When we look at the historical background of the modern interest free banking system, it appears that the system based on profit and loss participation became prominent as a result of industrialization movements in Islamic Countries, and especially after the Oil Crisis in the 1970s. The need to finance big investment projects within Islamic Banking principles and to respond the demands of small depositors also accelerated the establishment of Interest Free Banks. Therefore the counterparts of these institutions in the classical banking system are investment banks.

After 1980, Turkey, hitherto followed up import substituting economic policies, decided to integrate into international markets and aimed at export-oriented economic growth. Parallel to this trend, Turkish Economy experienced fast liberalization. Some of the economic novelties of this period are the establishment of the Istanbul Stock Exchange, the approval of the Capital Market Law, the foundation of the Interbank Money Market held with The Central Bank of Turkey and the initiation of leasing and factoring companies. As a result of the new economic policies, with the Decree number 83/7506 dated 16.12.1983, Turkish Government approved introduction of interest free banking system which had been successfully operating in the world since 1970. Since then, those people who seeked an interest free channel to invest their savings have been provided interest free finanacial instruments and services.

Interest free banks which are called Special Financial Institutions in Turkey, encourage Interest free investments and attract a big deal of fund into the circulation of Turkish economy. Another aim of Special Financial Institutions in Turkey is to receive funds from the Gulf Countries and finance real sector investments.

In December 19, 1999, Special Financial Institutions were put under the coverage of Turkish Banking Law provided that they operate in an interest free window. In 2006 Special Financial Institutions became Participation Banks by regulations of law. After the approval of interest free banking system, in 1983, six Special Financial Institutions were founded. Today, four Interest Free Banks are operating in Turkey and financing real economic investments under interest free banking principles.