Assessment of the participation banks and their role in financial inclusion in Turkey

We evaluate the performance of participation banks (PBs) and analytically discuss the participation banking industry in Turkey. First, we examine establishment and deregulation of PBs. We also evaluate the performance and governance structure of the four full-fledged participation banks currently operating in the Turkish banking system. Participation banks expand the scope for financial inclusion for those who stay away from conventional banking due to religious sensitivity. The PBs play a pivotal role in channeling the idle capital into more productive sectors. In this sense, new sovereign sukuk issuances and their importance for the PBs' liquidity management are also discussed. We also examine the changing approaches for the supervision and regulation of PBs in different periods in Turkey. Finally, we discuss some critical views of and challenges for the PBs while providing a critical perspective for the development of the sector in the future.