PLS in Islamic banking between dreams and facts: status analysis and problem-solving in a case study of Turkey
AuthorOrhan, Zeyneb Hafsa
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CitationOrhan, Z. H. (2017), “PLS in Islamic Banking between dreams and facts: status analysis and problem solving in a case study of Turkey”, Paper presented at SASE Conference on Re-Constructing Collaborative and Disruptive Economy from Islamic Moral Economy Perspective, Universite Claude Bernard, Lyon 1, 29th June-1st July.
The humble and idealistic attempt of el-Najjar, called Mit Ghamr Savings Bank established in Egypt in 1963, is commonly accepted as the first Islamic bank worldwide. If one searches through the working procedure of this bank, it would be found that mudarabah (labor-capital) type of partnership was the building block both on the asset and liability side (See: Zerka and en-Neccar, 2009). This is not surprising since the theory/model of Islamic banking (IB) was built upon the idea of partnership or profit-and-loss sharing (PLS) by the pioneers. Ismail (2011) argues that Uzair laid the contribution in suggesting mudarabah as the main premise of interestless banking. At this point, one can wonder why the model of IB was built upon PLS. Though this question is very important, it deserves a separate research. Having said that, we can mention some exceptional works trying to show and/or compare the effects of PLS in proving its virtue; Darrat (2002) concludes that introducing interest-free banking that operates under the general guideline of PLS in Iran and Pakistan improved, or at least did not hamper the overall macroeconomic performance. Sugema et al. (2010) find that only PLS system is just/fair under an uncertain situation because it fairly distributes the risk at individual level amongst lender and borrower. Despite the aforementioned stress upon PLS, the idealized model of partnership-based IB has been far from becoming a reality due to various reasons which will be discussed below. Depending on all of the above, the aim of our research is to make a detailed analysis of PLS in Turkish IBs compared to existing literature, and to offer new insights into the subject via Turkish example. The importance of this study depends on three basic things; first and most important, this paper attempts to open new planes in classical discussions about PLS. Because, studies in PLS –its problems, problem solving approaches about it, etc.- reach a saturation point despite the ongoing lack of concrete outputs. We think that such new insights can be offered into the subject if there is a focus on an exemplary case in detail. In this paper, our example is Turkey. The choice of Turkey depends on the followings; there is easy access to necessary information and related people; Turkey has some common aspects –along with nuances- to others regarding PLS which gives us opportunity to test the validity of some of the commonly mentioned ideas in literature; Turkey has also some idiosyncratic properties regarding PLS that helps us to offer the aforementioned insights; and there is not any work in the subject in Turkey as far as we are concerned. Secondly, this work is based on the practice and ideas of practitioners in the field. This is important since in their survey regarding studies on the hurdles in front of PLS, Nouman and Ullah (2014) point that the practitioners’ viewpoint remain relatively unexplored. This is exactly what our paper aims to explore. Collaboration with the related practitioners is important since they know if PLS is demanded enough –if the answer is yes, ‘in what way,’ and if the answer is no, ‘why not.’ They also know why IBs cannot apply PLS in practice, and in which sense. Moreover, practitioners possibly have ideas about what is needed to re-vitalize PLS, and they certainly can say whether a solution proposal is applicable or not, and why/why not. Thirdly, although this paper is not a literature review, it aims to provide one of the most comprehensive critical literature reviews regarding the subject. Besides the importance, there are some limitations as well. The basic limitation of the paper is its sine qua non acceptance of PLS for IBs. Hence it does not discuss what would happen or what could be done if this is not the case. The structure of the paper is as follows: the next section will be about literature review while the following section will explain the methods upon which the paper is constructed. The main section of this paper is the fourth one in which the analysis will be taken place. The last section will conclude the paper. References can be found in the end.