1. Mustafa Dereci Group Manager Kuveyt Turk Participation Bank March 2014 PARTICIPATION BANKS A Success Story of Financial Inclusion in Turkey PARTICIPATION BANKS A Success Story of Financial Inclusion in Turkey

2. AGENDA  Financial Inclusion: Definition and Facts  Islamic Banking in the World: Facts and Figures  Participation Banking in Turkey: Facts and Figures  Conclusion

3. Financial Inclusion: Definition  The delivery of financial services 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.

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

5. 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

6. Financial Exclusion: Why? Population Non-users of formal financial services Users of formal financial services Voluntary self-exclusion No Need Cultural / religious reasons not to use / indirect access Involuntary exclusion Insufficient income / high risk Discrimination Contractual / informational framework Price / product features

7. Kuwait Finance House, IFN Turkey Roadshow Borsa Istanbul Stock Exchange Report, 2013 Islamic Banking in the World Size of Global Islamic Finance = 1.8 Trillion USD

8. KatılımBüyüme 2007450 2008620 38% 2009800 29% 2010840 5% 20111000 19% 20121200 20% 2013F1450 21% Kuwait Finance House, IFN Turkey Roadshow Borsa Istanbul Stock Exchange Report, 2013 Islamic Banking Assets in the World 1.45 Trillion USD (2%)

9. History of Islamic Banking in Turkey 1983198519891991199519961999200120052006200820102014 Government Decree for SFH Albaraka Turk and Faisal Finans established Kuveyt Turk established SFH under Banking Law Asya Finans has established İhlas Finance established Anadolu Finans established Faisal Finans becomes Family Finans Ihlas Finans left the market Anadolu Finans and Family Finans merged as Türkiye Finans TKBB established Turkiye Finans acquired by National Commerce Bank First Sukuk Four participation bank are in service - AlBaraka Türk - Bank Asya - Kuveyt Türk - Turkiye Finans

10. 45 Billion USD (5.5%, 2023 vision: 15%) 813 Billion USD KatılımSektör 2005 9,945 406,909 2006 13,752 499,731 2007 19,445 581,606 2008 25,770 732,536 2009 33,628 834,014 2010 43,339 1,006,667 2011 56,148 1,217,695 2012 70,279 1,370,690 2013 96,075 1,732,401 CAGR +19.85% CAGR +32.78% BDDK, 2014 Participation Banks in Turkey (Assets)

11. KatılımSektör 2005 8,369 251,490 2006 11,152 307,647 2007 14,834 356,865 2008 19,045 454,599 2009 26,711 514,620 2010 33,089 617,036 2011 39,220 695,496 2012 47,921 772,217 2013 61,313 945,770 28 Billion USD (6.3%) 444 Billion USD CAGR +18.01% CAGR +28.27% BDDK, 2014 Participation Banks in Turkey (Deposits)

12. KatılımSektörPayBüyüme 2000 1,726,000 32,939,0005.24% 2001 1,072,000 58,413,0001.84%-37.89% 2002 2,101,000 54,860,0003.83%95.99% 2003 3,001,000 72,169,0004.16%42.84% 2004 4,894,000 107,615,0004.55%63.08% 2005 7,407,000 160,005,0004.63%51.35% 2006 10,492,000 228,141,0004.60%41.65% 2007 15,332,000 293,928,0005.22%46.13% 2008 19,733,000 384,417,0005.13%28.70% 2009 24,911,209 418,684,0005.95%26.24% 2010 32,084,000 554,128,0005.79%28.79% 2011 41,103,435 708,771,0005.80%28.11% 2012 50,031,000 829,597,0006.03%21.72% 2013 62,042,000 1,047,428,0005.92%24.01% 29 Billion USD (6%) 490 Billion USD CAGR +28.03% CAGR +29.16% BDDK, 2014 Participation Banks in Turkey (Loans)

13. KatılımTicariSektörPayBüyüme 2007 10,514,415 213,744,967 224,259,3824.69%#REF! 2008 13,748,964 269,110,151 282,859,1154.86%30.76% 2009 19,335,467 294,375,776 313,711,2436.16%40.63% 2010 23,726,859 328,557,694 352,284,5536.74%22.71% 2011 27,592,111 377,895,363 405,487,4746.80%16.29% 2012 33,203,380 412,051,364 445,254,7447.46%20.34% 2013 39,735,084 484,199,836 523,934,9207.58%19.67% 19 Billion USD (7.8%) 245 Billion USD CAGR +12.89% CAGR +20.92% BDDK, 2014 Participation Banks in Turkey (Saving Deposits)

14. 16.4 Billion USD (%12) 133 Billion USD CAGR +31.20% CAGR +35.73% BDDK, 2014 (milyon TL)SectorCenventionalParticipation Banks 200524,696 TL22,053 TL2,257 TL 200633,105 TL29,589 TL3,338 TL 200758,149 TL52,011 TL5,490 TL 200882,673 TL74,700 TL6,958 TL 200986,904 TL71,805 TL13,826 TL 2010135,174 TL113,078 TL19,689 TL 2011178,151 TL152,003 TL23,066 TL 2012221,647 TL189,058 TL28,845 TL 2013284,475 TL244,004 TL35,277 TL Participation Banks in Turkey (SME Loans)

