Mustafa DereciGroup Manager

Kuveyt Turk Participation Bank

March 2014

PARTICIPATION BANKS

A Success Story of Financial Inclusionin Turkey

PARTICIPATION BANKS

A Success Story of Financial Inclusionin Turkey

AGENDA

· Financial Inclusion: Definition and Facts

· Islamic Banking in the World: Facts and Figures

· Participation Banking in Turkey: Facts and Figures

· Conclusion

Financial Inclusion: Definition

· The delivery of financial services and products at affordable costs to sections of disadvantaged and low-income segments of society,

· The antonym of financial inclusion is financial exclusion where those services are not available or affordable.

Financial Inclusion: Facts

· Half of the World is unbanked

· Proportion of the Muslim population using financial services is less than their non-Muslim counterparts

· Financial exclusion rate is currently 47% in Turkey.

· Microfinace loans business is almost untapped in Turkey. The volume of microfinance loans is around USD 5 Million per annum.

Financial Inclusion: Why?

· There is a strong positive correlation between financial inclusion and GDP per capita

· It is a strong tool to alleviate poverty

· It is an important parameter for economic development and growth of a country

· It curtails unregistered economy

Financial Exclusion: Why?

Population

Non-users of formal financial services

Users of formal financial services

Voluntary self-exclusion

No Need

Cultural / religious reasonsnot to use / indirect access

Involuntary exclusion

Insufficient income / high risk

Discrimination

Contractual / informational framework

Price / product features

Islamic Banking 80.4%

(1.45 Trillion USD)

Sukuk 14.5%

Islamic Funds 4.1%Takaful

1.0%

Kuwait Finance House, IFN Turkey Roadshow Borsa Istanbul Stock Exchange Report, 2013

Islamic Banking in the World

Size of Global Islamic Finance = 1.8 Trillion USD

2007 2008 2009 2010 2011 2012 2013F0

200

400

600

800

1000

1200

1400

1600

Billi

on U

SD

CAGR = 21.53%

Kuwait Finance House, IFN Turkey Roadshow Borsa Istanbul Stock Exchange Report, 2013

Islamic Banking Assets in the World

1.45 Trillion USD (2%)

History of Islamic Banking in Turkey

1983 1985 1989 1991 1995 1996 1999 2001 2005 2006 2008 2010 2014

Government Decree for SFH

Albaraka Turk and Faisal Finans established

Kuveyt Turk established

SFH under Banking Law

Asya Finans has established

İhlas Finance established

Anadolu Finans established

Faisal Finans becomes Family

Finans

Ihlas Finans left the market

Anadolu Finans and Family Finans

merged as Türkiye Finans

TKBB established

Turkiye Finans acquired by National

Commerce Bank

First Sukuk

Four participation bank are in service

- AlBaraka Türk- Bank Asya

- Kuveyt Türk- Turkiye Finans

2005 2006 2007 2008 2009 2010 2011 2012 20130

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

2,000,000,000

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

45 Billion USD (5.5%, 2023 vision: 15%)

813 Billion USD

CAGR +19.85%

CAGR +32.78%

BDDK, 2014

Participation Banks in Turkey (Assets)

2005 2006 2007 2008 2009 2010 2011 2012 2013 -

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

28 Billion USD (6.3%) 444 Billion USD

CAGR +18.01%

CAGR +28.27%

BDDK, 2014

Participation Banks in Turkey (Deposits)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

29 Billion USD (6%) 490 Billion USD

CAGR +28.03%

CAGR +29.16%

BDDK, 2014

Participation Banks in Turkey (Loans)

2007 2008 2009 2010 2011 2012 20130

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

19 Billion USD (7.8%) 245 Billion USD

CAGR +12.89%

CAGR +20.92%

BDDK, 2014

Participation Banks in Turkey (Saving Deposits)

