The Evaluation of Implementation of Mudaraba Financing in Participation Banks in terms of Moral Hazard: The Case of Turkey

Abstract

Labor capital partnership is a financing model that contributes to social development. Although the mudaraba financing is a good alternative for interest-free financial system, the implementation ratio in participation banks is very low in the form of participation banks providing capital and the customer provides labor. This situation has not been handled as much as necessary in the literature, and the suggestions presented have been superficial. This research aims to raise awareness by evaluating possible causes from the perspective of participation bank. The research, which argues that mudaraba financing poses moral risk for participation banks, evaluated this claim by conducting semi-structured interviews with experts in the field within the framework of the relationship between moral risk and the legal infrastructure, informal transactions, commercial maturity level, economic conjuncture and audit concepts. As a result of the interviews and subsequent assessment, it has been concluded that participation banks do not have the infrastructure to implement the mudaraba financing and a new institution that operates differently from the participation banks must be established in order to implement this model in a sustainable manner. In the last section, policy recommendations have been presented in order to increase the applicability of mudaraba financing.