*Indicators of Banking Fragility of Participation Banks in Turkey DOI: http://dx.doi.org/10.5772/intechopen.101882*

enabling the capital movements between countries. The fundamental resources of Islamic Law are the Holly Qur'an and Sunnah. One of the most important features of Islamic finance is the control of commercial activities and financial transactions with certain standards, moral principles and prohibitions in order to avoid injustice and unjust enrichment. The main prohibitions of Islamic finance can be given as follows:


One of the key principles of Islamic religion is the prohibition of riba. According to majority of Muslim jurist, all forms of interest is forbidden by Islam [17]. According to Islamic terminology, riba arises in two forms as riba on loans (Riba al-nasiah) and Riba al-fadl (riba on sales). In this regard, riba al nasiah addresses to "riba in money to money exchanges, where the exchange is delayed or deferred and gives rise to an additional charge" that also called as Riba al-Jahiliyyah [18]. According to Qur'an, riba al nasiah is strictly forbidden. According to Özsoy [19], riba al-Fadl, on the other hand, is involved in a transaction through the combination of the followings:


Most of the Muslim scholars argue that there is not a specific definition of riba in Qur'an. They support the idea that there is only a certain type of riba, Riba al-Jahiliyyah, in the period when the Qur'an was revealed. The riba, which is forbidden in a very harsh manner in the Quran, is based on an exorbitant increase in nature, and the jahiliyya riba, in which the principal is folded many times. Moreover, the supporters of this view argue that, it is not riba if an addition is made to the original amount in return for maturity from the very beginning of lending. Therefore, it is supported that the prohibited riba, riba-Jahiliyah, is different from the loan with interest transactions that stipulates the increase from the very beginning [19]. In this context, Rahman [20] explains that riba is the increase in capital, which raises the principle amount several folds by continuing redoubling. As stated, it is initially a situation that a part of wealth is loaned on interest for a certain period of time. If this loan cannot be paid on the expiration date then the extension of maturity leads to high increase in the principle amount where big sums involved. This situation ends up with the debtor pays the interest alone in installment but they cannot pay the usury interest nor the principle amount [21]. From this point of view, they differentiate the interest in current economic transactions with the interest prohibited by the Qur'an. They claimed that what is meant in the verse of the Qur'an is exorbitant interest, thus, the current interest practices are legitimate since these transactions are different from the interest prohibited in the verses and hadiths. They argue that the interest given by banks is not unlawful and should be excluded from the scope of riba. Accordingly, they claim riba, which is forbidden in the Quran, is the usury rather than interest. For instance, Metwally [22] states that riba is closely related with usury. The author explains usury is interpreted as riba and it can be defined as the excess or addition over the principal capital lent. In other words, among some scholars and jurists, riba and usury is used for different terms where usury does not refer to interest [23]. Moreover, Ahmad and Hassan [24] argue that riba is involved in loan transactions that is used for consumption purposes. However, it is not prohibited by Islamic law if it is used for production purposes or the empowerment of micro and small enterprises [20]. Nevertheless, the majority of Islamic scholars state that there are no differences in the meaning and the scope of riba and any transaction that involves a predetermined return is riba and strictly prohibited by Islamic law [19].

Maysir means gamble or game of chance in Arabic. It can be explained as taking risk for increasing wealth by chance. Furthermore, maysir is also seen as speculation and price manipulation [25]. According to Mihajat [26], the activities are considered as gambling if the following three elements are in question:


In games of chance, the win is one-sided. Namely, the gain of one party depends on the loss of the others. Maysir includes all gambling, speculative and chance contracts and it also contains the obligations and benefits that were not fully disclosed by either party at the time the contract was concluded [27]. If the risk involved in a game is not controllable and none of the players can affect the probability of the money paid back, such a game is a game of chance. In maysir, all deviations in actual earnings versus expected earnings are a result of the luck element and is prohibited by Islam [28]. In Islamic finance, maysir means "any transaction conducted by the two parties to posses the ownership of a particular asset or service which obtain benefit to one party and harm to others by linking a particular transaction with an act or event." [26]. According to Kamali [29], maysir is prohibited since it causes an unclean and immoral inducement with a hope of making profit by the loss of the others.

The second fundamental principle of Islamic finance is the prohibition of gharar in mutual contracts. Iqbal and Molyneux [30] states that gharar is one of the most challenging issue in the Islamic law. The types of gharar is divided into excessive, medium and minor gharar by The Accounting and Auditing Organization for Islamic Financial Institutions [30, 31]. In this regard, excessive gharar is existed in a transaction if:


The principles of gharar as can be categorized as follows [32]:

*Indicators of Banking Fragility of Participation Banks in Turkey DOI: http://dx.doi.org/10.5772/intechopen.101882*

	- Two sales in one.
	- Downpayment ('Arbun) sale.
	- "pebble", "touch" and "toss" sales.
	- Suspended (Mu'allaq) sale.
	- Future sale.
	- Ignorance about the genus.
	- Ignorance about the species.
	- Ignorance about attributes.
	- Ignorance about the quantity of the object.
	- Ignorance about the specific identity of the object.
	- Ignorance about the time of payment in deferred sales.
	- Explicit or probable inability to deliver the object.
	- Contracting on a nonexistent object.
	- Not seeing the object.

When the historical development of Islamic finance is examined, it is seen that although the first practices of interest-free banking dates back to antient times, the foundations of modern Islamic banking began to emerge in the mid-1940s with the establishment of the Patni Cooperative Credit Society and the Muslim Fund Tanda Bavli in India. However, it was only at the end of the 1960s that interest-free banks emerged in a comprehensive manner by establishment of Mit Ghamr Savings Bank in Egypt. Following this, Nasser Social Bank, established in Egypt in 1971, is the first interest-free commercial bank based on Islamic laws. With the 1970s, there has been an increase in the number of institutions providing banking services that have adopted Islamic rules in many countries. For instance, in 1975 Dubai Islamic Bank is established in United Arab Emirates. In the same year, Islamic Development Bank (IsDB) is established in order to support the economic and social development of member countries and Muslim minorities within the framework of Islamic rules. In addition, the first academic meeting in the field of Islamic economics, the International Conference on Islamic Economics, was held in Mecca in 1976. In 1977, Kuwait Finance House, The Faisal Islamic Bank of Egypt, Establishment of The Faisal Islamic Bank of Sudan are established. In addition, to promote the coordination between Islamic banks, International Association of Islamic Banks is established in the same year. In 1978, the first attempt towards establishment an Islamic bank in Europe is occurred with the Islamic Finance House established in Luxembourg. These developments have also triggered the spread of Islamic banking in other
