PARTICIPATION

A Success Story of Financial Inclusion in

Mustafa Dereci

Group Manager Kuveyt Turk Participation

March 2014 AGENDA

• Financial Inclusion: Definition and Facts

• Islamic Banking in the World: Facts and Figures

• Participation Banking in Turkey: Facts and Figures

• Conclusion Financial Inclusion: Definition

• The delivery of and products at affordable costs to sections of disadvantaged and low-income segments of society,

• The antonym of financial inclusion is financial exclusion where those services are not available or affordable. Financial Inclusion: Facts

• Half of the World is unbanked

• Proportion of the Muslim population using financial services is less than their non-Muslim counterparts

• Financial exclusion rate is currently 47% in Turkey.

• Microfinace business is almost untapped in Turkey. The volume of microfinance loans is around USD 5 Million per annum.

Financial Inclusion: Why?

• There is a strong positive correlation between financial inclusion and GDP per capita

• It is a strong tool to alleviate poverty

• It is an important parameter for economic development and growth of a country

• It curtails unregistered economy

Financial Exclusion: Why?

Users of formal No Need financial services Voluntary self-exclusion Cultural / religious reasons not to use / indirect access

Population Insufficient income / high risk

Discrimination

Non-users of formal financial services Contractual / informational framework

Involuntary Price / product features exclusion Islamic Banking in the World

Islamic Funds 4.1% 1.0% 14.5%

Islamic Banking 80.4% (1.45 Trillion USD) Size of Global Islamic Finance = 1.8 Trillion USD

Kuwait Finance House, IFN Turkey Roadshow Borsa Istanbul Stock Exchange Report, 2013 Islamic Banking Assets in the World

1600 1.45 Trillion USD (2%) 1400

Billion USD Billion 1200

1000 CAGR = 21.53% 800

600

400

200

0

2007 2008 2009 2010 2011 2012 2013F

Kuwait Finance House, IFN Turkey Roadshow Borsa Istanbul Stock Exchange Report, 2013 History of Islamic Banking in Turkey

SFH under Banking Turkiye Finans Kuveyt Turk Law acquired by National established Commerce Bank

Anadolu Finans and Government Decree İhlas Finance Family Finans for SFH established merged as Türkiye Finans

1983 1985 1989 1991 1995 1996 1999 2001 2005 2006 2008 2010 2014

Albaraka Turk and Asya Finans has TKBB established First Sukuk Faisal Finans established established

Faisal Finans Four participation becomes Family bank are in service Anadolu Finans Finans established - AlBaraka Türk - Bank Asya Ihlas Finans left the - Kuveyt Türk market - Turkiye Finans Participation Banks in Turkey (Assets)

2.000 120

1.800

Billion TL Billion 100 TL Billion 1.600 813 Billion USD 1.400 45 Billion USD 80 1.200 (5.5%, 2023 vision: 15%) 1.000 60

800 CAGR +19.85% 40 600

400 CAGR +32.78% 20 200

0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 BDDK, 2014 Participation Banks in Turkey (Deposits)

1.000 70

900 60 Billion Billion TL 444 Billion USD 800

700 28 Billion USD (6.3%) 50

600 40

500 30 400 CAGR +18.01% 300 20 200 CAGR +28.27% 10 100 - - 2005 2006 2007 2008 2009 2010 2011 2012 2013 BDDK, 2014 Participation Banks in Turkey (Loans)

1.200 70

Billions Billions 60 1.000 490 Billion USD 29 Billion USD (6%) 50 800

40

600

30

400 20 CAGR +28.03% CAGR +29.16% 200 10

0 0

BDDK, 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Participation Banks in Turkey (Saving Deposits)

600 45

40 Billions

Billions 245 Billion USD 500 35 19 Billion USD (7.8%) 400 30

25 300 CAGR +12.89% 20

200 15

CAGR +20.92% 10 100 5

0 0 2007 2008 2009 2010 2011 2012 2013

BDDK, 2014 Participation Banks in Turkey (SME Loans)

Sector Participation Banks

300 TL 40 TL

Binler 133 Billion USD 35 TL Binler 250 TL 30 TL 16.4 Billion USD (%12) 200 TL 25 TL

