Why are Islamic banks still so small?

We do not call them Islamic banks in Turkey. Banks are banks, administrative apparatuses. In the past, they were termed “Special Finance Institutions” and only after the 2005 amendments to the Banking Law did they start being called “Participation Banks.” So far so good. As of 2012, however, the share of Participation Bank assets among total banking assets is only around 5 percent, which is not that much.

Some 92 percent of assets belong to regular banks, as we know them across the world. According to the 2014 Global Financial Development Report (GFDR2014) of the World Bank, “Islamic assets” per person are around $500 in Turkey. The same number is around $5,000 in Malaysia, $2,000 in Indonesia, $150 in Egypt and less than $100 in Tunisia. So, one quick glance will tell you that Islamic banks are tiny in Turkey and also fairly small in the rest of the World.

Around half the population of the world does not have access to financial institutions, according to the GFDR2014. That is, only 55 percent of males and 47 percent of females have bank accounts. Access to banking is important for the empowerment of individuals. What are the reasons for not having access to bank accounts? Looking at the data, the “religious reasons” answer is definitely not the most prominent one.
 
Firstly, about half of the world’s population does not have access to banks because they do not have enough savings to deposit into a bank. So, poverty is the first reason. The second reason is that it is too costly to open an account. That is why households often rely on one account, which usually belongs to the male. So women only have only indirect access.

Religious reasons only come third. The relative insignificance of religion in banking might be the reason why Islamic banks are so small. Only about 8 percent of Turkey’s population say they refrain from opening regular bank accounts for religious reasons. Some 58 percent of Turks have a bank account. In Malaysia and Indonesia, less than 1 percent do not have a regular bank account for religious reasons. So, financial inclusion is first and foremost about having enough savings to open an account. So, the lack of banking in almost half of the world’s population is not because it isn’t desirable, but rather because it isn’t attainable. 

However, there is another reason that we would do well to reflect upon. In the World Bank Survey, covering 148 economies, including the West Bank and Gaza, and around 150,000 individuals, “lack of trust” as a reason to not open an account is twice as frequent as “religious reasons.” Lack of trust is directly related to institutional infrastructure and government interference in the market in our part of the world. But Turkey and Israel were supposed to be different from the rest of the Middle East, as only we have a solid market economy base. Nevertheless, the lack of trust persists in both.

Beware the Ottomans, the old saying goes, as they pull all sorts of tricks out of their hats. Read that as “beware of the government.” That mentality is ingrained in us and it is why access to banking remains low in our part of the world. It is why, since 2002, the number of individual equity investors has been stuck at around 1 million in Turkey, which is less than the number of Syrian refugees nowadays.

So it all comes down to rule of law issues, if you ask me. I’m afraid the rather open political campaign against Bank Asya has only strengthened our ancient distrust of the Sublime Porte.