The purpose of this study is to show that the entrance of the public participation banks into the Islamic banking sector did not elicit a crowding out effect for the privately owned participation banks, rather created its own shares and contributed to the sector positively.The motives of the state’s entrance into the participation banking sector are to foster the sector’s asset value and to realize the objectives in the 10th development plan. With public participation banks joining into the system, the existing competition in the participation banking has been increased to a higher level. In this study, the motive behind the government’s intervention into the participation banking sector and the effects of this intervention are examined. Moreover, to justify this paper’s assertion, a comparison in terms of sectoral data between before the government’s entrance into the sector and aftermath is made.