TRADITIONAL BANKING AND ISLAMIC BANKING PRACTICES: COMPARATIVE PERFORMANCE ANALYSIS

Abstract

Bank operations play an essential role in the financial system. Despite the widespread use of banks worldwide, a significant part of the funds remained outside the financial system due to religious prohibitions on certain traditional banking principles. So, the desire of the people with interest sensitivity to stay away from interest due to religious beliefs and the fact that the current resources of the savers with this sensitivity are not included in the economy has mobilized both the state administration and the economic environment for establishing Islamic Banks. Islamic Banks, or as they are called in Turkey, Participation Banks, have operated for nearly a half-century worldwide since the last quarter of the twentieth century. This study seeks to determine the future of Islamic banks by comparing them with traditional banks. The first section of this study discusses the concept and historical development of banking and its various forms. The second section details the reasons for the emergence of Islamic banks, the prohibition of interest and profit sharing, and the products and services offered by these institutions. Finally, the third section compares conventional and Islamic banking from a financial standpoint. The data of traditional and participation banks used in the study's analysis section were obtained through The Bank of Association of Turkey and the Participation Banks Association of Turkey.