TBY talks to Reşat Karabıyık, General Manager of Bizim Securities (BMD), on the role of participation banking in the Turkish financial system.

Reşat Karabıyık
Beginning his career as an auditor at the Ülker Group in 1994, Reşat Karabıyık stepped into the capital markets in his career with the Crown Investment Trust. He has served in many areas of the sector such as corporate finance, accounting, research, and fund management for more than 15 years. He is currently General Manager of Bizim Securities.

The concept of participation banking in Turkey has been around for quite a while, but has not really seen significant growth until quite recently. Why have we witnessed such growth over the past decade?

It is one of the oldest banking systems here, but did not see significant growth until 2006. Before that, there were private financing houses that were limited in function and did not have the status of banks. These were not allowed to operate in certain areas that were associated with conventional banking. In that year, regulations related to banking laws were changed, and these financing houses were compelled to become commercial banks. They can now operate in any field, and became especially popular in retail banking, pushing a range of products such as credit cards and online banking systems into the retail channels. We first started working with one of those private finance houses in 2003. It was the first time in Turkey that an Islamic bank introduced its client's investment products and services.

What are the advantages of investing in interest-free or participation investment products compared to more conventional products?

There was no alternative previously. If an investor wished to invest on the basis of Islamic principles, or did not wish to receive interest, he had no alternative before these Islamic-compliant products became available. For participation banking clients, this is the major advantage. These funds are pretty much comparable to conventional ones. Islamic investment funds have the same aim, namely to earn more return with less risk, so actually they compete within the same environment. Islamic funds majorly invested in equities because there was no alternative, and equities were in fact the investment products offering the highest return in Turkey. That was another advantage for the investors because before, when interest rates were high, people usually did not want to invest in equities. Now, in this environment, equity investment is more popular and has started growing because of the decrease in interest rates and the emergence of a more stable economy. Since the majority of our portfolio constitutes equity investments, on average our investment fund returns have been much higher compared to conventional ones.

Regarding BMD's position and special relationships with all participation banks in Turkey, how will your role change as new banks enter the market?

There are four participation banks today. One of them established its own investment institution this year so some of its clients are now transferring to it. We observe these developments and have a wide spectrum of investment products and services available, which will help us to address increased competition.

How does innovation play a part in BMD?

We are the only group in Turkey that allows our clients to manage their sukuk online. We are also the first in Turkey to use digital signatures when opening an account. However, innovation is difficult, and is a risky area that depends on scale. We have created some value-added products like Islamic exchange traded funds (ETFs), and in the near future we plan to establish a portfolio management company. There is considerable confusion regarding Islamic products in places like Malaysia and the Gulf region. We filter through what exists already, take the best, and provide value-added and profitable products in order to service participation banks and conventional banks simultaneously. BMD is not only a brokerage company or investment institution, and we also perform some corporate finance business such as IPOs and M&As in addition to different types of consulting. In fact, most of our revenue is currently coming from corporate finance, and not the revenues of participation banks. Innovation is crucial for the country. With major infrastructure projects, sukuk offers the best opportunity for borrowing money. Were we to predominantly focus on second-hand sukuk operations in Istanbul and establish some liquidity, it would be easy for both domestic and foreign investors to invest in these products.