With the adoption of Western models in trade and finance in the Ottoman Empire during the first half of the 19th century, foreign banks started activities within the country's borders. At that time there was not the necessary accumulation of capital to found a banking system on a national scale, and there were no national banks to speak of as instruments of resource creation. Farmers, who formed the bulk of the working population suffered the most from this situation. There was a large community of farmers from the agricultural segment of society, struggling to make a living, abandoned to their fate, who were continually dependent on personal loans, since there was no institutional financial structure to which they could apply.

These loans were provided both by professional moneylenders and by various professionals and tradesmen such as traders in agricultural equipment, wholesalers, exporters, commissioners, middlemen and village grocers. These personal loans at high interest were called "Usurer Loans."

At that time interest was calculated daily, resulting in annual interest rates of up to 900%. Therefore farmers experiencing great difficulty in paying off their debts were in the position of having to sell their crop before it was harvested (Salam sale).

The idea that the state should intervene in agricultural loans to provide a solution to the plight of downtrodden farmers started to be discussed in the press of the period and by official figures.

Midhat Pasha, governor of Niš; a city in the former Yugoslavia which was Ottoman territory at the time, instituted successful projects in various areas while also closely observing the hardships experienced by farmers. He concluded from his research that organization in this area was imperative because farmers needed to be saved from the clutches of usurers through state aid, but it was important that this aid be strengthened by a popular movement. Thus, in 1863; using a fund collected by farmers, and with the leadership of Midhat Pasha; an organization called "Homeland Funds" came into being which was founded by and under the auspices of the state, going down in history as the first example of national banking.

In establishing the first Homeland Fund in the town of Pirot in 1863, Midhat Pasha was drawing on a pre-existing Turkish tradition called "imece" that was based on mutual assistance.

After the Homeland Funds Regulations came into effect in 1867 funds were set up throughout the Ottoman State and continued providing service successfully for many years.

However, breakdowns in the administration of Homeland Funds in subsequent years decreased their effectiveness. The government believed that centralizing the funds' administration would alleviate these problems, and instituted the Benefit Funds in 1883 with the same remit as the previous funds. With the transition to the Benefit Funds the administration was reorganized, registration and accounting was carried out in accordance with modern, scientific principles, and control was placed in the hands of the central government.

While this restructuring enabled a relatively serious management of the funds that was open to scrutiny, it did not obviate the need for an entirely new, modern organization.

Therefore on August 15, 1888 the modern financial institution Ziraat Bank was officially established to undertake the operations of the Benefit Funds. As of that date the Benefit Funds started to function as branches of Ziraat Bank. The benefit shares that had formed the financial resource of the Benefit Funds were transferred to the bank, and subsequent shares counted toward the bank's capital. This step ushered in a new era in our history of organized agricultural credit.

Initial remit of Ziraat Bank

  • This was defined as granting loans to farmers in return for saleable real estate and other substantial collateral,
  • accepting deposits as interest payments, and
  • performing exchange and brokerage activities pertaining to Ziraat Bank.