2005 2006 2007 2008 2009 2010 2011 2012 20130 TL

50,000 TL

100,000 TL

150,000 TL

200,000 TL

250,000 TL

300,000 TL

0 TL

5,000 TL

10,000 TL

15,000 TL

20,000 TL

25,000 TL

30,000 TL

35,000 TL

40,000 TL

Sector Participation Banks

16.4 Billion USD (%12)

133 Billion USD

CAGR +31.20%

CAGR +35.73%

BDDK, 2014

Participation Banks in Turkey (SME Loans)

6.14%

93.86%

Non-Gold Deposits

Islamic Banks Conventional Banks

21.72%

78.28%

Gold Deposits

BDDK, 2014

Participation Banks in Turkey (Gold Deposits)

200K Gold Customers

Conventional Banks Participation Banks

56%

43%13,000 Kg

17,000 KgNew Customer

77,000New Customer

100,000

Participation Banks (Scrap Gold Collection)

2009 2010 2011 2012 20130

5000

10000

15000

20000

25000

30000

35000

40000

45000

0

200

400

600

800

1000

1200

1400

1600

1800

2000

CAGR +21.66%

CAGR +12.36% 1.9K ATMs (4.5%)

42K ATMs

BKM, 2013

Participation Banks (ATM)

2006 2007 2008 2009 2010 2011 2012 20130.0

10.0

20.0

30.0

40.0

50.0

60.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

CAGR +21.66%

CAGR +12.36% 2.4 Units

53 Units

BKM, 2013

Participation Banks (ATM per 1,000 km2)

2009 2010 2011 2012 20130

5000

10000

15000

20000

25000

30000

35000

40000

45000

0

200

400

600

800

1000

1200

1400

1600

1800

2000

CAGR +18.47%

CAGR +12.04%

2.5 units

56 units

BKM, 2013

Participation Banks (ATM per 100,000 People)

2006 2007 2008 2009 2010 2011 2012 20130

50000

100000

150000

200000

250000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

CAGR +11.31%

CAGR +4.10%

17 K (8.5%)

200 K

BKM, 2013

Participation Banks (Staff)

2006 2007 2008 2009 2010 2011 2012 20130

2000

4000

6000

8000

10000

12000

0

200

400

600

800

1000

1200

CAGR +13.24%

CAGR +6.13%966

(8.8%)

11,023

BKM, 2013

Participation Banks (Branch Network)

2006 2007 2008 2009 2010 2011 2012 20130.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

CAGR +11.56%

CAGR +6.22%

1.2 Branch

14 Branch

BKM, 2013

Participation Banks (Branches per 1,000 km2)

2006 2007 2008 2009 2010 2011 2012 20130

2000

4000

6000

8000

10000

12000

14000

16000

0

200

400

600

800

1000

1200

1400

CAGR +12.03%

CAGR +4.90% 1.7 Branches

19.3 Branches

BKM, 2013

Participation Banks (Branches per 100,000 People)

2006 2007 2008 2009 2010 2011 2012 2013 -

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

CAGR +28.70%

CAGR +8.16% 5 Million(5%)

100 Million

BKM, 2013

Participation Banks (Debit Card)

2006 2007 2008 2009 2010 2011 2012 2013 -

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

CAGR +20.55%

CAGR +7.26% 2.5 Million(4.3%)

57 Million

BKM, 2013

Participation Banks (Credit Card)

2006 2007 2008 2009 2010 2011 2012 2013 -

500,000

1,000,000

1,500,000

2,000,000

2,500,000

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

CAGR +14.26%

CAGR +7.54%

132 K (5.7%)

2.3 Million

BKM, 2013

Participation Banks (POS Terminals)

Conclusion

· Without appropriate regulations and ethical approach to financial inclusion, undeserved consumer may become overdebted. Remember subprime mortgage crash in US.

· Financial inclusion is to create an environment for disadvantaged people to access financial services if they need, it is not to force them to become overbanked.

· Participation Banks in Turkey have great potential to embrace a big deal of unbanked people with solid and ethical Islamic Banking arguments

· The most ignored part of financial inclusion tools is microfinance loans in Turkey

Thank YouThank You