150 TL 20 TL

15 TL 100 TL

CAGR +31.20% 10 TL 50 TL 5 TL CAGR +35.73%

0 TL 0 TL

BDDK, 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 Participation Banks in Turkey (Gold Deposits)

Non-Gold Deposits Gold Deposits

200K Gold Customers

6,14% 21,72%

93,86% 78,28%

Islamic Banks Conventional Banks

BDDK, 2014 Participation Banks (Scrap Gold Collection)

Conventional Banks Participation Banks

43%

13,000 Kg 56% New Customer 77,000 17,000 Kg New Customer 100,000 Participation Banks (ATM)

45000 2000 42K ATMs 40000 1800

35000 1600 1400 30000 CAGR +12.36% 1.9K ATMs 1200 25000 (4.5%) 1000 20000 800 CAGR +21.66% 15000 600

10000 400

5000 200

0 0 2009 2010 2011 2012 2013

BKM, 2013 Participation Banks (ATM per 1,000 km2)

60,0 3,0 53 Units 50,0 2,5

40,0 2,0

30,0 1,5 CAGR +12.36% 2.4 Units 20,0 1,0 CAGR +21.66%

10,0 0,5

0,0 0,0 2006 2007 2008 2009 2010 2011 2012 2013 BKM, 2013 Participation Banks (ATM per 100,000 People)

45 2

Binler 56 units Binler 40 1,8

1,6 35 2.5 units 1,4 30 CAGR +12.04% 1,2 25 1 20 CAGR +18.47% 0,8 15 0,6

10 0,4

5 0,2

0 0

BKM, 2013 2009 2010 2011 2012 2013 Participation Banks (Staff)

250 18

Binler 17 K (8.5%) 16 Binler

200 14

CAGR +4.10% 200 K 12 150 10

CAGR +11.31% 8 100

6

4 50 2

0 0

BKM, 2013 2006 2007 2008 2009 2010 2011 2012 2013 Participation Banks (Branch Network)

12000 1200

11,023 10000 1000 CAGR +6.13%

8000 966 800 (8.8%)

6000 600 CAGR +13.24%

4000 400

2000 200

0 0

BKM, 2013 2006 2007 2008 2009 2010 2011 2012 2013 Participation Banks (Branches per 1,000 km2)

16,0 1,4 14 Branch 14,0 1,2

12,0 1,0 CAGR +6.22% 10,0 1.2 Branch 0,8 8,0 0,6 6,0

CAGR +11.56% 0,4 4,0

2,0 0,2

0,0 0,0 2006 2007 2008 2009 2010 2011 2012 2013 BKM, 2013

Participation Banks (Branches per 100,000 People)

16000 1400 19.3 Branches 14000 1200

12000 CAGR +4.90% 1000 1.7 Branches 10000 800 CAGR +12.03% 8000 600 6000

400 4000

2000 200

0 0

2006 2007 2008 2009 2010 2011 2012 2013 BKM, 2013

Participation Banks ()

120 6

Milyonlar 100 5 Milyonlar 100 Million 80 4

CAGR +8.16% 5 Million 60 3 (5%)

40 2 CAGR +28.70% 20 1

- - 2006 2007 2008 2009 2010 2011 2012 2013 BKM, 2013 Participation Banks ()

60 3

57 Million

Milyonlar 50 3 Milyonlar

2.5 Million 40 CAGR +7.26% 2 (4.3%)

30 2

CAGR +20.55% 20 1

10 1

- - 2006 2007 2008 2009 2010 2011 2012 2013 BKM, 2013 Participation Banks (POS Terminals)

132 K (5.7%) 2.500 140

Binler 120 Binler 2.000

CAGR +7.54% 2.3 Million 100 1.500 80

60 1.000 CAGR +14.26% 40

500 20 - - 2006 2007 2008 2009 2010 2011 2012 2013

BKM, 2013 Conclusion

• Without appropriate regulations and ethical approach to financial inclusion, undeserved consumer may become overdebted. Remember subprime mortgage crash in US.

• Financial inclusion is to create an environment for disadvantaged people to access financial services if they need, it is not to force them to become overbanked.

• Participation Banks in Turkey have great potential to embrace a big deal of unbanked people with solid and ethical Islamic Banking arguments

• The most ignored part of financial inclusion tools is microfinance loans in Turkey Thank You