Islamic banks resist Central Bank sin

Monday, July 7, 2008
     
   

SEFER YÜKSEL
ISTANBUL – Referans

The fundamental principle of Islamic banking is never to receive or yield interest. But the Central Bank’s monetary policy complicates this procedure in Turkey.   The Turkish Central Bank yields a certain amount of interest to the banks periodically as requital for the “affixed allowance” it collects from the banks. This policy, defined and determined by law, unsettles participation banks active in Turkey because of the fundamental belief that interest – riba – is prohibited by Islam.

  Banks are bound to allocate 11 percent of their foreign currency deposits and 6 percent of their domestic currency deposits with the Central Bank as affixed allowance by law. The Central Bank accrues interest revenue, which it gains from lending the banks’ money back to the banks periodically.

  But participation banks are strongly against receiving the interest revenue, which is around YTL 80 million in total.

  

Seeking a middle course:

  Participation banks requested the Central Bank that, instead of receiving the interest, their affixed allowance rate should be cut from 11 percent to 5.5 or 6 percent in foreign currency and from 6 percent to 3 percent in domestic currency.

  The suggestion was rejected by the Central Bank, which said such an exception cannot be implemented in affixed allowance, which is “an instrument of monetary policy.”

  Reportedly, after this reaction, participation banks have decided to receive interest revenues. “We negotiated the issue and we decided to receive those interest incomes,” Osman Akyüz, secretary general of the Participation Banks Association of Turkey, said.

  Even when receiving “riba,” the banks still find ways to protect their customers who believe interest is illicit. Al Baraka Türk does not reflect the interest income in dividends and participant accounts. Instead, the bank spends the interest income on “corporate social responsibility” projects, sponsorship deals and advertisement expenditures.

  Türkiye Finans, another participation bank, transfers the money to the Savings Deposit Insurance Fund, or TMSF.

  Bank Asya and Kuveyt Türk declined to comment on the matter.

  

‘We do not want it, but we have to’:

  Commenting on the participation banks’ suggestion that instead of interest the affixed allowance rates be cut, Adnan Büyükdeniz, general manager of Al Baraka Türk, said he does not think the Central Bank has changed its mind.

  “Companies like us can use the affixed allowance interests in different ways,” he continued. “We use the money for corporate social responsibility projects and sponsorship agreements. We certainly do not distribute them as dividends. This money is not something that banks ‘want to’ receive, it is something they ‘have to’ receive.”

  “We will be persistent in our suggestion to the Central Bank. We absolutely do not mix the affixed allowance interest in our accounts and we do not reflect it as dividends,” said Yunus Nacar, general manager of Türkiye Finans. “We transfer this amount to the TMSF. So we take this money from one public body and give it to another one.”

  

Participation banking:

  Participation banks, which operate on a profit and loss partnership basis, yield dividends to their customers, instead of yielding interest. The banks allocate the money that is accumulated in the accounts to corporations that are in need of funding. As these companies utilize the money, income is distributed to the saving account as dividends on a daily or weekly base.

  The aggregate funds of the participation banks grew 10 percent within the first quarter of this year and reached YTL 16 billion. Participation banking constitutes 4 percent of Turkey’s banking system. The sector, which consists of four banks – Al Baraka Türk, Türkiye Finans, Kuveyt Türk and Asya Finans – aims to increase its share in banking to 10 percent within the next 10 years.

   http://www.turkishdailynews.com.tr/article.php?enewsid=109189

 

Leave a Reply

Looking for something?

Use the form below to search the site:


Still not finding what you're looking for? Drop a comment on a post or contact us so we can take care of it!