15. BDDK, 2014 Participation Banks in Turkey (Gold Deposits) 200K Gold Customers

16. TonMşt Kuveyt Türk 6,600 39,000 Bankasya 4,400 26,000 Türkiye Finans 1,300 7,682 Albaraka Türk 700 4,136 Katılım Bankaları 13,000 76,818 56% 43% 13,000 Kg 17,000 Kg New Customer 77,000 New Customer 100,000 Participation Banks (Scrap Gold Collection)

17. ATM Sayıları BKM Islamic BanksSector 200980123800 201092927649 2011106232462 2012134236334 2013186942011 CAGR +21.66% CAGR +12.36% 1.9K ATMs (4.5%) 42K ATMs BKM, 2013 Participation Banks (ATM)

18. Islamic Banks Conventiona l Banks 20132.453.6 20121.746.4 20111.441.4 20101.235.3 20091.030.4 20080.928.0 20070.624.0 20060.521.1 CAGR +21.66% CAGR +12.36% 2.4 Units 53 Units BKM, 2013 Participation Banks (ATM per 1,000 km 2 )

19. ATM Sayıları BKM Katılım Bankaları Tüm Bankalar 2013 186942011 2012 134236334 2011 106232462 2010 92927649 2009 80123800 CAGR +18.47% CAGR +12.04% 2.5 units 56 units BKM, 2013 Participation Banks (ATM per 100,000 People)

20. PersonelPersonel - Sektör 20067114143143 20079215158534 200811022171598 200912677172402 201013857178503 201115356181418 201216729186098 201316761197460 CAGR +11.31% CAGR +4.10% 17 K (8.5%) 200 K BKM, 2013 Participation Banks (Staff)

21. ŞubeŞube - Sektör 20063556849 20074227618 20085308790 20095609027 20106079465 20116859834 201282910234 201396611023 CAGR +13.24% CAGR +6.13% 966 (8.8%) 11,023 BKM, 2013 Participation Banks (Branch Network)

22. CAGR +11.56% CAGR +6.22% 1.2 Branch 14 Branch Islamic Banks Conventiona l Banks 20060.58.7 20070.59.7 20080.711.2 20090.711.5 20100.812.1 20110.912.6 20121.113.1 20131.214.1 BKM, 2013 Participation Banks (Branches per 1,000 km 2 )

23. ŞubeKatılım Bankaları Tüm Bankalar 2013964 11,901 2012 826 10,984 201168210,430 201060510,008 20095599,541 Yıl -Year Yıl ortası nüfus Mid-year population ('000) 1996 60 671 1997 61 582 1998 62 464 1999 63 364 2000 64 269 2001 65 166 2002 66 003 2003 66 795 2004 67 599 2005 68 435 2006 69 295 2007 70 158 2008 71 052 2009 72 039 2010 73 142 2011 74 224 2012 75 176 2013 76 055 Islamic Banks Conventional Banks 20065129884 200760110858 200874612371 200977712531 201083012941 201192313249 2012110313613 2013127014493 CAGR +12.03% CAGR +4.90% 1.7 Branches 19.3 Branches BKM, 2013 Participation Banks (Branches per 100,000 People)

24. CAGR +28.70% CAGR +8.16% 5 Million (5%) 100 Million yılIslamic BanksSector 2006 688,100 53,464,057 2007 1,101,848 55,510,092 2008 1,772,187 60,551,484 2009 2,348,690 64,661,947 2010 2,925,504 69,916,462 2011 3,633,634 81,879,926 2012 4,399,256 91,263,042 2013 5,178,106 100,164,954 BKM, 2013 Participation Banks (Debit Card)

25. CAGR +20.55% CAGR +7.26% 2.5 Million (4.3%) 57 Million yıl Islamic BanksSector 2006 570,702 32,433,333 2007 920,362 37,335,179 2008 1,525,532 43,394,025 2009 1,841,882 44,392,614 2010 2,273,173 46,956,124 2011 2,429,269 51,360,809 2012 2,577,084 54,342,148 2013 2,544,969 56,835,221 BKM, 2013 Participation Banks (Credit Card)

26. Katılım Bankaları Tüm Bankalar 2006 45,743 1,282,658 2007 84,160 1,453,877 2008 59,535 1,632,639 2009 128,676 1,738,728 2010 126,830 1,823,530 2011 128,914 1,976,843 2012 132,839 2,134,444 2013 132,924 2,293,695 CAGR +14.26% CAGR +7.54% 132 K (5.7%) 2.3 Million BKM, 2013 Participation Banks (POS Terminals)

27. 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

28. Thank You