JOURNAL OF ISLAMIC BANKING AND FINANCE, vol.1, no.1, pp.1-10, 2013 (Refereed Journals of Other Institutions)
Finance sector holds special importance for the healthy growth of economies; therefore, minimization of the problems in the operation of the finance sector leads to improved welfare whereas problems in the sector negatively affect many other sectors, leaving the economy vulnerable to undesirable economic crises. Some developing Islamic countries implement interest-free banking or participation bank model whereas some others like Turkey rely on an economic model governed by the rules of the liberal capitalist economic theory. The participation banks which operate to address the concerns of the religious people over interest are viewed as important tools of Islamic finance. The adherence by these institutions in their financial activities to the Islamic rules and standards is being questioned by the people whereas the experts generally uphold that their activities are consistent with the Islamic precepts and rules. Since the strong implementation of the regulating measures vis-à-vis the finance sector subsequent to the financial crisis in 2001 in Turkey, a high economic growth rate has been attained in the last decade thanks to the financial stability policies. Despite that the vast majority of the people observe their religious practices, the share of the participation banks in the finance sector is relatively low due to the domination of the liberal economy and its rules. This study compares the participation banks in Turkey with the financial institutions in other Islamic countries and further analyzes whether their activities are consistent with the Islamic law. The research also empirically tests the period between 1990 and 2010 focusing on how the participation banks have been influenced by the domestic economic growth.