Participation Finance

Participation Finance

Systemic risks and the devastating effects of the current global debt based financial system have become apparent as a result of the global financial crisis in 2008. For this reason, in the post-crisis period, searches for alternative to the existing financial system started to be discussed both in the academic community and among policy makers. Criticism of the current global financial system focuses on the facts that this system is based on debt and interest, the financial leverage causes systemic risks, excessive financialization, the disconnection between the financial sector and the real sector, and lack of ethical and moral values. Within the framework of new searches, more human-oriented alternative finance models such as socially responsible finance, green finance, and participation finance have come to the fore.

Among these finance models, participation finance is one of the most important and comprehensive alternatives offered to the existing financial structure with its nature and basic principles. In this regard, participation finance presents a very important alternative in terms of reducing systemic risks and establishing a close link between the real sector and the financial sector, as it prioritizes moral values, is based on assets and is based on risk sharing.

While history of participation finance can be dated to 1400 years ago, in the modern period it has been operating in the world since 1960s and in Turkey since 1980s. On the other hand, participation finance, which can be considered to be quite a new practice when compared to the conventional financial system, has achieved a very rapid growth acceleration especially since 1990's. The total of financial assets operating under Islamic rules in the world rose from $ 150 billion in 1990 to $ 2.2 trillion in 2018.

Participation finance that taking into account sharing, production and moral values, is one of the most important actors of the alternative finance both in the world and in Turkey while it is well behind the place it deserves in Turkey. Finance Office of Presidency of the Republic of Turkey has carried out important works and projects since its establishment with the aim of increasing the share of participation finance in the total financial system.

Finance Office of Presidency of the Republic of Turkey aims making Turkey one of the largest and most important centers of the world in the field of participation finance by increasing the share of participation finance in the total banking system to 15 percent by 2025. Participation finance is one of the two main pillars of the Istanbul Finance Center (IFC) project.

In this manner Finance Office of Presidency of the Republic of Turkey works to create an innovative, inclusive and dynamic participation finance ecosystem, develops new products based on risk sharing, establishes strategic partnerships with important countries, institutions and organizations in the field of participation finance, and with the Istanbul Finance Center project, carries out studies to ensure that Turkey is one of the few participation finance centers in the world.