CHAPTER 3 NON-DEPOSITORY INSTITUTIONS

INSURANCE COMPANIES TYPES OF INSURANCE COMPANIES – Life Insurance Companies Term Insurance Whole Life Insurance Other Life Insurer activities; – Private pension funds – Accident and health insurance – Group insurance: providing health insurance coverage to corporate employees.

– Non-life Insurance Companies fire transport accident engineering agriculture health INSURANCE COMPANIES

Differences of non-life insurance from life insurance; Non-life insurance covers a wide variety of activities. However, life insurance is more focused. Non-life insurance policies often last for a short-term (one year or less) as opposite to the long-term and even permanent life insurance policies. INSURANCE COMPANIES

There are two kinds of sources for the insurance companies; premium income investment income INSURANCE COMPANIES

FACTORING COMPANIES Factoring is a process of purchasing accounts receivables or invoices from a business at a discount. Factoring companies provide short-term financing service. They fill the financial gap between the time of selling and collecting receivables. They have two kinds of income; – Commission (fee) – Advance

FORFAITING COMPANIES Forfaiting is a kind of fixed rate medium term financing of international trade of capital goods. A forfaiting company purchases a series of promissory notes, bills of exchange etc., which are medium or long term especially at a discount on a non-recourse basis. In Turkey although there are some forfaiting companies, factoring companies are allowed to run forfaiting transactions.

LEASING COMPANIES Leasing is a source of financing, enabling firms to use the fixed assets (machinery, equipment etc.) without any cost. Leasing company purchases the machinery, equipment or other assets for its customer firm.

The types of products that are subject to leasing are summarized below; Transport vehicles (Bus, car, ship, aircraft etc.) Construction machines (Doser, Forklift, etc.) Machinery and equipment (Manufacturing machines, generator, etc.) Office Hardware Equipment and Material (computer, fax etc.) Electronic and optic instruments (security systems, audio-visual-light systems, air condition) Medical equipment (diagnosis equipment, dental units, optic units etc.) Real Estate (building) Tourism equipment (heat-cooling, kitchen-laundry etc.) LEASING COMPANIES

The reasons for preferring leasing over bank credits are; Firms can purchase these goods without making cash payment but banks require a significant amount of advance payment for the credits of such assets. While it is possible to extend a lease agreement, banks will require a new loan origination. The most important reason to choose leasing over bank loans is that the Financial Leasing Agreement is exempted from all types of taxes. Leasing expenses are tax deductible. LEASING COMPANIES

EXCHANGE BUREAUS (MONEY CHANGERS) Money changers are not free to engage in any other line of business other than; buying and selling and changing currencies importing and exporting precious metals and gems (processed or otherwise)

SPECIAL FINANCE CORPORATIONS (ISLAMIC BANKS)(KATILIM BANKALARI) SFCs do give almost every service commercial banks run. The main distinction is that these institutions do not receive/pay interest. Profit (and loss) sharing takes the place of interest payments and/or collections. In Turkish practice deposits are taken by these institutions into; – either “current account” with no return at all – or “participation accounts” on profit/loss sharing basis

MONEY LENDERS They are individuals that engage their own funds in money for interest business, who are required to have had mandates from the Treasury. These individuals are not free; – to engage in any securities business – to borrow either from banks or money and capital markets – to issue fixed-income securities

FINANCE HOUSES Their activities consist of mainly consumer loans. They are not free; – to take deposits – to issue guarantee letters but free to issue fixed-income securities and borrow from the Turkish money markets.

GENERAL FINANCE CORPORATIONS (GFC) The purpose for these corporations is to issue asset-backed- securities for public. GFCs issue asset-backed-securities in return for the following receivables that must be assigned to them. – Consumer credits – Housing loans – Leasing receivables – Export receivables – Promissory notes in the sales portfolios of corporations – Receivables in TC Ziraat Bank’s portfolio as a result of the Agricultural Credit Cooperatives consumer lending – Small business loans of Halk Bank – Promissory notes portfolios of Real Estate Investment Trusts