Participatory banks if they conduct trade with products
that forbidden by Islam, clients reliance on Participatory banks, all of the answers
given to these questions to be supportive of each other. The first choices of clients
when they think of these banks are interest sensitivity and religious sensitivities.
The next preference rankings are: high increase in return, materialistic
sensitivities, the thought of Participatory banks distribute higher profits than the
interest rates distributed by the conventional banks, thought on the increase of
Participatory bankings market share in total banking in Turkey, idea of Participatory
banks providing an assurance for savings, economy management of Participatory
banks and thought of their promising potential for economic development all appear
to be the secondary reason behind clients preference to work with these banks.
The third preference rankings are banking service quality, preferring
Participatory banks for their banking image and popularity, Participatory banks
tendency to provide service that satisfies the expectations of the clients, vicinity of
Participatory banks to homes and work places, social contributions of the

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Participatory banks (donation, scholarships and support for social projects etc.),
preferring Participatory banks because of advertisements in mass media,
recommendations of reliable friends or social environment in preferring Participatory
banks, increasing confidence in Participatory banks in Turkey, comfortable
accessibility of Participatory banks, appealing product, transaction and service tariffs
of Participatory banks, Participatory banks employment of knowledgeable and
skilled personnel (qualified staff), product and service variety of Participatory banks,
client service quality of the Participatory banks (fast, efficient and error-free service)
are the next preferences of the clients in working with these banks.

73
 6. SUGGEST

Intended to be contributed to the literature Approaches of participatory of banks

clients to participatory banking values: The Case Of Istanbul, our study, the
majority of customers as a result of participation banks and employees of this bank
an interest-free system showed that they prefered to work with. Most of the people
from all walks of muslims of Turkish society formed to work with the bank in line
with the belief that they will have experienced. For this reason, participation banks
once their staff should work to raise awareness in. Participations banks promos
required in various programs at both the ad and using the mass media should do.
Participation banks should explain the difference between traditional banks and, as
participation banks oparate according to islamic principles should tell you. Joined
banking should be taught as a subject in universities. Compulsory courses in the
banking segment, should be taught as an elective course in the economics
Acknowledgements

This study contributes to the literature we work for BAP is supported study.

75
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Appendix;
Survey of example

APPROACHES OF PARTICIPATORY BANK CLIENTS IN TURKEY TOWARDS

THE VALUES PARTICIPATORY BANKS : THE CASE OF STANBUL
This research has attempted to find out how participatory banks are perceived by the clients
and the factors that lead clients to interest-free banks and finance establishments. The
research is entirely academic work and has no link with a bank whatsoever. Therefore, it will
not be shared with a bank and will not affect the bank clients.

Your participation to the questionnaire will designate the reasons why clients of participatory
banks prefer participatory banks (interest-free banking). Do the clients prefer participatory
banks due to high income increase or sensitivity towards interest? I would like to thank you
for your responses.

Approaches of clients towards the values of Participatory Banks:

A. The aspect of the values of participatory banks for which clients prefer
Participatory Banks in Turkey
Factors that lead clients to prefer a bank are listed below. Please conduct your evaluation by
keeping the factors that were effective in your preference of Participatory Banks into
consideration.

1.The clients who prefer participatory banks for they function in interest-free
system?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

2. Do you prefer the participatory banks due to your material sensitivities? (credit card- letter
of guarantee )
a) Strongly agree b)Agree c)No opinion
d) Strongly disagree e) Disagree

3. Do your prefer the participatory banks because of your opinion that the participatory
banks distribute higher profit share than the interests of traditional banks?
a) Strongly agree b)Agree c)No opinion

77
 d)Strongly disagree e) Disagree

4. Do you prefer the participatory banks due to the increase of the market share of
participatory bank in banking industry?
a) Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

5. Do you prefer the participatory banks because of your opinion that the participatory banks
provide an assurance for your savings?
a) Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

6. Are the religious sensitivities of participatory bank personnel an effective factor for your
preference of these banks?

a)Strongly agree b)Agree c)No opinion

d)Strongly disagree e) Disagree

7. Do you prefer the participatory banks due to banking image and popularity?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

8. Do you agree with the opinion that participatory banks provide an approach of service that
satisfies the expectations of the clients?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

78
9. Do you prefer the participatory banks because of social contributions (donation,
scholarship and support for social projects etc.) that they provide?
a) Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

10. Do you agree with the statement, Participatory bank clients are aware of social values
and sensitivities and they reflect it to their perspective of service and applications ?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

11.Do you think that entrepreneurs which are sensitive against interest increase their
investment capacities through participatory banking?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

12. Is the proximity of participatory banks to your house or work place a reason of
preference for you?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

13.Do you think that participatory banks provide appealing finance and payment
opportunities?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

14. Would you still work with the participatory banks even if their profit share distribution
falls below interests of traditional banks?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

79
15. Does the trust in participatory banks increase in Turkey?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

16. Are participatory banks in line with your religious values for your savings ?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

17. Do you think attractive finances that participatory banks provide are in conformity with
your religious values?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

18. Are participatory banks completely in line with Islamic rules?

a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

19.Would you still work with participatory banks even if no branch is available in your
neighborhood?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree
20. Would you still prefer participatory banks if they used their finances in entertainment
industry or traded with products that are prohibited by Islam?

a)Strongly agree b)Agree c)No opinion

d)Strongly disagree e) Disagree
21. Do you trust in participatory banks?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree
22. Would you still prefer participatory banks if their profit shares distribution were equal to
the interest rates of traditional banks?
a) Strongly agree b) Agree c)No opinion
d) Strongly disagree e) Disagree

80
B. Other reasons for clients to prefer Participatory Banks
1. Do you have the opinion that participatory banks are accessed easily? (for instance:
Vehicle parking facilities, comfort etc.)
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

2. Do you prefer participatory banks due to attractive product, transaction and service tariffs?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

3. Are you of the opinion that participatory banks employ knowledgeable and skilled
personnel (qualified personnel)?
a) Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

4. Do you believe that participatory banks provide product and service varieties?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

5.Do participatory banks have a promising potential regarding economy management and
economical growth?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

6. Do you think that participatory banks provide client service quality (fast, effective and
flawless service)?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

81
7). Did you prefer participatory banks due to media advertisement?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

8. Do you prefer participatory banks upon the recommendations of your reliable friends and
surroundings?
a)Strongly agree b)Agree c)No opinion
d)Strongly disagree e) Disagree

82