Participation Banks and Islamic Microfinance: Current State in Turkey and Recommendations

Low-income people have been excluded from the financing activities of Islamic banks because they seem high risky due to their lack of physical collateral and credit history, and operational cost. However, Islamic microfinance, which enables these people to reach the capital that they need through various Islamic contract types (qard al-hassan, musharakah, etc.), has become widespread in different countries such as Bangladesh, Pakistan and Indonesia in recent years. The success of these institutions has led some Islamic banks to tap into the microfinance sector. In this study, the relationship between microfinance and Participation (Islamic) Banks in Turkey were discussed by examining Islamic microfinance practices in worldwide applications and the available academic literature, and the study reveals that Participation Banks can offer Islamic microfinance services effectively by considering their comprehensive financial infrastructure and the Islamic values that they are based on. Also, Participation Banks can contribute to the spread of Islamic finance throughout the different strata of the society by implementing Islamic microfinance in their operations.