Funding in Participation Banks
The most important method of fund utilization of the participation banks are such kind of purchases and sales.
Murabaha means “selling the goods in a profitable manner”. It is the name given to the process in which the participation bank purchases a product from the seller upon the request of its customer and sells it to its customer on a term basis by adding a profit on it.
It is not permissible to subject gold, silver or money to the term murabaha contract. This provision is based on the hadith of Prophet Muhammad (pbuh), which states that if gold and silver are exchanged, their costs must be “in advance”.
The provision that the parties' agreements upon the payment of the debt in installments is permissible is based on the fact that the murabaha contract is a form of sales contract. It is permissible for the price to be paid in sales contract to be in cash, on a term basis or in installment.
The sale of standard goods agreed to be delivered on a term basis at a cash price is called “salam”. All characteristics such as the type, quality and quantity of the goods to be delivered in the term specified in the contract should be stated in the contract without any ambiguity. By the nature of the contract, the buyer of the product protects itself against price increases, while the seller of the product satisfies its cash needs. This contract provides salam seller with the opportunity to use the price it has received until it delivers the goods, and the opportunity to prepare the goods and deliver them in due time.
Salam contract is a type of contract which is generally used in the field of agriculture and farming, but its legitimacy is not unique to these fields.
Tawarruq is the process of buying a product from it seller in installments and selling it to another person for cash. The aim here is to satisfy the cash needs. This method is also used by Participation Banks to restructure customers' debts.
It is possible that the goods subject to tawarruq is a merchandise, car, shares of a legitimate company, an international or local product, a metal other than gold and silver. Gold, silver and money cannot be subjected to tawarruq transactions as their forward trade is not permissible.
Contract of work is a contract for a contractor to manufacture a work of predetermined quality, using its own material, for a certain fee.
Contract of work is the process of selling a non-standard good that does not already exist and that will be produced in the future. Participation Banks can finance the work to be produced through the contract of work in case the contractor does not manufacture it, provided that it is responsible for its manufacturing.
The process of assigning customer the right of use (benefit) of an asset that can be used without consuming for a certain period is called ijarah. Service and labor contracts are also handled within the scope of ijarah. Participation Banks can provide financing by renting the goods that they have rented at cash price, and selling the service they have received, to their customers on a term basis.
The rental process that results in the transfer of ownership of a property to the lessee at the end of the lease term is called financial leasing.
It is a partnership established in which one party puts its knowledge, labor and experience, and the other party puts its capital. In other words, the mudarabah is a partnership agreement to which the entrepreneur and the capital owner is a party. Participation Bank can become a party to such partnership in the capacity of a laborer or a capital owner.
It is a partnership agreement between two or more persons in which each party participates by putting cash capital or in-kind capital whose cash value has been determined.
The difference of the musharakah from the mudarabah is that each of the partners invest cash or in-kind capital, that the profit to be generated as a result of the partnership is shared based on the initially agreed profit sharing rates and the loss is shared in proportion to the amounts of capital invested by the parties. On the other hand, mudarabah is a partnership in which one of the parties contributes capital and the other one contributes labor. In this partnership, the profit is shared between the parties based on the initially agreed profit sharing rates as in the musharakah, while the monetary loss belongs only to the capital owner; and the loss of the laborer is its labor.
In short, it is to authorize someone for an investment transaction. It is a person’s granting authorization for some else’s to operate and make good use of the capital he or she has, for a fee or free of charge. Participation Bank may be involved in this transaction as an agency or a client.
The fact that ensures that the investment agency transaction complies with the principles of interest-free finance is agency being one of the contracts considered legitimate in the fiqh in return for which it is permissible to receive a fee and the fact that principal and/or profit is not guaranteed as well as the legitimacy of the investment subject.
In an investment agency transaction in which the Participation Bank involves as an agency, the saver authorizes the participation bank to operate and make good use of the capital and delivers the capital. The participation bank does not participate in profit and loss sharing. Profit and loss is entirely owned by investor. However, participation bank is obliged to compensate for the damage resulting from its intention, default or opposition to condition. The participation bank and the investor can agree on the ownership of excess amount by the bank if the profit is higher than expected.
The basis of the fact that the investment agency is different from the general agency which is aimed at other savings is that the investment agency is intended for operating and making good use of a fund. In this respect, the investment agency is similar to mudarabah and the musharakah. However, whereas the investment agency is more similar to ijarah contract (service/labor contract) by its structure, the mudarabah and musharakah are among the types of partnership.
Fund Raising in Participation Banks
These are the accounts of funds which result in sharing of the profit arising from the disbursement of funds deposited in participation banks by these institutions based on the determined profit sharing rates and in which the payment of any predetermined return to the account holder and repayment of the principal exactly the same is not guaranteed. Participation accounts are opened within the framework of mudarabah (labor-capital partnership). Those who deposit money in these accounts establish a labor-capital partnership with the participation bank. The Participation Bank will operate the capital provided to it in areas that are legitimate from a religious point of view and have the profit obtained shared based on the initially determined profit sharing rate.
Participation Fund: It refers to the money included in special current accounts and participation accounts of real and legal persons opened with participation banks.
These are the accounts of funds which can be opened in participation banks and which can be withdrawn partially or completely at any time upon request and in return for which no returns are paid to the account holder.
Other Methods
It is another name for Islamic insurance system. It is based on solidarity, donation and partnership. The premiums paid are owned by the participants, not by the insurance company. Insurance compensation is paid to the participants with these premiums. In addition, these funds are used in interest-free investment areas and it is aimed to generate profit on behalf of the participants.
These are the funds the portfolio of which is continuously based on lease certificates, participation accounts, ownership interests, gold and other precious metals and other non-interest-based money and capital market instruments deemed appropriate by the Capital Market Board for investors who want to make good use of their investments with money and capital market instruments with no interest gain.
These are the certificates that offer the opportunity to participate in a commercial transaction compatible with Islamic law and that enable one to have a share in the income arising from this commercial transaction. For example, in Participation Banking, in case a building to be purchased for lease is sold in the market in certificates, those who buy these certificates become shareholders in the assets in proportion to the ratio represented by the certificates they hold. Thus, they are also entitled to rental income in proportion to their shares. These certificates also offer the opportunity to be bought and sold in the second hand depending on the asset they represent.
