DECISION NO: 33 Exchange Rate Protected TRY Participation Accounts

DECISION OF TKBB ADVISORY BOARD

DECISION DATE : 06.01.2022
DECISION NO : 33
DECISION SUBJECT : Exchange Rate Protected TRY Participation Accounts

REFERENCE

REQUEST DATE : 27.12.2021
REQUEST NO : E-63862138-804.01-2211
REQUEST SUBJECT : Exchange Rate Protected TRY Participation Accounts
REQUESTOR : Participation Banks Association of Turkey

DECISION:

The practice of payment of the difference between the profit share to be accrued at the end of the relevant maturity for exchange rate protected participation accounts to be opened in participation banks included in the Communiqué No. 2021/14 on Supporting the Conversion of Turkish Lira Deposit and Participation Accounts published in the Official Gazette dated December 21, 2021, and the Communiqué No. 2021/17 on the amendment of this communiqué, published in the Official Gazette dated December 31, 2021, and the exchange rate in favor of foreign currency by the state cannot be qualified as "interest" under Islamic law. The reason is that this surplus is given by a third party other than the parties of the participation account for a specific purpose and is not construed in a way that the partnership carries a profit guarantee from the beginning. The aim here is to protect the Turkish Lira in line with the economic benefits of the country and not only the account holders but also the interests of the whole society and to ensure that those who invest their savings in Turkish Lira in participation accounts do not become victims of the volatility in the exchange rates. Therefore, it is considered that this regulation is not contrary to the principles and standards of participation banking.

On the other hand, Article 2 of the Communiqué (No: 2021/17) on the Amendment of the Communiqué on Supporting the Conversion of Turkish Lira Deposit and Participation Accounts (No: 2021/14), published in the Official Gazette dated December 31, 2021, and numbered 31706 have been regulated as follows: "In case the yield to be provided to the participation account is lower than the cost incurred in the purchase transactions with the one-week resale promise made by the Central Bank with participation banks within the scope of open market operations, the participation bank may cover the difference within the framework of participation banking principles, and the Central Bank does not pay for the unpaid portion." 

In this regulation, it is possible for participation banks to waive on their own free will the profits arising in their favor, partially or completely, for the benefit of the participation account holder, without imposing any conditions in the beginning. Such a practice does not contradict the principles and standards of participation banking, as it does not contradict the rule that "profit yield cannot be guaranteed in participation accounts in the beginning" and, accordingly, the "interest-free" principle, forming the basis of participation banking.